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Nvidia shares slide despite upbeat earnings

 

Thursday, November 23, 2023

Today’s headlines

What’s happening: Shares of Nvidia fell on Wednesday after the company released results for its third quarter.

What happened: The chip maker posted better-than-expected results for the latest quarter and issued a strong revenue guidance for the fourth quarter.

Nvidia’s shares moved lower during Wednesday’s session after jumping more than 200% year to date.

How were the results: The Santa Clara, California-based company reported a sharp increase in both sales and earnings for the third quarter.

  • Revenues climbed 206% year-over-year to $18.12 billion, exceeding the consensus estimates of $16.12 billion.
  • Earnings rose to $4.02 per share, from 58 cents per share in the year-ago quarter. The figure also topping Wall Street expectations of $3.36 per share.

Why it matters: Nvidia’s datacentre business delivered a strong performance in the third quarter, with the segment’s revenues growing a whopping 279% year-over-year to a record $14.51 billion. Revenues from its gaming segment also climbed 81% to $2.86 billion.

The company’s non-GAAP gross margins widened to 75%, from 71.2% in the second quarter and up sharply from the year-ago quarter’s 56.1%.

“Our strong growth reflects the broad industry platform transition from general-purpose to accelerated computing and generative AI. Large language model startups, consumer internet companies and global cloud service providers were the first movers, and the next waves are starting to build,” CEO Jensen Huang said during the earnings call.

Nvidia said that US sanctions on the export of AI chips to China will have a significant impact on its sales to the country, which represented 20%-25% of its datacentre sales over the previous few quarters.

“Export controls will have a negative effect on our China business, and we do not have good visibility into the magnitude of that impact even over the long term,” CFO Officer Colette Kress said. The company added, however, that the decline will likely be offset by strong growth in gaming revenues and exports to other destinations.

Management guided to revenues of $20 billion, plus or minus 2%, for the fourth quarter, compared to consensus estimates of $16.38 billion. The company projected non-GAAP gross margins of 75.5%, plus or minus 50 basis points.

How shares responded: Nvidia’s shares fell 2.5% to close at $487.16 on Wednesday, following the release of quarterly results. The stock has jumped 240% year to date.

What to watch: Investors will continue monitoring developments around US sanctions on exports of AI chips to China. Markets will also watch the adoption of GenAI and other innovations in AI.

The markets today

The euro will be in focus today ahead of a basket of major economic reports

Context: The EUR/USD forex pair moved lower on Wednesday, extending losses for another session.

Details: Investors continued to assess moves by major central banks worldwide. Recent comments from members of the European Central Bank, including ECB President Christine Lagarde, raised speculations of the current rate-hike cycle being already over.

Lagarde said victory over inflation had not yet been secured, asserting that future rate decisions will depend on incoming economic reports. Minutes from the latest Federal Reserve meeting also showed a cautious stance among central bank officials.

On the economic data front, Eurozone’s consumer confidence indicator increased by 0.9 points from the prior month to a reading of -16.9 in November, notching the strongest reading in three months and topping market estimates of -17.6.

Strength in the greenback exerted pressure on the EUR/USD forex pair on Wednesday. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained more than 0.3% to 103.92 on Wednesday.

The EUR/USD forex pair fell around 0.2% to 1.0891 on Wednesday, following a 0.3% decline on Tuesday and moving further away from its three-month highs of 1.0965. The STOXX Europe 600 Index climbed 0.30% to a two-month high of 457.24 during Wednesday’s session.

What to watch: Investors await the release of economic data on manufacturing PMI, services PMI and composite PMI from the Eurozone today. The HCOB Eurozone manufacturing PMI, which fell to 43.1 in October, is expected to increase slightly to 43.3 in November. Analysts expect services PMI to improve to 47.9 in November, from 47.8 in October, while composite PMI is projected to increase to 46.6, from 46.5 in October.

The release of ECB monetary policy meeting accounts will also remain in focus today.

Other Markets: US trading closed higher on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.53%, 0.41% and 0.43%, respectively.

The news shaping the markets

Germany’s chancellor, Olaf Scholz, urged Russia’s President Vladimir Putin to withdraw all military troops and end the war with Ukraine. The news sent the safe-haven US dollar index lower this morning.


Argentina’s economic activity estimator fell by 0.7% year-over-year in September. This followed a 0.3% increase in the prior month and exerted pressure on the ARS/USD forex pair.


Russia’s producer price inflation accelerated to 21.6% year-over-year in October, from 17.6% in the prior month, sending the RUB/USD pair lower in forex trading this morning.


The Energy Information Administration said crude oil inventories in the US increased by 8.701 million barrels in the week ending November 17. This was significantly higher than estimates of an increase of 1.160 million barrels, which exerted pressure on WTI crude oil prices.


US University of Michigan consumer sentiment improved to 61.3 in November, from a preliminary reading of 60.4, which sent the Dow Jones index higher by around 0.5% on Wednesday.

What else to watch today

Indonesia’s loan growth and interest rate decision, Saudi Arabia’s balance of trade, France’s manufacturing climate indicator, business climate indicator, manufacturing PMI, services PMI and composite PMI, Germany’s manufacturing PMI, services PMI and composite PMI, UK’s manufacturing PMI, services PMI and composite PMI, Turkey’s gross foreign exchange reserves and Central Bank of Turkey interest rate decision, Mexico’s mid-month inflation rate and monetary policy meeting minutes, South Africa’s Reserve Bank interest rate decision, Canada’s wholesale sales, as well as Argentina’s retail sales.


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