Nvidia earnings, electrification boom, and bubbles

Equities 5 minutes to read
Peter Garnry

Chief Investment Strategist

Key points

  • Nvidia earnings: Nvidia shares were up 9% yesterday as its revenue outlook for the current quarter was much stronger than expected.

  • Electrification boom: The boom in AI is creating a major shift in demand for electricity and grid infrastructure. We highlight the major US and European companies in grid technology.

  • US equities bubble: Last week’s all-time high has pushed US equities back into bubble territory.

  • Earnings watch: Next week’s most interesting earnings releases are Salesforce (Tue), Costco (Thu), and Dell Technologies (Thu)

Nvidia defies gravity on strong AI demand

Sometimes a picture says more than a thousand words and that is exactly what yesterday’s performance heat map of S&P 500 stocks did (see below). In a sea of red as US stocks reacted negatively to strong PMI figures, which lowers the probability of a rate cuts, Nvidia shares pulled in the opposite direction gaining 9.3%.

Nvidia rose strongly yesterday as its earnings results published after the US market close on Wednesday showed a strong beat on both revenue and earnings. Revenue was up 262% YoY and EPS was up 585% YoY. But it was its revenue outlook for the current quarter of $28bn plus or minus 2% that beat estimates of $26.8bn that really got investors excited. The excitement continued on the earnings call when the founder and CEO Jensen painted a wild picture of the future with Nvidia powering it all. As the slide below shows, Nvidia has significantly pushed the computing power to new levels and Jensen said more was to expected and that it would drive significant innovation in self-driving cars technology and drug discovery (Nvidia is building a supercomputer for that purpose with Novo) just mention a few things.

Ahead of Nvidia’s earnings we published the first in our new weekly series where we every Wednesday covers a high quality company. Read the fascinating story behind Nvidia and how it became a high quality company, but importantly whether it can remain a high quality company in the future as Google, Meta, and Microsoft are collaborating to break down the competitive walls protecting Nvidia’s business.

Source: finviz.com
Source: Nvidia
Nvidia share price | Source: Saxo

Electrification is the next wave

The two big themes this year have big defence and AI. All waves end at some point and a new one will come. We believe that the next wave in investment themes will be electrification due to the massive demand for datacentres filled with GPUs to train AI models and compute inferences from these models. Bloomberg recently did a podcast with Brian Janous, the former Head of Energy at Microsoft, in which he explains that electric utilities have gone in one year from projecting zero growth in electricity demand over the next 10 years to a doubling. The message is that this increase in electricity production will create a big investment boom in new power plants and renewable energy projects, but also buildout of new electricity grid infrastructure. From an investment angle our view is that grid technology is the sweet spot.

The biggest players in the US and European grid technology industry (power lines and transformer stations etc.) are GE Vernova, Siemens Energy, ABB, Schneider Electric, Eaton, Nexans, and Prysmian. As the chart shows below, the total return for these companies has been quite good over the past five years and the AI boom has extended the momentum even more. This year these stocks excluding GE Vernova that was IPO’ed in April are up 31.2% on an equal-weighted basis beating the MSCI World by a big margin. One could argue that the electricity grid theme is already running, but in the minds of investors and in terms of media headlines it has not rose to attention yet. For investors that want to diversify their portfolio’s exposure to AI considering these companies in electricity grid technology might be a good idea. 

Has AI created a new bubble?

When we look across last week’s performance we can see that the information technology sector is the only sector that is up while interest rate sensitive sectors such as consumer discretionary, utilities, and real estate have been under pressure. Across regions things have been muted, but as we highlighted in last week’s equity update, US equities are back to all-time highs and it begs the question of whether we have a bubble again.

Looking at our valuation model on US equities there are signs that US equities are getting too expensive again and that investors should consider reducing exposure to US equities. In last week’s update we flagged European equities as the most interesting alternative right now to US equities and that is still the case. Based on our valuation chart we can say that we have had three bubbles in US equities since 1992. The first came during the 2000 dot-com period, the second was the technology bubble during the pandemic reopening in 2021, and now this AI fuelled bubble with Nvidia shares spearheading the move.

Earnings Watch: Salesforce, Costco, and Dell Technologies

Next week’s key earnings to watch starts on Tuesday with Salesforce reporting FY25 Q1 earnings (ending 30 April). Analysts expect 11% YoY growth and EBITDA of $3.8bn up from $2.8bn a year ago as Salesforce continues to focus on improving profitability. Investors will also focus what Salesforce is doing to implement AI workloads on their Salesforce platform. Costco reports FY24 Q3 earnings (ending 31 May) on Thursday with analysts expecting revenue and EPS growth of 8% YoY as Costco continues to take market share in the US retailing industry due to its strategic positioning on high value which fits well in an inflationary environment. Dell Technologies reports FY25 Q1 results (ending 30 April) on Thursday with analysts expecting revenue growth of 3.5% YoY and flat operating profit growth. Dell Technologies has been one of the big winners since ChatGPT was launched in late 2022 as the market has repriced the company’s shares, but it remains to be seen whether its partnership with Nvidia on AI and demand for AI workloads are filtering through to Dell’s business.

Previous weekly equity market updates

New all-time high on speculative stocks comeback

Quarterly Outlook 2024 Q4

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

    Head of FX Strategy

    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

    Head of FX Strategy

    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)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/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.