Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
Nvidia rides AI hype to new all-time high as Q4 earnings season nears
Peter Garnry
Chief Investment Strategist
Summary: Nvidia's share price surged 6.5% to a new record high driven by the announcement of new AI chips for personal computers. The move highlights the growing investment opportunities in AI and the potential for the technology to expand into consumer markets. Meanwhile, the four major US banks will report Q4 earnings on Friday, with analysts expecting revenue growth to normalize and credit provisions to rise.
AI hype catapults Nvidia to new all-time high
Nvidia shares jumped 6.5% yesterday to a new all-time high keeping the AI hype alive and increasing bets that 2024 will be another year of massive technology investments into AI. The positive sentiment yesterday was due to Nvidia announcing a new AI chips for personal computers that will allow AI capabilities to potentially expand closer to consumer. One of the key arguments for putting AI chips into personal computers compared to the current model with massive AI chips sitting in gigantic datacentres is that it increases security running AI applications more decentralized. The share price increase yesterday constituted an increase in market value of $79bn. This corresponds to adding the market value of Equinix (the world’s largest operator of datacentres) or Schlumberger (one of the world's largest oil and gas services providers).
Nvidia remains the hottest trade in the US technology sector seen as the most direct and potent exposures to the initial investment boom in AI as Nvidia is leading the industry of AI chips. The high expectations are clearly reflected in the company’s equity valuation which measured on 12-month EV/EBITDA is 23x which is significantly above the MSCI World Index at 12x. The sell-side consensus price target is currently $648 around 24% above yesterday’s closing price. Despite a year of galloping expectations for Nvidia the chipmaker’s astounding results exceeding expectations have created a powerful feedback loop. This is also the biggest danger this year as Nvidia is estimated to increase revenue by a whopping 57% in FY25 (ending 31 January 2025) to reach $92.6bn. One of the key outstanding questions about Nvidia revenue is how much of revenue to China was frontloaded due to upcoming sanctions and thus could pose a hangover risk over the coming year.
The Q4 earnings are a key test of technology earnings
On Friday the market enters its first big earnings release day with the four major US banks JPMorgan Chase, Wells Fargo, Bank of America, and Citigroup reporting Q4 earnings. Analysts expect net revenue growth to begin normalizing as interest rates have stopped rising and also expect credit provisions to rise reflecting a deterioration in credit quality and future losses on loans. Higher credit provisions were the big surprise factor in Q3 for US banks as they across the board reported lower than estimated credit provisions as the resilient US economy shielded the corporate and household sector. JPMorgan Chase is the largest US bank and is projected to increase net revenue by 16% y/y in Q4 and deliver EPS of $3.57 down 1% y/y. The stock price is up 27.6% since the lows in October 2023.
As the chart below shows the operating income (EBITDA) rose 13.2% for Nasdaq 100 in 2023 up until Q3 outpacing the S&P 500 and STOXX 600 due to aggressive cost cutting and accelerating revenue growth. However, technology stocks much more expanding equity valuations as investors believe the growth and good times will continue into 2024. This is exactly why technology earnings are more important than ever to this market. One because they set sentiment but also because US equity market index concentration is extremely high.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Head of FX Strategy
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Head of FX Strategy
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer