Mark this down: We all witnessed a historic market moment today.
Thanks to a nearly 25% surge in its share price, a big-cap tech firm that started the day worth $755.2 billion ended the afternoon worth $940 billion.
That’s right: This one company made its shareholders $185 billion richer – in a single trading day.
And it puts this company on the doorstep of the “Trillion-Dollar Club” – a select group of just three giants that currently consists of Apple (AAPL), Microsoft (MSFT), and Amazon (AMZN).
The company we’re talking about is Nvidia (NVDA).
And the chipmaker experienced this meteoric, single-day jump thanks to the twin infusions of strong earnings and a strong dose of artificial intelligence.
In a reporting season when a lot of companies got punished for even tepid guidance – especially tech companies – Nvidia absolutely blew the roof off of past, present, and future expectations.
One analyst even dubbed it “guidance for the ages.”
It’s great for investors who already owned the stock.
And it’s great for semiconductor stocks, which have already rallied big since October.
A lot of investors who jumped into Nvidia today did so out of emotion. FOMO, or “fear of missing out,” is a powerful force. And I worry some folks might have overpaid.
You don’t always need to own the stock getting all the headlines. We’ve made good money in related stocks recently… and those gains got bigger today as well.
All About AI
Nvidia is an outstanding company.
It is a bona fide “outlier” in my Quantum Edge system. It has seen a whopping 151 Big Money buy signals over the last nine years… more than one per month. Those are the footprints I track of unusual activity that Big Money tries to keep quiet.
The green bars on the chart below are those signals, and you can see a lot of buying early in the year that cooled off a bit and has picked back up recently.
NVDA has also been on my Top 20 list 71 times. This is a weekly list of the top stocks in my system. And hedge funds and institutions pay a lot of money for this insight. Shares have gained nearly 12,000% in the nine years since it first appeared on that elite list.
Nvidia made its name as the leader in graphics processing units (GPUs), which redefined computer graphics and displays and sparked massive growth in videogames.
Today, NVDA is considered a leader in chips for AI applications, and that’s largely what brought in today’s maniacal buyers.
The company earned 18% more per share than expected, and sales were 10% above estimates. But it was expectations for the current quarter that made everyone crazy. Management guided for sales of $11 billion this quarter, a full 50% above Wall Street estimates.
That’s right: Nvidia said revenue (not profits) would soar 50% from last quarter – not from last year.
CEO Jensen Huang attributed that ramped-up guidance to a shift to “accelerated computing.” Translation: Demand for AI-related chips is off the hook.
“A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process,” he said.
If anybody had doubts that artificial intelligence is that hottest investing trend around, they shouldn’t anymore.
NVDA Strategy: Buy On a Pullback
I love AI. I incorporated AI algorithms into my Quantum Edge system long before it was the biggest buzzword in investing. (I’ll give you a deeper dive into my system next week here in Power Trends.)
Several of my recommended stocks benefit from AI.
But after today’s massive jump, don’t be surprised if NVDA sees some profit-taking in the next few trading days.
Huge moves in either direction are almost always followed by some kind of reversion. I’ve seen it more times than I can count – some air almost always comes out of a stock after it rockets higher.
That’s borne out in my data as well.
In school, a score of 100 signified perfection – and is what we all coveted. Not so when it comes to buying stocks.
In my system, if a stock’s Technical Score is 100, we know there is nowhere to go but down. That level of buying is unsustainable. And that means a pullback is in the cards.
Even before today’s pop, NVDA’s Technical Score was 91.2, which is close to being overheated. It will be even higher tomorrow – after my computers crunch all of today’s trading data.
It also echoes a concern I had before NVDA’s earnings, which I mentioned previously here in Power Trends. The stock’s valuation was already rich before today.
If you look at the quote summary on Yahoo Finance, the current P/E (price/earnings) ratio is 221.55. That’s based on past earnings.
In the last article, I said that shares were trading at 63.7 times expected future earnings. As of last night’s close, they traded at 66.2 times expected earnings. That will change some as estimates will surely rise, but is undoubtedly an expensive stock right now. I don’t mind paying up for a lot of growth, but that valuation is pushing it.
The only other red flag in my system is the company’s relatively high debt level at 54.4% of equity. But given the high growth rate and strong revenue bump, I would be willing to look past that at a little bit lower valuation.
And that’s why – if you want to own NVDA – I’d wait for a pullback. I have it on my watchlist as well.
Making Big Money In Other Chip Stocks
The smart approach right now it so put the FOMO in neutral, keep an eye on NVDA for a pullback, and take a look at other stocks riding the same semiconductor wave.
I mentioned Advanced Micro Devices (AMD) last time. It is another chip company benefitting from all things AI – it jumped 10% today. Shares have soared 27% in less than two months since I recommended it in Quantum Edge Trader.
Its Technical Score is also high at 86.2, but that’s not quite as overheated as NVDA. AMD also posts a higher – and outstanding – Fundamental Score (83.4 versus 62.5 for NVDA), and Big Mooney has been buying a lot over the last week.
AMD trades at 38 times expected earnings, which is a less frothy valuation and not the potential drag that Nvidia’s is. Shares are above my recommended buy limit, and would be very attractive buy on a dip for a still-significant (and possibly smoother) upside.
The other two semiconductor stocks in Quantum Edge Trader also surged more than 10% today. It’s worth noting that the one with the most reasonable valuation (17.3 times forward earnings) led the way with a 12% leap. leap.
NVDA is a great company. And a great stock. I’m thrilled that company did so well and guided so much higher. The company is a semiconductor bellwether, and in one earnings report it may have bolstered sentiment toward the entire industry.
We knew the trend was toward AI chips, and NVDA helped investors realize the transformation is happening. Now. In real time. It’s an indescribably massive shift, and there will be more than one big winner along the way.
NVDA should definitely be on your radar. But so should other stocks that will also be big beneficiaries – even if they’re not grabbing headlines right now.
Several are lighting up my Quantum Edge screens at the moment, showing the fundamental strength, technical strength, and Big Money support that indicates more gains are ahead.
Editor, Jason Bodner’s Power Trends
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