Nvidia revenues power ahead

But with the AI chipmaker’s results leaving investors wanting even more, the case for diversification grows stronger.

27 February 2025

Even investors who are ambivalent about technology and communications stocks and ‘just hold the S&P 500’ are – whether they realise it or not - effectively still enthusiasts for the two sectors, with just over 40% of the US index allocated to them. Given that both are down on the year to date (-1.6% and -3.8% respectively), most investors will naturally be interested in what the golden child of the artificial intelligence (AI) revolution – Nvidia – had to say about their fourth quarter earnings.

Despite the DeekSeek swerve, Nvidia’s self-driving show is still powering along the road

To state that the next few weeks of market action depends at least in part on this report is not hyperbole. While the stock lost a whopping USD 600 billion in market capitalisation in a single day in late January on the announcement of DeepSeek’s new AI model, the latest earnings news seemed to suggest that things remained broadly on track. Net income rose by 80% on the previous year to USD 22 billion, beating expectations and justifying the +3.7% jump the stock saw during the trading day ahead of the earnings release. The move had been exacerbated by frantic purchasing in the run-up to the earnings release of call options betting on the stock rallying. Either way, Nvidia appears for now to remain a crucial maker of chips powering a technology revolution which its key customers are pouring vast amounts of money into. Still, equity investors have been showing signs that they do not want to rely exclusively on the US technology sector, promising as it still is, and this could be another opportunity for rotation by those who want to take some profit and consider a region with potentially even more upside.

MEGA bucks – is it finally time to diversify into Europe?

A growing ‘MEGA’ (Make Europe Great Again) trade is making itself apparent, with the MSCI Europe Index up by nearly +10% versus the MSCI USA Index’s +1.3% so far this year. This may signal less that America’s technology surge has run its course (it almost certainly has not) and more that Europe is perhaps finally offering some realistic growth prospects, along with discounted prices. While President Trump’s apparent rejection of Europe in the last couple of weeks may on the surface appear to confirm investors’ worst fears about the continent, and by implication its stock markets, the more nuanced view is that it could finally spur Europe into action. The continent’s prolonged stagnation and now the very threat of tariffs, along with the withdrawal of the US security backstop, may be spurring changes at last. Stung by Mario Draghi’s report last year on European (un)competitiveness in particular, the European Union is considering allowing its banking sector to place more assets off-balance sheet and encourage more share issuance and mergers. On defence, more spending could even support wider growth as it did after the Second World War and during the Reagan era. So while Nvidia’s fundamentally sound update was a relief for those starting to worry about US market froth, it could also unwittingly provide optimal conditions for investors looking to re-consider Europe.

Nvidia’s latest results could ironically encourage profit-taking and further rotation into Europe:

From 29 Dec 2023 to 25 Feb 2025