Interest rates could soon be on the rise. And with 2% inflation a key goal for the Federal Reserve, there’s the worry that there could be multiple hikes in the near future.
It can be a concerning development for investors, as rate hikes could derail the stock market’s strong rally. This year, the S&P 500 has hit record highs and is up around 11% — although it has given back some gains recently amid the uncertainty about what lies ahead for the economy.
Three tech stocks that did well the last time the Fed increased interest rates (back in July 2023) include Nvidia (NVDA +0.57%), Palantir Technologies (PLTR -0.43%), and Broadcom (AVGO -1.58%). Here’s a look at why they did well despite the rate increases, and if they can be safe stocks to hide out in right now.
Image source: Getty Images.
Nvidia
Tech giant Nvidia has been a fairly unstoppable business to invest in. It has become the most valuable stock on U.S. markets, with a market cap of around $5 trillion. Rising interest rates haven’t been enough to slow the company down as Nvidia generates tons of free cash flow, sufficient to grow its operations organically without having to rely on stock offerings; in the trailing 12 months, the company has accumulated an incredible $127 billion in free cash.
In the 12-month period following the Fed’s last rate hike in July, Nvidia’s stock would go on to surge close to 150%. The company was experiencing significant growth at the time due to AI. And while its growth rate has slowed since then, it remains strong — the company more than doubled its sales in its most recent quarter.
Today’s Change
(0.57%) $1.21
Current Price
$212.17
Market Cap
Day’s Range
$211.16 – $213.94
52wk Range
$164.27 – $236.54
Volume
86.3M
Avg Vol
132.1M
Gross Margin
74.67%
Dividend Yield
0.25%
Nvidia’s valuation is modest, as it’s trading at a forward price-to-earnings (P/E) multiple of 23 (which is based on analyst expectations). The risk, however, is that rising interest rates could curb AI spending and impact its customers. But with a promising long-term future and it being a big player in AI, the stock may still do well even if interest rates rise in the near future.
Palantir Technologies
AI unlocked a new level of growth for data analytics company Palantir Technologies, which has become a hot stock for tech investors to own in recent years. Its shares were up over 65% in the year following the last rate hike, and it’s gone on to rally since then, as demand has remained incredibly strong.
In the company’s most recent earnings report, Palantir reported 93% revenue growth, with CEO Alex Karp stating that, “demand for AI sovereignty has now been unleashed. And Palantir is the only company that has demonstrated it can transform tokens into actual economic value.”
Palantir has been a growth machine in recent years, continuing to generate incredible numbers even when it might seem its growth rate may appear overdue for a slowdown. The biggest impediment for the stock these days may simply be its valuation; its forward P/E multiple is nearly 80, suggesting investors would need to be extremely bullish about its long-term prospects to think the stock is still a good buy.
Today’s Change
(-0.43%) $-0.75
Current Price
$172.56
Market Cap
Day’s Range
$169.45 – $176.59
52wk Range
$106.37 – $207.52
Volume
27.4M
Avg Vol
40.1M
Gross Margin
84.80%
Due to the uncertainty interest rate increases might pose in the near future, I’m less confident about Palantir’s stock continuing to rally a whole lot higher than where it is right now. This looks to be the riskiest AI stock on this list.
Broadcom
Another chip company that did well when the Fed last raised interest rates is Broadcom. In the same 12-month period following the last rate hike, its shares spiked by around 73%.
Demand for its custom chips has enabled the stock to continue to rise higher, and at $1.6 trillion, Broadcom is among the most valuable companies in the world. Year to date, however, it’s down around 2% as there has been a bit of a pullback recently due to its inflated valuation. While Broadcom’s growth rate has remained strong at 48% in its most recent quarter, investors have been reluctant to buy the stock of late.
Today’s Change
(-1.58%) $-5.45
Current Price
$339.27
Market Cap
Day’s Range
$337.90 – $347.26
52wk Range
$289.96 – $495.00
Volume
23.2M
Avg Vol
23.9M
Gross Margin
66.54%
Dividend Yield
0.74%
Broadcom’s stock is down over 30% from its 52-week high of $495, and with a forward P/E of just 18, it may be one of the more attractively priced AI stocks right now.
Rate increases might negatively impact the stock in the short term, but with Broadcom being a big player in AI and its business experiencing strong growth, it may be one of the safer stocks in the space to own, especially in light of its more modest valuation.