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London Quick Take - 12 Nov - Nvidia boss Huang's future in the balance
Huanging in the balance
Stocks rebounded with the Nasdaq-100 rallying back above its 200-day line yesterday but it's testing it again this morning on the downside as Nvidia is weighing big time on reports the board is weighing Jensen Huang's future...a decision to oust the key man in the AI space would be a big negative for the stock and the broader sector, hence shares are down about 7% this morning in the pre-market following yesterday's ~3% bounce. There is not a ready replacement for Huang and it's hard to overstate just how important he is for the company, so we assume a material derating based on his ousting which is what we are seeing in the market. Earnings are due next week but the stock is going to struggle and the question is whether firing Huang nerfs the broader rally in tech stocks. But at a multiple of 14.4x on forward basis and 10x 2028 and 8x 2029 earnings, do you really think earnings are about to collapse that much and/or it deserves such a multiple compression?
Semis and Nvidia at ~ 14/15x earnings, building sense that the sharp equity market derating has improved the risk picture. As UBS notes in a 2027 outlook (the first I have seen), the S&P 500 multiple fell roughly 4x despite earnings rising more than 30%, leaving valuations lower and equity risk premia higher. Historically, large derating years have often been followed by strong returns. Bad news is baked in after ~40% drawdown in the second half for semis, whilst Yardeni points out that semiconductor earnings growth just hit 175% while stock prices collapsed from 130% gains to 9%. Rates volatility can come down next year as the hiking cycle could peak earlier than we thought and the Iran war looks to be de-escalating with meaningful declines in oil prices feeding through to gasoline prices in the US. Also watch buybacks, which can kick into gear next year although there have been warnings that the largest hyperscalers switching from marginal buyers of stock to issuing new stock. Slower AI buildout and capex requirements with still very strong cash flow suggest this could be overdone. UBS notes that buybacks could become a major tailwind: S&P 500 quarterly net buybacks dropped around $120bn between Q1 and Q3, partly because hyperscalers shifted from roughly $120bn of annual net buybacks to around $150bn of annualised net issuance as AI capex surged. With hyperscaler free cash flow forecast around $400–500bn annually, net S&P buybacks could rebound by $200–400bn in 2027, restoring an important source of equity demand.
Semis and Nvidia at ~ 14/15x earnings, building sense that the sharp equity market derating has improved the risk picture. As UBS notes in a 2027 outlook (the first I have seen), the S&P 500 multiple fell roughly 4x despite earnings rising more than 30%, leaving valuations lower and equity risk premia higher. Historically, large derating years have often been followed by strong returns. Bad news is baked in after ~40% drawdown in the second half for semis, whilst Yardeni points out that semiconductor earnings growth just hit 175% while stock prices collapsed from 130% gains to 9%. Rates volatility can come down next year as the hiking cycle could peak earlier than we thought and the Iran war looks to be de-escalating with meaningful declines in oil prices feeding through to gasoline prices in the US. Also watch buybacks, which can kick into gear next year although there have been warnings that the largest hyperscalers switching from marginal buyers of stock to issuing new stock. Slower AI buildout and capex requirements with still very strong cash flow suggest this could be overdone. UBS notes that buybacks could become a major tailwind: S&P 500 quarterly net buybacks dropped around $120bn between Q1 and Q3, partly because hyperscalers shifted from roughly $120bn of annual net buybacks to around $150bn of annualised net issuance as AI capex surged. With hyperscaler free cash flow forecast around $400–500bn annually, net S&P buybacks could rebound by $200–400bn in 2027, restoring an important source of equity demand.
Europe is largely weathering the Nvidia turmoil with the DAX advancing +1% for a new record high whilst the CAC was up +0.7%. More modest gains for the FTSE 100, which rose about 0.2% in early trade to tap 10,900 and ever closer to hitting the 11k mark. Burberry +8% as its turnaround seems to turned a corner with revenues 6% higher. Brent crude was steady around $93 with talks between the US and Iran deadlocked. The AEX in Amsterdam was the standout as it fell on ASML sliding -2%.
The UK economy expanded by +0.7% in the third quarter, notching the quickest pace of growth since 2024. It's in line with expectations but still adds to the sense that the UK economy is proving a lot more resilient than expected and could tee up another rate hike by the Bank of England come December. Sterling trades a little firmer on the news but cable has taken a bit of a hammering the last couple of sessions on dollar strength after the hot CPI report and comments from Fed governor Waller sent Treasury yields higher. GBPUSD hit its lowest in a month at 1.3250 before paring losses to around 1.3270.
The UK economy expanded by +0.7% in the third quarter, notching the quickest pace of growth since 2024. It's in line with expectations but still adds to the sense that the UK economy is proving a lot more resilient than expected and could tee up another rate hike by the Bank of England come December. Sterling trades a little firmer on the news but cable has taken a bit of a hammering the last couple of sessions on dollar strength after the hot CPI report and comments from Fed governor Waller sent Treasury yields higher. GBPUSD hit its lowest in a month at 1.3250 before paring losses to around 1.3270.