Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
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Earnings preview and a new mega deal in semiconductors
Peter Garnry
Chief Investment Strategist
Summary: The worst earnings season in two years is more or less over, but companies not following the calendar year are still reporting and this week US earnings from Nvidia and Snowflake will take center stage on Wednesday. Both companies are still expected to show strong revenue growth but underneath the growth hype things are deteriorating. For Nvidia it is the crypto mining industry and for Snowflake it is a general slowdown in datacenters. Chinese earnings and outlook have been hit hard by lockdowns and we expect the lockdowns to pour cold water on Alibaba's outlook which it releases on Thursday together with its Q1 earnings. Finally, we take an initial look at Broadcom's acquisition bid for VMware.
Worst earnings season since June 2020 is coming to an end
The Q1 earnings season is running out of steam with data stacking up to be the worst since the Q2 2020 earnings with EPS in the MSCI World Index down 7.5% q/q and revenue down 0.4% q/q. Given the inflationary pressures in the economy it is quite staggering that revenue growth is down indicating that economic activity in volume terms is slowing down. On a positive note, JPMorgan has just pre-released its outlook ahead of its Q2 earnings in early July saying credit outlook looks positive and FY22 net interest income will reach $56bn vs previously $53bn.
Among this week’s earnings we are looking forward to Wednesday where the focus is earnings from Nvidia and Snowflake. Nvidia is expected to deliver FY23 Q1 (ending 30 April) revenue of $8.1bn up 43.1% y/y but with cryptocurrencies declining a lot from the highs we would expect capital expenditures from the crypto mining industry to decline as well just like in 2018. This had a real negative impact on Nvidia’s revenue growth (see chart) and investors must be prepared for the same abrupt change in growth rates. Snowflake is expected to deliver FY23 Q1 revenue (ending 30 April) of $414mn up 81% y/y and its first quarterly positive EBITDA result.
Chinese equities have had a tough past year with lockdowns and regulation of its technology sector impacting growth rates and Q1 earnings have been quite mixed with an obvious slowdown among technology companies. Alibaba is expected on Thursday to deliver Q1 revenue figures of CNY 200.6bn up 7% y/y confirming the drastic slowdown of the Chinese economy. The e-commerce company’s future growth is going to come from international operations and its cloud computing unit so in terms of the outlook those two segments are the focus of investors.
The full list of the most important earnings releases:
- Today: Meituan, Sino Biopharmaceutical, Zoom Video, XPeng
- Tuesday: Kuaishou Technology, Intuit, NetEase, AutoZone, Agilent Technologies
- Wednesday: Bank of Nova Scotia, Bank of Montreal, SSE, Acciona Energias Renovables, Nvidia, Snowflake, Splunk
- Thursday: Royal Bank of Canada, Canadian Imperial Bank of Commerce, Lenovo, Alibaba, Costco, Medtronic, Marvell Technology, Baidu, Autodesk, Workday, VMware, Dell Technologies, Dollar Tree, Zscaler, Farfetch
- Friday: Singapore Telecommunications
Another mega deal in semiconductors is seeing the light of day
The M&A pipeline is well alive in the US with Musk’s attempt to buy Twitter, Microsoft’s bid for Activision Blizzard, and now with Broadcom’s acquisition bid for VMware which would extend Broadcom into the realm of software. There is a lot of focus on mega deals these years as antitrust regulators are well aware of the increased concentration risks in many industries but predominately in the technology sector. Recently Nvidia’s bid to acquire Arm Holdings was rejected as the company would have gained a stranglehold on the semiconductor industry. This deal by Broadcom might also be seen by regulators to be too limiting for competition. VMware shares are up 21% in pre-market trading. VMware is controlled by Dell founder Michael Dell (40.2%) and private equity firm Silver Lake Group (9.99%).
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