Nasdaq Composite Up Slightly: Can NVIDIA (NVDA) And AI Stocks Keep Rallying?

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As of 7:45 a.m. ET on December 24th, the Nasdaq Composite is up slightly but indexes are little changed in premarket on Christmas Eve:

• Nasdaq Futures: Up 39.75 (+.18%)
• S&P 500 Futures: Up 5.25 (+.09%)
• Dow Jones Futures: Down 23.00 (-.05%)

Markets will close at 1 p.m. today, so it could be a quiet day with little activity. However, there are some important storylines to watch in the market.

Will NVIDIA and Other AI Stocks Keep Rallying?

Yesterday the biggest gainers in the market were AI stocks. NVIDIA (Nasdaq: NVDA) jumped 3.69%, Taiwan Semiconductor (NYSE: TSM) 5.15%, and Broadcom (Nasdaq: AVGO) 5.24%.

All the stocks were seeing heavy buying after OpenAI released benchmarks on their new 03 model that showed amazing progress on some of the most challenging math problems ever devised. On ARC-AGI – a test devised to determine whether AI models have surpassed human intelligence – OpenAI’s new model scored an 87.5%. Human performance on the test is 85%.

Now, there are some caveats around this performance and the creator of ARC-AGI has said the competition hasn’t been beaten. Yet, the key idea here is that new artificial intelligence methods that use ‘reasoning’ appear to be improving at an astonishing rate.

That’s extremely bullish for companies that make the processing in AI, whether that’s NVIDIA, Broadcom, or a key supplier like Taiwan Semiconductor. Reasoning chips may soon be able to be deployed on some of humanity’s greatest problems, but that will also come at a very high cost.

The model that scored so well on the ARC-AGI test was estimated to require 10,000 of NVIDIA’s H100s to run a task for 10 minutes. That many of NVIDIA’s H100 chips would cost around $300 million. So, you can see why these results have created a new buying cycle in the AI space.

We’ll see if this rally continues today and into 2025. While NVIDIA has seen tremendous gains in both 2023 and 2024, a new catalyst that could last throughout 2025 may have just been revealed.

Market Breadth in Focus

The time between Christmas Eve and the New Year has been called the ‘Santa Claus Rally’ period. Out of all 7 day periods in the market, this is the highest likelihood of being positive (at 78.4% of the time).

Another area to watch is market breadth. The market recently saw a period where 14 straight trading days had more stocks in the S&P 500 decline than advance. While that would seem to be a bearish statistic, long periods of ‘negative breadth’ have almost always seen protracted rallies afterward.

Since 1974, when the S&P 500 has more decliners than advancers for 10 or more consecutive days, it was positive the next year every single time. The average gain was 17.9%.

Looking more recently, since 1990, there have been 8 periods where the market saw eight or more consecutive days of more stocks declining than advancing. The average return across the next year was 14.8%.

We’ll see if this pattern holds up across 2025.