Pro Perspectives 5/6/24





Please add to your safe senders list or address book to ensure delivery.

May 06, 2024


Around this time last month, we were looking at this big trendline in stocks (the yellow line in the chart below).
After a nearly 30% rise in five months, the S&P futures put in a technical reversal signal (an outside day).  So did the Russell 2000.  So did the Dow.  So did the German stock market (DAX futures).
And with that, as we discussed in my notes (herehere) a technical correction appeared to be underway.
A month later, and the chart now looks like this …
So, we've now had a 7% technical correction.  And as we've discussed, the top and the bottom of this correction aligned perfectly with the catalyst of Israel/Iran conflict (from incitement to de-escalation).   
This technical correction (with a catalyst) has presented a buying opportunity in a market with tailwinds of a new industrial revolution AND the deployment of trillions of dollars in deficit spending.
On the former, much of the investment community has been desperately hoping for a second chance to get positioned for the generative AI theme, which they had previously proclaimed to be a bubble. 
With that, this is the most important chart of the past two months …
This 22% drawdown in Nvidia gave them a second chance. 
And now, as of today's close, Nvidia trades only 5% off of the highs.  
This leads up to the biggest event of the month: Nvidia earnings
They report on May 22nd.  And it will be the anniversary of "the Nvidia moment," when CEO Jensen Huang shocked the world declaring "the beginning of a major technology era."  And he had the numbers to back it up.
Now, importantly, this May 22nd report will be the first year-over-year comparison to that "Nvidia moment" — the first gen AI related surge in growth. 
But don't worry, it's still going to be a triple-digit growth quarter.
If they hit guidance (which has been very conservatively set over the past four quarters) they will do $24 billion in the quarter, versus $7.2 billion from a year ago.  But we already know, based on the earnings reports from the tech giants of the past two weeks, that Microsoft, Google and Meta (alone) spent north of $32 billion last quarter on investment in computing capacity.  And they are buying as many Nvidia GPUs as they can supply. 
That expectation from Wall Street already has Nvidia trading at a forward P/E (according to Reuters) of just 32 — for a company growing revenue at a triple-digit pace.  
At a $2.3 trillion market cap, and after tripling over the past year, it's cheap