Nvidia’s Unusual Move

Please click here for an enlarged chart of NVIDIA Corp (NASDAQ:NVDA).

Note the following:

  • The chart shows that NVDA gapped up above the low band of Zone 1 (resistance).
  • RSI on the chart shows that NVDA has room to run.
  • Prudent investors should carefully watch whether NVDA can break above Zone 1. If NVDA can break above Zone 1, it will be a tremendous positive.
  • We have been sharing with you that the key question for investors is: Are these AI-driven earnings cyclical or secular? If the earnings are secular, the stock market has significant upside, with the S&P 500 potentially going above 10,000. On the other hand, if the earnings are cyclical, combined with the risk of the $40T U.S. debt, the stock market can easily fall 30% – 50%.
  • Apparently, NVDA is aware of this key question about AI-driven earnings being cyclical or secular. NVDA took an unusual step during its conference call to answer the question. Typically, NVDA has not given forward guidance. During the conference call, NVDA gave the forward guidance we have been asking for.
  • Initially, after the NVDA earnings report, the stock fell because earnings were below the whisper numbers. Here are the details:
    • NVDA reported Q2 earnings of $2.22 vs. the $2.09 consensus estimate.
    • NVDA reported Q2 revenue of $96.2B vs. the $92.18B consensus estimate.
    • NVDA sees Q3 revenue of $108B ± 2% vs. the $103.9B consensus estimate.
  • At the beginning of the conference call, NVDA dropped a bombshell. NVDA guided FY28 revenue growth to about 70%. NVDA said the growth projection would have been 100% if it were not for supply constraints.
  • In our analysis, there are five factors behind the blowout projections for FY28:
    • Space Exploration Technologies Corp (NASDAQ:SPCX) is ramping up at a much larger scale than expected.
    • Neoclouds such as Nebius Group NV (NASDAQ:NBIS), CoreWeave Inc (NASDAQ:CRWV), and IREN Ltd (NASDAQ:IREN) are ramping up faster than expected.
    • Traditional hyperscalers such as Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), Microsoft Corp (NASDAQ:MSFT), and Oracle Corp (NYSE:ORCL) are planning to deploy more GPUs than expected.
    • NVDA increasingly providing circular financing is helping.
    • NVDA is pushing through price increases and thus generating more revenue.
  • In our analysis, if NVDA’s conference call is to be believed, the probability of earnings growth being secular is higher than the probability of earnings growth being cyclical. However, prudent investors should revisit the period prior to the internet crash in the stock market in 2000. Stock market darlings of the day, such as Lucent, Nortel Networks, and JDS Uniphase, were saying the same thing that NVDA is saying now. Just as NVDA is providing circular financing now, major vendors were providing significant vendor financing in the late 1990s. Ultimately, demand did not materialize to the level anticipated, and vendor financing became part of the undoing that led to the internet crash.
  • As full disclosure, we are long NVDA from $12.55.  There is also an NVDA trade around position in our report.  A trade around position is a billionaire and hedge fund technique that can dramatically increase your returns and reduce your risk.
  • In our analysis, prudent investors should pay attention to the fact that the cost of tokens is going down, but the cost of compute for tokens is going up. On the surface, such a situation can lead to a death spiral. However, the present data may change over time as AI usage expands. This is an important data point that prudent investors need to keep an eye on.
  • NVDA earnings are bringing aggressive buying into tech stocks in the early trade.
  • In an important development, enterprise software giant Salesforce Inc (NYSE:CRM) is jumping on good earnings and an alliance with Anthropic. The concern was that Anthropic would eat into CRM’s business.
  • In our analysis, as bullish as NVDA’s conference call was, prudent investors should not forget the ticking bomb of the rapidly rising $40T U.S. debt.
  • At Jackson Hole, Fed’s Schmid is saying Fed policy might be accommodative on the short end. In our analysis, Fed policy needs to be restrictive on the short end based on the data.
  • A market-moving speech from Fed Chair Kevin Warsh is tomorrow at Jackson Hole.
  • Initial jobless claims came at 203K vs. 210K consensus, indicating that the jobs picture remains strong.

Magnificent Seven Money Flows

Most portfolios are now heavily concentrated in the Mag 7 stocks.  For this reason, it is important to pay attention to early money flows in the Mag 7 stocks on a daily basis. 

In the early trade, money flows are positive in Apple Inc (NASDAQ:AAPL), Nvidia (NVDA), Microsoft (MSFT), and Meta Platforms Inc (NASDAQ:META).

In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ).

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (USO).

Bitcoin

Bitcoin (CRYPTO:BTC) has once again spiked over $80,000 in sympathy with aggressive buying in tech stocks but has pulled back as of this writing.

What To Do Now

Consider continuing to hold good, very long term, existing positions and add tactical positions based on signals.

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.