Shares of NVIDIA (NVDA 6.13%) today recouped losses from yesterday’s slide as investors cheered a “risk-on” sentiment after several volatile sessions for Nvidia and the broader market.

Today’s increase was sparked by an employment report that showed a decline in initial jobless claims, allaying fears that the economy may be heading for a recession after the unemployment rate rose to 4.3% from 4.1% in July.

As a result, Nvidia shares rose 6.3% at 2:17 p.m. ET, while Nasdaq had risen by 3% at the same time.

Image source: Nvidia.

Nvidia is at the mercy of the market

Chip stocks including Nvidia rallied broadly today after initial jobless claims fell to 233,000 last week from 250,000 the previous week.

Normally, such data would not move markets, but investors are closely watching employment data for signs that the economy may be weakening faster than expected.

Last week, a jump in initial jobless claims to the highest level in nearly a year and disappointing July employment numbers sparked a sell-off that sent the Nasdaq down 8% in three days. Nvidia was hit even harder, losing 14% during the crash.

Why Nvidia shares are currently so volatile

Nvidia and its semiconductor competitors operate in a highly cyclical sector. In the best of times, like the past year and a half, demand and prices soar, generating billions in profits. In tougher times, the industry is plagued by excess inventory, falling prices and sometimes massive losses.

The chip sector currently appears to be at an inflection point. Investors want to be convinced that the AI ​​boom can continue and that the US economy is strong enough to support it. Large technology stocks such as Microsoft And alphabetSome of the biggest customers of chipmakers like Nvidia sold off after the release of their latest earnings reports, in part due to doubts about whether the billions they are spending on AI infrastructure would pay off.

For the AI ​​boom to continue, the economy needs to avoid a recession, so it’s understandable why a seemingly insignificant economic data point would send Nvidia and its peers soaring. Investors want certainty about the macroeconomic environment, and they just got it.

In the long term, Nvidia will rely on continued strong demand for its AI components, which could be based on the development of a “killer AI app” or stronger conviction that generative AI is indeed transformative.

The next big event that investors should keep an eye on is the company’s second-quarter results, which are scheduled to be released on August 28. The stock will almost certainly fluctuate wildly on that release, and the recent sell-off could help fuel a rebound.

Until then, keep an eye on further economic data and expect more overreactions from the AI ​​chip superstar.