Yuck... it's a beautiful spring morning on the East Coast, but the markets couldn't be uglier. We've got an utterly toxic blend of the debt ceiling panic, NVIDIA's crazy earnings, and what could be unrealistic short-term expectations of the artificial intelligence (AI) sector.
On paper, Nvidia knocked it out of the park during its earnings call, with beats in nearly every metric investors latch onto. Its second-quarter guidance is $11 billion, for Pete's sake. As of this morning, it's within about $50 billion of joining the Trillion-Dollar Club with Apple Inc. (AAPL), Microsoft Corp. (MSFT), Alphabet Inc. (GOOG), and Amazon.com Inc. (AMZN). Nvidia would be the first chipmaker to hit $1 trillion in market cap. NVDA shares jumped from just above $305 to more than $395 after earnings and pre-market.
Investors are clearly desperate to hang onto the idea that AI will change everything, solve our problems, make millionaires of us all, and, hey, maybe slash golf handicaps and blood-pressure readings for all of humanity.
And it probably will. But - and this is a big "but"...
These miracles are not going to happen over the holiday weekend, as NVDA price action suggests and pundits would have us believe.
For an investor like me, in the pesky habit of looking under the hood, kicking the tires, and, you know, actually understanding what it is I'm buying, Nivdia looks kind of radioactive. The company hit a P/E ratio of 175 today - that's not a typo, I said the company hit "a price-to-earnings ratio of one hundred and seventy-five." It's going to top 30X on price-to-sales, and that $11 billion - up from $6.7 billion last year - implies capex from customers will increase by $4.3 billion.
Yikes. Aggressive, value-oriented investors would probably find this a popular short, and, wouldn't you know it, the short float is increasing.
I think the real value NVDA shares have to offer is this: a lesson. And that lesson is, "don't bet against a trend, no matter how irrational it is."
I'll be back this afternoon with more on this, the debt ceiling panic, and my momentum read on the S&P 500, plus any "longshot" low-risk/high-reward trades I find.
The post What to Do About Nvidia This Morning appeared first on Midday Momentum.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.