Derren Nathan, head of equity research, Hargreaves Lansdown: “The FTSE 100 has recovered its losses this morning after initially dropping around 0.4%. The move mirrors oil prices which gave back earlier gains. Autotrader is one the index’s biggest fallers. Half year results were decent enough but news that revenue and car price growth had flattened in April, and full-year guidance below market forecasts sparked a sell off. This week’s lower gold prices are also weighing on miners Fresnillo and Endeavour. US long-dated treasury yields are at their highest levels since 2007, keeping a lid on demand for assets that don’t generate cash.
Shares in hotelier Whitbread are also in the red today perhaps catching a cold from the likes of EasyJet who has seen summer bookings suffer, and pub chain Mitchells & Butlers who has seen macroeconomic conditions impact spending in its pubs. For the Harvester owner full-year forecasts still look achievable but a further slowdown in sales growth in the first three weeks of the second half has spooked investors with the shares losing around 8% so far today.
Brent Crude prices showed early signs of a bounce after yesterday’s 6% decline but have now slipped to just under $105 per barrel. That’s been driven by signs of a diplomatic thaw between Washington and Tehran, but we’ve been here before and until traffic through the Strait of Hormuz returns to normal, oil price volatility is likely to remain the norm.
US stock futures are flat, also recovering from declines earlier in the day. All the major indices closed up more than 1% yesterday after three consecutive sessions of losses, helped by easing oil prices and expectations of strong quarterly results from the world’s most valuable company NVIDIA. Both numbers and guidance eclipsed expectations but as is so often the case traders took some profits in after-hours, only to recover in today’s pre-market trading.
Matt Britzman, senior equity analyst, Hargreaves Lansdown:
“The buyback era has arrived at NVIDIA, and it is arriving with an $80bn bang. These were blockbuster results, even by its increasingly absurd standards, with revenue up 85% year-on-year and both revenue and earnings exceeding already high expectations. The guide is just as eye-catching, with the top end pointing to almost 100% revenue growth in the coming quarter, and NVIDIA has a habit of clearing the bar it sets for itself. Cash flow is becoming the real flex here, with nearly $49bn in free cash flow over the quarter and a record $20bn returned to shareholders. And if that’s not enough, by our numbers, free cash flow will push toward $200bn this financial year.
The question from here is not whether demand is strong today, but how long this level of growth can keep outrunning expectations. NVIDIA still looks exceptionally well placed, with its strength stretching beyond chips into networking, software and full data centre systems, which makes it difficult for rivals or in-house alternatives to match at scale. Our view remains that AI infrastructure demand, customer spending plans, and cash generation all support the case for earnings power remaining stronger for longer. NVIDIA might not get the plaudits it deserves in the earnings multiple, but eventually raw earnings power comes to the forefront, and that’s exactly what we’re seeing.”
|
