The tech sector is in disarray, whilst anticipation builds ahead of Nvidia’s results

(Il Sole 24 Ore Radiocor) - The European technology sector is holding its breath on the stock market ahead of Nvidia’s quarterly results, which, as well as providing an update on the tech giant’s performance, will be closely watched to set the course for the entire sector. Sales are affecting Be Semiconductor, ASM International and ASML  in Amsterdam. Infineon, on the other hand, performed well in Frankfurt, whilst STMicroelectronics (-0.5%) also closed lower on the Milan Stock Exchange. Traders will look to Nvidia’s results for insights into trends in artificial intelligence investment, to gauge whether hyperscalers such as Amazon, Microsoft, Meta and Google have further accelerated their infrastructure build-out or adopted a more disciplined approach than in the past. Meanwhile, Nvidia’s share price has risen by 16 per cent since the start of the year, despite having experienced volatility over the past few months.

Wall Street – as ever – is expecting exceptional results from the tech giant: according to data compiled by Bloomberg, analysts forecast that revenue will have almost doubled compared with the previous year – marking the fastest rate of growth in the last two years, as will net profit. However, the market’s focus will be primarily on what CEO Jensen Huang has to say regarding capital expenditure by major clients, future demand and a series of new financing agreements involving Nvidia. Attention will also be on the issue of price rises, after some customers were informed that the cost of servers fitted with Nvidia’s AI chips will rise by more than 15 per cent in some cases, due to soaring memory costs. It should also be noted that despite a market capitalisation of over 5,000 billion dollars — the highest in the world — Nvidia’s valuations have been steadily eroded over the course of the year. With a price-to-earnings ratio based on expected earnings for the next 12 months of around 19 times, the share price is approaching the lows recorded since the end of 2018 — that is, before the AI boom and when the chipmaker’s market capitalisation was below $100 billion.

The sector remains in the spotlight in light of growing competition from China and the risks this poses. According to a report by Reuters, the Chinese artificial intelligence group Moonshot, which is preparing for an initial public offering, is negotiating revenue-sharing agreements with Microsoft, Amazon and Google. The deal would allow the cloud giants to use the Kimi K3 artificial intelligence model. This would be the first agreement of its kind between a Chinese AI company and a US group, and Moonshot is reportedly aiming to secure up to 30 per cent of the revenue generated by K3-related services. As recently as last month, the US Treasury Secretary, Scott Bessent, had threatened to add Moonshot to the blacklist of companies with which American firms are prohibited from doing business.