5 stocks to watch in February

After a week of high drama on the stock market, on Wall Street at least, thanks to the arrival of China’s DeepSeek artificial intelligence chatbot, investors will soon have the chance to hear what some of America’s giant AI companies make of it all.

Amazon, a heavy spender on AI, will release financial results next week while Nvidia, which makes the AI chips that the likes of Amazon buy, will do the same at the end of February. Investors may focus less on the sales and profit numbers, which of course relate to periods before the DeepSeek bombshell, and more on what the two American companies say about the arrival of a cheap Chinese AI alternative and what it means for their business.

Among the London-listed companies to report financial results in February are British American Tobacco, Rolls-Royce and Centrica, which owns British Gas. We preview those announcements, as well as Nvidia and Amazon’s, below. In our story 5 stocks to watch in early 2025, published a month ago, we covered some other companies due to report in February, namely Diageo, AstraZeneca, Unilever and NatWest.

This article is not a recommendation to buy or sell these investments; it is purely insight into some of the companies that announce results next month.

Nvidia and Amazon

It’s debatable whether any corporate update will ever have been as keenly awaited as Nvidia’s in about four weeks’ time, although Amazon’s next Thursday may not be far behind.

Nvidia has rapidly become the world’s most watched company and a bellwether for stock markets thanks to the central role its computer chips play in the hottest technological theme of our times, artificial intelligence. Amazon is a key user of AI.

The sudden emergence of a rival to the incumbent AI suppliers, Nvidia for hardware and OpenAI (which is unlisted) for software, in the form of Chinese startup DeepSeek has upended investors’ expectations for all the big tech companies. But the DeepSeek revolution, should its early promise be realised, will not affect all the US tech giants equally.

One could paint a negative picture for Nvidia in particular, on the basis that DeepSeek’s apparently far more efficient AI offering will mean that fewer of the fastest chips will be required for each individual AI task.

Others counter that cheaper AI will fuel demand for it (‘exponentially’, said the boss of Microsoft, Satya Nadella, this week) and that DeepSeek itself uses Nvidia chips (the actual number it used to produce its impressive results is disputed). In this scenario, overall demand for Nvidia’s chips could rise, even if, as seems possible, its currently enormous profit margins come under pressure if customers are able to use slower chips thanks to DeepSeek’s efficient AI platform.

Amazon is in a different position: as a buyer of computer chips for its own systems, it could benefit if Nvidia and others are forced to cut their prices. It could also get more performance from the hardware it does buy if AI systems such as DeepSeek’s are so much more efficient. Overall, it could find itself able to invest less in AI for the same returns, which obviously would cheer investors.

When these two tech giants report, therefore, investors will hope to hear their thoughts on the impact of DeepSeek and any change to their plans as a result. Unless the profits they report are markedly out of step with analysts’ expectations, the market reaction may be driven more by their commentary on the suddenly altered AI landscape.

Amazon's fourth-quarter results are on 6 February and Nvidia's on 26 February.

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British American Tobacco

For a leader of an industry supposedly in decline, the boss of British American Tobacco sounded decidedly upbeat when he announced a trading update in December.

Tadeu Marroco said the company remained ‘committed’ to returning to its medium-term targets of 3%-5% sales growth and mid-single-digit profit growth by 2026. He said BAT’s ‘science [and] innovation’ should help it achieve its ambition of making more than half its sales from smokeless products within 10 years.

He said the company was ‘on track to deliver our 2024 guidance’ on profits and added: ‘We will continue to reward shareholders through strong cash returns, including our progressive [rising] dividend and sustainable share buyback.’ Share buybacks are explained here. When the annual results are announced shareholders will be looking to see that profits are indeed in line with the company’s guidance and that the dividend is increased alongside a continuation of its buyback programme. The stock’s current yield of 8.2% may indicate some scepticism on the market’s part about meaningful rises in the dividend. Please note this yield is not guaranteed.

The end of a previous programme of share repurchases two years ago, meanwhile, was followed by a period of marked underperformance relative to its arch-rival Imperial Brands and that cheapening of BAT relative to Imperial has prompted analysts at UBS, the bank, to switch their ‘top pick’ among tobacco stocks from Imperial to BAT. ‘BAT’s share price has lagged Imperial by about 35% over the past two years and we now see greater upside at BAT,’ they wrote this week. They said BAT’s price-to-earnings ratio of 6.6 on one measure was ‘low’ when its Velo Plus nicotine pouch product was poised to ‘accelerate growth’. The bank raised its price target from £30 to £39.

BAT has also said its results announcement will include an update on litigation in Canada.

BAT's annual results are on 13 February.

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Rolls-Royce 

Readers may be forgiven for being either puzzled or bored by our repeated references to share buybacks but the fact is that they are an ever more important part of the stock market landscape. The irony is that they have always been more popular in America than here, yet their real benefits are felt only if they are conducted when share prices are low – and share prices are, on almost any measure, far lower in London than in New York. Nonetheless British companies are belatedly embracing buybacks and investors are having to get used to them as one means of deploying excess capital to complement the traditional avenue of paying dividends.

There are signs that Rolls-Royce could be about to join the buyback club. Shares in Rolls-Royce, which is of course a maker of aircraft engines and not cars, have enjoyed a spectacular few years after a long spell in the doldrums. They have risen almost 15-fold since a low point in 2020, when no one was flying because of the pandemic, so it’s debatable whether the shares are actually cheap now at about 584p, close to their record high.

Nonetheless, a share buyback looks on the cards because, after the strong post-pandemic recovery in sales and profits, some analysts expect the company to report net cash when it announces its results at the end of next month. To have net cash means cash balances exceed debts. It is also expected to announce the resumption of dividends, although analysts at Bank of America expect it to spend much more on share buybacks than on dividend payments over the next two years.

They said: ‘Rolls Royce is benefiting from a strong international [air] travel recovery on top of pricing renegotiations, which is driving strong growth in FCF [free cash flow]. We view valuation as attractive versus peers given improving FCF generation and the balance sheet provides capital allocation optionality near-term.’ Translating from City-speak, this means there will be money to spend on buybacks as well as on dividends, for example. ‘As one of the cheapest civil aerospace assets globally today, we see potential for strong [share price] re-rating in 2025,’ the bank added, and put a price target on the stock of 850p.

Rolls Royce's annual results are on 27 February.

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Centrica

Centrica is another enthusiastic buyer of its own shares. When its current repurchase programme is completed it will have reduced the number of shares in issue by about a fifth since November 2022, it said in December. The City will no doubt look out for any extension of the buyback programme when Centrica announces its annual results in about three weeks’ time, although private investors (who number in the hundreds of thousands thanks to the ‘Tell Sid’ privatisation of the then British Gas in 1986) may pay more attention to the dividend.  

Last year the full-year divi was raised by a third from 3p to 4p a share and the reduction in the number of shares in issue thanks to the buyback will concentrate profits attributable to each share and therefore, all else being equal, mean more money per share is available for dividend increases. The interim dividend for 2024 was increased to 1.5p a share from 1.33p the year before.

However, profits for 2024 are expected to be lower than in the previous year, partly because the 2023 figure was boosted by a regulatory decision to allow utilities to recoup, on a ‘one-off’ basis, losses made, in the regulator’s words, ‘due to Covid and the Russian invasion of Ukraine’. Lower wholesale prices will also help reduce earnings this time. Pre-tax profits for 2023 came to £2.7bn and City analysts’ average forecast for 2024 is £1.6bn, according to the London Stock Exchange’s Datastream service (figures are on an ‘adjusted’ basis).

Bank of America has a ‘buy’ rating on Centrica and a price target of 155p, compared with a current share price of about 139p. However, it warned of the risks of greater competition eroding profit margins, of increases in bad debts and of ‘unfavourable government/regulatory intervention’.

Centrica's annual results are on 20 February.

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