Nvidia narrows share price losses, US GDP upgrade welcomed with open arms by investors, talk of Shell job cuts, Dollar General slumps and Birkenstock disappoints

Tech Stocks / Nvidia / US GDP Figures

“Nvidia managed to claw back some of the big share price losses seen in after-hours trading after its results were published last night. That suggests investors have taken time to consider the pros and cons of the numbers and commentary, with many deciding the AI party is far from over,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“The fact that the remaining six stocks in the so-called Magnificent Seven group of companies (Apple, Amazon, Alphabet, Microsoft, Meta and Tesla) all saw their share prices rise on Thursday would suggest that we’re not seeing the start of another market correction, much to everyone’s relief.

“There was a big risk that Nvidia’s results might disappoint the market and cause investor sentiment to sour, leading to profit taking on a broader basis. That doesn’t appear to have happened, thanks in part to positive economic data which has dampened fears of a US recession.

“In recent years, stronger than expected GDP data might have gone down badly with the market as it would give the Federal Reserve less of a reason to cut interest rates. Given all the recent talk about a potential US recession, the fact GDP grew more than initially reported in the second quarter implies that the country might get a soft landing, not a hard crash. That’s deemed to be very good news, hence why markets perked up and the VIX measure of volatility retreated by 10%.”

Shell

“Reports that Shell is planning cuts in its oil and gas exploration and development workforce is a sign of the times for European energy producers.

“Unlike players in the US who have gone all-in on fossil fuels, many European companies have taken a more cautious approach as they try to make the most of existing assets and balance the transition to renewable energy.

“Admittedly, Shell has taken its foot off the pedal with many renewable projects, but the exploration and development job cuts would suggest it isn’t going to do a full-scale U-turn and chase large oil opportunities like its American peers. Instead, Shell wants to do more in liquified natural gas. That still falls under the fossil fuel banner, albeit the cleanest source of energy in this category.

“Oil production remains a big source of cash for Shell and if it does reduce expenditure on exploration, eventually its supply of crude will dwindle. If the reports about job cuts prove correct, it’s a sad day for the UK oil and gas industry given that Shell employs a lot of exploration and development people in this country.”

Dollar General

“Value store operators like Dollar General were meant to thrive in a period of higher interest rates as low-price points attract a broader group of customers. The honeymoon period is now over and they’re struggling alongside many other types of retailers.

“The gloomy results illustrate how parts of America are still feeling the pinch of high costs of borrowing and a fragile backdrop clouded by a softening jobs market and political uncertainty.

“Consumers are being really picky about where they spend money. Essential purchases are getting priority over nice-to-have items like electronics and toys. If you have to choose between putting a meal on the table and clothes on your back versus spending on treats and non-essentials, it’s obvious where the money will be spent.

“At the same time as consumers become more cautious, Dollar General is having to contend with wage cost pressures, greater markdowns to help shift unpopular products, and increased levels of shrink – an all-encompassing term that covers shoplifting, administrative errors and damaged goods, which leads to fewer items in stock than is on the system. That has put the squeeze on profits and led to downgraded earnings guidance. It’s not a good look and investors have raced to dump the shares.”

Birkenstock

“Birkenstock has tripped up after a big miss with its third-quarter earnings. Earnings per share of $0.40 came in 23% below expectations, causing the share price to tumble in pre-market trading.

“Margins were a key focus as the company stomachs the cost of production capacity expansion. Such investment could improve product availability in shops, which is a positive. However, markets remain short-term in their focus and once again view such investment into a business as negative as it is money going out of the door, not coming in.

“The big question is whether people are still rushing to buy its footwear in their droves. Its closed-toe clogs have been a big hit, ditching their ugly reputation and becoming the height of fashion. Celebrities and TikTokers have been talking up their attractions, creating a buzz which has helped the products fly off the shelves. That’s a welcome tailwind for the business, but it is hard not to ignore the slowdown in the pace of growth across the group.

“Third quarter revenue increased by 15% in the Americas and by 19% in Europe, both less than the 21% gains seen in both regions during the second quarter.

“Like many footwear companies, Birkenstock has been trying to go direct to consumers to sell more products as that helps cut out the middleman and leaves more money in its pocket. Revenue growth from this channel also slowed in the period, up 14% versus 32% in the previous quarter.

“The negative share price reaction to the results would suggest investors are concerned that consumers aren’t spending as much. It needs the pace of growth to improve if it wants to put a spring back in its step.”

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