The ASX is expected to move higher today on the back of a strong lead from Wall St. ASX 200 futures are trading 36 points higher, up 0.50% as of 8:20 am AEST.
Part of Wall Street’s performance was due to Nvidia smashing its quarterly earnings expectations and the CEO declaring "a new computing era has begun".
Nvidia Q2 data centre revenues jumped 171% to US$10.3 billion.
Nvidia forecasted third-quarter revenue of $15.68 billion to $16.32 billion, while analysts had estimated $12.59 billion, with $9.15 billion of that coming from data centre sales.
“A new computing era has begun,” CEO Jensen Huang said.
“Strong demand for the NVIDIA (NASDAQ:NVDA) HGX platform … was primarily driven by the development of large language models and generative AI.
"During the quarter, major cloud service providers announced massive NVIDIA H100 AI infrastructures. Leading enterprise IT systems and software providers announced partnerships to bring NVIDIA AI to every industry. The race is on to adopt generative AI."
deVere Group CEO Nigel Green believes the hype around Nvidia is dangerous, however, AI should be a part of an investor’s mix.
“This level of hype is dangerous as it could lead investors to assume that these stocks are a silver bullet to build long-term wealth – and they are not, at least not on their own,” Green warns.
“While I believe that exposure to these mega-cap tech stocks should be part of almost every investor’s portfolio, as they have robust fundamentals and are future-focused, especially in AI, they should not be exclusive.
“These stocks are incredibly important, of course, but they’re not a panacea. I fear some investors will get burned unless some of the frenzy is turned down.
“Diversification is, as ever, investors’ best tool for long-term financial success. As a strategy, it has been proven to reduce risk, smooth out volatility, exploit differing market conditions, maximise long-term returns and protect against unforeseen external events.”
That said, the deVere CEO remains bullish on AI-orientated investments as part of the mix.
“The buzz surrounding AI companies is grounded in tangible technological advancements and their potential to reshape industries across the board.
“The transformative capabilities of AI, coupled with its cross-industry disruption, data-driven nature and rapid innovation, make it a compelling investment opportunity.
“As the AI market continues to expand and evolve, investors who recognise its potential are well poised to reap the rewards of this exciting technological revolution.
“Including AI exposure in investment portfolios isn’t just a trend – it’s a strategic move that aligns with the future of innovation and economic growth. Just do it judiciously.”
What happened yesterday
Here’s what we saw (source Commsec):
US sharemarkets
Advanced on Wednesday on investor hopes that global central banks are near the peak in their monetary tightening cycles. US 10-year Treasury yields eased from near 16-year highs as data showed American business activity barely expanded in August on subdued customer demand.
Intel (NASDAQ:INTC) shares jumped 3.3%. Netflix (NASDAQ:NFLX) shares lifted 3.5% after Oppenheimer reiterated the streaming giant's outperform rating. Shares of drugmaker Merck & Co rose by 3.8% after Swiss rival Roche inadvertently published positive lung cancer drug trial data.
- The Dow Jones index rose by 184 points or 0.5%.
- The S&P 500 index gained 1.1%.
- The Nasdaq index added 215 points or 1.6%.
Rose on Wednesday, led by bond-proxy sectors such as real estate (+2.1%) and utilities (+1.1%), as weak economic data prompted bets the region's central bank will pause its rate-hike campaign. S&P Global/HCOB's flash composite PMI for the bloc, seen as a good barometer of overall economic health, dropped to 47 in August from July's 48.6, its lowest since November 2020.
The continent-wide FTSEurofirst 300 index rose by 0.4%.
In London, the UK FTSE 100 index gained 0.7% after the UK S&P Global/CIPS composite PMI tumbled from 50.8 in July to 47.9 in August, the lowest since January 2021.
Currencies
Were stronger against the US dollar in European and US trade.
- The Euro rose from US$1.0801 to US$1.0868 and was near US$1.0860 at the US close.
- The Aussie dollar lifted from US64.11 cents to session highs near US64.80 cents at the US close.
- The Japanese yen firmed from 145.75 yen per US dollar to JPY144.55 and was near JPY144.90 at the US close.
Global oil prices fell by 1% on Wednesday as demand woes stemming from a build in US gasoline stocks and weak manufacturing data globally outweighed optimism around a larger-than-expected drop in US crude stocks. Gasoline stocks climbed 1.5 million barrels last week (survey: 888,000 barrel drop). Crude inventories fell by 6.1 million barrels in the week (survey: 2.8 million-barrel drop).
- The Brent crude price fell by US82 cents or 1% to US$83.21 a barrel.
- The US Nymex crude price dipped US75 cents or 0.9% to US$78.89 a barrel.
- The copper futures price lifted 1.4% as demand prospects from China improved.
- The aluminium futures price lifted by 0.8%.
- The gold futures price rose by US$22.10 or 1.1% to US$1,948.10 an ounce.
- Spot gold was trading near US$1,915 an ounce at the US close.
- Iron ore futures added US70 cents or 0.7% to US$107.47 a tonne.
eToro’s Josh Gilbert and Farhan Badami ran the ruler over WiseTech Global Ltd and Domino’s Pizza Enterprises Ltd respectively.
WiseTech
WiseTech Global’s FY2023 results offered a mixed bag for investors, with FY2023 EBITDA missing estimates and its forecast coming in softer than expected. However, underlying profit rose 30% in FY2023 to A$247 million and raised its dividend by 31% to A$0.084, up from A$0.064 last year
Wisetech is one of the best-performing stocks on the ASX200 this year, gaining more than 70% and trading near record highs. Given its track record, the forecast for FY2024 will likely disappoint investors; estimates across both revenue and EBITDA have undershot expectations.
With shares up so significantly this year-to-date and its valuation sitting at 90x forward price to earnings, the market expects nothing but a solid result – and this report isn’t quite that.
On a positive note, CargoWise’s recurring revenue jumped by 48% to A$650 million, which is a critical element of the business since it makes up more than 70% of total revenue. Free cash flow also remained strong at $291.4 million, up 23% on FY22.
The bottom line is that the stock will likely face some pressure today, but earnings are still growing, even if that is slightly slower than the market had anticipated. With a solid retention rate reflected in its recurring revenue, the business is on the right path and has a bright future as profitability continues to grow.
Domino’s
Domino's Pizza Enterprises reported revenue of A$2.35 billion, up 2.7% from the previous year, in line with analyst estimates. Conversely, net income was down 74% for the year, coming in at A$40.6 million, nearly 50% below analysts' initial estimates. The company experienced increased food sales of 2.2% as it transferred food inflation costs to consumers, although this did impact its profit margins.
The company's profits were impacted by the decision to raise menu prices, aimed at supporting sustainability for more than 1,000 franchisee partners facing high inflation.
Domino's has taken strategic measures to manage finances and reduce debt, seeking less than 2x underlying EBITDA. This involves better spending control, with anticipated capital expenses aligning with the lower end of the 3-5 year range.
Shareholders may be pleased with the austerity measures taken by the company, as its cost-saving measures are predicted to increase FY24 EBIT by A$33 million-A$40 million, helping debt levels. Domino's has seen robust sales growth in Europe and Australia/New Zealand this fiscal year, actively pushing for higher transaction volumes and better profitability.
Ultimately, just like any other food chain, Domino's has not escaped the impact of elevated food prices. These price hikes have led to a rise in its overall cost expenses, dampening profitability. While the household name boosted its sales revenue by increasing menu prices, it saw a drop in the number of meals being purchased.
The company has a challenging task at hand that involves determining a viable strategy to sustain satisfactory sales and ensure its profit margins don’t continue to fall. One of the biggest appeals for the brand is their affordable food items - if Domino’s keeps increasing prices, households will shy away from purchasing its food.
On the small cap front
The S&P/ASX Small Ordinaries (XSO) had a good day yesterday, finishing 0.19% higher at 2,830.40.
News has been steady this morning and you can read more about the following throughout the day.