We talked about the Nvidia earnings yesterday. Not only did data center revenue growth explode higher, but they forecast half a trillion dollars in revenue through the end of next calendar year.
Based on what they've delivered and guided, if we apply the current net-income margin to that revenue, and assume a $5 trillion market value, it puts a forward P/E on Nvidia of 23 (low 20s). That's cheap for a company that, if the projected revenue is realized, will be growing around 80% year-over-year.
With that in mind, the stock rallied into the open this morning —but then reversed sharply, along with the broad stock market. The S&P ended the day trading in a 3.6% range, and closing near the bottom.
How significant was this reversal?
If we look back at 28 years of daily S&P data, we find less than 1% of the days observed had a similar magnitude of range and share the characteristic of closing in the bottom 10% of the range.
The last time it happened was in November of 2022.
What was going on?
The blow up of the crypto exchange FTX.
Today, the reversal in stocks seemed to map closely to the timing of the sharp breakdown in Bitcoin early in the NY session.
As we discussed earlier this week, the Bitcoin chart has been one to watch. It's down 32% from the October 5th record highs (just six weeks ago), and it's just had nine consecutive trading days with lower lows — and we end the day testing this big trendline.
Remember, this matters for stocks because Bitcoin is no longer just retail speculation, corporates and financial firms hold it on balance sheet, and it is increasingly pledged against credit lines, structured products and derivatives.
So, when the price falls quickly, lenders call for more collateral, the easiest thing to sell to raise cash is liquid equities.