Why Did AI Stocks Rally After Fed Rate Hike? NVDA, MU, and AMD Lead Chip Sector

TradingKey - On the day after the Federal Reserve's rate hike, U.S. tech and semiconductor sectors rebounded significantly. Oil prices and U.S. Treasury yields pulled back, easing the pressure of energy inflation and high interest rates on tech stock valuations.

On September 16, Eastern Time, the Federal Reserve raised the target range for the federal funds rate by 25 basis points to 3.75% to 4.00%, marking its first rate hike since July 2023. On that day, the S&P 500 Index fell about 0.4%, the Dow Jones Industrial Average dropped 1.2%, and the Nasdaq Composite Index slipped less than 0.1%.

On September 17, the S&P 500 Index rose 1.14%, the Nasdaq rose 1.69%, and the Dow rose 0.62%; the Philadelphia Semiconductor Index gained about 3.1%. AMD (AMD) closed up about 6.4%, Micron (MU) rose 5.5%, and Nvidia (NVDA) gained about 2.5%.

Tech Stocks Rebound as Oil Prices and US Treasury Yields Retreat

The Federal Reserve's 25-basis-point rate hike was in line with general market expectations. Following the meeting, investors shifted their focus to energy prices, U.S. Treasury yields, and the future interest rate path.

On September 17, Brent crude fell by about 1%, while the 10-year U.S. Treasury yield dropped to 4.93% from around 5.01% in the previous trading session. The pullback in oil prices eased energy inflation pressures, while declining U.S. Treasury yields relieved valuation pressure on high-valuation growth stocks.

Meanwhile, tech giants such as Microsoft (MSFT), Meta (META), Google (GOOGL), and Amazon (AMZN) did not announce new plans to cut AI capital expenditures, nor were there clear signs of weakening demand for GPUs, servers, and storage. As macroeconomic pressures eased slightly, capital returned to the AI and semiconductor sectors, which had previously suffered larger declines.

Micron Gains Support from Memory Supply and Demand

AMD rose approximately 6.4% on the day, outperforming the Philadelphia Semiconductor Index's gain of about 3.1%. Its future performance remains dependent on revenue growth from its Instinct accelerators, EPYC server CPUs, and data center business.

In addition to benefiting from the semiconductor sector rally, Micron was supported by improving supply and demand dynamics in memory. Intel CEO Lip-Bu Tan recently stated that memory prices have already surged five- to sevenfold, and supply tightness could intensify further next year.

AI servers continue to drive demand for HBM and server DRAM. Memory makers are allocating more wafer capacity to high-end products like HBM, which also requires through-silicon vias and advanced packaging resources, keeping conventional DRAM supply tight. DRAM prices, HBM shipments, and the progress of new capacity additions will continue to impact Micron's revenue and profit margins.

Nvidia Still Depends on AI CapEx

In the medium to long term, Nvidia's demand still mainly depends on the AI data center spending of major customers such as Microsoft, Meta, Google, Amazon, and Oracle. As of now, major cloud providers have not publicly scaled back their AI infrastructure investment plans, and Nvidia has not lowered its demand outlook.

In terms of order and revenue performance, Nvidia stated in August that Vera Rubin had already begun production shipments and secured purchase orders from major hyperscalers, AI cloud service providers, and system manufacturers. The company's data center revenue in the second fiscal quarter reached $89 billion, up 117% year-over-year, with revenue from hyperscale customers more than doubling year-over-year.

The compute rental market also maintains strong pricing. Reports indicate that Nebius (NBIS) plans to raise on-demand instance prices for H100, H200, B200, and B300 by approximately 17% to 21% starting October 1. This adjustment reflects that short-term compute demand and pricing power on the Nebius platform remain strong.

For NVDA, the focus going forward lies in whether AI capex by major cloud providers will remain elevated, whether Vera Rubin orders can be converted into revenue as planned, and whether GPU utilization rates and rental prices can stay strong. Interest rate changes affect valuation more in the short term, while the demand side remains primarily driven by AI infrastructure investment.

Looking at the AI sector as a whole, subsequent performance will still depend on U.S. Treasury yields, cloud providers' capital expenditures, and chip and memory orders. For NVDA, AMD, and MU, a single-day rebound has improved market sentiment, but future performance still hinges on whether growth in orders, revenue, and profits can be sustained.