The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Here it comes.
Asia and Europe were fairly quiet and our futures were quiet. The S&P opened up small and zoomed north, only to give it all back by lunchtime. We treaded water in the afternoon and climbed in the final hour. Markets are worrying about the next Fed meeting. There’s only a 28% chance of a 25-bip cut in the markets now. This is a big shift from approximately 50/50 a few days ago and nearly 100% a few weeks ago. Despite the material changes in the rates market, which are bearish influences in the short term, the equity market is all about Nvidia earnings and guidance.
After the close, we’ll see the NVDA results. The market has been so conditioned to expect beats from Nvidia. If any metric disappoints, the shares will reflect it. However, we’ve seen disappointments in other highly regarded stocks in the past. Yes, the shares suffer in the immediate release of the data but there can still be a path for a higher stock price in that circumstance. It all comes down to guidance. Nvidia must guide *materially* above current Street forecasts.
How much above? I don’t know. The entire AI ecosystem’s valuation rests on whether Nvidia delivers guidance that allows investors to retain optimism. This optimism isn’t about the magical capabilities of AI either. The optimism I’m talking about is return on capital. Investors are already convinced that AI will bring future wonders to the world.
They need reassurance that the vast sums of capital being poured into the space will pay off.
I don’t know what numbers, words, or tones will be necessary for that reassurance to happen. I do know that the moment is here though. Nvidia has to do it.
See you tomorrow.
-Mike
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