By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Nvidia To The Rescue
Please click here for a chart of Nvidia stock (NVDA).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of Nvidia stock is being used because Nvidia is driving the big picture right now.
- The chart shows a gap up on blowout earnings.
- We previously shared with you prior to Nvidia earnings:
The consensus is $11.2B in sales for the last quarter and $12.5B for the current quarter. The consensus is $18B per quarter starting in 2025. There will be many details in the earnings report. However, it is the revenue number and revenue projections that will mostly determine where the stock goes and, by extension, where the entire stock market goes.
- Earnings from Nvidia were one of the best we have seen in our over 30 years in the markets.
- Nvidia reported revenues of $13.5B for Q2.
- For the current quarter, Nvidia is guiding revenues of $16B.
- Nvidia reported Q2 data center revenues of $10.32B, up 141% from Q1.
- Nvidia is authorizing an additional $25B in share buyback.
- Permabears are out in force saying that Nvidia is a very expensive stock. They were saying the same thing when Nvidia reported earnings for Q1, and the stock gapped up as shown on the chart.
- In The Arora Report analysis, Nvidia is growing into its valuation. Given the current trends, our take now is very similar to our call that we published right after Q1 earnings. The prior call from three months ago is reproduced below for your convenience.
Many investors on social media are sadly mistaken about what happened yesterday after hours. They are pointing to a very expensive evaluation of a trailing PE of 164, a forward PE of 63, and price/sales of 26. Yesterday’s earnings changed it all. If the present trend continues, in The Arora Report analysis, Nvidia will likely earn $10 – $12 in 2024. Using $11 as the mid-point and even after a 29% stock jump after hours, this translates to forward PE of 36. For a stock that performs significantly better than perfection, a forward PE of 36 is reasonable. As a matter of fact, The Arora Report is raising its target on Nvidia to $565 – $615, compared to the closing price of $305.38. Nvidia is in the ZXY Buy Model Portfolio.
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- The Arora Report raised the target zone on NVDA ahead of earnings.
- Two thirds of the rise in the stock market in 2023 is due to market mechanics. When the stock market rises due to market mechanics, it is a highly risky market. The stock market, especially AI stocks, have been showing signs of being on the verge of a significant correction. However, the blowout earnings from Nvidia are saving the stock market from a drop.
- Thank you for all of your requests for a new in-depth podcast on the risks and rewards of Nvidia after earnings. We have started work on the podcast. The podcast will be available in Arora Ambassador Club.
- The Fed’s symposium in Jackson Hole kicks off today. Powell’s speech tomorrow is critical.
- Weekly initial jobless claims came at 230K vs. 240K consensus. Initial jobless claims are a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions. Please click here to see how this is achieved. One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.
- Durable goods data is mixed.
- Durable goods came at -5.2% vs. -4.0% consensus.
- Durable goods ex-transportation came at 0.5% vs. 0.2% consensus.
- Investors should be mindful of a potential sell the news reaction as the day progresses in spite of the bullishness this morning.
- As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the protection band.
BRICS
BRICS have invited these six countries to join: Iran, Egypt, Ethiopia, Argentina, Saudi Arabia, and U.A.E.
BRICS currently consists of Brazil, Russia, India, China, and South Africa.
BRICS are aiming to reduce dominance of the U.S. dollar.
Magnificent Seven Money Flows
Money flows in NVDA were extremely positive in after hours after release of the earnings. However, in the premarket, money flows in NVDA are negative.
Money flows after hours were very positive in Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL). However, money flows this morning are negative in AAPL and GOOG.
In the early trade, money flows are mixed in S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) stocks in the early trade. Smart money is 🔒 in the early trade.
Gold
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is seeing buying on NVDA earnings.
Markets
Our very, very short-term early stock market indicator is 🔒. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.
Interest rates are ticking up, and bonds are ticking down.
The dollar is stronger.
Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.
Gold futures are at $1942, silver futures are at $24.23, and oil futures are at $78.17.
S&P 500 futures are trading at 4466 as of this writing. S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4400, 4318, and 4200.
DJIA futures are down 68 points.
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 holding 🔒 in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 🔒, and short term hedges of 🔒. 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.
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 five 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.
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Nigam Arora
Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.
Dr. Natasha Arora
Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.
