By Nigam Arora
To gain an edge, this is what you need to know today.
Surging AI Infrastructure Demand
Please click here for a chart of Super Micro Computer stock (SMCI).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of SMCI stock is being used to illustrate surging AI infrastructure demand. Super Micro Computer manufacturers AI servers.
- The chart shows SMCI stock has not done particularly well, and herein may lie the opportunity.
- The chart shows the gap up after earnings.
- Super Micro Computer’s revenue projections are eye popping. Here are the details:
- Super Micro Computer projects Q1 revenue of $14.5B – $15.5B vs. $12.09B consensus. Super Micro Computer is on fiscal year accounting.
- Super Micro Computer projects FY27 revenue of $65B – $72B vs. $53.29B consensus.
- Long time members may recall that in the past The Arora Report had been very critical of Super Micro Computer, and there was a short position in ZYX Short. Those calls have proven spot on. Super Micro Computer has faced repeated accounting and financial reporting concerns. Delayed filings and its auditor’s resignation put its Nasdaq listing at risk. Delivery delays, low profit margins and export control charges against people linked to the company added further pressure, although Super Micro Computer itself was not charged. Now, the company seems to be on the mend, and there is a long position in ZYX Buy. History haunts Super Micro Computer, which may provide opportunity.
- Adding to the positive sentiment in AI infrastructure as of this writing are good earnings from neocloud companies CoreWeave (CRWV) and Nebius (NBIS). There are also good earnings from Lumentum (LITE). Lumentum makes optical components and lasers that are used in high speed AI data centers.
- In The Arora Report analysis, the foregoing earnings are adding to the confidence of the bulls’ proposition that the demand for AI infrastructure is insatiable.
- In The Arora Report analysis, in spite of insatiable demand right now, investors need to look ahead and be alert to early indications of overbuilding.
- Consumer Price Index (CPI) came inline. Here are the details:
- Headline CPI came at 0.1% vs. 0.1% consensus.
- Core CPI came at 0.2% vs. 0.2% consensus.
- Before concluding that inflation is moderating from the monthly numbers, investors should look at the yearly numbers. Here are the details:
- Headline CPI came at 3.4% vs. 3.4% consensus.
- Core CPI came at 2.5% vs. 2.5% consensus.
- The foregoing numbers are well above the Fed’s 2% inflation target.
- In digging below the surface, falling energy prices contributed to inline CPI. However in the month of August, oil prices have risen again as there is no Iran resolution. If oil prices continue to stay high, CPI for August may go up.
- Producer Price Index (PPI) will be released tomorrow at 8:30am ET. PPI data is useful in projecting PCE. PCE is the Fed’s favorite inflation gauge.
- Prudent investors should note that Core PCE is hovering around 3.3%, well above the Fed’s 2% target.
- In The Arora Report analysis, when this inflation data is combined with the weak jobs report that we shared with you on Friday, there is risk of stagflation.
- In The Arora Report analysis, the risk of stagflation puts the Fed in a very difficult spot.
- In the early trade, the stock market is ignoring economic risks and is mostly focused on surging AI infrastructure demand as outlined above.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Amazon (AMZN), Alphabet (GOOG), Meta (META), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are negative in Apple (AAPL) and Microsoft (MSFT).
In the early trade, money flows are positive 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) in the early trade. Smart money is *** in the early trade.
Note for new members: 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 short term trades, consider following the momo crowd and not smart money. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary 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.
Gold
The momo crowd is *** gold in the early trade. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
API crude inventories came at a build of 9.072M barrels vs. a draw of 0.5M barrels consensus.
The momo crowd is *** in oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is range bound.
Markets
Interest rates are ticking down, and bonds are ticking up.
The dollar is weaker.
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.
S&P 500 futures are trading at 7786 as of this writing. S&P 500 futures resistance levels are 7900 and 8000 : support levels are 7700, 7318, and 7194.
DJIA futures are up 164 points.
Gold futures are at $4462, silver futures are at $66.77, and oil futures are at $83.48.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora Protection Band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash, Treasury bills, short term fixed income, 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.
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 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.
To take a free 30-day trial to paid services to gain access to more opportunities, please click here.
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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.
