Tech Heavy: Nvidia envy could drive The Street into The Wall this week

The Week on Wall St

Well, with just a smattering of inflation lite and US stocks casually clocked fresh record highs last week.

The laggard of the three major US indices – the Dow Jones Industrial Average – has been tearing the universe a new black hole, up for a fifth consecutive week and ending above 40,000 points for the first time ever.

The S&P500 and Nasdaq Composite indexes both notched their fourth consecutive weekly gain.

The cry of release the doves followed last week’s US CPI month-on-month read which came in at 0.3%, below the estimated 0.4%, delivering the first slowdown of 2024.

In US terms, the incremental weight of easing economic indicators now apparently screams conomic slowdown and potentially less inflation over April.

To define the moment, I really like this line from Monday night’s edition of the highly respected Wall Street rag, Barrons. Those people are smarter, paid more and they’re American.

So here it is:

“The stock market is approaching a crossroads after reaching a landmark moment.”

Sound observation and well put.

Memewhile…

Last week’s other Kodak moment was the return of the meme-stock fever dream, with a random social media post from meme-commentator Keith Gill, (better known as Roaring Kitty), sending GameStop Corp (GME) and AMC Entertainment Holdings (AMC) to the moon again… or thereabouts.

Both meme-companies went nuts on May 13 and 14 — lifted by the Roaring Kitty’s return to the spotlight with his first post on X, formerly Twitter, in three years on May 12.

Gill/Kitty was an influential figure in the meme-stock frenzy of 2021. Apparently he was played in the meme-movie by Paul Dano, who I quite like for his earnest, appropriate creepiness.

GME’s stock ended Friday’s session down 20%, while AMC shares fell 5% and have been bleeding since.

Gill sent all sorts of blithering inanity via X before Friday afternoon when he added the part from “E.T. the Extra-Terrestrial” where the little naked monster says farewell to a tearful Elliott.

What’s Coming

Nvidia, great big company of cunning chips and – for now at least – the unrivalled boss of the artificial intelligence (AI) boom is scheduled to drop fiscal Q1 earnings on Wednesday in New York.

Expectations are sky-high, especially given NVDA’s cracking track record of repeatedly delivering knockout, blowout, eye-popping quarterly reports showing massive demand for its cunning AI chips.

So, the really market moving moments in the States – and thusly for all of us – will happen in about 48 hours.

Because just before Wednesday’s ultimate measure of the heartbeat in Artificial Intelligence stocks, the Federal Open Market Committee (FOMC) meeting minutes will be revealed.

I do rather enjoy poring through central bank minutes.

Until then the middling catalysts which could move the dial a little either way would be some suddenly hawkish Fedspeak.

As expected, the FOMC held interest rates steady when they last met in May, but the punters will want to go over the minutes of the meet with Holmesian (or Sherlockian, as the Americans say) diligence.

It’s often what they don’t say wherein lie the best clues about when, why and how the US central bank might cut rates…

Without spoiling the joys of Conan Doyle’s “Silver Blaze,” a mystery about the disappearance of a famous racehorse and the murder of the horse’s trainer, the fact that the dog did not bark when you would expect it to do so while Silver Blaze was stolen led Holmes to the conclusion that the perp was a not a stranger to the dog, but someone the dog knew and trusted and thus would not cause him to bark.

Holmes drew a conclusion from a fact (barking) that did not occur, which can be referred to as a “negative fact,” or for the purpose of this discussion, an expected fact absent from the record.

That is what will move markets when the minutes drop. Something absent.

Meantime, in the next 24 hours we’ll have a lot of Fedspeak to distract from the fact – tonight in Atlanta there’s Raphael Bostic, then the Boston Fed’s Susan Collins, and Cleveland Fed’s Loretta Mester all of whom are gathering as we speak to speak and gather at the Atlanta Fed’s 2024 Financial Markets Conference in Fernandina Beach, Florida.

Why the US state of Georgia’s (capital city) Atlanta Fed has its great big meeting in neighbouring Florida is surely an unpleasant mystery.

On Thursday, S&P Global will drop its Purchasing Managers and Services Purchasing Managers indexes (PMIs) for May.

The US Labor Department will also release initial unemployment benefits claims for the week ended May 18.

For the full economic week ahead, see below.

US Earnings

Nvidia will most surely grab the headlines and one should note that these numbers will not drop in a bubble – what happens on Wednesday will be more than just influential for artificial intelligence-exposed stocks and the broader US tech sector and Nasdaq Composite.

In the lead-up, analysts and investment banks continue to pile in. On Monday, Barclays reiterated NVDA as overweight and raised its price target (PT) to US$1,100 from $850.

“Our checks continue to point to billion plus of upside in April/July with calls for an air pocket seemingly overblown.”

That’s not even out on a ledge thinking – The Street is predicting NVDA to haul in US$24 billion in revenue, over three times more than a year ago.

Elsewhere, in terms of earnings per share (EPS), Nvidia is forecast to deliver US$5.52 per share in its upcoming report, compared to $4.55 per share in the previous quarter, representing a year-over-year change of +406.4%.

Decent. As will be the circa $24bn, which would be a 9% lift from the previous quarter and a (ahem, again) 234% increase year-on-year.

According to guidance from the previous quarter, NVDA anticipates further improving its enviable margins from 72% in FY24 to 76%-77% in the first quarter of the new fiscal year.

12 months earlier, Nvidia’s cray-cray first quarter earnings and guidance added fuel to the AI rally. However, expectations are now much higher following the stock’s near 200% gain on a year ago.

NVDA’s nearest competitors, including Advanced Micro Devices (AMD), Palantir Tech (PLR), and Super Micro Computer (SMC) have all mismanaged expectations and eventually fallen short of the great big hopes they helped stoke.

But when Nvidia’s (probably as stunned as we are) management reveals whether or not its rapidly evolving valuation is on the money and a fair to decent description of all this fuss surrounding AI stocks, the impact will be broader.

This quarter the valuation is $2.3trn.

After all, this is the stock which – even among it’s other Sexy 6 tech beasts – has risen with a madness and a fury from about $200 to more than $900 in under two years.

That’s not to say it’ll all be smooth sailing. Nvidia also faces growing chipmaking competition from Intel, AMD, and ARM, the Poms.

For now the other concern is NVDA’s one-trick pony status which is why the data centre stuff is so critical. The worry is what happens if the AI sector falls down for one reason or another. War might be a simple example.

So the questions follow: are Nvidia’s biggest wins already in the rearview mirror?

When is the right time for Jensen to reveal NVDA’s clever pivot to a new and diversified model?

Which is where the added fascination will be right on the progress of NVDA’s Data Centre segment and how production is pumping on its graphics processing units (GPUs) – the ones which make them tasty chips for AI tasks.

The segment makes up about 70% of Nvidia’s revenue and specialises in AI. Its revenue has grown 410% on the previous quarter, says IG Markets, and significantly contributed to the company’s full-year revenue, which surged by 126% year-on-year.

Amazon, Microsoft, and Google are the current cloud service behemoths and they’re throwing every spare dollar at AI, so Nvidia likely won’t be dropping down to a lower gear anytime soon.

CEO Jensen Huang is in the enviable, yet dizzying position of knowing his firm’s results will act as a barometer for the rainmaking potential – and accuracy – of Wall Street’s loopy love for anything AI.

And when investor expectations are already attending the news at such altitudes, even the hint of a miss somewhere will undoubtedly have an outsized deliterious impact on the stock price.

Likewise, another K.O. could drag Wall Street kicking and screaming to new record highs.

US Earnings Highlights

Tuesday
Lowe’s (LOW), Autozone (AZO), Toll Brothers (TOL), XPeng (XPEV), Macy’s (M)

Wednesday
**Nvidia (NVDA), Analog Devices (ADI), Target (TGT), Snowflake (SNOW), Petco Health and Wellness (WOOF)

Thursday
Intuit (INTU), Medtronic (MDT), Ralph Lauren (RL), and Workday (WDAY)

Friday
Booz Allen Hamilton (BAH), Buckle (BKE)

**Nvidia is set to release its Q1 FY24 financial results on May 23, 2024 at 6.20am AEST (GMT +10).

The Economic Calendar

Tuesday May 21 – Friday May 24

TUESDAY
Eurozone Balance of Trade (Mar)
Canada Inflation (Apr)

WEDNESDAY
Japan Balance of Trade (Apr)
Japan Machinery Orders (Mar)
United Kingdom Inflation (Apr)
United States Existing Home Sales (Apr)
United States FOMC Meeting Minutes (May)

THURSDAY
Japan Jibun Bank Flash PMIs
India HSBC Flash PMIs
UK S&P Global Flash PMIs
Germany HCOB Flash PMIs
France HCOB Flash PMIs
Eurozone HCOB Flash PMIs
US S&P Global Flash PMIs
South Korea BoK Interest Rates
Turkey TCMB Interest Rate Decision
Mexico GDP (Q1, final)
Eurozone Consumer Confidence (May)
United States New Home Sales (Apr)

FRIDAY
Indonesia Market Holiday
Japan Inflation (Apr)
United Kingdom Retail Sales (Apr)
France Business Confidence (May)
Canada Retail Sales (Mar)
United States Durable Goods Orders (Apr)
United States UoM Sentiment (May, final)