Investor caution ahead of Nvidia earnings "understandable," Barclays says
Investing.com - Quarterly results from artificial intelligence-darling Nvidia next week could be crucial in determining whether the boom in enthusiasm around -- and heavy spending on -- the nascent technology remain on track, according to analysts at Barclays.
In a note, analysts at the brokerage including Emmanuel Cau flagged that investor sentiment has turned largely cautious ahead of the semiconductor giant’s report after the closing bell on Wall Street on November 19.
Traders appear to be especially rotating out of tech stocks, with fears surrounding the sustainability of frothy AI-driven valuations and the timeline for returns on massive spending by mega-cap hyperscalers.
On Thursday, shares of Nvidia, as well as peer Broadcom, both retreated, while cloud group Oracle has now shed more than one-third of its value since a spike in September. U.S. stock markets, which have moved in recent years to developments in the AI craze, slumped to their worst day in more than a month during the session.
"Investor caution ahead of Nvidia’s earnings next Wednesday is understandable, and the results could be pivotal in determining whether the AI supercycle and associated capex boom remain on track, or if signs of plateauing are emerging, which would likely prompt more positioning unwind on the AI space," the Barclays analysts wrote.
They added that they will be keeping close tabs on upcoming official data releases, after many of these numbers were postponed during a record-long U.S. government shutdown. Lawmakers voted to bring the closure to an end earlier this week, although the Trump administration has suggested that October’s delayed labor market report may not include a fresh unemployment rate reading for the month.
Any new data will be critical for the Federal Reserve in particular, the Barclays analysts noted.
The Fed slashed interest rates by 25 basis points at its previous two gatherings in October and September, as part of a bid to support a slowing U.S. labor market. But, partly given the lack of data, it is about a 50-50 toss-up if the central bank will roll out another reduction at its final two-day meeting of the year next month, CME’s FedWatch Tool has found.
"[M]arkets have become less confident about a December rate cut. So incoming data will likely need to strike a ’not too hot, not too cold’ balance to keep the Fed easing narrative intact and sustain risk appetite," the Barclays analysts said.
Meanwhile, the November and December period is typically "the most positive" for stocks, meaning that there could be "some year-end performance chasing from the many discretionary managers who have had a tough year so far," the analysts flagged.
