The FTSE 100 was steady on Thursday, benefiting from its limited exposure to tech and from its healthy weighting in energy.
This followed an uncertain start to the earnings season for Wall Street’s technology titans and a further increase in oil prices which are creeping closer to $100 per barrel alarm bell territory.
There seems little sign that tensions will cool between Washington and Tehran in the near term – though investors have been through enough handbrake turns in this conflict to not take anything for granted.
In Asia, AI infrastructure plays were higher as Tesla and Alphabet revealed continued increases in their spending in this area.
Segro was the top performer on the FTSE 100 after the logistics outfit finally conceded defeat last night in the face of US real estate giant Prologis’ determined pursuit of the business. Assuming the deal goes through, the UK market will lose yet another top-tier name, further diminishing its breadth, depth and quality.
Alphabet
Google-owner Alphabet's first-quarter earnings were a really hard act to follow after its blockbuster cloud growth prompted a euphoric response from investors and there’s a distinct ‘after the Lord Mayor’s show’ feel to its second-quarter offering.
There’s a familiar gripe for the market as AI spending creeps higher and that overshadowed continued growth throughout the business – with revenue that came in ahead of expectations.
Alphabet is spending hundreds of billions of dollars as it looks to stay ahead in the AI arms race, but there is still a healthy degree of scepticism about the ability of these investments to generate a commensurate level of return.
Along with the mounting levels of capex, Alphabet is also facing higher operating costs, thanks to capacity issues and energy costs, which is expected to put pressure on margins. Alphabet sees this as a price worth paying to secure market share but when you combine this weakened profitability with cash flow pressures, it’s easy to see why the market is uncomfortable.
Tesla
Having had its thunder stolen by SpaceX’s stock market listing, Tesla reported a surprise drop in profit in the second quarter to send its share price into reverse.
No longer the most prominent constituent of the Musk universe, Tesla continues to foster grand ambitions beyond its current focus on manufacturing electric vehicles.
While the company had already reported a rebound in EV demand as it posted record second-quarter vehicle deliveries, the question was how profitable these sales had been.
The answer is not very – with a big drop in margins seeing profit for the period sink well below consensus forecasts – suggesting Tesla has only managed to lure back buyers by slashing prices.
A pivot into robotaxis and AI-powered humanoid robots is being accelerated but the associated spending meant it slipped into negative free cash flow for the first time in two years.
EasyJet
Having fallen sharply yesterday on fears tightened EU ownership rules might nix US bids for the airline, EasyJet recovered some ground despite reporting falling profit today.
The numbers laid bare the impact of the energy price shock unleashed by the Iran conflict as jet fuel costs soared. However, this will have come as little surprise to the market, which could find some solace from the solid customer numbers EasyJet put up.
People are booking later, with demand impacted by the turbulent geopolitical backdrop, but the package holidays business continues to deliver solid growth.
The big question now is whether one of its US suitors can get a deal across the line or if red tape gets in the way and EasyJet remains an independent entity.
Centrica
The volatility in energy markets is creating some headaches for Centrica although the company still allowed for a generous increase in the dividend.
You might think the renewed spike in energy prices is untrammelled good news for the business but Centrica’s results reveal a more complicated picture.
There were lots of moving parts in the numbers. Investment in several areas put pressure on cash flow, while a better commercial performance for its retail-facing British Gas business was balanced out by higher bad debts and spending on its transformation plans.
Cutting headcount is often page one of the turnaround playbook and Centrica plans to cut some 1,300 jobs over the next two years. Its ability to do so is apparently bolstered by changes in customer behaviour which mean more customer contact takes place digitally.
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...
