Nvidia results reaction plus JD Sports shares slump

US markets could do little more than tread water ahead of highly anticipated numbers from NVIDIA Corp (NASDAQ:NVDA), demonstrating the increasing influence of the AI poster child and market darling on investor sentiment.

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Nvidia posted its quarterly results after the closing bell and, on the face of it, there was much to admire. Quarterly revenues of $35.1 billion were ahead of estimates of $33.2 billion, while data centre revenues which have driven much of the group’s growth came in at $30.8 billion against expectations of $29.1 billion. There was also an extremely upbeat set of comments on the outlook for the company’s next generation AI chip, Blackwell, which should add “several billion dollars” to revenues in the final quarter.

Indeed, the final quarter revenue estimates proved to be the market driver since they were marginally shy of expectations, leading to a brief after-hours trading session where the shares declined by around 2%, although the full impact will not be known until normal trading resumes later.

Nonetheless, while the reaction may have contained a small element of profit taking – the shares have risen by more than 200% this year alone – the weight of expectation on what has been a modern-day conquering hero is clearly rising each quarter.

While market moves were limited during the session, the main indices remain strongly ahead in the year so far, with gains of 15.2% for the Dow Jones and with hikes of 24% and 26% for the S&P500 and Nasdaq respectively.

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On UK shores, the technical headwind of a number of shares being marked ex-dividend today, including the likes of heavyweight payers Vodafone Group (LSE:VOD) and National Grid (LSE:NG.), was not enough to prevent the premier index making progress in early trade.

The FTSE100 has struggled to break out of a limited range of late, and certainly has been unable to challenge the record level previously set in May, as investors have sought growth opportunities elsewhere, despite the increasingly accepted view that the market remains strongly undervalued both historically and in comparison to developed global peers.

In May, the index was ahead by more than 9% for the year, but subsequent erosion of those gains has resulted in a less palatable gain of 4.8% in the year to date.

JD Sports Fashion Q3

In a brief trading update, JD Sports Fashion (LSE:JD.) did little to assuage more recent investor concerns which have weighed heavily on the share price and continue to do so, while offering a cautious outlook ahead of its upcoming peak season. 

Mild weather, a cautious US consumer ahead of the US election and ongoing promotional activity which reduces margins came together to suppress numbers for the period. Foreign exchange headwinds were another drag, expected to remove £15 million from full-year profit, and volatile October trading worked against the progress which had been made in August and September.

Group like for like revenues in the period fell by 0.3%, with the important UK and US markets dipping by 2.4% and 1.5% respectively, although there was some respite from Europe where sales grew by 3.5%. On an organic basis, the signs were more promising with an increase of 5.4% overall, while gross margin increased by 0.3% to 48.1%. As such, the group estimates that pre-tax profit for the year will be at the lower end of the previously guided range of £955 million to £1.035 billion.

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The most promising and obvious opportunity in the medium term is JD’s growing brand presence in the major US market. The group recently completed the £900 million acquisition of US retailer Hibbett, which should further propel brand awareness, especially in the southeastern corner of the country.

North American revenues already account for 35% of the group total, and once Hibbett is fully integrated, this is expected to rise to 40%. The £450 million purchase of French retailer Courir has also received the European regulatory green light, although of course the group’s acquisition strategy does not come without risk, particularly at a time when there are questions over the resilience of the consumer on both sides of the pond. 

The share price has had a difficult run of late, having fallen by 19% over the last year, as compared to a gain of 8% for the wider FTSE100, not helped by the slight deterioration in its gross margin, impacted by the high levels of discounting which it found necessary to implement given the broader challenges and a previous profit warning from key supplier Nike Inc Class B (NYSE:NKE). Even so, the prospects for US growth and an acquisition strategy which has so far yielded some impressive results has been enough to keep investors onside, with the market consensus of the shares standing firm at a buy.