Key tests across many markets into the weekend

Risk-off, Nvidia earnings, and Adyen’s sudden collapse

By Peter Garnry, Head of Equity Strategy at Saxo

Risk-off continues into the weekend across markets.

These are the key events shaping markets :

  • S&P 500 futures have broken below the 4,370 area trading around 4,359
  • Cyclical vs defensive sectors return spread made new low for the cycle since peak in July signaling internal equity market rotation
  • BofA report yesterday talking about 5% world on US 10-year yield is helping shape perception of sticky inflation and stagflation
  • Hang Seng futures are hitting new low YTD on Evergrande bankruptcy protection filing in the US
  • The 45% collapse in Adyen is big event in Europe and the payments industry
  • Nvidia earnings on Wednesday are key for equity sentiment and especially around AI related stocks
  • Bad JGB auction earlier this week signals issues with liquidity
  • Increased talks about restructuring of Chinese shadow banking

Nvidia earnings are key test for AI

Next week’s earnings from Nvidia will be a key test for markets and especially the cluster of AI related stocks that have rallied significantly this year. Nvidia reports FY24 Q2 (ending 31 July) earnings on Wednesday after the US market close with analysts expecting revenue of $11bn up 65% y/y and EBITDA of $6.3bn up from $924mn a year ago as demand for AI research and deployment has exploded since the successful launch of OpenAI’s ChatGPT.

It looks like it is especially Chinese technology companies that are driving the demand bonanza because China has realized that the country is behind on AI and has instructed their technology companies to catch up quickly. In fear of the Biden administration making further export restrictions Chinese technology companies are right now hoarding modified GPUs from Nvidia. So the key test is whether Nvidia is maintaining its fiscal year outlook or demand is already cooling after the initial splurge.

Adyen’s sudden collapse

Nobody had seen it coming. Adyen was heralded as a leader in the payments industry with solid growth but yesterday’s shocking earnings release showed a significant miss on volume and EBITDA due to significant cost pressures and too much hiring in its North America business. Adyen shares are down 2.5% today adding to the 39% decline yesterday as the company’s long-term operating margin guidance has come into question over increased competition.

The problem for shareholders is now to find out what is the long-term growth and more importantly margin. Compared to other payment stocks Adyen is still valued at a premium and thus there is still downside risk to the stock.

Further reading: click here

Peter Garnry

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