Weekly Key Insights: Upcoming US Presidential Election & Nvidia's Earnings
Initial Thoughts on the 2024 U.S. Election
As speculation grows that the 2024 presidential election may feature a rematch between former President Donald Trump and incumbent President Joe Biden, it is worth noting that both candidates carry significant levels of unpopularity. This raises the possibility of a surge in support for a third-party candidate, potentially diverting electoral votes away from the main contenders.
Historically, a weak economy has proven detrimental to the re-election prospects of incumbents, with indicators such as inflation, job openings, and GDP growth playing a crucial role in both presidential popularity and market performance. If the Federal Reserve were to implement rate cuts in 2024, some argue that they would prefer to do so earlier to avoid any perception of political bias during the election season.
One prominent area where the two leading candidates differ is the United States' involvement in geopolitical stability, particularly concerning NATO and defense spending. However, spending priorities could also impact energy, infrastructure, healthcare, and individual and corporate tax policies, providing further distinctions between the candidates.
Nvidia's Impressive Earnings and Outlook
Nvidia has surpassed expectations with its latest earnings report, experiencing a staggering 265% year-on-year revenue growth in Q4 FY24, exceeding analyst estimates. The company's guidance for Q1 FY25 is also 10% higher than consensus predictions. Such a remarkable revenue growth rate, coupled with the anticipation of approximately $100 billion in revenue over the next four quarters, is unprecedented in the equity market.
Nvidia's Chief Financial Officer has emphasized generative AI as a significant driver of growth, potentially leading to ongoing model upgrades and increased returns. These outstanding results could spur a rally in AI stocks and the broader tech sector. However, concerns may arise regarding future earnings surpassing expectations and the potential formation of a market bubble.
For investors looking to reduce their exposure to U.S. technology and Nvidia, sectors such as energy, utilities, and consumer staples, which exhibit low correlation with Nvidia, could be considered as alternative investment options.
The current consensus among Nvidia's 53 analysts indicates revenue expectations of $105 billion in 2025. If this forecast is met, it would represent a substantial 133% increase in sales compared to the previous 12 months.