The Hype vs. the Reality (NVDA)
What Matters About Nvidia (Not What the Media Say)
The best satire has a firm foundation in the truth. Which brings us back to yesterday and the media hype ahead of Nvidia’s quarterly earnings report…
As Paradigm trading pro Greg “Gunner” Guenthner said in this space, “I really doubt we see anything but a strong reaction one way or another.”
Nailed it: Nvidia is up over 15% at last check. NVDA delivered the proverbial “triple beat” — topping Wall Street analysts’ expectations for sales (they tripled)... profits (up eightfold)... and most important, the outlook for the current quarter (with sales likely to triple again).
The bump in NVDA’s share price this morning is so big, you can see it on a two-year chart…
And that’s on top of the 35% jump between the start of 2024 and yesterday!
We won’t belabor the whys and wherefores behind Nvidia’s numbers. The media are beating them to death — and for our purposes today, they don’t matter.
Long story short, Nvidia was in the right place at the right time for the AI boom. It was already the undisputed leader in high-end GPUs — graphics processing units — used for demanding computing tasks like gaming and video editing.
So when AI burst into public consciousness in late 2022, NVDA was the only company able to meet the demand.
Here’s what matters today, and what the media have already forgotten: The story of NVDA’s earnings could have easily gone the other way.
After all, Advanced Micro Devices (AMD) is starting to muscle in on NVDA’s territory. NVDA is richly priced at over 100 times earnings. And there’s no shortage of keen-eyed observers who wonder if Nvidia CEO Jensen Huang is cooking the books much like General Electric’s Jack Welch did back in the day: Sooner or later, reality does set in.
But that’s not how it shook out.
If you were reading Gunner’s comments about NVDA in yesterday’s edition — knowing there’d be a big reaction to NVDA’s numbers but not hazarding a guess about the direction — you might have thought to yourself Why can’t this guy take a stand?
Answer: Because the risk of taking a stand was much too high compared with the potential reward. And because there are many other opportunities in the market right now where Gunner has a higher level of conviction — thus, a much higher probability of taking home big profits.
That’s how Gunner has been able to amass one of the best track records in our business — with the average recommendation returning 57% in about two weeks. And yes, that includes the losing trades.
Over two years, his strategy had the power to grow a $40,000 model portfolio to $266,000.
NVDA’s Glow Spreads Worldwide
Sure enough, Nvidia’s fortunes have given a lift to the broad stock market.
Checking our screens, the S&P 500 is up 1.6% on the day to 5,063. If that number holds by day’s end, it will be a record close.
The Nasdaq is up nearly 2.4%, but that won’t be quite good enough to equal the late-2021 highs. The Dow is the laggard, up 0.7% — but that’s record territory, about 125 points shy of 39,000.
Nvidia’s glow even extends overseas. Europe’s STOXX 600 index notched a record close today. Ditto for Japan’s benchmark Nikkei index, and that move is much more remarkable because the Nikkei has finally exceeded the record levels set way back in 1989. (Japan’s markets and economy were in a crazy bubble back then; the grounds of the Imperial Palace were valued higher than all the real estate in California!)
The action in other asset classes is much more muted. Treasury yields are inching down, the 10-year note at 4.32%. Gold sits at $2,021, silver at $22.72. Crude is up 59 cents to $78.50. Bitcoin still can’t crack the $52,000 barrier.
The U.S. stock rally today is even more impressive in light of the latest downer from the Federal Reserve.
After we hit “send” on yesterday’s edition, the Fed published the minutes from its January meeting.
At the risk of being repetitive, Fed “minutes” aren’t like the minutes from your local school board meeting. They’re not an objective record of who said what. They’re a political document aimed at sending the markets a message.
And the message yesterday was unmistakable: “Most participants [in the meeting] noted the risks of moving too quickly to ease the stance of policy.” Loosely translated, inflation is still running too hot for the Fed to consider an interest rate cut next month. The first cut might not come until June at the earliest.
Mr. Market has been generally bummed since the end of January about rates staying “higher for longer” — and the Fed minutes did nothing to lift that sour mood. The major averages ended yesterday little moved from the day before. But Mr. Market has the attention span of a gnat, and NVDA’s numbers made the Fed old news in a matter of hours.
So Much for a U.S.-Venezuela Detente
Not that it should be a surprise, but Venezuela is casting its lot with the BRICS.
If you’re a newer reader, the BRICS are a grouping of countries formed in 2009 by Brazil, Russia, India and China. South Africa joined in 2010. The BRICS took on five more members at the start of this year — including the linchpin of Middle East oil production, Saudi Arabia.
As Paradigm’s macroeconomics maven Jim Rickards said much of last year, the BRICS pose the most credible long-term threat to the U.S. dollar’s status as the globe’s reserve currency. (If all of this is new to you, our write-up the day the new countries were admitted is a good place to start. Ironically, this development six months ago was overshadowed in the mainstream by… a Nvidia earnings report!)
Now… The BRICS have an open spot for a Latin American country after Argentina’s new president Javier Milei backed out of his predecessor’s plans to join up.
And Venezuela’s President Nicolas Maduro says he’ll be happy to fill the void. He says the BRICS have the potential to replace the “old colonial world with wars, interventions, genocide and a superiority complex” — and that this global transition is “irreversible.”
Key point: Maduro’s regime has been the target of stiff U.S. sanctions going back to the Trump administration — which tried and failed to engineer a coup in 2019. Team Trump formally recognized an “interim president” literally no one voted for — a pretense Team Biden kept up until 2022.
Amid sky-high gasoline prices last year, the Biden administration reached out to Maduro — offering sanctions relief in exchange for Maduro resuming talks with the opposition. Sanctions relief would mean a resumption of Venezuelan crude exports to America.
But those talks went nowhere. Then last month, The Associated Press reported that the U.S. Drug Enforcement Administration planted undercover agents in Venezuela to try to build trafficking cases against the country’s top leaders — including Maduro.
Clearly, Maduro sees membership in the BRICS as more viable than continued engagement with Washington.
Already the BRICS constellation accounts for six of the top 10 oil-producing countries, comprising 43% of global production. If the BRICS can give Venezuela a chance to end-run U.S. sanctions and resume substantial oil production… that can only accelerate the process of “de-dollarization” throughout the Global South.
Apple Makes It Official (No Rice)
Maybe you already knew this, but now it’s come straight from the horse’s mouth…
Apple is advising iPhone owners not to put their device in a bag of uncooked rice if it gets wet. Apparently this has been a widespread practice for years.
The writers at Macworld have spotted a new support document from Apple that affirms what tech experts have long warned: It doesn’t work. What’s more, the practice “could allow small particles of rice to damage your iPhone.”
The wiser course of action is to tap the phone with the Lightning connector facing down, then just let it sit in “a dry area with some airflow.”
Hmmm… Being something of a cheapskate, your editor didn’t acquire an iPhone until 2018 — and even then, I got the most basic model. On the one occasion my phone had a watery encounter, it indeed messed up the Lightning connector. The rice thing didn’t even occur to me — a little time letting the phone sit on the counter worked just fine…
Mailbag: Gold IRAs and “Political” Expatriation
“Will the 401(k) bait-and-switch affect gold-based IRAs?” a reader inquires after yesterday’s edition.
“For years Jim Rickards has suggested moving some of your 401(k) account to a gold-based IRA. Is the stability of a gold-based IRA soon to be in question?”
Dave responds: No more than any other IRA.
Depending on how events play out in Washington, the biggest issue would come with future contributions to IRAs and 401(k)s. As I said yesterday, the tax deferral may be curbed or done away with completely.
Taxing existing account balances before withdrawal would be incredibly messy and would likely inspire a backlash from millions of account holders, whether their assets are in gold or anything else.
If your gold is in a Roth IRA, well, you’ve already paid the taxes on your contributions. But as we’ve said in the past, it’s conceivable the feds might start taxing the gains on your account.
The good news is that because all of this pertains to the tax code, no president can impose changes via executive order. It has to be done through an act of Congress, and so there will be sufficient time and notice to take “evasive action,” so to speak. At least that aspect of the Constitution remains functional for the moment…
“This is a slightly different angle on people moving across state lines than those provided by the other readers who have responded to your request so far,” writes our final correspondent today.
“Having run a luxury real estate business (for almost 30 years) in a foreign resort location where 85% of the buyers are U.S. or Canadian citizens, one primarily sees buyers who are finally ‘getting that home in the tropics’ or dream vacation property. Those buyers had worked hard, were rewarding themselves and their families, maybe they inherited money and/or were retiring.
“Yes, that was the case, up until a few years back.
“Lately, there are many buying/relocating to get their money ‘out’ and live in a safe (foreign) resort community while the insanity rages. About the time of the lockdowns, we saw this migration accelerate greatly, mostly from blue states/areas.
“And I have noticed a curious thing.
“When buyers talk about what they want or why they have chosen an area, the liberal Democrats talk incessantly about looking forward to ‘immersing in a new multicultural experience’ or ‘loving the art scene’ and virtue signal with their masks, etc., even though you know just by the financial moves they've made to afford their purchase, some conservative money manager has said to them (for instance) ‘Get the hell out of California!’
“On the other hand, the conservatives and libertarians usually are upfront about never living in a place that limits their freedoms, like the place they have fled, ever again.
“I hate to sound so partisan, but it is very clear who has their heads in the sand.”
Dave responds: Thanks for the unique perspective — and thanks to everyone who’s weighed in on the topic since last week. (If you’re a brand-new reader, you can get up to speed on the politically motivated Great Migration here.)
Tomorrow as promised, we’ll take up lighter fare in the mailbag — convenience stores with a cult following. Catch you then!
Best regards,
Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets
