Macro: Sandcastle economics
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Chief Investment Strategist
Nvidia has just reported FY25 Q2 (ending 28 July) results after the US market close. Below are the key take-aways from the result.
Nvidia pretty much did what we expected in our preview, beating on revenue and earnings in fiscal Q2 and guiding fiscal Q3 revenue above the median consensus estimate. Judging from the initial market reaction in extended trading hours the loftiest expectations were clearly not met. The stock price reaction fell short of the historical average of about 7-8% absolute 1-day move after earnings and the 10% anticipated by the options market this time. Key for sentiment in Nvidia shares is how management talks about the outlook on the conference call.
Coming into the earnings there was some nervousness around the Blackwell chip as Nvidia had already admitted that there had been some design flaws that had postponed the production schedule. The risk was that the problems were bigger than initially expected, but based on Nvidia’s outlook for the Blackwell chips in terms of production ramp-up and revenue generation, it suggests that whatever the problem was it will not derail the entire production of Blackwell chips.
Overall, investors should be pleased with Nvidia’s results and outlook. It confirms that there will likely be another AI investment wave as the big technology companies will invest heavily in the new Blackwell chips as they are more energy efficient and have significantly more computing power for both training and inference calculations so important for AI. Another take-away is that the competition is not even close to take market share from Nvidia and thus the investment case still looks solid.
With the current expectations for FY26 (ending January 2026, so essentially 2025) free cash flow of $85bn, Nvidia is valued roughly at a 12-month free cash flow yield of 3% compared to around 4.5% for MSCI World.Previous weekly equity market updates
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