If Nvidia rose by more than 9%, boosted by its latest quarterly results, this was not enough to support the US stock indices… The prospect of lastingly high rates following the latest statements from the Fed , given the current solidity of the economy as evidenced by the latest PMI indices, has weighed down the US rating.
The S&P 500 lost 0.74% to 5,267 pts, while the Dow Jones returned 1.53% to 39,065 pts. The Nasdaq lost 0.39% to 16,736 pts. On the Nymex, a barrel of WTI crude lost another 0.4% to $77. The dollar index stabilizes against a basket of currencies, while bitcoin falls to $67,863.
Fed officials indicated at their latest monetary policy meeting on April 30 and May 1 that rates “would likely stay high for longer if inflation numbers continue to disappoint,” while that some monetary decision-makers have even mentioned the possibility of raising rates further if necessary… The fed funds rate is already at its highest in 23 years, between 5.25 and 5.50%, following accelerated monetary tightening aimed at bringing inflation quickly towards the 2% objective. According to the Fed Minutes, several voting members of the Fed mentioned a willingness to tighten policy further if inflation risks “were to materialize in a way that would make action appropriate.”
FOMC committee members admitted their disappointment with recent inflation data (before the latest consumer price inflation report), but also made it clear at their last meeting that they still believed a decline in price pressures, even if slowly… Thus, disinflation could take longer than previously anticipated. This situation implies for the moment maintaining rates… The debates also focused on the more or less restrictive nature of the monetary policy in force given the solidity of the economy…
The CME Group’s FedWatch tool shows an additional Fed status quo probability of almost 99% on June 12, after the next meeting. This status quo should persist in July according to this same tool (87% ‘proba’), but the Fed could then relax its policy from September or November… Obviously, as the Fed has often pointed out, monetary policy remains dependent on new economic data. The latest consumer price figures last week were reassuring, but nothing says that this trend is sustainable… Note that expectations of a rate cut at the end of the year have fallen following the publication an hour ago of a very robust American composite PMI.
The US composite flash PMI for May 2024 was very strong at 54.4, with a manufacturing index of 50.9 and a services indicator of 54.8. The FactSet consensus stood at just 51.2 for the composite index, 50.2 for the preliminary manufacturing indicator and 51.5 for the services index. Remember that a PMI index above 50 signals an expansion in activity.
Among the latest US indicators, unemployment claims fell more than expected last week in the United States. The US Department of Labor announced unemployment claims for the week ended May 18 at 215,000, down 8,000 from the revised level of the previous week. The consensus was positioned at 220,000. The four-week average stands at 219,750, up 1,750. Finally, the number of unemployed people receiving compensation for the week ending May 11 stood at 1.794 million, an increase of 8,000 over seven days.
The Chicago Fed’s national activity index for the month of April was negative at -0.23, compared to -0.04 a month before in a revised reading. The FactSet consensus was +0.20. A negative reading of this indicator signals below-trend growth.
Elsewhere in the world, European PMI indices were mixed. The preliminary composite index for May in the euro zone still slightly exceeded expectations at 52.3 compared to the FactSet consensus of 52. the British composite index disappointed at 52.8, against a consensus of 54…
Values
Nvidia jumped 9.3% and exceeded $1,000, for more than $2,500 billion in market capitalization, i.e. a capitalization gain of more than $200 billion for the time being. Jensen Huang’s group, leader in graphics and AI chips, once again delivered an extraordinary quarter, well above market expectations. Revenue forecasts for the current quarter are also higher than expected. As if that were not enough, the group will proceed with a split of its action by ten, thus offering better accessibility to employees and small holders. A strong increase in the dividend is also on the agenda, even if yield is not the primary quality of this file. To top it off, Jensen Huang, the visionary boss of the group, indicated during the presentation of the results that he expected “a lot” of sales of new generation Blackwell chips this year.
Nvidia thus retains its belt as “world heavyweight champion of AI”. For the first quarter of its 2025 fiscal year, the group posted historic revenues of $26 billion, up 18% compared to the previous quarter and… 262% (!) compared to the previous year. . The consensus was around $24.6 billion. Data center revenues also reached a record at $22.6 billion, up 23% quarter over quarter and… 427% year over year! Adjusted earnings per share were $6.12, an increase of 19% compared to the previous quarter and an increase of 461% year-on-year! Adjusted EPS exceeds consensus by almost 10%. GAAP earnings per share even soared by 629% compared to the previous year.
The gross margin was 78.9% on an adjusted basis compared to 76.7% in the previous quarter. It was “only” 66.8% a year earlier. Adjusted net profit represented 15.2 billion dollars, compared to 12.8 billion a quarter before and 2.7 billion a year earlier.
Second-quarter revenue is expected at around $28 billion, plus or minus 2%, compared to a consensus of $26.8 billion. GAAP and non-GAAP gross margins are expected to be 74.8% and 75.5%, respectively, plus or minus 50 basis points. For the financial year as a whole, the gross margin is expected to be close to 75%. GAAP and non-GAAP operating expenses are expected to be $4 billion and $2.8 billion, respectively, for the quarter, while annual operating expenses are expected to increase in the low 40s.
Tesla (-3.5%). Jensen Huang, founder and CEO of Nvidia, also slipped during an interview on Yahoo! Finance: “Tesla is way ahead in the field of self-driving cars. Every car, one day, will have to have autonomous capability. It’s safer. It’s more practical. It’s more fun to drive.”
Snowflake (-5.3%), following its publication of the first fiscal quarter. Revenues produced for the quarter ending in July are expected between $805 million and $810 million, compared to a consensus of $788 million. Annual product revenues are now forecast at $3.3 billion, an upward revision. Sridhar Ramaswamy, the new CEO, formerly of Google, believes that the new AI products now available are generating strong customer interest. For the first quarter, product revenues increased 34% to nearly $790 million, well above consensus. Adjusted earnings per share were 14 cents versus 19 cents consensus.
Synopsys (+2.3%), the American software group active in the design and verification of integrated circuits, unveiled second fiscal quarter accounts better than expectations and revised upward guidance. For the quarter ended April 2024, Synopsys posted revenues of $1.45 billion, up 15%. Adjusted earnings per share came in at $3 versus a consensus of $2.95. For the current quarter, third fiscal quarter 2024, revenues are anticipated between 1.51 and 1.54 billion dollars, against 1.6 billion consensus. For the financial year, revenues are now expected between $6.09 and $6.15 billion, an upward revision of previous guidance. Annual adjusted EPS is anticipated between $12.90 and $12.98.
DuPont (+0.4%), the American chemicals group, announced its intention to split into three listed companies… Thus, the group will separate its electronics and water activities. The remaining entity will focus on medical and pharmaceutical industries. In addition, the group’s chief executive Ed Breen, who returned to his position four years ago, will leave on June 1 while retaining the role of executive chairman of the remaining entity. Lori Koch, current CFO, will serve as CEO. The split should make it possible to give each activity more flexibility to pursue its own growth objectives. The remaining business accounted for about $6.6 billion of DuPont’s sales in 2023. The electronics business generated $4 billion in revenue last year, compared with $1.5 billion for the water activity.
VF Corp (-2.9%), the group with brands Vans, Supreme, Timberland and The North Face, corrects the situation! For its fourth fiscal quarter, the group posted revenues of $2.37 billion, compared to a consensus of $2.41 billion and a level of $2.74 billion a year earlier. The adjusted loss per share reached 32 cents, while the gross margin deteriorated to 48.4%. Adjusted EPS was expected to be close to breakeven over the period, while the group had posted adjusted earnings per share of 17 cents last year, at the same period. Free cash flow was negative at $117 million.
Medtronic (-5.1%), one of the leaders in medical technologies, announced revenues of $8.6 billion for its fourth fiscal quarter, an increase of 0.5% in consolidated data and 5.4% in organic. Adjusted earnings per share were $1.46 for the closed period. The consensus was for $1.45 in adjusted earnings per share on $8.44 billion in revenue. For the 2024 financial year, the group achieved revenues of $32.4 billion, an increase of 3.6%, for adjusted earnings per share of $5.20. Medtronic anticipates organic growth for fiscal year 2025 of between 4 and 5%. 2025 revenue growth on a reported basis is expected between 2.4 and 3.7%. The company expects 2025 adjusted earnings per share to be between $5.40 and $5.50. This would represent growth in adjusted diluted EPS for the year of around 4 to 6%.
Ralph Lauren (+3.2%) published adjusted earnings per share of $1.71 for its fourth fiscal quarter, compared to 90 cents for the comparable period last year, and a consensus of $1.66. Revenues increased by 2% to $1.6 billion (+3% at constant currencies), also above expectations. Adjusted operating profit was $137 million, for a margin of 8.7%, an increase of 380 basis points compared to last year. Over the financial year, revenues increased by 3% to $6.6 billion, while the adjusted operating margin was 12.5%. For fiscal 2025, the group expects revenue to grow in the low single digits at constant currencies, while operating margin is expected to grow by 100 to 120 basis points.
Alibaba (-2.2%) remains under pressure on Wall Street, while according to Bloomberg, the Chinese online commerce giant is considering raising funds of $5 billion through the issuance of convertible bonds. The agency cites people familiar with the matter on this subject. Such an offer would follow the announcement of a fundraising of $1.75 billion in convertibles from Chinese competitor JD.com, also listed on Wall Street. Alibaba would have discussed with investment banks the sale of bonds that could be converted into shares listed in the United States, Bloomberg’s sources indicated. The objective would be… to finance share buybacks and growth…
