NVIDIA's Stellar Earnings and Positive Economic Indicators Boost Investor Confidence

Nvidia Delivers Spectacular Earnings Report

I should add that the U.S. power grid added 21% in new electricity generating capacity in the first six months of this year via solar, wind and nuclear power. Last Wednesday, Nvidia (NASDAQ:NVDA) announced that its second quarter sales rose by a whopping 122.4% to $30.04 billion vs. $13.51 billion in the same quarter last year. During the same time span, Nvidia's operating earnings per share rose 151.9% to $19.94 billion or 68 cents per share vs. $7.78 billion (27 cents per share) last year. The analyst community was expecting sales of $28.74 billion and operating earnings of 65 cents per share, so the company posted a 4.5% positive sales surprise and a 4.6% earnings surprise. For the third quarter, Nvidia provided sales guidance of $32.5 billion (plus or minus 2%), which was 2.5% above the analysts' consensus estimate of $31.7 billion. In a written statement, Nvidia's Chief Financial Officer, Colette Kress, said, "We shipped customer samples of our Blackwell architecture in the second quarter," adding that, "We executed a change to the Blackwell GPU mask to improve production yield. Blackwell production ramp is scheduled to begin in the fourth quarter and continue into fiscal 2026. In the fourth quarter, we expect to ship several billion dollars in Blackwell revenue." This was important news, since there had been endless reports that Nvidia was delaying its new Blackwell GB200 by at least three months, so the company's announcement that deliveries will ramp up in the fourth quarter clarified the situation. At the same time, Nvidia also posted better-than-expected sales, earnings and guidance on its older AI chip, namely the H100 GPU. Google (GOOG) (GOOGL), Meta (META), and Microsoft (MSFT) are betting billions on Nvidia's GPUs as the AI arms race escalates. For example, Google has ordered more than 400,000 GB200 chips, an order worth over $10 billion. Meta also has a $10 billion order in, while Microsoft is expecting to have 55,000 to 65,000 GB200 GPUs ready for OpenAI by Q1 of 2025. The initial delay in the Blackwell GB200 GPU was reportedly due to a Taiwan Semiconductor glitch attaching two GB200 chips together. As a result, Nvidia's guidance on the delivery of its Blackwell GB200 GPUs and order backlog was more important than its actual quarterly sales and earnings. It is important to stress that Nvidia is effectively a monopoly, in that they spent approximately $2 billion to develop the Blackwell GB200 GPU. Furthermore, Nvidia is expecting to upgrade its flagship AI chipset every year until the end of the decade. Several years from now, Nvidia may not be able to make its chips much faster, since its transistors will be so tiny they will be approaching the "atomic" level. Since splitting atoms is not a good idea, the next step to speed up AI calculation will be Quantum computing, which uses both 1's and 0's, in its calculations. Anticipating this change, Nvidia already has a Quantum Cloud Simulator up and running to prepare for the future acceleration of AI calculations. It is also important to mention here that Nvidia's competitors are making lower-grade AI chipsets. Regenerative AI, which is effectively machine learning, remains Nvidia's domain. To effectively compete with Nvidia, its competitors would have to spend several billions of dollars over the next several years, which would likely prove to be a futile exercise. Momentum and market share are important in the world of technology. With Regenerative AI moving so fast, it is hard for any new competitors to Nvidia to emerge, let alone allocate the capital and resources required to try to compete with Nvidia any time soon. Historically, my strategy has been to invest in monopolies before the inevitable competition could emerge. Some of my best past monopolies include Conair (OTCPK:CNGA) (hair dryers in the 1980s), Tyson Foods (TSN) (McNuggets & chicken tenders in the early 1990s), Hanson Natural (subsequently renamed Monster Beverage, in the mid-2000s) and now Nvidia (first bought back in 2016 through 2018). I recommended Nvidia again in May 2019 and am proud that I am up well over 3,000% from that second purchase. However, unlike those past monopolies, where competition typically emerged within a few years, I do not anticipate any effective competitors to emerge to disrupt the Regenerative AI monopoly that Nvidia dominates. As a result, I am planning on holding Nvidia for several more years and hope you are enjoying the ride in this great company that is truly a "once in a lifetime" stock that can transform both your portfolio and lifestyle! That's the basic story I wrote in an article last Wednesday ("Nvidia has all the pieces in place for a positive quarterly earnings surprise"), before their earnings came out. I should add that another AI-related stock that is dependent on Nvidia, namely Super Micro Computer (SMCI) was hit last week after a short seller, Hindenburg Research, issued a questionable research report last Tuesday. Since the short attack took place in the week prior to Labor Day, trading volume was light. Unfortunately, on Wednesday, Super Micro Computer decided to postpone its 10-K filing in order to review its accounting methodology. Specifically, the company said, "Additional time is needed for SMCI's management to complete its assessment of the design and operating effectiveness of its internal controls over financial reporting as of June 30" Ouch! That caused further selling of Super Micro Computer, so what they should do now is provide updated guidance to calm down nervous investors. Now that the quarterly announcement season is over, my research team updated the performance of our stock selection models. Here is how my fundamental model performed in the year through August 30: Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary. These are performance totals for each 5% segment, from top (left) through bottom (right). And here is how my Portfolio Grade performed in the past 12 months through August 30: Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary. What the first chart illustrates is that the top 55%-rated stocks (the first 11 bar charts), as graded by my 8-factor fundamental model, enjoyed positive relative performance. Furthermore, the Top 5% (the first bar chart) delivered 25% gains in both my fundamental analysis and portfolio grader. I am proud that both my 8-factor fundamental model and Portfolio Grader can identify the best stocks in such a consistent manner. Last Friday, the Commerce Department announced that the Fed's favorite inflation indicator, namely the Personal Consumption Expenditure (PCE) index, rose just 0.2% in July and 2.5% in the past 12 months. The core PCE, excluding food and energy, also rose 0.2% in July and 2.6% in the past 12 months. More importantly, in the past three months, the core PCE is trending lower, running at a 1.7% annual pace, so the core PCE is within the Fed's 2% inflation target. I must add that I was a bit disappointed in the PCE report, since economist Ian Shepherdson was expecting an even lower rate, just 0.13% for July. At the Kansas City Fed conference at Jackson Hole in the previous weekend, Federal Reserve Chairman Jerome Powell said that the slowdown in the labor market was "unmistakable," finally echoing comments made by other Fed officials that unemployment concerns are now overshadowing inflation concerns. In fact, Powell underlined that statement by saying, "We do not seek or welcome further cooling in labor market conditions." That means a key interest rates of 0.25% on September 18 is virtually certain, and a bad August payroll report this Friday means that the Fed could cut key interest rates by more, by 0.50%. Now that inflation has effectively been tamed, the Fed is belatedly turning its attention to the job market, since the unemployment rate has risen from 3.4% to 4.3% in the past 15 months. However, the Labor Department recently announced that 818,000 reported payroll job gains in the past year through March 31, 2024, disappeared, due largely to people working multiple jobs and/or not paying withholding taxes. Goldman Sachs was expecting a downward revision of 600,000 jobs, while JPMorgan was expecting a 360,000 downward revision, so the Labor Department revision came in shockingly high. Instead of the U.S. economy creating 2.90 million payroll jobs in those 12 months through the first quarter, it only created 2.08 million jobs. Ouch! This is the largest annual revision to the payroll data since the recession of 2008-09! Obviously, this downward revision may cause the unemployment rate to rise even further! Canada, Britain and the European Central Bank (ECB) are also expected to cut their key interest rates soon, so three major central banks may cut for the second time before the Fed cuts rates the first time. Last Tuesday, the Conference Board announced that its consumer confidence index rose to 103.3 in August, up from a revised 101.9 in July. The present situations component rose to 134.4 in August, up from 133.1 in July, but Dana M. Peterson, the Conference Board Chief Economist was cautious, saying, "Consumers' assessments of the current labor situation, while still positive, continued to weaken, and assessments of the labor market going forward were more pessimistic. This likely reflects the recent increase in unemployment. Consumers were also a bit less positive about future income." Consumer and business confidence continue to decline in Germany. At the heart of Germany's woes are electricity costs due to their green energy mandates. Germany's industrial economy was built on cheap Russian natural gas that is no longer available. Although Russia now sells more LNG to the eurozone than the U.S. does, LNG is much more expensive than natural gas from pipelines. According to the Bavarian Industry Association, electricity prices in 2023 were 61% higher than they were pre-pandemic. As a result, Germany's massive manufacturing operations are increasingly moving to Hungary, Poland and Slovakia, since those nations have cheaper electricity as well as more reasonable labor costs. I should add that the German statistics office, Destatis, on Thursday announced that consumer price inflation declined to a 1.9% annual pace in August, down from a 2.3% annual pace in July, which will help encourage the European Central Bank (ECB) to cut key interest rates again in early September. The Presidential election cycle is now in full swing. Historically, the stock market rallies into Presidential election day, since the candidates are promising voters everything and anything. No taxes on tips and Social Security benefits are very popular, as are larger child tax credits, plus aid for first time home buyers. I should add that whoever wins Pennsylvania is likely to win the electoral college vote. The Biden Administration's January 2024 executive order that banned LNG expansion alienated western Pennsylvanians, since it is a big natural gas producer. Furthermore, Kamala Harris' comments that she was opposed to fracking and offshore drilling further alienated western Pennsylvanians. Although the Harris campaign has hit the "reset" button and is suddenly pro-fracking, Pennsylvania remains skeptical. Donald Trump wants to double electricity generation in the U.S. to support AI demand for power-hungry cloud computing centers. To do this, Trump needs cheap U.S. natural gas that is so inexpensive that it is often flared, which is not ideal for the environment. Instead, Trump would rather use natural gas for electricity generation rather than merely waste it. If Trump wins Pennsylvania and becomes the next President, then I expect our cloud computing-related stocks, like CrowdStrike Holdings (CRWD), Eaton (ETN), Emcor (EME), Nutanix (NTNX), Parsons (PSN), Quanta Services (PWR), Super Micro Computer and Vertiv Holdings (VRT) to prosper! In the meantime, I should add that the U.S. power grid added 21% in new electricity generating capacity in the first six months of this year via solar, wind and nuclear power. Solar accounted for 59% of this increase, battery storage accounted for 21%, wind accounted for 12% and an expansion at Georgia's Vogtle nuclear power plant to four reactors accounted for the remaining increase in nuclear power. Arizona, California, Florida and Nevada dominated battery and solar expansion, while Texas dominates wind expansion. Natural gas, which still dominates electricity generation in the U.S. is not expanding, since the Biden Administration implemented regulations demanding that new natural gas power plants implement carbon dioxide capture, which has caused commercial natural gas plant expansion to halt. Crude oil prices have risen 3.3% this year. The latest catalyst for higher crude oil prices was the fighting between Israel and Hezbollah after Israel used more than 100 fighter jets to strike targets and Hezbollah launched over 200 missiles as well as drones. In the meantime, Libya is now essentially two countries after a civil war there. Eastern Libya is calling for all crude oil shipments to cease as a fight over control of the country's central bank escalates. Finally, Russia fired over 200 missiles and drones into Ukraine to disable its power grid and water supply. One drone reportedly landed in Poland. Furthermore, Ukraine lost one of its six F-16 Fighter jets during a Russian missile barrage. I should add that Russia's crude oil exports continue to sputter. Despite these supply disruptions, crude oil demand often peaks during Labor Day weekend, so do not be surprised if crude oil prices moderate in September as seasonal demand drops. Navellier & Associates owns Nvidia Corp. (NVDA), Super Micro Computer, Inc. (SMCI), Microsoft Corporation (MSFT), Alphabet Inc. Class A (GOOGL), Meta Platforms Inc. Class A (META), CrowdStrike Holdings (CRWD), Eaton (ETN), Emcor (EME), Nutanix (NTNX), Parsons (PSN), and Quanta Services (PWR), in managed accounts. We do not own Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM). Louis Navellier and his family own Nvidia Corp. (NVDA), Super Micro Computer, Inc. (SMCI), Microsoft Corporation (MSFT), CrowdStrike Holdings (CRWD), Eaton (ETN), Emcor (EME), Nutanix (NTNX), Parsons (PSN), and Quanta Services (PWR), via a Navellier managed account, and Nvidia Corp. (NVDA), in a personal account. They do not own Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM), Alphabet Inc. Class A (GOOGL), and Meta Platforms Inc. Class A (META), personally. All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc. Disclaimer: Please click here for important disclosures located in the "About" section of the Navellier & Associates profile that accompany this article. Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients. Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

3 Great Economic Facts Investors Should Cheer

Looking for a helping hand in the market? Members of The Dividend Kings get exclusive ideas and guidance to navigate any climate. Learn More " A year of very low volatility suddenly gave way to the 3rd highest volatility ever recorded as a growth scare briefly gripped Wall Street. But retail investors, seeming to have learned the right lessons from previous corrections, bought the dip in a big way. With NVDA 6.5% of the S&P, and unquestionably the leader of big tech recently, the champion of the grand AI future that big tech is investing over $200 billion into this year alone (and 30% to 40% more next year), should investors be worried? I won't do a full NVDA update today, but here is a 30-second update. Currently, the consensus return potential is +274% through the end of 2029, which is 100% justified by fundamentals. That's 28% annualized returns for five years. The upside potential on fundamentals is +150% EPS growth this year, +100% next year, and 25% in 2026, 2027, and 2028 (per TSMC and Management guidance). In other words, given the best available data, 3X to 5X by the end of 2029 is likely. What about waning demand from the hyperscalers that drive 45% of sales? This year, NVDA's five largest customers are increasing AI capex by 43%, and next year's estimates are for 25% (UBS) to 40% (Bloomberg) capex spending. There is no evidence that NVDA won't be supply constrained all next year, as Taiwan Semi aka TSMC (TSM) predicted it would be (TSMC is increasing capacity by 150% in 2024 and 100% in 2025). Max EPS Growth Potential (100% Supply Constrained, TSMC and NVDA growth guidance): While NVDA could badly miss earnings in a recession, or if AI is not as revolutionary as currently expected, it could also significantly beat earnings expectations. What is NVDA's best-case scenario if it achieves the maximum growth potential outlined recently by TSMC and NVDA management? So, NVDA's selloff is not justified by fundamentals. Big tech is very bullish on the future of AI and plans to spend like there's no tomorrow on growth. Tech has been underperforming as money rotates out of red-hot tech and into value ahead of a major growth recovery in value earnings. However, the largest companies are still delivering the best earnings growth. Thanks to big tech, large-cap earnings have grown enormously, while midcaps and small caps (40% of which are not profitable) have stagnated. Big tech (info tech + communication (GOOG, META) + consumer discretionary (AMZN, TSLA)) is expected to deliver 11% EPS growth out of the 15% EPS growth next year. Fundstrat's Tom Lee expects big tech to continue generating 70% to 80% of corporate profits through 2047 due to the global labor shortage. In other words, the companies solving the most significant problems will generate the most earnings growth, and justifiably, big tech, if it grows as expected, will eventually be 75% of the S&P. Buybacks are ramping up, with around $66 billion expected over the next two weeks. Joshua Brown's "Relentless Bid for Stocks": Buybacks & 401K Contributions Each month, 401K contributions buy $8.3 billion worth of the ten largest companies in the S&P. But what about the rest of the market? The economy? The yield curve and Sahm rule, which have never been wrong before, are screaming "recession!" So, let's look at three facts that investors should cheer about. These facts indicate that stocks are not headed for a significant correction or bear market soon. Core PCE is the Fed's official inflation metric, which targets 1.5% to 2.5% long-term. That corresponds with a CPI of 2% to 3%. CPI and PCE are different because PCE incorporates consumers switching to lower-priced alternatives, while CPI always uses the same basket. Economists expected 2.7% YoY (year over year) core PCE, and we got 2.6%, slightly better than expected. More importantly, MoM (month over month) came in at 0.16%, which is 1.9% annualized. In other words, real-time core PCE inflation is 1.9%. Core inflation is back to the Fed's target, thus permitting the Fed to cut steadily to a neutral rate. The Cleveland Fed's real-time inflation model expected 2.6% this month (same as economist consensus) and 2.8% next month (end of September). Truflation uses 10 million daily updated prices across the economy to estimate real-time inflation. Since 2012, it has been 97% correlated to CPI because it tracks CPI and represents a real-time Nowcast for the Fed Fund rate to maintain 2% Core PCE inflation. In other words, the real-time inflation data indicates the Fed is much too restrictive and has a clear runway to rapid and steady rate cuts in 2025. The bond market is currently pricing at a 100% probability of a cut in September, with a 70% lean towards 0.25%. The Fed is now 100% likely (according to the bond market) to cut every meeting for the rest of the year. The bond market expects the Fed to reach its neutral long-term rate of 3.25% by June 2025 and then hold. The bond market is currently pricing a 95% chance of 1% hikes this year. GDP growth for Q2 was revised higher from 2.8% initially to 3%. The entire upward revision was courtesy of stronger-than-expected consumer spending, which drives 65% of the economy. For context, the Fed Congressional Budget Office and economist consensus expect 1.8% long-term GDP growth. Yet, for the last year, consumer spending alone has been driving around 2% of GDP growth. Housing has been in a recession for two years now, and so have inventories, as companies pulled back on new orders as consumers shifted to spending on services. In Q2, inventories recovered, and strong consumer spending helped drive 3% GDP growth. As the Fed cuts rates, Home Equity Lines of Credit will cost less. In other words, home equity represents almost one year of consumer spending. As rates fall, that could support continued consumer spending. As the housing market recovers. And inventory rebuilding could potentially add to economic acceleration. Currently, the consensus of economic real-time growth models is 2% GDP growth for Q3. That's down 1% from Q2, but still better than the long-term trend. Weekly jobless claims have risen but are still very low, signaling no significant layoffs. With a labor force of 165 million, 1.8 million people are unemployed, and around 230,000 people file for unemployment weekly. Here are the ten real-time indicators we now have to track the economy. These ten models cover over 150 non-overlapping weekly updated metrics that cover every part of the US economy. While I can't time the economy, these ten real-time indicators can show us how the economic growth rate is changing. Barring another Pandemic shock, these indicators will ensure we are never surprised by a recession but see it coming months in advance. The WEI index real economic activity using timely and relevant high-frequency data. It represents the common component of ten different daily and weekly series covering consumer behavior, the labor market, and production. The WEI is scaled to the four-quarter GDP growth rate; for example, if the WEI reads -2 percent and the current level of the WEI persists for an entire quarter, one would expect, on average, GDP that quarter to be 2 percent lower than a year previously. The WEI is a composite of 10 weekly economic indicators: When the WEI reads 2.27%, it indicates that if the economic conditions captured by the index persist for an entire quarter, the GDP growth rate for that quarter would be expected to be 2.27% higher than the same quarter in the previous year. GDP growth in Q3 of 2023 was 3.4%, and the St. Louis Fed thinks that if current economic conditions hold, we might hit 5.6% within a year. Can that be true? Can the economy stabilize from 5.25% of rate hikes and accelerate even more? Let's check the BaR economic grid to confirm this data. David Rice tracks 19 economic and nine leading indicators and plots them on a grid, showing how far each point is above or below the 30-year baseline (average). He also plots how fast they are changing from month to month. This single graph gives us an eagle's-eye view of the US economy. The orange weighted mean of coordinates, or WMOC, is today's economy. The green leading indicators are slightly below the historical trend but are accelerating and indicate improving economic conditions. Peak growth (6.9% GDP) occurred in Q4 of 2021, and the fastest rate of economic acceleration occurred in Q3 of 2020 (17% improvement MoM). Based on this, we can calibrate the following model. The BaR grid is confirming what the NY and St. Louis Fed are showing: the economy may have bottomed and is starting to accelerate. If the economy doesn't dip below 1.8% trend growth, it will be a "No landing" scenario. In all of Fed history, the Fed has never been able to slow growth to normal levels, with inflation above 5%. Soft landings have happened twice; a no-landing inflation beat is unprecedented. Yet, the data is pointing to that as a distinct possibility. As part of his political forecast, Nate Silver is tracking six historical economic indicators that have affected people's perceptions of the economy. The numbers represent standard deviations compared to a rolling two-year average. The economy has been robust in the past two years; in fact, it's the best economic growth since 1960. The economy is slightly better than the 2-year average and is expected to improve modestly more by election day. We'll likely get a second rate cut (and possibly an end to QT) at the Fed meeting on November 8th. With a 3rd (and possibly 4th) cut at year-end, we could begin 2025 with positive economic momentum. Zero is calibrated to average financial stress since the inception of each index. Negative numbers indicate below-average financial stress. Recently, most financial stress indicators have been falling, meaning there has been steadily lower financial stress. Since 1971, there has never been a recession, with all indexes and subindexes negative. Anyone telling you a significant recession or market crash is coming is usually lying, ignorant of the actual economic data, or trying to sell you something. The economy is currently running at +16, indicating a strong overall economy, which agrees with the results of 9 other real-time indicators. US corporate profits are approaching $3.5 trillion annually, up 250% since 2002's recession low. According to BlackRock, that's consistent with the 6% EPS growth US companies have delivered for over 200 years. Currently, the long-term growth consensus (bottom-up) from FactSet and Morningstar is 12%. The EV/EBITDA/Growth (cash-adjusted PEG) ratio is 1.2, compared to a 10-, 20-, and 25-year average of 1.77, 2.42, and 2.44. Given that PEG ratios compress as growth accelerates, I estimate that if the S&P's growth consensus can be maintained at 12% long-term, the market might be 13% undervalued. That means if the S&P grows earnings as expected and the growth consensus remains 12% a year from now, fundamentals could justify up to a 25% total return for the S&P. (Source: Dividend Kings S&P Valuation Tool.) The market is 1.1% from record highs and appears reasonably priced based on fundamentals. Timing the economy is not the goal of these updates. Since 1926, even if you could time the economy perfectly, it wouldn't result in better investing returns (outside avoiding the Great Depression). Instead, I'm trying to provide context for the economy, Main Street, so you can fight fear with facts. There is a lot of misinformation and disinformation from both reputable sources and complete cranks. With 94% statistical confidence, I can say that the US economy is not in recession currently, and the data clearly show that it is getting stronger, not weaker. The data must fall off a cliff if a recession is coming soon. If that happens, I'll tell you about it in these economic updates. By providing the best available data from reputable sources, I hope to give you a bird's-eye view of the economy and corporate earnings outlook. So you can fight fear with facts and sleep well at night while ignoring clickbait scaremongering headlines like this.