Earnings preview and a new mega deal in semiconductors

Worst earnings season since June 2020 is coming to an end

The Q1 earnings season is running out of steam with data stacking up to be the worst since the Q2 2020 earnings with EPS in the MSCI World Index down 7.5% q/q and revenue down 0.4% q/q. Given the inflationary pressures in the economy it is quite staggering that revenue growth is down indicating that economic activity in volume terms is slowing down. On a positive note, JPMorgan has just pre-released its outlook ahead of its Q2 earnings in early July saying credit outlook looks positive and FY22 net interest income will reach $56bn vs previously $53bn.

Among this week’s earnings we are looking forward to Wednesday where the focus is earnings from Nvidia and Snowflake. Nvidia is expected to deliver FY23 Q1 (ending 30 April) revenue of $8.1bn up 43.1% y/y but with cryptocurrencies declining a lot from the highs we would expect capital expenditures from the crypto mining industry to decline as well just like in 2018. This had a real negative impact on Nvidia’s revenue growth (see chart) and investors must be prepared for the same abrupt change in growth rates. Snowflake is expected to deliver FY23 Q1 revenue (ending 30 April) of $414mn up 81% y/y and its first quarterly positive EBITDA result.

Chinese equities have had a tough past year with lockdowns and regulation of its technology sector impacting growth rates and Q1 earnings have been quite mixed with an obvious slowdown among technology companies. Alibaba is expected on Thursday to deliver Q1 revenue figures of CNY 200.6bn up 7% y/y confirming the drastic slowdown of the Chinese economy. The e-commerce company’s future growth is going to come from international operations and its cloud computing unit so in terms of the outlook those two segments are the focus of investors.