Nvidia: AI Godfather or Icarus?
STOXX Europe 600 up 0.1%
Big beat at Nvidia buoys tech
Fall in yields boosts real estate
Nasdaq futures rise 1%
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NVIDIA: AI GODFATHER OR ICARUS? (1210 GMT)
The world's most valuable chipmaker Nvidia NVDA.O forecast quarterly revenue that smashed expectations on Wednesday and announced a $25 billion buyback, at a time when some might argue markets rested their fate on the hands of just one stock.
Nvidia's results not only affirmed this year's hottest buzz around artificial intelligence, but also boosted confidence in its potential uses for other technology counterparts.
It also prompted many brokerages and research firms to hike their price targets, with Street-high PT now at $1,600. Nvidia shares rose about 8% in premarket, last at $508.10 - trading at a 68% downside from the Street-high PT set by Elazar Advisors.
The chip company has so far been the biggest beneficiary of the rise of ChatGPT and other generative AI apps.
But some have questioned if Nvidia's stock could potentially be overvalued.
"For the moment, the AI hype-train is not only rolling but delivering, as far as NVIDIA is concerned. Momentum investors seem happy to pile in, although value seekers are likely to be more reticent," said AJ Bell investment director Russ Mould.
Nvidia trades at about 39 times the consensus earnings for the next 12 months, compared to a forward P/E ratio of 80 in May when it forecast a more than 50% revenue growth, Refinitiv data showed.
Greg Bassuk, chief executive officer at AXS Investments, said: "NVDA's valuation also is suspect for some investors concerned about geopolitical impacts on the company's growth prospects," warning that potential U.S.-imposed export curbs on AI chips to China could affect about 10% of its revenue.
This was Nvidia's second solid showing from a massive AI boost, with its shares rising a whopping 222% so far this year, making it the best performing S&P 500 .SPX stock.
Still, the bulls far outnumbered the bears on Wall Street for Nvidia, with many stating that the company's latest showing will put naysayers to rest.
"This is not a surprise as over the last 23 years covering tech on the Street we have seen valuation centric bears miss every major transformational tech name for the record books such as Facebook, Amazon, Tesla, Microsoft, Google, Apple, Netflix, Nvidia, among others and this trend/theme will be no different," Wedbush analyst Dan Ives said.
GOOD AS GOLD (1110 GMT)
The yellow metal has been under pressure recently with a rising dollar and surging yields pushing it to five-month lows this week. Yet, for UBS Global Wealth Management the short-term headwinds will not erode the portfolio case for gold.
Mark Haefele, CIO at UBS GMW, sees 3 reasons for that:
1) Higher gold prices are delayed, not cancelled: "The next potential leg up in prices will in part be driven by an anticipated revival in demand for exchange-traded funds"
2) Gold's safe-haven benefits remain intact: "Gold still looks attractive as a longer-term portfolio hedge - especially in the context of an uncertain global growth outlook, volatile equity market dynamics, and unsettled geopolitics"
3) Central bank demand won't disappear: "We maintain a full-year forecast of 700 metric tons (of central banks' gold purchases), which would be the second-highest annual purchases since the mid-1960s"
That being said, UBS GMW has a year-end gold forecast of $1,950 per ounce, down slightly from its previous forecast. Spot gold XAU= was last up 0.3% at $1,919.
EUROPEAN CHIPS: "TOO EARLY TO BE BULLISH" (1020 GMT)
Chip stocks are taking the lead in Europe this morning, enjoying an afterparty following Wednesday's glittering numbers from Nvidia NVDA.O. But a more analytical look at the space suggests there is an inventory problem that semiconductor firms need to deal with.
JPMorgan has examined the issue to conclude that the inventory situation is negative for most companies and that investors need to be patient before turning more constructive.
"It is too early to be bullish given no sign of green shoots," writes JPM analyst Sandeep Deshpande.
"Semiconductor inventory has moderated in 2Q23... but only slightly. Investors will typically be looking to buy semi stocks when inventory is at peak but given the high level of inventory seen, this rule of thumb may not apply as the length of time needed for normalization may be longer than usual.
According to Deshpande, there are six weeks of excess inventory in the industry excluding memory.
"This equates to running fabs at 0% utilization for that period to get to normal levels. With utilization lower than peak but more likely at 70-75%, it means that it could take 6-9 months to clear inventory unless demand recovers rapidly."
For those who want exposure, JPM favours ASM International ASMI.AS for its better structural growth outlook. Its shares hit a fresh record high this morning.
STOXX 600 LIFTS AS CHIPMAKERS, REAL ESTATE STOCKS RISE (0807 GMT)
The STOXX 600 .STOXX is rising 0.7%, lifted by chipmakers and real estate stocks while basic resources prove a drag.
Europe's chipmakers are enjoying a lift on positive read-acrossfrom Nvidia's NVDA.O expectation-beating quarterly revenue forecast on Wednesday. ASM International ASMI.AS, Aixtron AIXGN.DE, ASML ASML.AS and BE Semiconductor BESI.AS are up 1.6%-2.4%, and had risen even furtherin earlier trading.
Real estate stocks .SX86P stocks in Europe rose over 2% during morning trading and were last up 1.7%.
Basic resources .SXPP are down 0.4%, with Glencore GLEN.L and Anglo American AAL.L the biggest drags, down 1.4% and 1.2% respectively.
Danish provider of allergy treatment products Alk-Abello ALKb.CO is at the top of the STOXX 600, up 11.5%, after posting Q2 operating profit almost doubling year-on-year.
EUROPEAN FUTURES FLASH GREEN (0631 GMT)
European stocks are flashing green ahead of Thursday's open, with EuroSTOXX50 .STXEc1 futures up 0.8%, DAX futures up 0.5% and FTSE futures .FDXc1 up 0.6%.
Semiconductor stocks will be in focus at the open after Nvidia NVDA.O far exceeded expectations with its quarterly revenue forecast on Wednesday, and its Frankfurt-listed shares NVDA.F are already up 8.2% in early trade.
Norwegian Air NAS.OL said on Thursday it had begun a process that could lead to cash dividend payments for shareholders as the carrier's second-quarter core operating profit rose amid strong demand for air travel in Europe.
WEAK DATA, NVIDIA LIFT RISK APPETITE (0601 GMT)
We are back to "bad news is good news" as soft economic data revived hopes central banks could be more or less done raising interest rates, leading investors to rush into risky assets but with wary eyes on the Fed's Jackson Hole symposium.
Stock markets also got a lift from Nvidia NVDA.O.
The blockbuster earnings and forecast from the stock market darling helped lift AI-related stocks, U.S. futures and Asian equities. MSCI Asia ex-Japan IT Index .MIAPJIT00NUS surged 2.5%, on course for its best day in more than two months.
Nvidia far exceeded expectations with its quarterly revenue forecast on Wednesday as an artificial-intelligence boom fuelled demand for its chips. It also announced a bumper $25 billion buyback programme.
Meanwhile, fresh signs are emerging that U.S. consumer spending is under stress after lacklustre results and forecasts from retailers ranging from Macy's M.N to Foot Locker FL.N.
With the European economic calendar bare, the AI craze is likely to help buoy stocks, with futures indicating a higher open and comes at the right time for the pan-European STOXX 600 .STOXX, which is down about 4% and set for its worst monthly performance in the year.
The excitement could be short-lived as worries remain sticky, with a majority of analysts polled by Reuters expecting global stock markets to head for a correction in coming months.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.5% but is still on course to clock its worst monthly performance since February.
Investor focus will be on a speech from Federal Reserve Chair Jerome Powell at the Jackson Hole conference on Friday, where traders will parse through his every word to figure out the next steps in monetary policy.
Data on Wednesday showed U.S. business activity approached the stagnation point in August, with growth at its weakest since February, while the downturn in euro zone activity was far deeper than expected. That brought Treasury yields lower, weighing on the U.S. dollar =USD.
Key developments that could influence markets on Thursday:
Economic events: US jobless data
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