Not Apple. Not Microsoft. Not even IBM, back in the day. None of their quarterly earnings calls became a nationally recognized Day of Financial Observance. Yesterday was Nvidia Day: The AI giant handily beat revenue and profit forecasts, and issued third-quarter guidance that beat expectations. For some buy-side analysts, that still didn’t meet their greatest expectations.

A Stock That Can Move Markets

Nvidia controls between 70% and 95% of the AI chips market, according to Mizuho Securities estimates. That pole position at the first wave of explosive growth in the AI market — PwC estimates that in 2030, AI will boost GDP in China by 26% and in North America by 14.5%, a total equivalent of $10.7 trillion — has led Nvidia to staggering gross margins, 78% in the second quarter.

In a sign of Nvidia’s significance to investors, the S&P 500 and Nasdaq were mostly quiet Wednesday, down 0.6% and 1%, respectively, as traders awaited the news. Given Nvidia’s shares were up 160% year-to-date, accounting for about 25% of the S&P 500’s 18% gain in the same period, it makes sense. Bespoke Investment Group wrote that the “earnings report has become the world’s most important financial news event. Federal Reserve officials must be getting nervous.” The stakes were so high that, even as Nvidia beat expectations when it did report, that might not be enough:

• In the three months through July, revenue more than doubled to $30 billion from a year earlier, while profit more than doubled to $16.6 billion. (FactSet consensus for revenue was $28.7 billion.) Data center revenue rocketed over 150% to $26.3 billion, a billion dollars more than expectations, and gross margins remained high at 75%.
• Nvidia’s stock was down more than 2% by market close Wednesday, before reporting after the bell, and fell nearly 9% in the extended session. That may be because of just how bullish some buy-side analysts are — projections for Nvidia’s guidance ranged as high as $2 billion over the consensus, but the company said it expects fiscal third-quarter revenue of $32.5 billion, as opposed to analysts’ consensus of $31.7 billion.

Swing for the Fences: Traders on the US equity options market expected Nvidia shares to swing nearly 10% in a record $300 billion earnings move after earnings dropped. Thursday will test that forecast — the company has averaged an 8.1% swing after recent earnings, Bespoke Investment Group said.

The official anthem of the Chinese EV sector is “Don’t Stop Me Now.”

A couple of China-based EV giants had good news to share on Wednesday in spite of a much-weakened consumer at home and fresh tariffs from the EU and Canada. It’s a sign that China’s EV sector, though facing tough times ahead, has enough gas in the tank to keep going.

Cheap and Cheerful

China’s EVs have had tariffs slapped on them by the US, the EU, and Canada because they are much cheaper than any other EVs on the market due to extremely generous state subsidies. The idea is to stop China EVs from crowding out local manufacturers by slowing their roll — but the thing is, they have the world’s biggest auto market to fall back on. On Wednesday BYD — which in Q4 2023 managed to briefly nab Tesla’s crown for selling the most EVs globally — announced its net profit for H1 rose 24% year-over-year.

Meanwhile, China-based EV maker Xpeng released a new model for budget-conscious consumers with a price tag around $16,800. EV companies have been chasing each other to release mass-market models, and Xpeng’s new model is more than $15,000 cheaper than the cheapest Tesla you could buy in China, per CNBC. On top of that, Chinese EV companies are racing to outdo each other on driver-assistance systems:

• BYD announced on Tuesday that it’s partnering with Huawei to bring self-driving technology into its vehicles.
• Xpeng’s new budget model also comes in a slightly more expensive (but still relatively cheap) version, with self-driving software included. Tesla has been trying to introduce its driver-assistance tech to the enormous Chinese market, but it hasn’t materialized yet.

There is a dash of investor skittishness over China’s EV sector, automaker Li Auto sparked a downturn in Chinese EV stocks this morning following its after-the-bell financials yesterday.

Adapt or Perish… or Not: Back on its home turf, Tesla’s rivals are getting restless. The New York Times reported on Tuesday that although Tesla promised last year to un-Appleify its Superchargers by letting other brands’ cars plug into them, in practice most non-Teslas still aren’t able to. According to the NYT, this is down to big delays in software updates and distributing adapters for non-Tesla cars. While a cynic might have thought the delay was handy for Tesla, as its Supercharger network is a selling point for its cars, the company said on Friday it’s working on ramping up adapter production. A little bit of mal-coordination at the Supercharger department also wouldn’t be a huge surprise, given CEO Elon Musk chose that department to fire wholesale in April.

Nothing can knock the crown off Lego’s cylindrical head.

Despite slowing demand in the toy industry and extra costs tied to Lego’s mission to go fossil-free, the Danish tiny-brick maker reported generating $4.65 billion in revenue for the first half of 2024, up 13% from a year earlier.

Brick by Brick

Legos transcend age easier than most toys. While little kids might be interested in superhero-themed sets, adults find comfort in more sophisticated designs that mimic artistic flower bouquets and landmarks… and the superhero-themed sets, too. 

Lego has collaborated with an ever-growing range of brands and intellectual properties including Batman, Star Wars, Bugatti, and Adidas, so no matter your interest, there’s probably a Lego out there for you. Additionally, the company has 10 theme parks, a handful of successful theatrical releases, and it recently partnered with Epic Games’ “Fortnite” — the most-played video game across all platforms in 2023:

• Lego’s direct-to-consumer sales increased 14% in the first half. “If you look at a result like this it’s not like I can point to one country or one product. It’s across the board. It’s not one initiative, one silver bullet,” Lego CEO Niels Christiansen told the Financial Times. “The Lego brand globally is performing very well.”
• Meanwhile, the rest of the toy industry is tepid. US toy sales declined 1% in the first four months of the year, according to market researcher Circana, and both Barbie maker Mattel and Play-Doh pioneer Hasbro reported lower sales in the first half of 2024 year-over-year.

Alternative Plastics: Not even Lego’s environmental aspirations can slow its growth. The company has been introducing renewable and recycled materials to its bricks instead of relying on oil and other fossil fuels for its manufacturing. Christiansen told the FT that “it is 40 to 50 to 60% more expensive in material terms. We don’t pass that on to the consumer.” The bricks may have a different chemical makeup, but they hurt just the same when you step on them barefoot.