Earnings Beat: NVIDIA Does It Again
Data Center revenue continues to surge on a year over year basis. Should bulls keep riding or take the win? Spoiler: I still think this is all silly.
This is from my weekly note on Monday morning:
Things to watch this week would be NVDA earnings on Wednesday and initial claims on Thursday. I wouldn't be surprised if we see chop in the equity market tomorrow while we await the sweet sounds of Jensen Huang.
Nvidia NVDA 0.00%↑, which I tOTaLly sWEaR I’m done writing about, has predictably owned the show this week. CNBC had an NYE-style earnings countdown clock, Cramer said the thing isn’t near its peak, and we’re getting ever higher four figure share price forecasts from analysts seemingly every day.
Here’s the major deets from earnings:
Quarterly Revenue: $22.1 billion ($1.5 billion beat)
Data Center revenue: $18.4 billion (up 409% yoy)
If you like volatility, the action in after hours trading was utterly bonkers this evening. And frankly why would we expect anything less at this point? On about 15 million shares of trading volume, NVDA traded as low as $645 and as high as $746 following the company’s earnings release. This volatility might make sense if NVDA was a small cap stock but it’s the 6th largest company on the face of the earth:
Of course, the after hours valuation has NVDA back in the #4 spot. So where do we go from here? Are bulls back in control after the stock suffered (checks notes) two full days out of overbought territory since January 9th?
Or will bulls get rug pulled as one of the great equity rallies of our time comes close to a tipping point?
I’m Not Going To Guess
But I will say that I think the open market action tomorrow is going to be very telling though. Scanning the sentiment online, I keep seeing NVDA bulls on SA and on Stocktwits calling for a “short squeeze” tomorrow.
Uhm… which shorts exactly? Sure, I have a short proxy on because I’m psycho and have a fairly high unrealized pain threshold but there are just under 2.5 billion NVDA shares outstanding and only 27.7 million of them have been sold short as of January 31st - so slightly more than 1% of shares have been sold short. This is nothing. Literally, Netflix NFLX 0.00%↑ has a short position twice as high at 2.3% and even that’s low. The cost to borrow and short NVDA via iBorrowDesk is 0%.
There is no short squeeze when there are no shorts. And there are no shorts. So if “short squeeze” is now the bull case... I’m not seeing it. Signs of an unsophisticated investor base, no doubt.
Nvidia beating revenue was a foregone conclusion - we all knew it was going to happen. What the market has to now figure out is whether or not the stock should be punished for circular transactions, shrinking lead times, and sequential revenue growth that is kinda decelerating despite all the hype. Data Center revenue looks amazing. But again, the segment can’t keep printing three figure year over year comps forever and the 2023 base effect isn’t going to be forgiving starting in Q2 of this year.
Beyond that, Gaming revenue peaked in 2022. Professional Visualization peaked in 2021. Automotive and Embedded was actually down YoY and OEM/Other is so small compared to the other segments that its impact on share price is minimal. So, yes, bulls have been in complete control for awhile and the few of us bears who have actually put our money where our mouth is are still very much feeling the burn.
“NVIDIA is priced for perfection. But NVIDIA really is a perfect stock and I think you could throw the Mag7 in there as well. These are perfect companies.”
That’s a real quote from a guest on Fox Business today. This should probably go without saying, but there’s no such thing as perfect anything let alone perfect stocks. If I wasn’t printing money through my preferred flavor of mania instruments (Bitcoin, crypto, and miners), I’d have admittedly probably taken the L on this AXS 1.25 Bear NVDA NVDS 0.00%↑ trade weeks ago. But I have been largely printing money on most of those crypto-proxy longs and I’ve realized quite a bit of those gains. I’m perfectly content with giving NVDS a little bit more time and averaging the holdings down on big NVDA rip days.
Or perhaps maybe that dreaded “short squeeze” will be too much to bear when the degens take this hog to $1,200 in March. Time will tell.
“If everyone is doing the same thing, it eventually doesn’t work.” - Ted Oakley
Disclaimer: I’m not an investment advisor. I’m also a degenerate gambler and it takes one to know one. Don’t do anything I do. Everything could go to zero. My largest single position in the entire equity market is Sprott Physical Gold Trust PHYS 0.00%↑. I’m long NVDS and, thus, have a vested interest in seeing NVDA go down. I think “AI” stocks are in a massive hype cycle that is going to ultimately end with a lot of retail traders losing hundreds of billions of dollars. Crypto also benefits from hype cycles and we may very well be in one of those as well.