London pre-open: Stocks seen up as investors mull Nvidia results
By Michele Maatouk
Date: Thursday 21 Nov 2024
(Sharecast News) - London stocks were set to rise at the open on Thursday as investors mulled third-quarter results released overnight by US tech giant Nvidia.
The FTSE 100 was called to open around 40 points higher.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: "Nvidia announced another very strong quarter after the bell. The company surpassed its own revenue forecast by around $2bn (again!) and printed a sales number of $35.1bn. That's around $5bn more than last quarter's number and almost the double of the amount earned during the same period a year ago.
"The company printed a total profit of an eye-watering $19.3bn - that's also around $2bn more than pencilled in by analysts. And it made a revenue forecast of $37.5bn for the current quarter. That's $2bn more than the actual revenue - as it has been the case for the past few quarters - but only slightly above the consensus of $37bn."
Shares in Nvidia fell after hours, however. Ozkardeskaya highlighted two red flags in the results.
"1. The company's gross margin slightly fell last quarter from 75.1% to 74.6%. This number is still around 20 percentage points above AMD's profit margin and more than double Intel's BUT the switch to the now-famous Blackwell chip - and the manufacturing challenges, there - has been costlier than thought and took a toll on the profit margin. And Nvidia expects its gross margin to dip to 73% before rebounding back to mid-70s as it reaches large-scale production.
"2. Happily, demand for Blackwell chips is expected to exceed supply for a few more quarters but the composition of Nvidia's customer book worries. Big Tech companies make up to 50% of revenues - up from 45% a quarter earlier. And these companies will be done buying chips at large-scale at some point. And come that day, Nvidia must find new clients. The problem is that companies other than Big Tech certainly don't have the same means to make Nvidia's bread and butter when competition proposes more affordable AI chips. Hence, competition and market share will become a challenge."
In UK corporate news, JD Sports Fashion said it expected full-year profits to be at the lower end of its forecast range after a "volatile" trading environment in October due to bigger discounts and milder weather, which saw third quarter like-for-like sales fall by 0.3%.
The sportswear retailer forecast profit before tax and adjusting items of £955m to £1.035bn.
Frasers Group urged shareholders to remove Boohoo's executive chairman Mahmud Kamani, to appoint Mike Ashley and James Lennon to the Boohoo board.
In response, Boohoo announced the appointment of Tim Morris as independent chair, with Kamani transitioning to executive vice chair and committing to governance measures including limiting his influence over board decisions and operations.
Frasers, which owns just over 28% of Boohoo, requisitioned a meeting for the appointment of Ashley and Lennon for 20 December, and urged shareholders to remove Kamani at a separate shareholder meeting.
Postal and courier giant International Distribution Services returned to an adjusted operating profit in the first half, as revenues grew across the group and losses at Royal Mail shrank.
The company said that Royal Mail was on track to return to a profit for the full year, though the outlook for parcel services division GLS remains uncertain with the macro environment across Europe still "challenging".
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