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Nvidia's Stellar Earnings Amidst Mixed Retail Results: A Tale of Contrasting Sectors

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2023-08-24

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As the American retail sector faces mixed and weaker quarterly results, AI chip giant Nvidia emerges as a strong player, sending Wall Street abuzz.

Nvidia surpassed earnings estimates and provided a more positive-than-expected forecast for the third quarter, leading to an almost 9% surge in its shares after hours. This followed a 3.1% rise in regular trading ahead of the company's second-quarter figures release.

Quarterly revenue skyrocketed over 1009% to $13.51 billion (exceeding the market forecast of $11.22 billion) from the same period a year ago, marking an 81% increase from the company's first quarter. This remarkable performance led to earnings of $6.19 billion, a significant leap from $656 million.

Nvidia's strong results not only lifted its shares but also had a positive impact on Wall Street futures, with Nasdaq futures jumping over 2.6%, pointing to a promising day ahead.

The company's projected third-quarter revenue of about $16 billion surpassed the market forecast of $12.61 billion, implying a 170% annual sales growth for the current quarter.

The success of Nvidia underscores the integral role its technology plays in the generative AI boom. The company's A100 and H100 AI chips are essential components for building and operating AI applications like OpenAI's ChatGPT, which provides conversational responses to text queries.

Nvidia CEO Jensen Huang highlighted this shift, stating, "A new computing era has begun. Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI."

Furthermore, Nvidia's positive news extended to its financial strategy, as the company's board of directors authorised $25 billion in share buybacks.

On the contrary, Nike, a sports goods giant, faced its 10th consecutive daily decline in its stock, despite its earnings report being a month away. This decline follows weak figures from major Nike retailers such as Dick's Sporting Goods and Foot Locker.

Foot Locker, an important indicator for back-to-school spending, joined Dick's Sporting Goods in lowering their annual profit forecast, leading to a drop in sportswear retailers' shares. Foot Locker CEO Mary Dillon mentioned, "We did see a softening in trends in July and are adjusting our 2023 outlook to allow us to best compete for price-sensitive consumers."

Loss of inventory due to theft in their stores has pressured profits for companies like Foot Locker, Target, Kohl's, and Macy's, the latter also warning of weak demand and increased credit card payment delays.

While retail faces these challenges, Walmart bucked the trend by raising its full-year forecasts and outperforming second-quarter results, driven by strong demand for its affordable groceries.

Art Hogan, chief market strategist at B Riley Wealth, noted, "The consumer is still alive and well, but clearly more price conscious this year than last."

However, this price consciousness doesn't seem to affect AI chips and Nvidia, which stands as a beacon of success in a contrasting landscape.

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