The third quarter has given investors plenty to think about. The artificial intelligence (AI) trade remains firmly in focus, but the debate has shifted from excitement alone to whether the scale of investment can keep delivering returns and which businesses are most exposed to disruption.
Interest rate expectations have also continued to shift, influencing investor appetite across different sectors, and UK consumers face growing pressure from a still-challenging backdrop.
The market has been more selective in how it’s judged our 5 Shares to Watch, even where operational progress has remained encouraging. Investors have also been asking harder questions of our healthcare picks, weighing attractive long-term opportunities against nearer-term uncertainty.
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RELX
RELX’s first-half results offered further evidence that AI is strengthening rather than disrupting the business.
Underlying revenue rose 7%, while operating profit grew 9%, helped by another improvement in margins. Legal was the standout, with underlying revenue growth accelerating to 10%, while Scientific, Technical & Medical stepped up to 6%. Both divisions are benefiting from AI-enabled products, helping to ease concerns that newer competitors could undermine RELX’s position.
The longer-term opportunity remains attractive. RELX owns deep, hard-to-replicate datasets embedded in customer workflows, and management sees scope to keep adding higher-value tools as AI adoption broadens. Risk also remains a key growth engine, with rising fraud and identity threats creating demand for better decision-making tools. Subscriptions provide good revenue visibility, and disciplined cost control continues to support margin improvement and cash generation.
We still view RELX as more likely to be an AI winner than a casualty and remain confident in the delivery of dependable growth. The earnings multiple has risen from February’s low, but reliable, steady growth means that there’s less chance of a blowout set of results that would shift the narrative again. Patience is key.
Intuitive Surgical
Intuitive Surgical delivered another strong quarter. Second-quarter revenue rose 18.5% to $2.9bn, with operating profit up 28.7% to $1.2bn, both ahead of market expectations.
Growth was supported by higher procedure volumes, new system placements and continued demand for instruments and services across its expanding installed base.
Investor sentiment was dented by signs of slower US growth and annual procedure guidance that remained at 13.5%-15.5%, with growth now expected to land within the range. That fell short of the upgrade investors have become accustomed to.
The long-term case remains attractive.
Robotic surgery penetration is still relatively low across many procedures and geographies, leaving room for future growth as hospitals look to improve efficiency, precision and patient outcomes. The da Vinci 5 platform should make procedures easier for surgeons, supporting better utilisation and opening up new surgical areas, and its Ion platform extends Intuitive’s reach into lung cancer diagnostics.
We see Intuitive as a high-quality business, with a dominant market position, substantial recurring revenue and a strong balance sheet. The current valuation weakness could offer an appealing entry point, but US affordability and hospital funding pressures are worth watching if softer procedure growth proves more persistent.
Novo Nordisk
Novo Nordisk’s second-quarter update showed that obesity-led GLP-1 momentum remains intact. Demand for Wegovy remains strong, and its recently launched oral version has now passed 7 million prescriptions in the United States alone.
Full-year guidance was upgraded, but adjusted sales and operating profit are still expected to decline by 0-6%, a reminder that current momentum has not fully offset competitive and pricing pressures.
Recent clinical news has been mixed. A cardiovascular inflammation trial disappointed, underlining pipeline risk outside the core obesity franchise. But rare disease updates were more encouraging, with positive news for Sogroya and FreHemGo.
Longer-term targets at the September Capital Markets Day point to confidence in a broader growth platform, not just obesity.
Novo already has approvals in related conditions like heart and liver disease, with plans to explore further treatments for illnesses linked to obesity and diabetes. It’s also building on strengths in blood and endocrine disorders. If successful, that will help broaden the growth story beyond today’s blockbuster franchises.
Novo has a wide footprint and developed infrastructure across attractive markets. The challenge is turning that platform into better commercial execution and a stronger launch cycle, especially as patent pressure starts to build in its current best-sellers.
Nvidia
Nvidia’s second-quarter results raised the bar again.
Revenue more than doubled, comfortably ahead of expectations, and guidance for around $108bn next quarter pointed to another sharp step-up. Growth was broad-based, with both hyperscale customers and smaller AI cloud, industrial, enterprise and sovereign customers investing heavily.
The bigger development was management’s outlook for around 70% revenue growth next year, despite supply constraints. This came in significantly ahead of expectations that have consistently underestimated the durability and scale of this demand cycle.
Gross margins are expected to come under some pressure from rising memory costs, but the impact looks manageable. The more important questions are whether AI spending can remain this strong and whether Nvidia can defend its position as custom chips gain ground. We expect competition to increase, but not to displace Nvidia as the dominant AI platform.
With earnings growing rapidly and the valuation at a very modest 17 times forward earnings, we continue to see Nvidia as one of the most attractive names in our tech coverage. Key risks to monitor remain AI sentiment, investment plans from major customers, and market share concerns as competition ramps.
An author and/or connected party holds shares in Nvidia.
Marks & Spencer
There have not been any major updates since Marks & Spencer’s (M&S) full-year results back in May. Sales rose 25% to £17.4bn, or 2% to £14.2bn, excluding the consolidation of Ocado Retail, as last year’s cyber-attack weighed on performance.
Recent industry data suggests that M&S is gaining market share across both Food and Clothing in the first half. Meanwhile, Ocado Retail is continuing its run of double-digit growth, contributing to forecasts that group-level sales will rise by nearly 8% this year.
We like M&S’ Food strategy. Near-price-matching some options for basics like bread, dairy, and meat with key competitors is enticing more customers into its stores. Meanwhile, higher-quality, premium offerings elsewhere in the basket support its higher-than-average margins and help drive profit growth.
Costs are likely to rise in the near term as M&S continues to invest in new store openings, automation, and improving its online journey. The benefits of these actions are weighted to the second half and beyond, so patience is needed.
Our rationale for choosing M&S remains intact, and if the group can deliver the expected benefits, we see scope for the multiple to expand. But competition is fierce, with no guarantee that operations will recover on management’s timeline.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future. Investments rise and fall in value, so investors could make a loss. Yields are variable and not guaranteed.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.
