It has been a mixed and up and down week for US stocks as AI-related excitement linked to Nvidia’s (NVDA:NASDAQ) shoot the lights out performance has gradually been outweighed by concern about interest rates.
It’s probably not the healthiest situation for the entire market’s fortunes to be so heavily tied to one stock and US stocks looked increasingly sickly as the week went on.
There was real trepidation ahead of Federal Reserve chair Jerome Powell’s speech at the Jackson Hole summit of finance ministers and central bankers on 25 August.
Pharmaceutical and biotechnology firm Moderna (MRNA:NASDAQ) was in demand as it forged an agreement with a Chinese firm to work on a cancer vaccines and as the Biden administration reportedly gears up for a push to get Americans to have a Covid booster shot.
A profit warning from discount retail chain Dollar Tree (DLTR:NASDAQ) suggested a softening in US consumer sentiment as the company is also dogged by higher costs and increased incidences of theft. Consumer electronics chain Best Buy (BBY:NYSE) was also pulled lower in its wake.
NVIDIA
Another blockbuster set of numbers from chip designer Nvidia (NVDA:NASDAQ) briefly helped propel the stock to fresh highs before the company, which had run up sharply ahead of the announcement, surrendered its latest gains.
Nvidia stands to benefit from the development of AI because its chips are used to develop machine learning software. The company calls its DGX system an ‘AI supercomputer’ and ‘the blueprint of AI factories’ being built across the globe.
As major tech companies invest heavily in AI, this is translating into significant earnings growth for Nvidia.
The company reported second-quarter sales of $13.5 billion, up from $7.2 billion in Q1 and ahead of the consensus forecast of $11 billion.
Net income reached $6.1 billion, up from $2 billion in Q1 and comfortably ahead of CEO Jensen Huang’s own guidance back in May for a figure of around $5 billion.
Inventory dropped by another $300 million to $4.3 billion, suggesting that a 2022 slowdown in sales and big increase in unsold product was something of a one-off.
VINFAST/TESLA
“The life of Vietnamese electric vehicle maker VinFast (VFS:NASDAQ) as a public company has had as many twists and turns as rally race and it’s only been a week.
The company merged with a SPAC (special purpose acquisition company) and listed on the US Nasdaq exchange and despite being loss-making is worth more than Ford (F:NYSE) or General Motors (GM:NYSE) in terms of market cap.
Unlike other new arrivals like Lordstown and Faraday (FFIE:NASDAQ), which have struggled, VinFast has been making cars for five years and has around 20,000 vehicles on the road. ‘We’ve got every step from product development to supply chain’, the firm’s says the chief executive, claiming VinFast would be profitable ‘in the next couple of years’.
After losing some momentum on concerns about its Chinese strategy, Tesla powered up on hints about a launch event for its hotly anticipated Cybertruck.
NIKE
Shares in global footwear and sportswear brand Nike (NKE:NYSE) have fallen sharply over the last two weeks after disappointing trading updates from specialist retailers Foot Locker (FL:NYSE) and Dicks Sporting Goods (DKS:NYSE).
Since 7 August, Nike shares have lost $13 or 12% to $97.63, wiping $20 billion from its market cap, as evidence mounts that US consumers are being choosier in how they spend their disposable income.
Foot Locker posted falling like-for-like July sales and lowered its full-year revenue guidance as the weight of a slowing US economy on its lower-income customer base ‘became more evident through the second quarter’ in the words of chief executive Mary Dillon.
Foot Locker shares crashed as much as 36% on the day of its update, although they recovered to close 28% lower at $16.69.
Given Nike accounts for a large percentage of Foot Locker's sales, ‘investors will conclude Nike must be having the same issue in its own distribution channels’ commented UBS analyst Jay Sole.
Meanwhile, for the first time in three years, Dicks Sporting Goods missed analysts’ forecasts when it reported its second-quarter earnings.
The firm blamed aggressive discounts to reduce its stock levels of outdoor goods and an increase in 'shrink' or thefts from its stores for the first time in over a decade.
'We thought we had adequately reserved for it. However, the number of incidents and the organised retail crime impact came in significantly higher than we anticipated', commented chief finance officer Navdeep Gupta on the analysts' call.
Like Foot Locker, Dicks also cut its full-year earnings forecast sending its shares down 24% on the day.
