Nvidia earnings are coming but the rally can't continue forever. ·I-HWA CHENG via Getty Images
Earnings season is coming to an end but some major names are yet to report. Investors have some high expectations for some of the key companies reporting this week such as Nvidia and Marks and Spencer.
The darling of AI and technology investors will report results from its first quarter of fiscal year 2025 on 22 May.
The AI boom would not be possible without the chips from Nvidia, with the chipmaker seeing shares surge by 239% last year.
With demand far outstripping supply for its graphics processing units, investors will want to know if Nvidia — the last of the Mag 7 to report — can keep driving the AI-related rally the market enjoyed over the past year.
Nvidia is anticipated to report earnings of $5.49 per share for the current quarter, marking an increase of 403.7% from the same quarter last year.
The earnings are projected to be $23.94 per share and a revenue of $106.05bn (£83.8bn) for the entire fiscal year, according to TradingView.
"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, given the lofty valuation which leaves little room for error. In the final quarter of fiscal 2023, Nvidia ran a $2.7bn share buyback," Russ Mould, investment director, Danni Hewson, head of financial analysis, and Dan Coatsworth, investment analyst, all of AJ Bell, wrote.
However, investors that want to jump in on the AI race now, hoping that Nvidia will reach even higher highs, might be disappointed.
"Bears have little to chew upon, barring a meteoric share price rise, a premium valuation and seemingly universal enthusiasm for the stock. The $2.3tn market capitalisation equates to around 40 times this year’s earnings (when the S&P 500 (^GSPC) trades on around 21-22 times, according to research from S&P Global and Capital IQ) and 20 times forecast annual sales," they added.
Still, Nvidia is leading the race in the AI "gold rush" and a survey revealed that the stock is rivalling gold (GC=F) as a possible hedge against inflation.
Gold is still seen as the best safeguard against the risk of rising prices, according to 46% of survey participants. But nearly a third said the tech mega caps are their first pick for the role.
Nvidia's chief Jenson Huang received a 60% pay bump in the corporation's fiscal 2024 on the back of a massive rally in the share price.
Huang's package swelled to $34.16m versus $21.35m in the prior year. This was comprised of an unchanged base salary of $996,515, stock awards of $26.67m, non-equity incentive compensation of $4m and all other compensation of $2.494m.
Derren Nathan, head of equity research at Hargreaves Lansdown said: “Nvidia's expected to build on the blistering growth experienced in the final quarter of last year. Company guidance points to first quarter revenue of around $24bn, more than three times the levels seen at the same point in 2023. Analyst forecasts expect sales to come in slightly higher.
"NVIDIA’s at the forefront of Artificial Intelligence based supercomputing. Beyond the obvious large Data Center customers, it’s working closely with sovereign states and academic institutions. In certain cases, the technology rollout has accelerated from a period of years to just months.
"But there are potential headwinds for other segments. Some semiconductor companies have noted weak demand from the automotive industry and, in gaming, the lack of next generation console releases could keep a lid on sales. However, these are much smaller than the Data Center division. Here, investors will be keeping a close eye on manufacturing partners’ ability to keep up with Nvidia's momentum.”
Marks & Spencer (MKS.L) — Reports on Wednesday 22 May
Investors expect Marks & Spencer’s upcoming full year earnings to show an ongoing recovery for the British retailer.
Analysts have nudged up the consensus underlying pre-tax profit forecast for the year to March 2024 to £653m, compared to the range of £550m to £600m that had prevailed before the interims, according to AJ Bell.
"Shares in Marks & Spencer are trading very close to five-year highs, and they rank as the second-best performers within the ranks of the FTSE 100 (^FTSE) over the past 12 months. However, the share price is almost unchanged in 2024 and that slight loss of momentum may reflect, bottom up, management’s efforts to keep a lid on earnings forecasts and, top down, the delay on the long-awaited interest cuts from the Bank of England," the investment platform analysts said.
Adding to the positive sentiment surrounding M&S shares is the recent bullish stance taken by several brokers. Last month, both JPMorgan and Jefferies upgraded the stock to the equivalent of "buy" ratings.
"Such broker upgrades often serve as a positive factor for a stock's performance, as they can influence investor sentiment and attract additional demand," Chris Beauchamp, chief market analyst at IG, wrote.
For the current fiscal year, the dividend forecast stands at 6.2p, representing a yield of 2.3% at the current share price.
"Notably, this dividend forecast is nearly double the figure for the previous year ended 31 March. With dividends on the rise, M&S could potentially attract a new set of investors seeking passive income streams," he added.
Guy Lawson-Johns, equity analyst at Hargreaves Lansdown, reminds investors that the retail sector is tricky.
“So far, trading this year has given Marks and Spencer shareholders plenty to be happy about. Growing market share and margins whilst embarking on a significant cost-cutting programme is a tough balancing act, but the group’s nailed it so far. Along with Lidl and the retail arm of Ocado (OCDO.L), which it owns a 50% share of, M&S is ranked as Britain’s fastest-growing grocer over the last quarter," he said.
"But the retail sector is a notoriously tricky operating environment and wage inflation and business rates have provided an unwanted challenge to its cost cutting programme. Despite this, next week’s full-year results are still expected to land in line with analyst estimates. This includes revenue growth of 8.9% over the year, to £13bn, and operating profit growth of 28.5% to £805m", he added.
Low-budget airlines benefited from Easter falling early this year and investors would be keen to see if the Boeing (BA) delivery delays will impact Ryanair's results.
Analysts expect revenue to have jumped 24% in the year ended 31 March, overcoming delayed Boeing deliveries and issues with third-party online travel agents.
However, CEO Michael O’Leary’s recent warning that summer ticket prices are not rising as much as expected sent chills through the sector.
Annual adjusted net income is seen up 33%, although the net loss probably swelled in the fourth quarter, seasonally the company’s weakest, consensus shows, according to Bloomberg Intelligence.
LSEG Refinitiv data shows a consensus analyst rating of "buy" for Ryanair with six strong buy, 14 buy and one hold — and a mean of estimates suggesting a long-term price target of €25.60 for the share, roughly 34% higher than the current price.
"Ryanair has taken measures to expand its fleet to 536 aircraft as of September 2023 to meet improving travel demand. However, the budget carrier was impacted by over 800 flight cancellations in February due to conflicts between Israel and Gaza," Axel Rudolph, market analyst at IG, wrote.
"As travel continues recovering from pandemic disruptions, easyJet (EZJ.L) and Ryanair's ability to contain costs and execute on growth plans will be key for sustaining profitability momentum," he added.
Deutsche Bank has warned of another tough year for the European airline industry, but pointed to some positive news for the near term.
UK inflation —Wednesday 22 May
Not a stock, but definitely market moving data that investors will need to watch out for — the latest UK inflation figures coming out.
The market's expectation is that headline inflation eased to 2.7% in April and that core inflation retreated to 3.6%.
"If correct, this should increase the chances of a rate cut in June," Tony Sycamore, market analyst at IUG, wrote.
The consumer prices index dropped to a two and a half-year low of 3.2% in March, according to the Office for National Statistics, which was down from 3.4% the previous month but higher than economists’ forecasts of 3.1%.
Core inflation, which strips out energy, food, alcohol and tobacco, dropped to 4.2% in March from 4.5% in the previous month. Analysts expected a drop to 4.1%.
"Much hinges on the April CPI data due later in May, which is when we’ll see the results of the annual contract-linked price rises that typically take place at the start of the year. Our rough estimates suggest 40% of the services inflation basket is affected by these annual price hikes to some degree, and last year’s data release was much stronger than expected, prompting the single biggest daily increase in two-year swap rates in 2023 as a whole," ING wrote.
The Office for National Statistics (ONS) will release the latest figures this Wednesday.
