Equities Update: Nvidia, Smith & Nephew, Unite Group…

China’s AI boom: a challenge to Nvidia?

Lale Akoner, Global Market Analyst at eToro, says: “With the Hang Seng Tech Index up 31% year-to-date, investors are re-evaluating the tech gap between China and the US. China’s AI breakthroughs, particularly DeepSeek’s advancements, are attracting global interest in its AI and semiconductor sectors.

“However, this surge also raises competitive concerns for NVIDIA, which reports earnings this week. The US government’s export controls on advanced AI chips (A100, H100, and China-specific H800) have pushed Chinese firms to develop domestic alternatives. Companies like Huawei (Ascend), Alibaba (T-Head) and SMIC are aggressively working to fill this gap.

“Stronger government backing for private businesses is also boosting sentiment, as Beijing’s September policy pivot reduced downside risks and President Xi Jinping is actively engaging with leaders from Alibaba, Tencent, and BYD.

“But despite the bullish outlook, investors must remain aware of the risks: 1) China’s past regulatory crackdowns remain fresh in investors’ minds, 2) ongoing export controls on AI chips could slow progress, and 3) friction with the US and Europe affecting foreign capital flows and trade partnerships.

“China’s tech resurgence is no longer just a policy-driven rebound but a shift powered by real innovation and strong government support. With valuations still below US levels and institutional investors increasing exposure, Chinese tech stocks remain attractive—though the threat to NVIDIA’s market position and the ongoing geopolitical risks warrant close monitoring.”

Nvidia’s Q4 earnings under pressure amid China’s AI advancements

Josh Gilbert, market analyst at investment platform eToro, says: “Nvidia reports its Q4 earnings on Wednesday. The chip manufacturer has continued its banner run, with shares up 100% in the last 12 months amidst the AI ‘gold rush’.

“We are seeing major tech firms once again lift their capital expenditures. Amazon, Meta, Microsoft, and Alphabet are all increasing their spending on AI infrastructure by tens of billions of dollars. AI’s reliance on powerful chips means that Nvidia has held an enviable position in this race to the top; no matter who wins, Nvidia is reaping the rewards.

“There is a downside for Nvidia in this contest – Chinese newcomer DeepSeek. Investors have had mixed emotions following the late-January DeepSeek route, which wiped US$600b of Nvidia’s market value in a single day. DeepSeek’s technology represents the potential that – in the near future, companies may not need pricy, high-end graphics processing units to run sophisticated AI models, which significantly undercuts Nvidia’s position.

“DeepSeek isn’t the only dark cloud on Nvidia’s horizon. Demand outstripping supply has hurt its success in previous earnings and even though execs assured Wall Street that they expect to exceed “several billion dollars” in Blackwell revenue in the fourth quarter, there are caveats. We know the company is basically at its production capacity and is struggling to meet demand – and where there’s unfulfilled demand, there is potential for competitors.

“For now, though, the consensus estimate is that revenue will come in at US$38.2b, net income US$20.9b. The focus once again will be on more blockbuster numbers and its guidance being raised once again. The expectation from investors nowadays is nothing short of perfection.”

Smith and Nephew beats estimates despite China drag

Adam Vettese, market analyst at eToro, says: “There were three cheers due for Smith and Nephew’s hip and knee replacement business over in the US, which was the main driver of growth, with overall sales and profit topping analysts’ estimates. The firm offered up 5% growth despite facing challenges in its China business as well as FX headwinds. They are currently dealing with a significant demand fall-off in China resulting in their distributors sitting on unusually high levels of inventory, which are beginning to come down but are still way above what would be considered normal. These issues are expected to continue into Q1 2025 but Smith and Nephew will be keen to resolve them as soon as possible so the region does not continue to drag on performance.

“The dividend has remained unchanged from last year, which may be slightly disappointing to investors given overall profit was ahead of expectations. Although this may be prudent given the overall trajectory of shares has been on the decline for the last few years. Investors will be hoping today’s jump in the share price is the start of a longer-term reversal.”