Thursday, February 13, 2020

Nvidia Shares Hit Record High on 4Q Optimism


What’s happening: Nvidia’s shares jumped to a record 52-week high on Wednesday on optimism over strong data center demand having boosted the graphics chipmaker’s fourth-quarter results.

What happened: Nvidia is scheduled to report its earnings results for the fourth quarter after the closing bell on Thursday. Although the company had topped earnings and revenue estimates in the previous quarter, results had declined on a year-on-year basis. Investor sentiment is very positive, especially for its data center business. The optimism comes even amid fears of the coronavirus outbreak having impacted the technology landscape. Nvidia is widely expected to report revenue growth in the fourth quarter, after posting declines for various quarters.

  • The consensus revenue estimate stands at $2.96 billion, representing 34% year-over-year growth.
  • The estimate for earnings is $1.66 per share, which translates to a whopping 108% increase from the same quarter in the previous year.

Why it matters: Nvidia’s shares have gained more than 13% so far this month, far ahead of the tech industry’s average gain of 6%. The spike has been driven by expectations of a fundamental recovery at the company.

The company’s data center business is a favourite among investors, following its strong growth potential, although the Santa Clara, California-based chipmaker’s gaming business continues to be the main revenue contributor. The gaming business brought $1.66 billion in revenue, while the data center contributed $726 million in the third quarter.

Nvidia’s recent launch of GeForce, which was offered for $4.99 per month, suffered a setback with Activision Blizzard pulling its service and games from the same. Nvidia is now in the midst of its acquisition of Mellanox Technologies, a deal that is expected to close in early 2020.

On the other hand, the coronavirus has impacted almost every technology giant with exposure to China. The markets are cautious about what the outbreak may mean for the chipmaker’s s data center and gaming businesses.

Several analysts, including those from Jefferies, Susquehanna, Wedbush, Deutsche Bank, Oppenheimer and RBC Capital, have lifted their price targets for the stock ahead of the company’s earnings release, hoping for the chipmaker to return to revenue growth after posting quarterly declines for more than a year.

How the shares have performed so far: Despite Nvidia’s sluggish results, the stock has attracted strongly positive investor sentiment in the last 12 months, gaining around 100% since the end of 2018, outpacing the 41% rise in the broader S&P 500 index and industry’s 63% average gain over the same period. The company’s stock has also climbed 60% over the previous six months, versus the semiconductor market’s average 30% rise.

What to watch: Investors pay equal attention to a company’s results and immediate outlook. So, the market would be keen to know whether Nvidia’s first-quarter forecast indicates the coronavirus impact. Analysts are projecting over almost 30% revenue growth and 70% earnings growth. The market will also watch the Nasdaq 100 and S&P 500, where Nvidia is a major constituent.

The Markets Today

Investors will be watching French indices today, with the CAC 40 finishing at a new record high in the earlier session.

Context: French stocks closed higher on Wednesday, as market sentiment was lifted by fewer coronavirus cases reported in China.

Details: After closing at a record high on Wednesday, investors in Paris will be awaiting the release of the unemployment report.

The CAC 40 rose 0.83% to settle at 6,104.73 on Tuesday, with gains in foods & drugs, and general financial sectors. Most European stocks also closed at fresh record highs in the previous session, with easing coronavirus fears continuing to lift sentiment. On the Paris Stock Exchange, shares of 349 companies rose, while 222 companies saw decline and 89 stocks closed unchanged. The top performers on the CAC 40 were Kering SA, rising 6.3%, and Compagnie Generale des Etablissements Michelin SCA, which recorded a 6.2% gain. Safran SA was the worst performer of the index, falling 1.5%.

Why it matters: Why it matters: The Chinese coronavirus outbreak, which has claimed over 1,300 lives so far, had a lower number of confirmed cases being reported yesterday. The rise in stocks came even amid ratings agency S&P Global warning that a potential slowdown in China’s economy could hurt economic growth in the eurozone by as much as 0.2 percentage points in 2020.

The eurozone also reported a 2.1% decline in its December manufacturing output, higher than the 1.6% decline expected.

What to watch: Investors would be keenly awaiting unemployment figures from the country. Preliminary estimates show a decline in France unemployment rate to 8.5% in the fourth quarter. The country’s unemployment rate had increased to 8.6% in the third quarter, from 8.5% in the prior period.

Other Markets: Most European indices closed higher on Wednesday, with the FTSE 100, DAX 30, IBEX 35 and Stoxx 600 up 0.47%, 0.90%, 0.58% and 0.63%, respectively.

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