Maria's viewpoint
This time, the NVDA earnings are a little different. After recovering from the drop in early August and with the S&P 500 within 1% of its all-time high, the market's further upward movement depends on Nvidia (NVDA) earnings after the close on Wednesday. Strictly speaking, it depends on the market's reaction to NVDA earnings. That's the topic for today.
<Why is it a little different this time?>
Despite the stock price rising 25% with the surprising guidance update in the earnings released in May 2023, NVDA managed an unprecedented feat for a large cap stock by lowering its P/E ratio.
Since that historic day, NVDA earnings have been the catalyst that determines the tone of the stock market after earnings, attracting attention from market participants.
<Why is it a little different this time?>
Despite the stock price rising 25% with the surprising guidance update in the earnings released in May 2023, NVDA managed an unprecedented feat for a large cap stock by lowering its P/E ratio.
Since that historic day, NVDA earnings have been the catalyst that determines the tone of the stock market after earnings, attracting attention from market participants.
NVDA Stock Chart - Weekly
But this time it's a little different. Why?
As you can see from the chart above and the table below, NVDA had actually been experiencing negative growth for four consecutive quarters, including the historic earnings from the April 2023 period.
The surge in stock price in the April 2023 period was not because of its earnings, but because the guidance for the July 2023 period exceeded expectations by far.
But this time it's a little different. Why?
As you can see from the chart above and the table below, NVDA had actually been experiencing negative growth for four consecutive quarters, including the historic earnings from the April 2023 period.
The surge in stock price in the April 2023 period was not because of its earnings, but because the guidance for the July 2023 period exceeded expectations by far.
Transition of NVDA's EPS and revenue YoY growth rate.
Therefore, it can be said that until the recent earnings report, which is the earnings report for the April 24 fiscal year, the year-on-year comparison was easy.
As can be seen from the table above, the YoY growth rates of both EPS and sales were outstandingly high until the April 24 fiscal year, but this year's financial estimates are 139% for EPS and 113% for sales.
And the growth rates for the next fiscal year (October 24 fiscal year) are expected to decelerate to 77% and 75%.
Since the impact of AI first became apparent in NVDA's earnings report for the July 23 fiscal year, it will be the first time that year-on-year comparisons become difficult in this week's earnings report for the July 24 fiscal year. In other words, it has been exactly one year since AI performance has been included in this fiscal year.
In other words, the revelation is that NVDA was able to achieve four to five times the numbers compared to the same period last year not only because of AI, but also because the EPS and sales of the year before had significantly declined.
Therefore, mathematically, it is impossible for this threatening growth rate to continue indefinitely. Therefore, a certain degree of deceleration in growth rate has already been factored in.
But how much deceleration is acceptable? At what point of deceleration will shareholders start selling? That is the question.
In fact, hedge fund investors such as Druckenmiller have already sold their NVDA shares (this will be explained in detail later).
So, this time, the market's reaction to the earnings is more interesting than the earnings themselves.
In other words, if NVDA releases better-than-expected earnings but the stock price drops, it is very dangerous.
If that happens, it is highly likely that the entire US stock market will decline, as the leader of the AI boom has stumbled.
So, what numbers constitute "better-than-expected earnings"?
<My thoughts on NVDA's numbers and the market's reaction>
These are my familiar NVDA earnings forecast and stock price reaction forecast for each quarter.
Therefore, it can be said that until the recent earnings report, which is the earnings report for the April 24 fiscal year, the year-on-year comparison was easy.
As can be seen from the table above, the YoY growth rates of both EPS and sales were outstandingly high until the April 24 fiscal year, but this year's financial estimates are 139% for EPS and 113% for sales.
And the growth rates for the next fiscal year (October 24 fiscal year) are expected to decelerate to 77% and 75%.
Since the impact of AI first became apparent in NVDA's earnings report for the July 23 fiscal year, it will be the first time that year-on-year comparisons become difficult in this week's earnings report for the July 24 fiscal year. In other words, it has been exactly one year since AI performance has been included in this fiscal year.
In other words, the revelation is that NVDA was able to achieve four to five times the numbers compared to the same period last year not only because of AI, but also because the EPS and sales of the year before had significantly declined.
Therefore, mathematically, it is impossible for this threatening growth rate to continue indefinitely. Therefore, a certain degree of deceleration in growth rate has already been factored in.
But how much deceleration is acceptable? At what point of deceleration will shareholders start selling? That is the question.
In fact, hedge fund investors such as Druckenmiller have already sold their NVDA shares (this will be explained in detail later).
So, this time, the market's reaction to the earnings is more interesting than the earnings themselves.
In other words, if NVDA releases better-than-expected earnings but the stock price drops, it is very dangerous.
If that happens, it is highly likely that the entire US stock market will decline, as the leader of the AI boom has stumbled.
So, what numbers constitute "better-than-expected earnings"?
<My thoughts on NVDA's numbers and the market's reaction>
These are my familiar NVDA earnings forecast and stock price reaction forecast for each quarter.
Maria's NVDA earnings forecast.
Last time, the forecast for sales and the forecast for next year's sales guidance were spot on.
I created these numbers in the Standard Class of the 'Never Losing Study Group,' which I hold every weekend on August 19th.
In my study group, we focus on one stock each week and create performance models together using Excel. This allows you to make your own predictions while actually working hands-on. We also have a forum for members to share their forecasts, so motivated individuals can improve rapidly.
If you are interested, please join us. If you join now, you can download the NVDA model before the earnings announcement. Please refer to the article in the reply column for details.
When I made the forecast, I thought I was quite bullish, but in just one week, both the consensus sales forecast and the guidance forecast for the next period have increased significantly.
Nowadays, my guidance forecast is close to the consensus.
Scenario:
- Since the consensus is 'the more you exceed, the better,' they might come up with a sales guidance of $32.5 billion or $33 billion for the next period. I think if they can achieve that, the stock will rise.
On the contrary, the movement of the stock price would be interesting if the guidance is $32 billion as expected by me and the consensus. In that case, I think the stock will probably stay flat, but if, for example, the stock price drops by about 5% after the closing, there is also a possibility of a sudden selling on Thursday.
I think the possibility of the guidance being less than $32 billion is low. But if it is less than $32 billion, I think the stock will drop by double digits.
I plan to explain whether to sell or buy based on the results and the movement of the stock after the investment meeting every Saturday.
<Trends of Whales>
Whales refer to institutional investors trading actively in the stock market, whose buying and selling movements affect stock prices.
Whales are obligated to report the stocks and the number of shares held at the end of each quarter to the U.S. Securities and Exchange Commission (SEC) within 45 days after the end of the quarter.
This is the data for 2Q that came out on August 15, which I compiled into an Excel file. I think it's interesting to compare with the data from 1Q that I posted in the previous post.
Last time, the forecast for sales and the forecast for next year's sales guidance were spot on.
I created these numbers in the Standard Class of the 'Never Losing Study Group,' which I hold every weekend on August 19th.
In my study group, we focus on one stock each week and create performance models together using Excel. This allows you to make your own predictions while actually working hands-on. We also have a forum for members to share their forecasts, so motivated individuals can improve rapidly.
If you are interested, please join us. If you join now, you can download the NVDA model before the earnings announcement. Please refer to the article in the reply column for details.
When I made the forecast, I thought I was quite bullish, but in just one week, both the consensus sales forecast and the guidance forecast for the next period have increased significantly.
Nowadays, my guidance forecast is close to the consensus.
Scenario:
- Since the consensus is 'the more you exceed, the better,' they might come up with a sales guidance of $32.5 billion or $33 billion for the next period. I think if they can achieve that, the stock will rise.
On the contrary, the movement of the stock price would be interesting if the guidance is $32 billion as expected by me and the consensus. In that case, I think the stock will probably stay flat, but if, for example, the stock price drops by about 5% after the closing, there is also a possibility of a sudden selling on Thursday.
I think the possibility of the guidance being less than $32 billion is low. But if it is less than $32 billion, I think the stock will drop by double digits.
I plan to explain whether to sell or buy based on the results and the movement of the stock after the investment meeting every Saturday.
<Trends of Whales>
Whales refer to institutional investors trading actively in the stock market, whose buying and selling movements affect stock prices.
Whales are obligated to report the stocks and the number of shares held at the end of each quarter to the U.S. Securities and Exchange Commission (SEC) within 45 days after the end of the quarter.
This is the data for 2Q that came out on August 15, which I compiled into an Excel file. I think it's interesting to compare with the data from 1Q that I posted in the previous post.
Whales' NVDA stock trading 2Q 24
Most of the funds that own NVDA shares, which are famous hedge fund managers in both 1Q and 2Q, are selling NVDA shares.
The legendary investor, Druckenmiller, has finally sold almost all of his NVDA shares, even though more than 9% of his portfolio was made up of NVDA in 4Q23.
Moreover, most of these funds bought NVDA stock for the first time in 4Q22 or 1Q23, meaning that the timing of their purchases was excellent.
Therefore, the fact that they have been selling NVDA shares since the beginning of this year should not be overlooked.
However, it is interesting that despite so many whales selling stocks, the stock price is still rising. One interpretation is that after many major shareholders have already sold, the number of sellers has decreased significantly.
Despite the significant selling pressure, the fact that the stock is still rising demonstrates the resilience of NVDA shares.
<My Movement>
As I mentioned in my previous post, on August 5th, I decided to add to my NVDA and META stocks because I felt that this decline was similar to a flash crash. I was able to buy NVDA for less than $100.
In fact, it wouldn't be surprising if the whales were buying back on that day. However, even if the whales did buy back, they may have already sold. In that case, it would not appear in the SEC filings at all.
SEC filings are only snapshots at the end of the period, so if you buy and sell within the period, it will not be reported.
I will hold onto my NVDA shares until the 28th as is. Since I bought on August 5th, I cannot sell even if I want to until September 5th (the rule of my hedge fund).
Based on the results and movements on the 28th, I plan to discuss what to do after September 5th at the Saturday investment meeting, so stay tuned!
On the 28th, there will also be earnings reports from Crowd Strike (CRWD). I'm excited and looking forward to it.
I also hold CRWD shares and have discussed them in study sessions, plus I've been researching the July incident, so I'm thinking of writing a preview for CRWD before the earnings report (I might not have time to write, though). So, please wait without expectations!
Most of the funds that own NVDA shares, which are famous hedge fund managers in both 1Q and 2Q, are selling NVDA shares.
The legendary investor, Druckenmiller, has finally sold almost all of his NVDA shares, even though more than 9% of his portfolio was made up of NVDA in 4Q23.
Moreover, most of these funds bought NVDA stock for the first time in 4Q22 or 1Q23, meaning that the timing of their purchases was excellent.
Therefore, the fact that they have been selling NVDA shares since the beginning of this year should not be overlooked.
However, it is interesting that despite so many whales selling stocks, the stock price is still rising. One interpretation is that after many major shareholders have already sold, the number of sellers has decreased significantly.
Despite the significant selling pressure, the fact that the stock is still rising demonstrates the resilience of NVDA shares.
<My Movement>
As I mentioned in my previous post, on August 5th, I decided to add to my NVDA and META stocks because I felt that this decline was similar to a flash crash. I was able to buy NVDA for less than $100.
In fact, it wouldn't be surprising if the whales were buying back on that day. However, even if the whales did buy back, they may have already sold. In that case, it would not appear in the SEC filings at all.
SEC filings are only snapshots at the end of the period, so if you buy and sell within the period, it will not be reported.
I will hold onto my NVDA shares until the 28th as is. Since I bought on August 5th, I cannot sell even if I want to until September 5th (the rule of my hedge fund).
Based on the results and movements on the 28th, I plan to discuss what to do after September 5th at the Saturday investment meeting, so stay tuned!
On the 28th, there will also be earnings reports from Crowd Strike (CRWD). I'm excited and looking forward to it.
I also hold CRWD shares and have discussed them in study sessions, plus I've been researching the July incident, so I'm thinking of writing a preview for CRWD before the earnings report (I might not have time to write, though). So, please wait without expectations!
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