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After last quarter’s earnings I termed Nvidia (NVDA) “The Market’s Atlas”, referring to its seeming ability to hoist the whole market on its broad shoulders. Ahead of tomorrow’s earnings report, here is some further evidence why I believe that analogy remains apt.
(Below, we will refer to some volume internal volume statistics. They come from a “Top 25” activity list that I receive daily. I DO NOT have access to detailed customer information – the numbers are strictly cumulative and have no customer details WHATSOEVER.)
In case you harbor any doubts about the broader market impact of today’s NVDA earnings, see below. We’ve gotten quite used to seeing NVDA atop the IBKR Top 25 leaderboard most weeks, cementing its key role in investor psychology. Looking beyond that, it is quite clear that the company plays a crucial role affecting a wide range of other popular investment vehicles.
- At #10, we have NVDL, the GraniteShares 2X Long NVDA Daily ETF. If customers like NVDA, why shouldn’t some like it twice as much via a 2X single-stock ETF?
- At #4 and #9 we have The Direxion Daily Seminconductors Bull and Bear 3X ETFs (SOXL, SOXS). Thanks to NVDA’s 9.5% weighing in the Philadelphia Stock Exchange Semiconductor Index (SOX), the sector’s bellwether, of course some investors would seek to triple-lever their exposure to the sector, both up (SOXL) and down (SOXS). (Interestingly, unlevered SOXX is not on the list. Our customers like action.)
- Any hiccups in demand for NVDA’s products could have an effect on other semiconductor stocks, such as #3 AMD, #20 Intel (INTC), and #22 Micron (MU).
- NVDA’s weight in the Nasdaq 100 Index (NDX) is a bit over 8%, so of course it will have an effect on ETFs that track NDX. Triple-levered TQQQ (Proshares Ultrapro QQQ) is in 6th, outpacing the 7th place “regular” QQQ (Invesco QQQ Trust Series 1 ETF) upon which it is based, and the -3X SQQQ (Proshares Ultrapro Short QQQ) which brings up the rear in 25th place.
- NVDA is also about 6.5% of the S&P 500 (SPX), thus affecting #17 SPY (SPDR S&P 500 ETF Trust).
- Then of course, we have some of NVDA’s key customers, not limited to #2 Tesla (TSLA), #8 Super Micro Computer (SMCI, and the volume stat are from before today’s Hindenburg induced dip and partial recovery), #13 Meta Platforms (META), #15 Amazon (AMZN), #16 Apple (AAPL), and #18 Microsoft (MSFT). (Alphabet (GOOG, GOOGL) would complete the Mag 7 superfecta, but it missed this week’s list.)
- And, for those who remember NVDA as the key cryptocurrency supplier, we can include #12 Microstrategy (MSTR) and #23 Coinbase (COIN) as potentially affected stocks.
I frankly can’t think of any historical precedent for NVDA’s ability to beat consensus estimates for the top and bottom lines while raising guidance and then doing it again quarter after quarter. It’s been simply astounding. Logically, one would expect that the pace of growth would eventually slow. Those who are developing artificial intelligence applications might understandably want to focus upon finding profitable real-world uses for them rather than simply continuing to spend more money on creating them. But we haven’t seen that yet.
The risk, of course, is that NVDA acknowledges that possibility. It can happen at any time, though of course it hasn’t happened yet. But it is indisputable that the longer-term volatility has increased. A bit over six weeks ago, on July 10, NVDA traded up to $136.15 before closing at $127.40. Three weeks ago, when the yen carry trade imploded, the stock opened at $92.06, and touched $90.69 before closing at $100.45. Yesterday, we were briefly back over $131, a few dollars above where we trade currently.
After this trillion dollar turnaround, it seems fair to be concerned that we head into earnings with re-inflated expectations, potentially with an even higher “whisper number” in investors’ minds. Bearing in mind that CEO Jensen Huang has been selling hundreds of millions of dollars of stock recently, and it’s exceedingly unlikely to expect another 10:1 split, the stakes are indeed quite high.