What to Expect in the Week Ahead (NVDA and CRM Earnings; GDP and PCE inflation)

Last week, the Dow Jones Industrial Average and S&P 500 Index moved back toward record highs, as investors appeared to celebrate Federal Reserve Chair Jerome Powell’s announcement that interest rate cuts would soon be coming. The gains were also broad-based, with small-caps outperforming large-caps and an equal-weighted version of the S&P 500 Index outpacing its more familiar, capitalization-weighted counterpart.

Nvidia, highly anticipated by investors, is set to report its second-quarter earnings after the market close on Wednesday. This will not only impact Nvidia's share price but also broadly influence market sentiment. SaaS giant Salesforce will also release its earnings after the market close on Wednesday. Additionally, tech giant HP, chipmaker Marvell, and specialty retailers Lululemon and Ulta are scheduled to report their earnings next week.

Nvidia is set to release its second-quarter earnings report for fiscal year 2024 after the market closes on Wednesday, August 28. Expectations are for revenue to rise to $28.54 billion, marking growth of around 211% year on year. EPS is expected to be $0.6, an annual rise of 136%.

Nvidia, the AI darling of Wall Street, has been boosted by strong demand for specialized GPUs used for data centre adoption of AI and machine learning. Customers such as Amazon, Microsoft, and Alphabet use Nvidia chips, which account for around 40% of customer revenue.

Earnings come as the share price trades up 160% year to date and investors will want to see fundamentals that support the valuation.

NVIDIA is expected to provide more details about the upcoming Blackwell GPU, whose shipments have already been delayed. Let’s not forget, though, that CEO Huang expressed optimism that Nvidia would see a lot of Blackwell revenue this year. Evercore analysts said that they considered the worries surrounding the Blackwell delay and supply chain constraints overdone.

Second quarter earnings for Salesforce stock are due Aug. 28. Analysts predict EPS of $2.35, up 11%, with revenue rising 7% to $9.2 billion.

For the past five quarters, revenue has climbed about 11%. Earlier this year, Salesforce stock fell on its disappointing Q1 earnings report and outlook. Even so, Salesforce’s management remains confident that this is just a temporary headwind. CEO Mark Benioff noted that despite the lower revenue results for the quarter, Salesforce maintained its full-year guidance at $38 billion.

According to Bloomberg, the broader enterprise software sector has faced challenges, including increased competition and shifts in customer spending priorities. These factors likely contributed to slower-than-expected sales growth and delays in closing large deals.

In the coming week, investors should closely monitor several key macroeconomic events that could significantly impact the market. These include the US GDP, Initial Jobless Claims, and the US Core PCE Index.

The Fed’s preferred inflation measures are released on Friday, with consumer confidence (which includes inflation expectations) shortly after. Core PCE remains above the Fed’s 2% target at 0.2% y/y, and the deceleration of prices has slowed. The last thing the Fed want to see is these measures of inflation tick higher.

If super core or core PCE rise just 0.1%, it likely retains the view of a Fed soft landing. Where things get tricky are if we see these figures dip below zero, particularly if accompanied by deflationary figures from personal income and personal consumption. While this scenario seems low probability, it would surely stir fears of a hard landing and weigh on risk, the US dollar and yields as calls for a recession resurface.