That’s The Takeaway from today’s Morning Temporary, which you’ll find a way to join to receive in your inbox every morning along with:
Nvidia (NVDA) is at the center of a contemporary meme stock rally.
Its earnings report next Wednesday will put that theme to the test. Again.
Wedbush analyst Dan Ives, probably probably the most creative voice on Wall Street today, marrying a dramatic flair with a prescient, unabashed bullishness on AI’s investment case, called Nvidia’s quarterly results from last May a “jaw dropping” event.
“The Street was all awaiting last night’s Nvidia quarter and guidance to gauge the magnitude of this AI demand story with many skeptics saying an AI bubble was forming and as an alternative Jensen & Co. delivered guidance for the ages,” Ives wrote on the time.
And Ives was only just getting began.
In August, Nvidia’s increased revenue forecast was a “drop the mic” moment for the company, in Ives’ view.
By November, Nvidia CEO Jensen Huang had been crowned by Ives since the “Godfather of AI” after the company over again raised its sales forecast. Ives added the company’s November outlook was “guidance heard across the globe since the AI Revolution is accelerating into 2024 for the broader tech sector.”
Three months later, and what will we’ve available out there? Anything and each little thing with an AI play catching a bid while Nvidia has turn into the third-largest company available out there.
Late Wednesday, as an illustration, the chip giant disclosed modest stock investments in Arm Holdings (ARM), SoundHound AI (SOUN), and biotech company Recursion Pharmaceuticals (RXRX).
Shares of all three rallied on Thursday following the news, most notably SoundHound, which gained 60% on news Nvidia owned about 1.5% of the company’s outstanding shares as of Dec. 31.
Add to this the motion seen in Arm stock last week and the now weekslong rally in cloud storage play Super Micro Computer (SMCI) — which has seen its stock gain ~200% in a month and nearly 1000% over the past 12 months — and we’re capable of see that a bona fide AI craze has broken out throughout the stock market. One during which the mere suggestion that a company could possibly be set to cash in on accelerating AI-related spending is sufficient to bid shares higher.
Now, as Ives noted in his May 2023 report, the notion that an AI-fueled market rally is hanging by a thread only Nvidia can sew on tightly is faraway from a novel idea. And so perhaps it’s our error to see next week’s results from Nvidia as holding much significance beyond the fortunes of Nvidia itself.
Moreover, the corporate earnings outlook which will backstop a rally growing beyond AI continues to reinforce. Meanwhile, the number of times corporate executives have brought up AI on earnings calls of late has actually been on the decline.
And in contrast to the meme stock rally of 2021 during which fundamental stories were haphazardly retrofitted to make clear why a stock might double or triple in only just a few trading days, the fervour for AI plays is based on a firmer foundation of actual corporate spending.
But with the locus of that investment found on Nvidia’s income statement, it’s hard to shake the feeling that these results will mean something greater for the stock market rally. Even when we’ve seen this film before.
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