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News

Nvidia’s shares slide after disappointing Q2

 

Thursday, August 25, 2022, 8.45am GMT

The news shaping the markets today

On the 31st anniversary of Ukraine’s Independence Day from the Soviet Union, UN chief Antonio Guterres urged to end the ongoing war. However, continuous geopolitical tensions sent WTI crude oil prices higher this morning.


Bank of Korea raised its base rate by 25 bps to 2.5% at its recent meeting, lending support to the KRW/USD forex pair.


UK’s car production grew 8.6% year-over-year to 58,043 units in July, recording growth for the third straight month, which sent the GBP/USD pair higher in forex trading this morning.


New Zealand’s retail sales fell 2.3% in the second quarter, following a revised 0.9% decline in the previous period. Despite this being the sharpest downturn in retail sales since the second quarter of 2020, the NZD/USD forex pair remained elevated.


Russia’s industrial production declined 0.5% year-over-year in July, following a revised 2.4% decline in the earlier month, which sent the RUB/USD pair lower in forex trading this morning.

 

What’s happening: Shares of Nvidia Corporation fell in after-hours trading on Wednesday, after the company reported weaker-than-expected results for its second quarter.

What happened: Apart from soft earnings, Nvidia issued a weak outlook for the current quarter.

Although the chip giant reported overall growth in revenues in the second quarter, sales at one of its major segments record a double-digit decline.

How were the results: The Santa Clara, California-based company reported some growth in revenues for the second quarter, but the figure represented a sequential decline.

  • Revenues grew 3% year-over-year to $6.7 billion but were down 19% from the previous quarter. The figure was short of the consensus estimate of $8.1 billion.
  • Net income plummeted 72% to $656 million, while earnings came in at 51 cents per share, significantly below market expectations of $1.25 per share.

Why it matters: Nvidia said sales of data centre chips surged to a record high in the second quarter. However, the figure still missed Street expectations.

Revenues from the company’s data centre segment jumped 61% year-over-year to $3.81 billion during the quarter, while the automotive segment recorded revenues of $220 million, up 45% year-over-year.

Gaming segment revenues contracted by 33% year-over-year to $2.04 billion, while revenues at its professional visualisation segment slipped 4% from a year ago to $496 million.

The company’s results were impacted by a decline in consumer spending due to surging inflation. A sudden drop in demand around June resulted in Nvidia and its distributors being left with high inventory of graphics chips.

Inventories rose to $3.89 billion in the quarter, compared to $2.11 billion in the year-ago period.

Nvidia returned $3.44 billion to shareholders in the form of dividends and share repurchases during the second quarter and is looking to continue buybacks in the current fiscal year.

Management guided to revenues of $5.9 billion plus or minus 2% and gross margins of at 65%.

Nvidia said gaming and professional visualization revenues could decline, with various partners cutting their inventory levels ahead of the launch of the company’s new products. Revenues from the data centre and automotive segments are expected to continue growing in the third quarter.

How shares responded: Nvidia’s shares fell 4.6% to $164.38 in after-hours trading on Wednesday, following the release of quarterly results. The stock has lost around 43% year to date.

What to watch: Investors will keep an eye on inflation levels and any return of demand in the gaming and automotive divisions.

The markets today

The US dollar will be in focus today ahead of the Jackson Hole economic symposium

Context: The greenback moved higher versus a basket of currencies, hovering near a 20-year high on Wednesday.

Details: The US dollar moved lower on Tuesday following downbeat data on the country’s private sector activity for August.

Traders await the speech by Fed Chairman Jerome Powell to get the latest insights into the central bank’s plans to tackle surging inflation.

The US consumer price index increased 8.5% year-over-year in July, significantly above the Federal Reserve’s 2% target. Markets are now expecting the Fed to raise interest rates between a range of 50 basis points and 75 basis points at its September’s meeting.

Core capital goods grew 0.4% in July, slower than the 0.9% growth recorded in the previous month.

The US dollar index, which measures the greenback’s performance versus a basket of major currencies, hovered near 20-year highs, but pared gains later in the session, settling higher by around 0.1% at 108.68 on Wednesday.

The EUR/USD pair fell slightly to close at $0.9967, after dipping to a 20-year low of $0.99005 in the prior session. The euro has been under pressure due to the energy crisis in the region.

What to watch: Traders will closely monitor the three-day Jackson Hole Economic Symposium, starting today, with Fed chief Jerome Powell set to speak on Friday.

The release of economic data on GDP, jobless claims and PCE price index will also remain in focus today. The US economy is expected to contract by an annualised 0.9% in the second quarter, compared to a 1.6% decline in the prior quarter. The number of Americans filing new claims for jobless benefit, which fell by 2,000 to 250,000 in the week ended August 13, is expected to increase to 267,000 in the latest week. Analysts expect the PCE price index to rise 7.1% during the three months to June.

Other Markets: European trading indices closed mostly higher on Wednesday, with the DAX 40, CAC 40 and STOXX Europe 600 up by 0.20%, 0.39% and 0.16%, respectively, and the FTSE 100 traded lower by 0.22%.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD – 0.9981 and 0.9989 Positive
AUD/USD – 0.6934 and 0.6943 Positive
Gold – 1767.99 and 1769.44 Positive
Platinum – 870.69 and 872.79 Positive
S&P 500 – 4138.48 and 4148.57 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (0.9986, 0.19%) Dow ($33,015, 0.18%) Brent ($101.22, 0.9%)
GBP/USD (1.1821, 0.22%) S&P500 ($4,156, 0.31%) WTI ($95.55, 0.7%)
USD/JPY (136.78, -0.26%) Nasdaq ($12,971, 0.32%) Gold ($1,770, 0.5%)

What else to watch today

Germany’s GDP, Ifo business climate index, Ifo current conditions and Ifo expectations, France’s manufacturing climate indicator, business climate indicator, initial jobless claims and unemployed persons, Spain’s producer inflation, Turkey’s manufacturing confidence index, capacity utilization, foreign exchange reserves and MPC meeting summary, South Africa’s producer price inflation, UK’s CBI distributive trades survey’s retail sales balance, Brazil’s FGV consumer confidence, federal tax revenue and nonfarm payrolls, Mexico’s GDP growth rate, current account, economic activity and monetary policy meeting minutes, ECB’s monetary policy meeting accounts, Canada’s manufacturing sales and average weekly earnings, US natural gas stocks change and Kansas City Fed’s manufacturing production index, Argentina’s consumer confidence indicator, Russia’s corporate profits and business confidence, as well as India’s money supply M3.

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