- Nvidia valuation under pressure despite earnings beat
- Disappearing discounter premium as Dollar General slumps
- Salesforce delivers as it hunts for new CFO
The Dow Jones Industrial Average climbed to a record this week as Wall Street rebounded from the steep sell-off earlier this month, closing at 41,335 (overnight 29 Aug), with gains powered by the likes of Goldman Sachs (GS:NYSE), Intel (INTC:NASDAQ) and Visa (V:NYSE).
In a week dominated by the market’s obsession with Nvidia (NVDA:NASDAQ) – more on this later – it was also notable for Warren Buffett’s investment vehicle Berkshire Hathaway (BRK.B:NYSE) becoming the first US non-tech firm ever to smash through the $1 trillion market cap ceiling.
Yes, it is heavily behind Apple (AAPL:NASDAQ) but this also demonstrates that the dowdy old insurance game is still worth playing, at least according to the Omaha Sage.
Positive economic data also helped lift the mood, with latest quarterly GDP numbers dampening fears of a US recession, if throwing another layer of confusion over the timing of interest rate cuts.
NVIDIA
Under normal circumstances, beating earnings forecasts would traditionally be a positive share price catalyst but so many investors view Nvidia as bulletproof that an earnings beat is simply not enough to move the dial these days.
What really matters is proof that AI is still red hot, and it is… but. Latest quarterlies offered the slimmest forecast beat in six, and the fact guidance for gross margins and costs were weaker was enough to get people to hit the sell button.
The simple truth is that it is going to become harder and harder for Nvidia to keep shooting the lights out as comparisons get tougher to beat. But demand for AI remains strong and management talk about the endless possibilities in every sector for AI to make a difference will continue to fuel optimism.
The return on investment is thus vast, albeit somewhat unproven to date. Nvidia also announced the delay in the Blackwell chipset has been fixed and this will come on stream soon, meaning earnings from this will be captured this year and companies will have confidence in placing orders. The company also announced a $50 billion share buyback, which is no bad thing and not to be sniffed at.
DOLLAR GENERAL
Value store operators like Dollar General (DG:NYSE) were meant to thrive in a period of higher interest rates as they low price points would attract a broader group of customers, but they are actually struggling alongside many other types of retailers.
Shares in Dollar General cratered 27.5% on downbeat second quarter results (29 August) which demonstrated how parts of America are feeling the pinch of high costs of borrowing and a fragile backdrop clouded by a softening jobs market and political uncertainty.
With its lower income customer cohort struggling, the retailer also slashed its sales and profit guidance for the full year.
Dollar General is having to contend with wage cost pressures, greater markdowns to help shift unpopular products, and increased levels of shrink – an all-encompassing term to cover shoplifting, administrative errors and damaged goods, which leads to fewer items in stock than is on the system. That has put the squeeze on profits and led to downgraded earnings guidance.
SALESFORCE
Customer relationship management platform Salesforce (CRM:NASDAQ) topped Wall Street’s revenue and profit estimates for the second quarter on Wednesday (28 Aug) sending its shares 4% higher in aftermarket trading.
The software-as-a-service firm also raised its profit forecast for fiscal 2025 (to the end of January) thanks to cost savings which are expected to boost operating margins.
Quarterly sales to the end of July increased 8% to $9.33 billion while adjusted EPS (earnings per share) jumped 21% to $2.56, beating analysts’ estimates of $9.23 billion and $2.35 respectively.
Salesforce has been investing in AI (artificial intelligence) and will start testing its conversational AI assistant, Einstein Copilot in the Autumn. It is designed to help merchants compose product pages and promotions with minimal human input.
Co-founder, CEO and chair Marc Benioff explained: ‘These agents are autonomous, able to act with accuracy, come right out of the box, able to go right out of the platform’.
Salesforce also announced that chief financial officer Amy Weaver is stepping down. Weaver will remain with the company until a successor is appointed and then stay on as an advisor.
