Feeling good even with NVIDIA down

NVIDIA (NVDA) is down 3% in pre-market trading following the company’s fiscal Q2 earnings report that featured 122% year-over-year growth in revenue, fiscal Q3 revenue guidance that was above the consensus estimate, an indication that its Blackwell chip is shipping to customers and partners, and an additional $50 billion in share repurchase authorization.

It seems unfair that the stock is down after a report like that, but keep in mind that it was up 38% from its August 5 low and up 154% for the year going into its report.

NVIDIA isn’t down because it had disappointing results. It is down because the expectations going into the report were impossibly high to satisfy. Consequently, the stock has been hit with some profit taking.

The real tell that NVIDIA’s report wasn’t bad, however, is the equity futures market. It is pointing to a higher open. If there was genuine disappointment in NVIDIA because of genuine fundamental weakness, NVIDIA would be a down a lot more, AI derivative plays would be down a lot as well, and the indices would be indicated lower. That isn’t the case.

No one is running for cover after the NVIDIA report nor should they be. The results were strong and the outlook, all else equal, was encouraging. 

Currently, the S&P 500 futures are up 14 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 57 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are up 266 points and are trading 0.7% above fair value.

NVIDIA itself might be weak but clearly there are offsets to its weakness.

That would include better than expected results and/or guidance from Dow component Salesforce (CRM), Citi naming fellow Dow component Apple (AAPL) its top AI pick, Best Buy (BBY) posting better than expected results and raising its FY25 EPS guidance, Affirm Holdings (AFRM) topping earnings expectations and forecasting operating income profitability on a GAAP basis in its fiscal fourth quarter, and some economic data that defied hard landing views.

• Initial jobless claims for the week ending August 24 decreased by 2,000 to 231,000 while continuing jobless claims for the week ending August 17 increased by 13,000 to 1.868 million.
  • The key takeaway from the report is the steady standing of initial jobless claims, which remain well below levels typically associated with an economy in recession.
• The second estimate for Q2 GDP was revised up to 3.0% from the preliminary estimate of 2.8% on the back of an upward revision to consumer spending. The GDP Deflator was revised up to 2.5% from 2.3%.
  • The key takeaway from the report is that consumer spending (+2.9%) was solid in the second quarter, exceeding the prior eight quarter average of 2.2%.
• The Advance Intl. Trade in Goods deficit widened to $102.7 billion in July from an upwardly revised $96.6 billion (from -$96.8 billion) in June, with exports roughly flat and imports $6.1 billion more than June imports.
  • The key takeaway from the report is that the uptick in imports was led by industrial supplies and capital goods, which is what one would expect in a growing economy.

The Treasury market seemed to appreciate the economic takeaways from these reports. The 2-yr note yield, at 3.86% before their release, is at 3.90% now, and the 10-yr note yield, at 3.83% before their release, is at 3.87% now.  Notably, the probability of a 50-basis points reduction at the September FOMC meeting has been reduced to 32.5% from 38.0% yesterday, according to the CME FedWatch Tool.

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Originally Posted August 29, 2024 – Feeling good even with NVIDIA down