Nvidia smashes expectations, stocks higher as Jackson Hole gets underway, new boss for Hays as it makes workforce cuts and Harbour Energy profit (but not cash) wiped out by windfall tax

Nvidia

“Better than expected quarterly earnings from Nvidia have significant implications for global markets,” says AJ Bell Investment Director Russ Mould.

“The chip specialist has been one of ‘The Magnificent Seven’ stocks driving US markets this year, with its shares up 243% since the start of 2023. It’s been one of the market superstars and given investors hope that it is still possible to make good money from equities in an environment where interest rates continue to go up and inflation remains sticky in places.

“Any disappointment in its latest results would have gone down like a lead balloon. It could have hurt investor sentiment and caused contagion elsewhere in the markets. Fortunately, it’s pulled another rabbit out of the hat and given investors everything they wanted and more.

“This appears to have sprinkled some magic dust on the markets and provided new impetus to share prices. The rest of the Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft and Tesla) all saw their shares rise in after-hours trading following Nvidia’s results, and on European markets we’ve seen tech-related stocks such as ASML and Scottish Mortgage move higher.

“Nvidia is seen as the poster child for artificial intelligence, with its chips playing a key role in the roll-out of AI systems. AI has been the hot investment theme in 2023 and Nvidia’s results imply there is a lot more to go for.

“As chief executive Jensen Huang says: ‘A new computing era has begun’. That’s crucial to why investors are rushing to own the stock. They see this as the start of something big, with further gains to come. In this situation it is important to not get carried away and have unrealistic expectations for what a company can achieve.

“Just remember that shares in the ‘next big thing’ often follow the same pattern – they shoot up on the hype, fall back as expectations get rebased, and only move up again in a sustained fashion if there are truly plugged into a structural growth market.”

Markets

“After knock-out results from US tech outfit Nvidia overnight the FTSE 100 enjoyed a broad-based rally on Thursday morning.

“The next test of market confidence will be over the coming days as we get information from the Jackson Hole Economic Symposium in Wyoming. Federal Reserve chair Jerome Powell is set to address the summit of central bankers and finance ministers on Friday and his words will be closely monitored for any hints on the future direction of US interest rates.

“Signs of a softening jobs outlook may be taken positively in terms of the implications for inflation and the latest results from global recruiter Hays suggest some of the heat has come out of the labour market.

“While the numbers themselves were solid enough, Hays has announced notable cuts in its own consultant workforce. The appointment of a new CEO after 16 years, as internal appointment Dirk Hahn is identified as the man to take over from long-serving Alistair Cox, is a key test for the company heading into an uncertain period. Cox is at least sticking around to smooth the transition.”

Harbour Energy

“Another set of results from a North Sea producer and yet again the windfall tax is being blamed for wiping out profit.

“There is a legitimate argument that the increase in levies on North Sea production will hit investment in the UK oil and gas industry and Harbour has announced further reductions in capital expenditure today, but pleas of poverty do not stack up.

“Profit is something of a moveable feast, particularly when you choose to recognise the impact of tax changes. Cash flow cannot be massaged and Harbour still generated free cash flow of $1 billion in the first half.

“The problem in the UK is not so much the scale of the taxes being wrought on the sector but the constant tinkering which makes it very difficult for businesses to commit to long-term projects. Norway, for example, levies a 78% tax but this has not changed for a long period and it offers generous incentives for development and exploration.”

These articles are for information purposes only and are not a personal recommendation or advice.