- FTSE 100 expected to nudge up at the open.
- Semiconductor stocks sink. Nvidia loses $600bn.
- Salesforce’s Benioff proclaims: “data is the new gold”.
- Defensive sectors in the green.
- GM and Boeing to report today. Meta, Microsoft and Tesla Tomorrow.
- Pets at Home guidance unchanged, strength in vets offsets retail weakness.
- Brent crude remains close to a 2-week low at around $77.4 per barrel.
Derren Nathan, head of equity research, Hargreaves Lansdown:
“The FTSE 100 looks set to up a small gain this morning after holding its head above water yesterday amidst a sea of red for tech stocks around the world. Defensive sectors had the best of it including non-cyclical consumer stocks such as Unilever and British American Tobacco, as well as the bigger pharmaceutical names. The same sectors were also in the green across the Atlantic, meaning those portfolios with broader exposure are likely to have smoothed out the market’s most recent gyrations.
Companies in the semiconductor industry have borne the brunt of the sell-off as the emergence of a new AI model from Chinese startup DeepSeek, reportedly developed on a shoestring budget of under $6mn, raised concerns about the outlook for spending on cloud infrastructure. The authenticity of this figure has been widely contested. Nonetheless, Wall Street’s darling NVIDIA has lost its briefly held crown as the world’s most valuable company, diving 17% and losing $600bn of market value along the way, the biggest ever loss for a stock in a single day. Other big semiconductor names caught in the crossfire include custom chip designer Broadcom and memory specialist Micron. Outside of the US, stocks that have taken a hit range from Taiwan Semiconductor Manufacturing Company through to the Dutch builder of chip printing machines ASML.
But that only tells one side of the story. For those looking to integrate AI into their business models the prospect of lower development costs could seriously boost returns on investment. Salesforce CEO Mac Benioff’s comments on social media that: ‘data is the new gold’ helped propel the shares up by 4%. And within the ‘Magnificent Seven’, Apple, Meta and Amazon were all in the green.
It’s going to take a while for the dust to settle here but it’s by no means the end of the party for AI infrastructure. Many of the recent big cheques set aside for investment in the space look to have been signed off after DeepSeek hit the scene. These include the Stargate proposal, the Bank of China’s 5-year AI investment plan and Meta’s capex plans of up to $65bn for 2025.
Steep reductions in development costs in the early years of technology shifts have been commonplace in economic history. A paradox first noted by the economist William Jevons in 1865 after observing a spike in coal consumption after the introduction of the more efficient Watt steam engine. A fall in cost can actually lead to a larger addressable market. So future demand for computing power could outstrip current expectations. That bodes well for the likes of NVIDIA, meaning that the current weakness could favour those brave enough to see through the market noise and buckle up for the longer term. Eyes will be firmly fixed on earnings tomorrow with three of the magnificent seven, Meta, Microsoft and Tesla set to report. Today it’s industrials that are in the spotlight with numbers due from General Motors and troubled aeroplane maker Boeing. Economic data points to look out for include US Consumer Confidence and House Prices which will give rate setters at the Fed further clues to heat levels in the economy as their first meeting since Donald Trump came to power kicks off today. For now, markets are pricing in next to no chance of a rate cut tomorrow.
Closer to home, customers of animal superstore Pets at Home are continuing to think twice about adding a new kitten or puppy to their households. Like-for-Like (LfL) Retail revenue fell by 2.8% in the third quarter, with October footfall in stores called out as particularly weak. But there were some bright spots with digital performance improving and strong growth in subscriptions, visits and transaction values driving LfL growth of nearly 20% in the Vet Group. This helped to keep recently downgraded guidance for the full year unchanged, with modest growth in underlying pre-tax profit still expected. The valuation doesn’t look too demanding but just when conditions will pick up again is hard to say. And with a high-profile regulatory probe by the CMA added into the equation, there are still plenty of obstacles for Pets at Home to navigate.
Brent Crude prices are up marginally today to around $77.4 per barrel after weak manufacturing data from China, the world’s biggest oil importer, put further downward pressure on prices yesterday. Comments by Donald Trump around tariffs on base metals are also driving concerns around industrial demand.”
