Nvidia Corp. (NVDA-NASQ) failed to live up to investor hopes with its latest results, delivering an underwhelming forecast and news of production snags with its much-awaited Blackwell chips. The stock sank 8% after hours following the news, despite revenues surging 15% quarter-on-quarter and 122% year-on-year. While management announced a $50 billion buyback, guidance was a bit softer. Moreover, Nvidia now accounts for 45% of Microsoft’s capex, 41% for Meta and 14% for Google. Microsoft and Meta alone account for ~30% of Nvidia’s revenues. The major question to ask is, how long will this capex cycle last?
Dollar headwinds ahead
The high cash rate on US dollar (USD) deposits has hidden the underlying deterioration in the quality of the greenback. The country’s twin deficits – its fiscal and current account deficits – have steadily widened to alarming levels. Even though no forex strategist has mentioned the ‘twin deficits’, it does not mean they are not a huge problem for the dollar. However, there’s something potentially in the wind. The dollar has already suffered the sharpest month-to-date depreciation since November last year, according to Barclays, with dollar sentiment — an amalgamation of positioning data, option skews and “proprietary work on public sentiment found in the press” — having recently turned “max short from max long”, according to a report in the Financial Times.
UK housing market strength
The number of homes up for sale in the UK hit its highest level in seven years and buyer demand is rising, according to Zoopla. A Bloomberg report shared the company’s predictions that growing supply will lift sales this year but also keep prices in check.
US stock outflows continue
Bloomberg reports that Bank of America (BAC-NASQ) clients pulled money from US stocks for the first time in three weeks, withdrawing about $4.6 billion. Most prominent among the outflows were technology stocks. Separately, Berkshire Hathaway (BRK.B-NASQ), which recently became the latest company to pass the $1 trillion valuation mark, sold almost $1 billion of Bank of America shares.
Bullish positioning in global equities
According to quantitative strategists at Citi, investors are taking bullish positions in US large-cap markets and bearish ones in Europe and China. Bloomberg quoted the strategists as saying S&P (VOO-NASQ) positioning jumped last week and is now almost one-sided net long after the last short positions cleared in the past week.
Cybersecurity pick
After initially rallying hard after hours with a ~6% kick, CrowdStrike (CRWD-NASQ) stock settled 2.7% lower. The market was expecting a big reset to full year guidance, but management maintained their previous forecasts. The stock gave back the gains after markets questioned whether targets are realistic given recent issues, which have likely led to a loss of market share and potential lawsuits. For investors looking to back cybersecurity as a secular theme, especially as AI spend normalises, Palo Alto (PANW-NASQ) may offer better upside.
Digital kick to the economy
The digital economy could potentially inject $5.2 billion into South Africa’s economy and expand its gross domestic product (GDP) contribution to 1.38% from 0.02% by 2035, according to a new report published by Naspers (NPN-JSE), the continent’s biggest company by market value, and local think tank Mapungubwe Institute for Strategic Reflection (Mistra). According to Bloomberg, the report stated that South Africa’s digital economy is still lagging, but if government and business collaborate, it has the potential to become a game-changer in Africa’s most advanced economy.
Vodacom ‘Please Call Me’ ruling
The Constitutional Court has directed that it will hear Vodacom’s (VOD-JSE) application for leave to appeal in the Please Call Me matter, in tandem with their appeal against the judgement and order of the Supreme Court of Appeal (SCA). The hearing date will be set in due course.
More SA Inc tailwinds
Bloomberg reports that Eskom expects to avoid electricity shortages over at least the next few months, extending a streak that’s coincided with an operational turnaround. “We’re now at the point where we can comfortably tell that there’s been a structural shift in the performance of a coal fleet,” said Eskom Chief Executive Officer Dan Marokane in a presentation, noting that staff morale has also improved. Another 2,500 megawatts of capacity is expected to come online by March 2025 and will guarantee that blackouts won’t resume, bar any exceptional circumstances, he said.
Bidcorp looking to deliver real growth
On the back of great FY24E results, Bidcorp (BID-JSE) expects to deliver real growth in the year ahead. The company’s backward looking numbers speak for themselves, and the outlook is comforting, with bolt-on acquisitions welcome. The continued focus on margin progress should see the company achieve earnings forecasts to support a stronger share price.
Sector focus: Construction
The national government has revealed plans to invest in infrastructure in the coming months. Bloomberg reports that President Cyril Ramaphosa approved a law to set up a new agency that will develop and manage the country’s water infrastructure and attract financing for new projects.
Stock focus: Italtile
Italtile (ITE-JSE) firmed +1% after releasing full-year results. While HEPS was weak as per previous trading update guidance, down -7%, on low levels of demand across the industry, volatile shipping costs, and the emergence of new aggressive competition in manufacturing and retail, the company declared a special dividend of 78c. While the outlook remains challenging in the near term, lower load-shedding, potential rate cuts, and the two-pot retirement system should boost consumer confidence and spending. The stock has had a strong bounce from the May levels, up +45%, and is trading on a 10.5x PE. Momentum remains positive, and the stock could see further support as investors look through the current weak operational numbers with a view to improvement in the second half of the next financial year.
Information correct at time of publishing. It is important to conduct thorough research and analysis using a combination of fundamental and technical analysis techniques to make informed trading decisions. Additionally, consider your risk tolerance, investment objectives, and time horizon when assessing company performance for trading.
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Trading Update : 2 September 2024
Is the AI trend normalising?
Nvidia Corp. (NVDA-NASQ) failed to live up to investor hopes with its latest results, delivering an underwhelming forecast and news of production snags with its much-awaited Blackwell chips. The stock sank 8% after hours following the news, despite revenues surging 15% quarter-on-quarter and 122% year-on-year. While management announced a $50 billion buyback, guidance was a bit softer. Moreover, Nvidia now accounts for 45% of Microsoft’s capex, 41% for Meta and 14% for Google. Microsoft and Meta alone account for ~30% of Nvidia’s revenues. The major question to ask is, how long will this capex cycle last?
Dollar headwinds ahead
The high cash rate on US dollar (USD) deposits has hidden the underlying deterioration in the quality of the greenback. The country’s twin deficits – its fiscal and current account deficits – have steadily widened to alarming levels. Even though no forex strategist has mentioned the ‘twin deficits’, it does not mean they are not a huge problem for the dollar. However, there’s something potentially in the wind. The dollar has already suffered the sharpest month-to-date depreciation since November last year, according to Barclays, with dollar sentiment — an amalgamation of positioning data, option skews and “proprietary work on public sentiment found in the press” — having recently turned “max short from max long”, according to a report in the Financial Times.
UK housing market strength
The number of homes up for sale in the UK hit its highest level in seven years and buyer demand is rising, according to Zoopla. A Bloomberg report shared the company’s predictions that growing supply will lift sales this year but also keep prices in check.
US stock outflows continue
Bloomberg reports that Bank of America (BAC-NASQ) clients pulled money from US stocks for the first time in three weeks, withdrawing about $4.6 billion. Most prominent among the outflows were technology stocks. Separately, Berkshire Hathaway (BRK.B-NASQ), which recently became the latest company to pass the $1 trillion valuation mark, sold almost $1 billion of Bank of America shares.
Bullish positioning in global equities
According to quantitative strategists at Citi, investors are taking bullish positions in US large-cap markets and bearish ones in Europe and China. Bloomberg quoted the strategists as saying S&P (VOO-NASQ) positioning jumped last week and is now almost one-sided net long after the last short positions cleared in the past week.
Cybersecurity pick
After initially rallying hard after hours with a ~6% kick, CrowdStrike (CRWD-NASQ) stock settled 2.7% lower. The market was expecting a big reset to full year guidance, but management maintained their previous forecasts. The stock gave back the gains after markets questioned whether targets are realistic given recent issues, which have likely led to a loss of market share and potential lawsuits. For investors looking to back cybersecurity as a secular theme, especially as AI spend normalises, Palo Alto (PANW-NASQ) may offer better upside.
Digital kick to the economy
The digital economy could potentially inject $5.2 billion into South Africa’s economy and expand its gross domestic product (GDP) contribution to 1.38% from 0.02% by 2035, according to a new report published by Naspers (NPN-JSE), the continent’s biggest company by market value, and local think tank Mapungubwe Institute for Strategic Reflection (Mistra). According to Bloomberg, the report stated that South Africa’s digital economy is still lagging, but if government and business collaborate, it has the potential to become a game-changer in Africa’s most advanced economy.
Vodacom ‘Please Call Me’ ruling
The Constitutional Court has directed that it will hear Vodacom’s (VOD-JSE) application for leave to appeal in the Please Call Me matter, in tandem with their appeal against the judgement and order of the Supreme Court of Appeal (SCA). The hearing date will be set in due course.
More SA Inc tailwinds
Bloomberg reports that Eskom expects to avoid electricity shortages over at least the next few months, extending a streak that’s coincided with an operational turnaround. “We’re now at the point where we can comfortably tell that there’s been a structural shift in the performance of a coal fleet,” said Eskom Chief Executive Officer Dan Marokane in a presentation, noting that staff morale has also improved. Another 2,500 megawatts of capacity is expected to come online by March 2025 and will guarantee that blackouts won’t resume, bar any exceptional circumstances, he said.
Bidcorp looking to deliver real growth
On the back of great FY24E results, Bidcorp (BID-JSE) expects to deliver real growth in the year ahead. The company’s backward looking numbers speak for themselves, and the outlook is comforting, with bolt-on acquisitions welcome. The continued focus on margin progress should see the company achieve earnings forecasts to support a stronger share price.
Sector focus: Construction
The national government has revealed plans to invest in infrastructure in the coming months. Bloomberg reports that President Cyril Ramaphosa approved a law to set up a new agency that will develop and manage the country’s water infrastructure and attract financing for new projects.
Stock focus: Italtile
Italtile (ITE-JSE) firmed +1% after releasing full-year results. While HEPS was weak as per previous trading update guidance, down -7%, on low levels of demand across the industry, volatile shipping costs, and the emergence of new aggressive competition in manufacturing and retail, the company declared a special dividend of 78c. While the outlook remains challenging in the near term, lower load-shedding, potential rate cuts, and the two-pot retirement system should boost consumer confidence and spending. The stock has had a strong bounce from the May levels, up +45%, and is trading on a 10.5x PE. Momentum remains positive, and the stock could see further support as investors look through the current weak operational numbers with a view to improvement in the second half of the next financial year.
Information correct at time of publishing. It is important to conduct thorough research and analysis using a combination of fundamental and technical analysis techniques to make informed trading decisions. Additionally, consider your risk tolerance, investment objectives, and time horizon when assessing company performance for trading.