Daily market update: FTSE 100 dips, Nvidia, Halfords

Euphoria around Nvidia’s latest results failed to spread across the rest of the market as European equities were in the red on Thursday.

The FTSE 100 dipped 0.5% to 10,819 with technology the only sector in positive territory. Nvidia’s resounding optimism gave a boost to UK tech-related stocks including Computacenter, Polar Capital Technology Trust and Scottish Mortgage Investment Trust as it implied the AI-related trend still has further to run.

It wasn’t enough to lift the FTSE 100 out of the doldrums, with oil producers and miners acting as the biggest drag on the index.

Brent crude oil fell 1.3% to $86.72 per barrel, which is positive news for businesses and consumers worried about renewed inflationary pressures. However, it is bad for BP and Shell’s earnings, and their shares were among the biggest fallers at the top end of the UK market.

Nvidia

Nvidia has become the marmite company of the modern age. In one camp is a legion of supporters singing its praises about how it is at the forefront of the AI technology revolution. In the other camp are the cynics who say it is a bubble waiting to burst, pointing to circular finance activities that have nasty connotations with the dotcom boom and bust of the late 1990s and early 2000s.

Every three months, Nvidia gives both the bulls and the bears information on which to reappraise their opinion via its quarterly financial results. So far, the bulls are winning given how Nvidia has once again surpassed earnings expectations. It has now beaten revenue forecasts for 16 quarters in a row. The company is also generating an impressive figure of more than $1 billion a day in revenue.

Nvidia has no problem selling goods, and it continues to say that demand is accelerating. The company is doing everything it can to help grease the wheels by investing in customers, giving them cash to buy more of its products and providing credit. This circular finance is a bone of contention for many investors who fear it could end in tears if demand peters off and Nvidia is left with an oversupply of products.

Nvidia has been quick to shoot down any suggestions that its investments and financing deals are risky, saying demand is strong for the products. A key figure to watch closely is accounts receivables which has jumped by 64% over the past six months to $63 billion. That is money customers still owe for goods or services they receive on credit. It suggests customers are either taking longer to pay or more of Nvidia’s products are being provided on credit.

The jump in the share price in pre-market trading suggests that investors have once again been wooed by Nvidia CEO Jensen Huang’s unwavering optimism. Yet the more success Nvidia enjoys, the bigger the potential fall as soon as the good news machine splutters.

Halfords

A summer of sunshine has got people out of the house to enjoy the fresh air and go explore near and far. That’s been music to the ears of Halfords as it has played a key role in helping to support people’s summer activities.

That ranges from selling bikes and accessories or helping to keep cars on the road with new tyres, oils and fluids, and batteries. It’s clear that Halfords has been a heatwave beneficiary as it upgraded profit expectations.

Halfords talks about heightened seasonal demand which suggests that bikes could have been flying off the shelves. Getting back on top with the cycling part of its business has been a long time coming, given how Halfords suffered an almighty post-Covid slump for two-wheeled sales.

The stock has now nearly doubled in price year-to-date as it enjoys positive momentum in the business. Investors should be happy, but they’ll also be watching Halfords’ second half closely.

The company has flagged that it will accelerate investment in technology and marketing and it will need to prove this extra spending is worthwhile. Investors often fail to recognise the importance of spending money today to make money tomorrow, given widespread short-termism.