Welcome to this week’s edition of top stock market highlights.
US interest rates
For investors who are keenly watching the interest rate situation in the US, there is stronger confirmation that rates will be cut when September rolls by.
US Federal Reserve (“Fed”) chairman Jerome Powell said that “the time has come” for the central bank to cut its key policy rate.
The benchmark interest rate is in the range of between 5.25% and 5.5%, the highest in more than two decades.
With rates held so high, borrowing costs have soared across the US and have negatively impacted sectors such as REITs over in Singapore.
The Fed chief acknowledged the progress against inflation, which has moderated in recent months towards its 2% target.
However, he did caution that the timing and pace of rate cuts will still depend on incoming economic data, the outlook, and overall economic risks.
While these remarks may cause REIT investors to breathe a sigh of relief, they did not specify how the Fed will proceed during its upcoming September 2024 meeting.
The central bank, however, has a tough job.
It needs to strike a balance between the strength of the labour market versus the pace of inflation.
The risk is that lowering rates too fast may cause inflation to rebound but if the central bank stands pat on rates, it could result in a deterioration in the economic outlook.
If the jobs report looks weak, it could prompt the central bank to cut rates by 0.5 percentage points rather than the expected 0.25 percentage points.
Another aspect to watch for will be policymakers’ views on the timing and extent of future interest rate cuts.
Nvidia Corporation (NASDAQ: NVDA)
Nvidia released its second quarter of fiscal 2025 (2Q FY2025) earnings ending 28 July 2024 to much fanfare.
The graphics processing unit (GPU) designer and manufacturer is one of the “Magnificent 7” stocks and represents the forefront of the current artificial intelligence (AI) boom.
Investors and analysts have lofty expectations for Nvidia’s earnings as the company is the market leader in the GPU sector and is spearheading larger investments in the generative AI space.
2Q FY2025 revenue stood at US$30 billion, up 122% year on year and was at a record.
Gross margin improved by five percentage points year on year, going from 70.1% in 2Q FY2024 to 75.1% in 2Q FY2025.
Operating profit soared 174% year on year to US$18.6 billion while net profit more than doubled year on year to US$16.6 billion.
Nvidia’s free cash flow for 2Q FY2025 more than tripled year on year from US$8.7 billion to US$28.5 billion.
The company expects 3Q FY2025 revenue to come in at US$32.5 billion, plus or minus 2%.
Compared with 3Q FY2024, this will represent a 79.4% year-on-year jump.
However, this level of revenue fell short of some of the most optimistic estimates, some of which pegged the GPU company’s 3Q FY2025 revenue at US$37.9 billion.
This growth rate was also lower than the 206% year-on-year registered for 3Q FY2024 and the 122% logged in the current quarter.
CEO Jensen Huang said demand for the new Blackwell chip was “incredible” with samples shipped out to partners and customers.
He believes that generative AI will revolutionise every industry and spur continued strong demand for the firm’s GPUs.
Berkshire Hathaway (NYSE: BRK.A and BRK.B)
Berkshire Hathaway, or BRK, became the first non-technology company to see its market capitalisation breach the US$1 trillion mark.
The conglomerate, which is run by famous investor Warren Buffett, touched US$696,502.02 per share last week, allowing it to reach the coveted spot.
BRK has also rallied more than 28% thus far this year.
Unlike the other companies within the trillion-dollar club such as Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT) and Meta Platforms (NASDAQ: META), BRK is an old-school business with interests in railroads, insurance, and dairy products, among others.
BRK released its first half of 2024 (1H 2024) earnings recently which saw the company report revenue of US$183.5 billion along with investment gains of US$25.7 billion.
Net profit stood at US$43.1 billion for 1H 2024, lower than the prior year’s US$71.4 billion mainly because of lower investment gains.
The conglomerate generated a positive free cash flow of US$15.2 billion, nearly 20% higher than the prior year’s US$12.7 billion.
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Disclosure: Royston Yang owns shares of Apple and Meta Platforms.
