Update Equities: The proof of AI is in the “eating”

In general, and, especially, in the US, the earnings season was solid and, in particular, driven by information-technology related mega-caps like Microsoft, Alphabet and Meta. In addition, the cybersecurity company Palo Alto delivered attractive quarterly results, doing better than expected in terms of both its numbers and forward guidance. This illustrates that cybersecurity is still an important investment area for corporates. Meanwhile, the company also alluded to its recently announced acquisition of CyberArk, which did not come cheap but given the clear investment rationale, investors were satisfied.

Novo Nordisk was also in the picture this week and this time on a more positive note than recently seen. Its blockbuster weight-loss drug Wegovy received US approval to treat a serious form of liver disease, thereby beating rival Eli Lilly to the US market. In addition, Novo Nordisk cut its pricing of Ozempic for cash-paying patients. Lastly, a potential rival on the obesity front, Viking Therapeutics, published a disappointing readout of its experimental obesity pill that had  comparable efficacy but more negative side effects than competing drugs, which could reinforce the dominance of Novo Nordisk and Eli Lilly. In all, this led to a soft positive recovery in Novo Nordisk’s share price after a slump since last year.

Throughout the week, the market became a bit jittery over concerns of the size of investments in artificial intelligence (AI) capacity by the so-called “hyperscalers,” such as Alphabet and Meta, and the eventual returns. Given that the likes of Nvidia have already performed strongly over the past months, these stocks became vulnerable to some profit-taking and stock rotation, which shortly took place. Market rumours explained part of the decline due to a critical report authored by a branch of the Massachusetts Institute of Technology where researchers stated that “95% of organisations are getting zero return” from their investments in generative AI. Obviously, the jury is still out on how the AI wave will pan out.

Nvidia is one of the last companies to release its second-quarter results next week. It is significant, as Nvidia has become the key indicator for the status of the entire AI investment landscape. Meanwhile, the US Federal Reserve’s Jackson Hole meeting is underway. Equity markets will be on the lookout for signals from Fed Chief Jerome Powell on potential rate cuts. So, there are enough upcoming data points to stay tuned.