European pain, cyber security realities, and earnings watch

European pain, cyber security realities, and earnings watch

Peter Garnry

Chief Investment Strategist

Summary:  Europe's economic growth declined significantly in May adding to concerns already mounting among economists that the global economy could enter contraction. The cyber security industry is undergoing strong and Crowdstrike lifted its fiscal year outlook for revenue and earnings, but despite 35% expected revenue growth this year investors are sending its shares down by 7%. Finally, we take a look at next week's earnings where we focus on a smaller French semiconductor company called Soitec.


Key points in this equity note:

  • Europe’s economic growth experienced a significant decline in May confirming the worsening outlook driven by a decline in industrial production.

  • Despite strong growth outlook and an upward revision to both revenue and earnings, investors were still not satisfied with Crowdstrike’s earnings result sending the cyber security shares down 9% in pre-market trading.

  • The AI hype has mostly benefitted US technology stocks and a few European stocks. But next week Soitec, a small hidden French gem in the semiconductor industry, will report earnings.

An ugly May in Europe increases the risk for equities

The year started with a growth rebound in Europe following a severe contractionary levels back in the second half of 2022 as penalizing energy prices negatively impacted companies and households. The growth rebound combined with hopes of a Chinese recovery story led European equities higher outpacing US equities and especially luxury stocks were pulling the European indices higher. Economic growth hit positive level in January but since then growth stalled despite tighter labour market dynamics and we can now see that May was an ugly month for Europe according to the euro-coin growth indicator, which is a real-time GDP tracker in the euro area. This data point aligns well with the German economy being in a recession and the negative developments reflects a decline in industrial production and other qualitative indicators on business activity.

With the probability increasing of both the US and European economy slipping into a period of real GDP contraction the risks for equities are going up. The good thing for European equities is that equity valuations are much more benign than in the US equity market, read our equity note from yesterday on valuation risks in US equities, which has recently been fueled by the AI-driven frenzy.

Year-to-date returns | Source: Bloomberg

Crowdstrike growth of 35% is not enough for investors

Cyber security is a red-hot equity theme and one of the best equity themes since Russia’s invasion of Ukraine that has lifted demand for cyber security solutions from high to very high levels. The strong underlying growth dynamics have pushed expectations a lot higher for many cyber security stocks and they have constantly been bolstered due to strong earnings exceeding estimates in many cases. Yesterday’s earnings from Crowdstrike were better than expected and the fiscal year outlook on both revenue and EPS were lifted from previous statements. The company is projecting 35% revenue growth this year. One would think that such an announcement would cause stock price to rally, but instead Crowdstrike shares are down 7% in today’s trading.

This is a lesson for investors that even strong earnings results can hit a roadblock called excessive expectations. But for long-term investors it is important to let the price action be what it is – namely just noise. Focus on the secular growth theme in cyber security stocks and tune out the hiccups on the way to more revenue and profits in the future.
Crowdstrike weekly share price | Source: Saxo

Earnings Watch: Is a hidden gem in France drowning in the Nvidia hysteria?

AI hype has been the dominant factor in equity markets this year and went in overdrive mode with Nvidia’s insane revenue outlook. Many US-based companies related to AI have responded to the AI hype but only a few European companies have felt the tailwinds from AI winds across the Atlantic outside of course ASML which investors are betting will see an order increase as higher demand for AI chips will mean more demand for EUV machines for producing the chips.

But underneath the technology giants related to AI there is a little French semiconductor company called Soitec that will report earnings on Wednesday. Soitec is French-based semiconductor company with a market value of €4.6bn and revenue of €863mn in the past year up 48%. The company has 2,000 employees with 20% of those people working in R&D. Shares in Soitec are down 15% this year reflecting a very different development than what we have seen in US semiconductor stocks.

Analysts are very positive on the company expecting revenue to grow to €1.9bn in the FY26 (ending 31 March 2026) with EBITDA growing from currently €276mn to €731mn as the operating margin expands. Analysts have a price target of €189 compared to the current price of €130 (45% upside potential). The company has a patented engineering substrate solution that allows for precise layering of wafers later used for chip manufacturing. Its Smart Cut technology makes use of both implantation of light ions and wafer bonding to define and transfer a thin single-crystal layer from substrate to another. It basically works as an atomic scalpel.

Soitec weekly share price | Source: Saxo

Next week’s earnings releases:

  • Monday: Science Applications International
  • Tuesday: J M Smucker, Thor Industries, Ciena
  • Wednesday: Campbell Soup, Brown-Forman, Smartsheet, GameStop, Voestalpine, Inditex, LXI REIT, Soitec
  • Thursday: Toro, Vail Resorts, DocuSign

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.