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Nvidia shares have risen by 600% in the last two years. While some say its shares are now grossly overpriced, its earnings and sales growth argue otherwise. Nvidia’s surging stock prices typify what is happening with many stocks related to the AI boom. While technology sector stocks appear to benefit most from AI, other sectors may do equally well. For instance, as we recently wrote in AI Data Centers and EVs Create Incredible Opportunities, the power grid needs to be modernized and expanded at great expense to facilitate AI. At the forefront of this infrastructure investment is GE Vernova. GE Vernova (GEV) is a recent spin-off from GE. The company is involved in the power grid’s many traditional and alternative energy aspects. They also provide software and financial services to infrastructure projects.
SimpleVisor subscribers have been aware of GE Vernova for three weeks. Our weekly Friday Favorites provides a technical and fundamental summary of a company of interest. On May 10, 2024, we reviewed GE Vernova. We share the following from the article.
GEV is a supplier of industrial goods and services allowing utility companies to keep up with growing energy demand. As such, their upside growth potential is much more significant than most other utilities. GEV should profit as utilities are forced to spend and invest to upgrade and expand their power generation facilities to meet the surge in power needed by data centers and EVs. Consequently, their cash flows should look different than most utility companies. Accordingly, GEV is not only a bet that AI data centers will generate massive power needs, but it is a unique way to seek diversification within the utility sector.
We currently hold a position in GE Vernova in our equity model.
What To Watch Today
Earnings
Economy
Market Trading Update
Yesterday, we noted that from a technical perspective, the markets remain on a current MACD “buy signal” and have cleared all previous resistance levels. Furthermore, the 20-DMA crossed above the 50-DMA, providing additional support to any short-term market correction. The 20-DMA will now become running support for the market. As the market consolidates the run from the April lows, the 20-DMA is catching up to the current price, and some overbought conditions are reversing. While the market continues to jump from headline to headline for clues as to the Fed’s next moves, most is just media trying to find something to discuss.
For now, market signals remain bullish, suggesting traders remain exposed to equity risk. That will eventually change, but the “buy/sell” signals will alert us to that.
One Day Settlement
Starting yesterday, stock transactions will settle in one day, not two. Accordingly, if you buy or sell a stock today, the money and shares will move to and from your account tomorrow. As a result, the transaction settlement process will be less risky. According to CNBC, wild trading in the shares of GameStop in 2021 pushed the SEC to make the change. Per CNBC:
The latest change comes after the GameStop mania in 2021 put the settlement process under closer scrutiny. The wild swings in so-called meme stocks meant that the agreed-upon price for trades was significantly different from the market price when the trade was actually settled. There was also increased instances of “failure to deliver,” or trades where settlement did not occur, during that period.
While desired, same-day settlement is unlikely until the advent of digital securities, which is likely years away. For more on what that may look like, check out an article we wrote in 2021 on the topic—Bye Bye Brokers.
FedEx And Transportation Stocks Flounder
For yet another week, the transportation sector, using SimpleVisor’s sector and factor proprietary analysis, has been the weakest sector on a relative and absolute basis. The first graphic below shows the transportation sector is extremely oversold versus the S&P 500. Similarly, on an absolute basis, the transportation and energy sectors are the most oversold. The second graph shows that FedEx is the most oversold in the transportation sector on an absolute and relative basis. The third graphic shows how poorly FedEx stock has traded compared to the market since December. However, as a result, its valuations (on the left side of the graph) are now very reasonable versus the market’s. The last graphic shows that its revenues have been flat since 2020. Despite its poor performance, it is still overpriced, using multiple fair value calculations.
For SimpleVisor subscribers, this coming Friday’s Favorites will provide much more fundamental and technical insight into FedEx.
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