The Trend Is Your Friend Until The End
Pre-NVDA Earnings' Thoughts
» CLUB/EDGE client post AUGUST 27th, 3:43 PM ET.
I'm talking about NVDA of course, as they are about to report earnings Wednesday after the close and the market is going nowhere fast until then!
Nvidia is up 2000% since just 2019.
Nvidia is up 1000% since the October 2022 bear market low.
Nvidia is up 150% this year alone AND responsible for over 1/3rd of the Nasdaq 100's gains this year.
Given Nvidia's expected 11% earnings move is equal to $310Billion.
Of course Nvidia matters to market sentiment and returns!
So what is expected and what am I expecting.
With most analysts predicting NVDA will report earnings growth of 70% for Q2, some expect 100%. Delays of its next chip, Blackwell, will be closely followed as that would impact 2025 estimates. Otherwise, NVDA is expected to put in yet another triple beat: revenue, profits, forward guidance.
If they fail to deliver or just meet expectations, market could punish.
Earnings growers like NVDA + big tech are part of the fundamental support for the SPY valuation. But earnings revisions minus the MAG7 ... have already come down 7% YTD.
So what happens if NVDA guides lower?
Well, investors are not thinking about that!
They see soft landing from only three Fed rate cuts this year and SPX earnings growth of 17-20% into 2025.
Any acceleration of THE former and/or deceleration of the latter will negatively impact market returns.
And NVDA is a big part of the 'forward earnings growth' story.
Bearish Considerations
Funds are lightening up. (Via GS)
Latest 13-F analysis suggests that both hedge funds and mutual funds trimmed exposure to mega-cap tech by the start of 3Q. For the first time since 2022, the weight of the Magnificent 7 in hedge fund long portfolios declined. Similarly, mutual funds became more underweight in the Magnificent 7, moving to 671 bp in 2Q (from 660 bp in 1Q) ... both hedge funds and mutual funds trimmed positions on net to MSFT, NVDA, GOOGL, META, and TSLA (vs adding in AAPL).
Calls for Peak Semi Cycle: Via Morgan Stanley
MS Global Technology Research is arguing for a cyclical peak in the technology sector (ex-software) as the main risk in coming quarters. Most signs of a semi cycle peak are flashing yellow: second derivative growth peaking, capex set for all-time highs in 2025, inventory levels inflecting higher again since 2Q24, earnings revision momentum above trend, and demand ticking down in 2H24 apart from AI computing.
Valuation Is Excessive
Nvidia's market cap is worth more than 8% of the entire US GDP.
That sounds incredible until you see headlines like this:
Nvidia Could Be Worth Nearly $50 Trillion In A Decade, Says Early Tesla, Amazon Investor: Nearly 2X That Of US Or 3X Of China's Current GDP
Manias and Markets can stay irrational for longer than we think!
Semi's In Distribution
This is a bigger picture review of my technical take on NVDA and SMH.
That and where Bitcoin goes, NVDA usually follows.
