The FTSE 100 was in full-blown wait-and-see mode on Wednesday as investors prepared for Nvidia earnings after the US bell.
Nvidia’s remarkable dominance in the chips supply to fuel the AI boom has made it the ultimate bellwether for the AI theme, which has been responsible for much of the US equity rally since the beginning of 2023.
For investors, the outcome of tonight’s earnings is almost binary. If Nvidia misses earnings expectations, or only just meets expectations, global equities are likely to come under significant pressure. A beat of earnings expectations will signal the AI trade is still intact and will likely send stocks higher.
Given the potential for large, unpredictable swings later today, its understandable investors held off making big bets on Wednesday and the FTSE 100 was down 0.1% at the time of writing.
“Naturally, NVDA earnings after the close hold the key to the near-term direction for global equities, and risk appetite, coming at a time when risks around the AI theme appear to become more equally-balanced and, of course, with the S&P just inches away from a fresh record high,” explained Michael Brown Senior Research Strategist at Pepperstone.
“Derivatives price a punchy +/- 9.7% swing in NVDA stock in the 24 hours following the quarterly report, equivalent to a staggering $280bln worth of market cap in either direction. As has been the case for the entirety of earnings season, strong guidance will need to accompany revenue and EPS beats in order to unlock significant after-market gains.”
Although the FTSE 100 has very little in the way of direct exposure to Generative AI, investor sentiment will be driven by this evenings results. However, as we’ve seen in recent weeks, London’s leading index may experience a smoother ride to the upside or downside due to the defensive composition of the index.
The index’s defensive nature has again been evident this week, with the FTSE 100 holding above 8,300, supported by oil stocks amid rising tensions in the Middle East.
There was little in the way of standout movers on Wednesday. Prudential was a notable gainer after announcing half-year results. Shares in the Asia-focused company rose 1% on the announcment of rising new business profits, but falling operating profits.
“Prudential’s big pivot to Asia over the last decade, which culminated in the shedding of its US and European operations in 2021, isn’t playing out as the company would have hoped,” said Russ Mould, investment director at AJ Bell.
“The insurance giant went to less mature markets in the pursuit of growth, betting on an emergent middle class having increased appetite for financial products and services, but in key geographies like mainland China and Hong Kong, that growth is proving elusive. Zero-Covid policies didn’t help and the subsequent uncertain recovery in the Chinese economy has only compounded things.”
Despite slow progress in China, Prudential increased in dividend and said it has seen sales momentum pick up after June.