Cutcher | Insights and News

Cutcher's Investment Lens | 26-30 August 2024

Written by Cutcher & Neale Wealth Management | 2 September 2024 12:28:25 AM

Weekly recap

What happened in markets

The Australian sharemarket improved 0.9% last week and ended back where it started for the month of August, after clawing back the losses from the start of the month. Over the course of the week, sector highlights were the Real Estate and Financial sectors, both advancing 2.2%, while Information Technology (-1.7%) and Consumer Discretionary (-1.5%) sectors both ended lower. Notably, hopes of a rate cut were pushed back again last week, after the July Consumer Price Index came in higher than expected at 3.5%, largely due to energy rebates. However, it is still showing signs of easing, down from the previous 3.8%. Additionally, consumers continue to slow down on spending, as Retail Sales came in unchanged for the month of July, worse then the estimated 0.3% rise. 

US sharemarkets also lifted last week, with the S&P 500 edging up 0.2%. Positive sentiment from Fed Chair Powell’s speech at the Jackson Hole Economic Symposium around the future of interest rates was carried into last week and reinforced by key economic data. The Personal Consumption Index (PCE), which is the Fed’s preferred measure of inflation, showed yearly inflation at 2.5%, which is in touching distance of the Fed’s 2% target. Additionally, June quarter GDP was revised upward to 3.0%, from 2.8%, on stronger consumption.  

European sharemarkets continued to increase over the course of the week, as the STOXX Europe 600 (1.3%) hit a fresh record high, for its fourth consecutive week of gains and the UK FTSE 100 (0.6%) touched a three-month high. The positive performance was thanks to renewed risk appetite, after Eurozone headline inflation dropped to 2.2%, slightly above the European Central Bank’s (ECB) 2.0% target. However, services inflation continues to remain sticky, staying high at 4.2%. Statements from several ECB members varied over the past week, however, consensus points to a 0.25% decrease at their next meeting, scheduled for 12 September. 

 

Stock & sector movements

 

What caught our eye

Last week, the much-anticipated second-quarter results for NVIDIA were released. Earlier this year, Goldman Sachs dubbed NVIDIA "the most important stock on planet Earth", so we thought it was worth featuring in this week's Investment Lens.

Here were our three main takeaways from the result:

1. Strong Data Centre Performance: NVIDIA’s data centre segment was a standout, with a 154% year-on-year increase (YoY) in revenue driven by robust demand for the Hopper Graphics Processing Unit (GPU) platform. This highlighted NVIDIA's leadership in the artificial intelligence (AI) and data centre markets.

2. Guidance Slightly Below Expectations: While NVIDIA provided solid guidance for the third quarter with expected revenue of US$32.5 billion, this was slightly below investor expectations, reflecting some tempered optimism despite strong ongoing demand.

3. Anticipation of Blackwell GPU Contribution: The upcoming launch of the next generation Blackwell GPU platform, expected to significantly contribute to revenue by the fourth quarter, was a critical focus, with several billion dollars in sales anticipated, marking a key growth driver for NVIDIA moving forward.

Despite a very strong second-quarter performance, NVIDIA’s share price dropped by about 6% after the release, as the market had hoped for even more from one of the top-performing investments in both the S&P 500 and the Cutcher & Neale International Share model portfolio over the past five years.

To put this into perspective, NVIDIA’s share price has skyrocketed +2,909% over the last five years, with profits up +2,001%. 

In contrast, the S&P 500 index has risen a solid +91%, with average company profits in the index up +55% over the same period.

All things considered, we still believe NVIDIA has a place in a diversified share portfolio, with earnings expected to grow by 61% this year and another 25% next year, supported by strong and growing generative AI demand and the launch of the Blackwell GPU platform.

The week ahead

Importantly, this week Australian GDP for the second quarter will be released, which will provide invaluable insight into the strength of the economy and possible implications on interest rates. Expectations are for an increase of 0.3%, from the previous 0.1%. Additionally, the Melbourne Institute will release their inflation gauge for the month of August. 

Internationally, US manufacturing and services data are both due this week, with expectations for a 0.7% increase and 0.4% decrease respectively. The US Trade Balance for July is currently tipped for a US$76.8 billion deficit.