Blowout Nvidia Earnings – AI Factories And Sovereigns Are Hidden Gems

Author: The Arora Report | May 23, 2024 12:26pm

To gain an edge, this is what you need to know today.

Nvidia Earnings

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

Note the following:

• This article is about the big picture. The chart of NVDA stock is being used to illustrate the point.
• The chart shows the gap up in NVDA stock after earnings.
• The chart shows that NVDA stock has broken out from a technical perspective.
• RSI on the chart shows that even though NVDA stock is overbought, there is more room to run.
• Nvidia reported earnings significantly better than the consensus but in line with the whisper numbers. Stocks move based on the difference between whisper numbers and the reported numbers. Whisper numbers are the numbers that analysts privately share with their most important clients. Whisper numbers are different from the numbers that the same analysts publish for the public.
• Here are the key points from Nvidia earnings:
  • Nvidia reported Q1 earnings of $6.12 vs. $5.59 consensus. Whisper numbers were $6.
  • Nvidia reported revenues of $26B vs. $24.65B consensus. Whisper numbers were $26B.
  • For the current quarter, Nvidia sees revenues of $28B vs. $26.66B consensus. Whisper numbers were $28B.
• One of the factors driving NVDA stock higher is the announcement of a 10 for 1 split. The split will be effective after the close on June 7. A stock split does not add any value, but retail investors are conditioned to buy on stock splits.
• In The Arora Report analysis, an important item for prudent investors is that Nvidia will start generating revenue from Blackwell this year. This is important because it reduces the risk of revenue drop during the transition to Blackwell.  
• In The Arora Report analysis, two hidden gems are AI factories and sovereigns. In The Arora Report analysis, Wall Street is underestimating revenues from AI factories and sovereign countries. Sovereign countries will move their national data to AI. Nvidia is working with over 100 customers to build AI factories.
• In The Arora Report analysis, here are the risks facing Nvidia:
  • Growth in China is slowing as the China market has become very competitive.
  • Nvidia’s major customers such as Microsoft Corp (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), Alphabet Inc Class A (NASDAQ:GOOGL), and Meta Platforms Inc (NASDAQ:META) are developing their own chips to compete with Nvidia.
  • This was the last quarter for Nvidia where comparison to prior quarters was easy. Going forward, comparisons will become more difficult because Q1 2023 was the last quarter before orders surged.
• The Arora Report has raised the very long term target on NVDA stock to $1438 - $1473. 
• As full disclosure, for NVDA stock, the Arora Report has also issued a new Buy Now rating for those following the Good Way, a new buy zone for those following the Best Way, and a new recommended quantity for those not in NVDA stock.
• As full disclosure, The Arora Report has also issued a signal for a trade around position on NVDA. Trade around positions is a technique used by billionaires that can dramatically increase returns and reduce risks.
• Other AI stocks such as Advanced Micro Devices, Inc. (NASDAQ:AMD), Super Micro Computer Inc (NASDAQ:SMCI), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), Vertiv Holdings Co (NYSE:VRT), Micron Technology Inc (NASDAQ:MU), and Applied Materials, Inc. (NASDAQ:AMAT) are moving higher on Nvidia earnings.
• FOMC minutes are a disappointment to momo gurus. The minutes show that several Fed officials are wondering if the policy is restrictive enough.  
• Jobless claims came at 215K vs. 219K consensus. This indicates that the jobs picture is staying strong.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Nvidia (NVDA), Amazon.com, Inc. (NASDAQ:AMZN), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla Inc (NASDAQ:TSLA), and Apple Inc (NASDAQ:AAPL).

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

The momo crowd is aggressively buying stocks  in the early trade. Smart money is selectively buying stocks in the early trade.

Note for new investors: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very, very short term trades, consider following the momo crowd and not smart money.

Gold

The momo crowd is selling gold in the early trade. Smart money is inactive in the early trade.

For longer-term, please see gold and silver ratings.

The most popular ETF for gold is SPDR Gold Trust (NYSE:GLD). The most popular ETF for silver is iShares Silver Trust (NYSE:SLV). 

Oil

The momo crowd is buying oil in the early trade. Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF (NYSE:USO).

Bitcoin

Bitcoin (CRYPTO: BTC) is range bound as investors are excited about a potential ether ETF. 

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash. A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash. When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of seven year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

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.

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

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