Will Nvidia Push The Market To All-Time Highs?

Key Takeaways

• Nvidia Earnings Could Be A Pivotal Moment For Markets
• AI Investments Still Face Questions On Monetization And Returns
• Light Trading Volume Expected Ahead Of Labor Day Weekend

It’s been a quiet start to the beginning of the last unofficial week of summer. On Tuesday, most of the major indices were relatively unchanged. The biggest mover was the Russell 2000, which fell 0.8%.

With the Labor Day holiday weekend approaching, volumes have been low, and I suspect overall volume will stay low, save for a couple upticks in activity here and there. While I’m not necessarily expecting a ton of activity today, I do believe we’ll likely see select underlyings experience increased volume. I’m specifically talking about Nvidia, who will report earnings tonight after the close.

Expectations for the Artificial Intelligence (AI) chipmaker are for 112% revenue growth. For the current quarter, it’s expected Nvidia will forecast revenue growth of 70 – 75%. Since 2022, the company’s market cap has increased nearly nine times. Despite a 30% drop since hitting its record high of just under $141 a share back in June, the stock currently sits just around 6% off that all-time high.

For investors that have been long this stock over the last couple years, the rewards have been worth the sometimes-bumpy ride. Despite the stratospheric rise in share price, from a fundamental perspective, the stock is still modestly priced with a price-to-earnings (P/E) ratio of 72. By comparison, Advanced Micro Devices and Intel carry P/E ratios of 183 and 90, respectively. However, there is still some reason to be cautious.

My biggest concern with respect to AI has been and continues to be how companies that are implementing AI plan to monetize those investments. That is a question being asked of companies who are making major investments in AI and a question for which there has yet to be a great answer. What we have continued hearing is companies continuing plans to invest in AI and that is great for chipmakers such as Nvidia. Still, at some point companies making these massive investments will have to show a return on those investments.

Some other companies making news today include Nordstrom, Inc. The retailer reported earnings in premarket that beat expectations; however, the beat was mainly driven by cost-cutting efforts and sales at Nordstrom Rack, the company’s discount chain. I’ve talked multiple times about the health of the consumer and where they choose to spend their money. We’ve seen companies such as Walmart and Target report strong consumer spending whereas higher end retailers have been less enthusiastic. Therefore, the growth being driven by Nordstrom Rack is something to keep in mind with respect to where consumers are spending.

Shares of Foot Locker are indicated down over 8% in premarket. The shoe retailer reported earnings that beat on both the top and bottom line. The company also reported comparable same store sales increased for the first time in six months. However, management is still forecasting full year guidance of somewhere between a 1% drop in sales and 1% growth.

Super Micro Computer shares are trading down over 2% in premarket following a report by Hindenburg. Super Micro is a player in the AI space, specifically in the server portion. Hindenburg, who is a short seller, made allegations regarding accounting errors in a report that came out yesterday.

For today, I am expecting volume to remain light overall. Nvidia and other companies in the AI space may be the exception to that. With markets being back in striking distance of all-time highs, the Nvidia report could serve as a pivotal moment for stocks as we head into September. Markets have largely regained the ground lost since July. However, the climb back has stalled a bit over the last several trading days. With so much riding on what Nvidia has to say, it’s very easy to see how markets could be facing a make-or-break moment, at least in the short term. For those traders that do venture into Nvidia ahead of their earnings, be mindful that, as you would expect, you have elevated premiums. So, be sure to keep that in mind. As of Tuesday night’s close, the options market expected move as reflected by volatility levels, is more than 10%. As always, I would stick with your investing plan and long-term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.