Halfords profits boosted by demand for aircon services
Halfords shares are soaring this morning after the bike and car parts retailer raised its profit forecast for the year, partly after scorching summer weather drove demand for its airconditioning services.
The company said it has seen “strong demand in seasonal categories” that was “in part reflecting unusually warm summer weather”.
A spokesperson later confirmed this included air conditioning services, such as regassing air con units, along with cycling, and touring and camping equipment. Shares jumped more than 10% on Thursday morning.
Analysts at Peel Hunt, one of Halfords’ brokers, said the warm weather added around £5m to its profit in the first half of the year, with “extremely strong” sales in the three categories.
They added:
Of course, this may be difficult to replicate next year, when presumably the weather will normalise, but it is in the bag for this year now, and this incremental c.£5m is at the heart of our upgrade.
The update comes after Britain’s hottest and driest summer in years, with five separate heatwaves and drought declared across large parts of England and Wales.
The retailer said it now expects annual profit of between £55m and £65m, above the £52.6m analysts had forecast.
Halfords said the rest of the upgrade came from “continued momentum” in its core business, as it pushes ahead with a turnaround plan under chief executive Henry Birch.
Nvidia shares are now up 6.4% in pre-market trading, ahead of the Wall Street open later today.
Major supplier Micron Technology is 4.3% ahead in pre-market trading.
“Nvidia delivered a beat-and-raise quarter, but the real positive was the earnings call,” said Ben Barringer, head of technology research at Quilter Cheviot.
Investors came into the results with a laundry list of concerns around competition, the durability of AI spending, memory costs, margins, financing arrangements, open-source models and China. Management did a good job of systematically addressing each one.
The headline numbers were strong, with guidance implying around 70% revenue growth despite demand running closer to 100% growth and remaining constrained by supply.
On competition, Nvidia pointed to AWS as a customer, reinforcing its position even as hyperscalers develop their own silicon. While concerns about competition are unlikely to disappear, management made a convincing case that its ecosystem continues to provide a significant advantage.
Durability was another key question investors wanted answered and management’s response was robust. Alongside 70% growth guidance, Nvidia highlighted roughly $2 trillion of backlog, suggesting demand remains exceptionally strong.
Gross margins were probably the main negative. Nvidia reported margins of 75% but guided to 74%, citing rising memory prices. Management suggested margins could trough at around 71% before recovering as pricing adjusts. While worth monitoring, investors appeared comfortable with that explanation given the scale of demand.
Financing has also been flagged as a risk by some investors. Nvidia emphasised that it is not making loans to customers but creating financing platforms, which it views as vital to address this unique AI opportunity. Whether that becomes a meaningful business remains to be seen, but management sought to dispel credit risks being taken on.
Open-source AI was another area management addressed. Nvidia’s view is that open and closed models will coexist, leaving the company well positioned regardless of how the market develops.
But China remains one of the bigger unresolved issues, with little contribution from the region reflected in the current numbers.
Barringer concluded:
Overall, this was a strong quarter, but more importantly a strong call. Investors arrived with a long list of worries and management provided reassuring answers to most of them. The stock was initially flat after the results but rose around 5% following the call, suggesting that it was the commentary and strong guidance , rather than just the headline numbers, that ultimately convinced the market.
Updated
So, what is driving these massive revenues at Nvidia? asks Kathleen Brooks, research director at the investment platform XTB.
Firstly, there has been an explosion in its customer base. Nvidia doesn’t publish customer numbers with its earnings report, but Jensen Huang said that last year one lab was driving the AI buildout, now there are multiple lab buildouts at once. Huang called it a golden age for AI, in the US and around the world. A broader customer base will keep revenue growth buoyant, it also means that Nvidia is less reliant on hyperscaler capex spend to continue to grow its own revenues.
It’s not just the hyperscalers who want data centres, revenue from other parts of the market is now starting to pick up steam. Nvidia Cloud customers, along with industrial and enterprise clients now make up $40.3bn of revenue, up more than 100% in a year. The hyperscalers generated $48.7bn. Another reason why the stock price is rallying is because other parts of the market are quickly catching up to the hyperscalers.
There has been a lot of concern about Nvidia’s equity investments in other AI companies, however, so far, they are paying off. Net income for last quarter included a $7.8bn gain in equity investments, which include Intel and SpaceX.
While some are worried about a circular financing model that could leave Nvidia exposed if the investments turn sour, Nvidia’s supporters argue what else is a cash-generating machine like Nvidia supposed to do with its money? The company reported data centre sales of $92bn last quarter, and makes 92% of its revenues through its data centre and chip sales unit.
When your bread and butter business is performing at this level, Nvidia has plenty of money to invest to broaden the global AI ecosystem, and there could even be upside if money generated through these investments feed back into Nvidia’s sales.
Analysts said Nvidia’s results are a shot in the arm for the AI trade. Brooks added:
With revenues this big, and demand for its products getting bigger every month, it will be a brave trader who will bet against Nvidia in the aftermath of this report. For now, the company has proven that criticism of its investment and financing model for AI is overblown, and today’s results could give the whole AI trade, and the US stock market, a shot in the arm, after a volatile few months for the tech trade.
These results are good news for Nvidia’s suppliers after the company said that it would double its supply commitments to $279bn, primarily related to memory costs. Nvidia’s largest memory suppliers include SK Hynix, Samsung and Micron.
More on Shein. The company, which sells £5 dresses and £11-£15 jeans, is set to price its initial public offering (IPO) at HK$48.56 a share, near the midpoint of its HK$47.60 to HK$49.50 range, Reuters reported.
The IPO will value the company at about a quarter of its nearly $100bn peak in 2022, and well below the $66bn it was valued at in a 2023 fundraising round.
Shein, which is headquartered in Singapore and was founded in China, launched its Hong Kong IPO on Monday. It is due to announce the final IPO price next Monday, with trading expected to begin the following day.
It is one of the longest-awaited initial public offerings (IPO) of recent years, after plans to list in New York were blocked by regulators over forced labour concerns. Shein then considered a £50bn float in London, but faced similar questions about its supply chain from campaigners, MPs and investors.
Cornerstone investors, led by existing shareholders Boyu Capital, Tiger Global and General Atlantic, have subscribed for $383m of shares, its prospectus showed. Tencent , Greenwoods, Taikang Life and UBS Asset Management will also buy shares.
Shein has said it will use 80% of the proceeds to improve its technology and expand its brand and global reach. It has also agreed to pay up to $3.5bn in cash to certain investors who bought special shares in earlier private funding rounds.
The retailer is grappling with slower revenue growth, weaker earnings and shrinking profit margins.
Introduction: Asian technology shares ride high on AI optimism after Nvidia’s ‘stunning’ results
Good morning, and welcome to our rolling coverage of the global economy, the financial markets, the eurozone and business.
Asian technology shares rose after bumper results from the US chipmaker Nvidia last night.
There was a sigh of relief after AI bellwether Nvidia reported a doubling in quarterly revenue to nearly $100bn and forecast third-quarter revenue above Wall Street forecasts. The chipmaker, the most valuable company in the world with a $5tn market cap, made revenues of $96bn in the second quarter which is set to rise to $108bn in the third.
Jensen Huang, the Californian company’s founder and chief executive, jubilantly declared that demand is accelerating as the AI industry had reached a “golden age”.
The results showed no signs of slowing demand for chips and revived confidence in the AI trade after a recent sell-off in tech shares on Wall Street and Asia, leading to a massive drop in the South Korean stock market in July.
Kathleen Brooks, research director at XTB, described the figures as “nothing short of stunning”.
Nvidia shares rose 4.7% in post-market trading to $219.53 and if the rally continues into Thursday, as Brooks expects, it could break through the $220 barrier, heading towards the $235 highs seen in May.
Susannah Streeter, chief investment strategist at the Wealth Club, said:
The AI juggernaut is rumbling on with Nvidia smashing through expectations, amid voracious demand for the tech backbone of the AI revolution. The results solidified high expectations for the company’s mega revenues going forward, and shares firmed up, leaving behind the post-results wobbles seen after previous updates. Given the might of Nvidia, which carries the largest weight of any company in the S&P 500, the results are closely watched as a gauge of sentiment towards AI adoption, and the prospects for the index, which so many portfolios track.
Demand for its Blackwell chips has been particularly significant, showing that customers are continuing to spend heavily on Nvidia’s newest generation of AI accelerators rather than simply filling existing capacity. With demand still running ahead of supply, Blackwell is helping to power the next leg of the AI infrastructure build-out.
However, once the initial excitement settles, questions are likely to resurface about the durability of this boom in revenues. It’s becoming less about whether Nvidia can keep climbing the AI mountain, and more about how long it can sustain this extraordinary pace of ascent and whether the vast sums being poured into AI infrastructure will ultimately deliver the returns needed to justify the colossal investment.
South Korea’s Kospi rose 1.3%, with shares in the memory chipmaker Samsung Electronics up 3%.
The Shanghai and Shenzhen exchanges climbed 0.95% and 1.37% respectively while the Singapore market added 0.4% and Taiwan was 0.3% ahead. However, other major Asian markets were in the red, with Japan’s Nikkei edging 0.2% lower and the Australian exchange falling nearly 1%.
In Hong Kong, the online fashion retailer Shein is set to price its stock market flotation at $26.5bn, raising $1.7bn, Reuters reported, citing two sources.
In the US, the Jackson Hole economic policy symposium kicks off today, and markets are on tenterhooks for a keynote speech from US Federal Reserve chair Kevin Warsh on Friday.
The Agenda
Jackson Hole Economic Policy Symposium begins in the US
1.30pm BST: US Initial jobless claims for week to 22 August
1.30pm BST: US trade in goods for July
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