Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
“The FTSE 100 dipped on Wednesday after mixed trading in the US overnight, with investors absorbing numbers from Wall Street’s dominant tech sector,” says AJ Bell Investment Director Russ Mould.
“Investors may be sitting on their hands as they await the latest decision from the Federal Reserve – a first interest rate cut hasn’t been pegged any earlier than March so all the focus will be on the messaging which accompanies the announcement. The Fed may encourage the recent scaling back of rate cut expectations and the extent to which it does could determine the path markets forge over the coming weeks.
“Chip maker Advanced Micro Devices may have matched analysts’ expectations for earnings and beaten revenue forecasts for the fourth quarter as AI drove demand for its chips, but a soggy outlook was always likely to trip the company up after such a strong run for the share price. The company’s more traditional chips for PCs are seeing sluggish demand and a lot rests on the success it can enjoy going up against Nvidia in the AI arena.
“The battle over the use and licensing of content saw a new staging post as Universal Music looks set to pull its songs from social media platform TikTok. This is more about protecting its own interests rather than those of its artists, as it claims, but, regardless, it demonstrates Universal Music is prepared to be more active in protecting the value of its music rights.”
Microsoft
“The market has been caught up in the exciting potential around AI but it has largely neglected to consider the costs required to exploit this potential until now.
“Microsoft’s latest earnings update flagged substantial investment as it looks to roll out AI across all areas of its business. There is no doubt this is the right move for Microsoft; investing in the business seems a much better use of its capital from an investor perspective than buying back shares, for example.
“Where the market will be closely scrutinising Microsoft is in how efficiently this money gets spent. Any sense the company is just throwing cash at AI willy-nilly and hoping some of it pays off would not go down too well.
“Quarterly numbers came in ahead of expectations with strong growth in its cloud division as customers lap up a suite of services which have been augmented using AI. However, this wasn’t enough to sustain the stock’s recent momentum in after-hours trading.
“A lofty valuation means even the slightest hint of disappointment will be seized on by investors and Microsoft’s guidance for revenue growth in its cloud division to slacken a little in the current quarter was enough to see the shares dip modestly.”
Alphabet
“Last time it was the cloud computing arm causing a downpour on Alphabet’s results, now it is the advertising segment which has made investors switch off. Analysts had high hopes for Alphabet-owned Google and YouTube to scoop up bucket loads of cash from advertising but the group has fallen short of what was expected.
“When you’ve been so successful in the past, expectations can be high and this is certainly the case for all of the Magnificent Seven group of stocks. Everyone expects these companies to pull a rabbit out of the hat every time they report and the slightest miss causes widespread disappointment, even if the actual numbers still showed positive gains on comparative periods.
“The backdrop for advertising has been challenging. An uncertain economic backdrop makes corporates nervous about spending big on advertising and many companies are taking a more cautious approach. Those that are spending want more information to show they are getting the best bang for their buck. That means better audience profiling and measurement tools.
“Alphabet is pinning its hopes on artificial intelligence to help enhance its advertising offering. Naturally, that comes at a cost and it is spending big on infrastructure underpinning AI.
“The market can be incredibly short-sighted when it comes to spending. It takes money to make money and the idea that investing now could yield greater returns in the future is often overlooked by the market. Investors often prefer to see job cuts and widespread savings, failing to recognise that might only provide a short-term boost to profits.
“In the case of Alphabet, and perhaps Microsoft as well, the market is now getting the jitters that AI investments are going to keep piling up. These companies have been signalling for a while that investment was needed, but it seems to have fallen on deaf ears until now.”
Novo Nordisk
“The weight-loss drug industry has become one of the hottest areas in business. Consumers are eager to use the products amid signs they have positive effects, and drug companies are seeing dollar signs in their eyes as they rush to launch new treatments.
“Novo Nordisk has been at the heart of the weight-loss boom and its latest results show a business doing incredibly well. Sales across obesity care and diabetes treatments are growing fast and more than offset weakness in rare disease drugs.
“For now, all the excitement continues to be centred on the Wegovy product which is going to see greater supplies into the US.
“There are two key issues to watch. First is heightened competition which means there could be pressure on drug prices. Novo Nordisk will no doubt be hoping that higher sales volumes help to make up for any drop in price if that happens. It is investing in extra production capacity to avoid supply issues experienced in 2023.
“Second is the growing backlash against the product where lots of people are complaining about nasty side-effects. While a lot of individuals want to use it, staying on the drug could be a tall order if they cause stomach problems.”
These articles are for information purposes only and are not a personal recommendation or advice.