The Week Ahead: Nvidia Earnings Preview

1. Nvidia Earnings

So far, the US earnings season has been promising enough to reignite stocks back to record highs. However, this week, the highlight of earnings season is here: Nvidia. It will report its earnings on Thursday morning (AEST), and all eyes will be focused on its results to gauge AI demand.  

Nvidia’s earnings in recent times have shown why they are branded as magnificent, with beats and raises across the board. Expectations are high, but investors are likely to receive the same this time around. Although there have been mixed results across the AI space so far from names such as Palantir and ARM, demand for AI seems strong. Capital allocation from Big Tech is increasing, and Microsoft (NASDAQ:MSFT) even said they can’t keep up with AI demand, with their increase in spending going straight to Nvidia. 

However, there are some risks that come from supply constraints which may affect the data centre business, and commentary on how manufacturing partners can keep up with demand will be a focal point. We are likely to see further weakness in China and its gaming business, but that may be shrugged off by Wall Street if we see better-than-expected data centre growth and solid forecasts. With shares creeping close to the $1000 mark, a solid result from lofty expectations might be the springboard to get shares close to surpassing that level. Wall Street estimates are for earnings of USD$5.52 (406% growth year-over-year) on revenue of USD$24.6 billion (240% growth year-over-year), with Data Center revenue expected at USD$20.96 billion (390% growth year-over-year).

2. Xero Full-Year Results

Xero shares have enjoyed a decent run over the last year, climbing by more than 30%. In November, the business reported a 90% jump in EBITDA, but investors had expected more after the year of efficiency from new CEO Sukhinder Singh Cassidy. Recent news of Xero’s second plan fee hike in a year, which is set to start in July, also resulted in shares lifting despite backlash from customers. The decision was attributed to the company’s continued emphasis on balancing growth and profitability. 

This Thursday, Xero will report its full fiscal year results, and this week, we’ve seen a wave of broker upgrades ahead of the result. The average price target, according to Bloomberg, is $137.45, signalling around 10% upside after shares moved higher this week. Expectations are high, and plenty of optimism is baked into shares, meaning the stock isn’t cheap. The wave of broker upgrades does suggest we could see a positive result, but anything short of the mark will put shares on the back foot. 

Revenue is set to rise 22% to NZD$1.7 billion, and EBITDA is set to lift another 60% year-over-year. Anything above those estimates will be good news for investors.

3. BHP (ASX:BHP) & Anglo American (JO:AGLJ)

BHP has now had two bids rejected by Anglo American, and this week, we might see a third and final offer from the world’s largest miner. BHP CEO Mike Henry has already expressed his frustration at a deal not being met, so the next offer is likely to be the last. Anglo American has had a tough few years with poor acquisitions, weaker commodity prices, and operating failures; yet they have quality copper mines that the competition wants. 

If BHP hands down another offer that is accepted, it will be the largest industry deal in ten years and will make BHP the world’s largest copper producer, with over 10% of global production. Long-term shareholders will be scarred by poor capital allocation from BHP in years gone by, particularly its $20 billion shale investment, which is just one of the reasons its shares slipped by more than 4% on the news that BHP wanted to acquire Anglo. 

The business trades at 11x forward price to earnings, in line with its long-term average and lower than broader markets, showing that there isn’t a lot of optimism priced into shares right now. 

The bottom line is that this acquisition still may not come to fruition. BHP needs to come to the table with a better offer. However, savvy investors will know that if copper prices keep rising, China’s housing crisis improves, and BHP can stay financially disciplined, the business will likely be in a better position years from now. 


*All data accurate as of 20/05/2024. Data Source: Bloomberg and eToro

Disclaimer: 

This communication is general information and education purposes only and should not be taken as financial product advice, a personal recommendation, or an offer of, or solicitation to buy or sell, any financial product. It has been prepared without taking your objectives, financial situation or needs into account. Any references to past performance and future indications are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication.