Nvidia’s Big Buildup, Then A Shrug

Summary:

• NVIDIA’s Q3 earnings beat expectations with nearly doubled revenue, but are growth rates sustainable? Stock up 190% YTD, slight dip post-earnings.
• Investors should watch the IPO market for new AI stocks, as competition for established players like NVIDIA increases.
• Retail sector focus: Target’s poor earnings due to inventory issues; potential market share loss to Walmart, Amazon, Costco.

Listen below or on the go on Apple Podcasts and Spotify

Nvidia earnings – big buildup, then a shrug (0:54). Is big pharma out of favor? (3:40) How long can Bitcoin’s run can last? (4:30) Target’s disappointing report (6:15). Earnings season takeaways (8:20).

Transcript

Rena Sherbill: Brian Stewart, Seeking Alpha’s Director of News. Welcome back to round two of our market roundup look ahead synthesis of the markets. Welcome back. Thanks for joining us again.

Brian Stewart: Thanks a lot, Rena. Thanks for having me.

RS: A lot of talk about NVIDIA (NASDAQ:NVDA) on this podcast, on our Wall Street Breakfast Newsletter, on our News Team, in the earnings section. One of the most important releases people have been saying and promising. And then what happened? Talk to us about the NVIDIA earnings report. So many people anxious and looking, and what did they have to say?

BS: Yeah. Big build up and then a shrug when the news came out. The company beat expectations. Revenue nearly doubling in Q3 from last year. The data center revenue, that’s the key measure for AI products more than doubled from last year, but for investors, they were hoping for guidance to be increased more than it was.

It came in above consensus, but not enough. And if we’re looking longer-term, it’s clear from NVIDIA’s results that AI is still here to stay, but the growth rates aren’t sustainable at the levels they were.

Just looking at the data center revenue, so it was up a 112% in this latest report, so more than doubling, but if you look back to Q3 last year, it was up 279% from the previous year. So, on a two-year stack, you’re looking at a massive jump in the amount of revenue for the AI products.

And I think investors are aware that that’s not going to be a sustainable growth rate going forward. But stock is up 190% year to date still. It was down slightly earlier today, but as of trading right now, it’s going down about 1% after the earnings results. So, people are taking in the strides, seeing it as a consolidation.

RS: Are you seeing any specific excitement in the AI sector, like stocks to pay attention to that we may not have heard of or we may not know that they’re moving so strongly?

BS: I think an interesting market for investors to keep an eye on is the IPO market. As more pure-play AI stocks start to come to market, you’re going to see competition for the NVIDIAs of the world. As the AI boom began, there was a very limited number of companies that you could jump into and a lot of those were conglomerates that also had AI in their long-term strategy.

You’re talking Microsoft’s (MSFT) with the investment in OpenAI, and then Apple (AAPL) and other companies like that. So, I think if you’re an investor in AI and you’re looking for different opportunities in that space, I would look towards the IPO sector for things that might come down the road.

RS: Are there stocks to mention in terms of high-highs, low-lows, big movements, either way?

BS: Yeah. Just keep an eye on the larger cap stocks. There was some downward momentum in big pharmaceutical companies. So, Lilly (LLY) was down about 7% for the past week. Pfizer (PFE) also down about 7%. This is the post Trump, post RFK Jr. becoming Secretary of Health and Human Services play, the idea that big pharma might be out of favor with the new administration and might have to get used to a new broader macro environment.

And then Disney (DIS) was one that’s seen some gains in the past week. It had a couple of strong days after its recent earnings report. People were pretty happy with the company’s direction at this point.

RS: Are you feeling like there’s a consensus, I know that it’s probably an oxymoron to say that there’s any consensus in the crypto space, but do you see a consensus or what do you think is the prevailing opinion, if there is one, about how far and how long Bitcoin’s run can last and go?

BS: A lot of people had a 100,000 as a target at one point. Bitcoin is late to get there from where a lot of people were predicting it would reach that point. So, you might be seeing some effort to push it above that mark. In the longer-term, it’s really about institutional acquisition.

If they can convince mom-and-pop investors and big institutions to make Bitcoin part of a balanced portfolio, then there’s a lot of room to go. If there’s a hiccup in that process, then there might be a stalling.

RS: Long-term, do you think there’s any reason to put a limit on what that number might be price wise for them, for Bitcoin?

BS: I don’t want to personally predict any price movement, but one interesting aspect is Bitcoin is becoming a larger share of the crypto space as compared to when crypto peaked last time in 2021.

A lot of the more speculative projects in the space got washed out when that last correction took place. And a lot of the momentum in cryptocurrency is centered on Bitcoin. So, you’re seeing the market consolidate around Bitcoin. So, as Crypto goes up, you can see Bitcoin being a very strong proxy for that.

RS: And what would you say in terms of retail, that was something else that we discussed last week. Obviously, Thanksgiving, Black Friday coming up, a lot to look at there. Some big names in the field, Target (TGT). What would you say? How are you understanding what’s happening in the retail side of things?

BS: So the big flash point this week was Target’s results. It dropped precipitously after announcing a disappointing earnings report. For this most recent quarter, inventory seems to be the main culprit for the troubles that they had. However, the company also reported sluggish comparable sales and there’s signs of market share losses in certain areas.

It seems, though, that the company is losing market share to the larger competitors, to the Walmarts (WMT), Amazons (AMZN), Costcos (COST) of the world. So, it’s not clear that Target was a bellwether for retail generally. It might be just a company that was left out in the cold as the market evolves going into the holiday season.

We’re going to get more data as Black Friday happens. There’s going to be a lot of flash data coming out of Black Friday, a lot of analysts’ commentary around traffic and other metrics. So, I think we’ll know more about the retail space after next week.

RS: And what else are you looking for next week, or what else are you planning on looking at for next week?

BS: So, obviously next week’s going to be a holiday shortened season or holiday shortened week with Thanksgiving on Thursday. So, markets close on Thursday and then early close on Friday.

Towards the end of the week, there’s going to be a lack of catalysts. There’s going to be a lack of participation. So, you might see possible increase in volatility as you just have thin trading. Early in the week though, there’s a pretty solid list of catalysts coming out.

There’s economic data, there’s a big rush of economic data on Wednesday. So, the PCE, which is the Fed’s preferred inflation measure is going to come out then. So, that’s going to give us a good look at what inflation is doing. And then GDP comes out. And so, that’s the other side of the dual mandate for the Fed is economic growth. And so, both those are coming out the same day. So, it’s a very good Fed predictor day.

RS: In terms of the earnings that you’ve seen as the season winds down, we had David Keller on at the beginning of the week and talking about how a lot of companies beat on lowered expectations, and the excitement revolving around that isn’t necessarily as exciting as the headline may read.

Any thoughts to put out there on your general earnings takeaways lately?

BS: Yeah. I think NVIDIA plays into the dynamics that you’re talking about where the – by all rational metrics of how the company did, you’d have to say it did extremely well. You couldn’t ask for more in a way, but the market wanted more. I think that that dynamic that you’re describing is very present.

Earnings season now is winding down just to put it in numerical terms. There was over 1,100 earnings announcements last week. This week, there’s just about 280. And the next week, we’re going down to about a 180, and that’s partially because of the holiday, but generally speaking, the earnings rush is over.

There’s a few notable companies coming out in the near-term, but for the most part, we’ve weathered earnings. So, all of the most recent quarter are pretty much baked in to the market.

There are some interesting subthemes coming up. So, for instance, there’s a number of business-to-business companies like Zoom (ZM) is coming out and Workday (WDAY) are coming out next week. So, that’ll give us a good look at business spending, which will be an important economic indicator as well.

RS: What other indicators would you highlight or point out as things to pay attention to, or data points to be aware of?

BS: If we go longer-term, the Fed is having its next interest rate decision in the middle of December, December 18th. And it’s now pretty 50/50 whether or not they’re going to cut rates again by another quarter point or whether they’re going to leave it as it is.

Most recent trading indicates a 55% chance that there’ll be another rate cut that’s down from about 75% from last week. So, it’s bouncing around a lot. So, the incoming data is going to be very important in setting market expectations going into the Fed meeting.

And the two biggest coming out in December 6, we got the JOBS data. And then December 11th, we have CPI coming out. So, those are going to be the freshest data that we’re going to get prior to the decision making. So, it’s going to let us know whether the Fed has to worry more about capping the sticky inflation that we’ve seen recently or whether they need to worry about making sure the economy doesn’t fall off a cliff.

RS: So, this time next week, I don’t want to speak for you, Brian, but I will be sedentary most likely. We will not be recording. Anything for listeners to be thinking about since we’re not going to be talking to them for a couple weeks, what else would you put in their brilliant little minds?

BS: I think, the JOBS date is the big thing to circle, because that’s the Friday after the Thanksgiving Friday. So, Black Friday plus a week. So, other than that, catalysts are starting to dry up. Like I said, earnings season has run its course and we’re getting into slow trading during the holiday season.

Just be on the lookout for volatility. Make sure that you’re set for the end of the year and that you’re starting to make 2025 strategies.

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