Equities Update: Nvidia, Bunzl…

Nvidia’s Q2 earnings preview: the stakes are high, but so is AI’s potential

Sam North, Market Analyst at investment platform eToro, says: “The bar is high for Nvidia’s earnings report on Wednesday. The chipmaker needs to deliver once more to avoid disappointing them and justify its recent rebound from a slump into a three-week rally.

“The focus of this report will be less on the past quarter and more on the outlook, including how Nvidia will address the issues it’s facing. The chip sector is booming and demand is enormous, but meeting this demand is a significant challenge. Recent reports of delays in the delivery of the new Blackwell chips could pose a setback, despite the revenue potential of new AI-optimised chips and other product lines. Additionally, US sanctions against China are putting pressure on growth. If China’s access to advanced AI chips is restricted, Nvidia’s market opportunities are limited as well.

“It’s worth noting that Nvidia is the third most valuable stock in the world, yet they are growing at a pace more typical of an emerging mid- or small-cap firm. This unusual combination of scale and growth warrants caution. Nonetheless, Nvidia is already generating substantial revenue with heavyweights such as Amazon, Microsoft and Alphabet among their largest customers. Their chips are also used in a wide range of sectors, including healthcare and automotives. All this serves as evidence that AI is not a bubble and Nvidia still has considerable upside potential.

“Over the past eight quarters, Nvidia shares have closed higher six times. As we approach the upcoming release on Wednesday, options are pricing in a potential move of +/-10%, which aligns closely with the average move of 9% over the last eight quarters. Historically, Nvidia has averaged a 7.9% move in the week following its earnings report. While this doesn’t guarantee a positive outcome this time around, with shares trading just below their all-time highs, it’s not out of the question to anticipate a new record price if the company surpasses expectations again.”

Bunzl hikes profit outlook on robust H1 performance 

Adam Vettese, Market Analyst at investment platform eToro, says: “Distribution services may not be the most exciting sector that investors are initially drawn to but Bunzl seems to be making a habit of turning a profit and growing its dividend, which investors definitely do like to see. The firm’s strategy of focusing on acquisitions continues to pay off with a profit upgrade after strong H1 performance this year. Bunzl manages to keep cash flow strong enough so that leverage is still under control when self-funding their acquisitions in order to add value to the business.

“We have seen underlying revenue decline as inflation cools across a number of regions but this is only expected to be temporary. Moreover, the firm has announced a £250m buyback scheme today with £200m more to follow next year.”