Daily market update: Nvidia, Rolls-Royce, London Stock Exchange Group

The FTSE 100 is on quite a run and drawing ever closer to the 11,000 level.

Advancing once again, the blue-chip UK index has this time been propelled by superstar engineer Rolls-Royce which is going from strength to strength, and London Stock Exchange Group staging a recovery.

Kitchen seller Howden Joinery also continued its run of quietly getting on with the job and then reminding the market it can still take a step forward in a difficult market.

The tech rout gathered pace in the US as Salesforce shares fell in pre-market trading after it disappointed with forward guidance. Investors are worried that AI might destroy prospects for business software providers and Salesforce’s efforts to say everything will be fine fell on deaf ears.

Nvidia’s results would have normally been a make-or-break moment for the market, but investors shrugged them off in a rare moment of indifference towards the company.

Nvidia

It says a lot when a stock market darling beating revenue forecasts by billions of dollars can no longer muster a positive share price reaction. The mood music is changing on Nvidia, and it represents a significant shift in investor sentiment.

Nvidia is the eternal optimist with regards to AI, and the story is getting old. People already know it is a major player and prime beneficiary of the massive spending spree by hyperscalers.

The focus has now shifted to growing competition, concerns about excessive levels of investment across the AI space either being unsustainable or unnecessary, and whether the party will end in tears.

We’re moving from AI jubilation to AI fatigue and that’s evident in how many tech stocks have lost momentum on the market.

Rolls-Royce

Better than expected results from Rolls-Royce put a new rocket under its share price, taking it to a new all-time high. This is one of the most impressive business turnarounds in decades. Not simply fixing a few broken doors, Rolls-Royce has sorted out its problems and then taken the business to another level. It is rare to pull off such a stunt so smoothly and without bumps in the road.

Investors are jumping for joy at the gains they’ve made in recent years, but one must question why Rolls-Royce is still ploughing billions of pounds into share buybacks when the stock is on a premium rating. Trading on close to 40 times forward earnings is a rating richer than a chocolate torte. It is common sense that companies should be buying back stock when it is cheap, not expensive.

Investors might not care if Rolls-Royce continues to deliver strong business performance and large amounts of cash flow. They’ll be delighted the engineer is not only getting more out of its existing operations, but it is also embracing lots of new opportunities.

The fact it is confident enough to upgrade mid-term targets just goes to show how Rolls-Royce is in full health. That raises expectations for the business and means there is no margin for error.

London Stock Exchange Group

London Stock Exchange Group (LSEG) looks to be in defensive mode after becoming the target of activist investor Elliott.

The tone of its results is one of a business trying to convince the market (and Elliott) that it is doing much better than its share price would suggest.

Banging the drum to say it has consistently met or exceeded medium-term guidance set out in 2023 is LSEG’s way of trying to prove it is not dragging its heels.

It also plays the ‘trust’ card when describing how LSEG is an important provider of data, implying that people might not get the same quality of information through third-party AI tools.

Dangling a new £3 billion share buyback carrot in front of investors is certainly one way to get them on side, but Elliott might view that as only the first in many steps to get the shares moving up again. The drama is only just beginning.