September has started in a very typical September fashion. Down! It’s traditionally the worst month of the year in terms of returns. But that’s not a bad thing… As longer-term investors – it’s great when things go on sale. That’s when we get to sharpen our pencils on higher quality businesses. And for those who missed out four weeks ago (where you needed to act fast) – it’s possible you will get another chance this month. As I wrote recently – the rapid 10% surge in equities over 4 weeks did not fill me with a lot of confidence…
Nvidia Beats Expectations… But Disappoints on Guidance
Rarely has a single stock been so ‘hyped’ coming into earnings as Nvidia. The leading AI chip maker is widely seen as the ‘AI’ barometer… making their earnings more important than most. My expectation was they would handily beat Q2 revenue and earnings – however issue a softer-than-expected guide. It turns out that’s what we got. Make no mistake – this was another exceptionally strong quarter. And despite the softer guide – “only” falling 6.4% should be considered a good result. This post talks about whether Nvidia is still worth a bet post their results. The answer is it depends on your timeframe… but long-term (3+ years) the answer is absolutely yes.
Smart Money Sells Big Tech… Invests in NKE & SBUX
Something I do four times a year is pore through something known as “13Fs”. A 13F is a quarterly report that institutional investment managers with over $100 million in assets must file with the US Securities and Exchange Commission. And whilst these filings are submitted around 45 days after the quarter ends (e.g. August 15 deadline for June 30 quarter end) – they offer us insight into how the “smart money” is thinking about certain assets. Some names I follow include (not limited to) Warren Buffett, Bill Ackman, David Tepper, Howard Marks, Stan Druckenmiller and Seth Klarman. Now there was a consistent trend during Q2 – where large cap tech exposure was being reduced.
Nvidia Can’t Stop Stocks Wobbling
What we’ve seen from Nvidia the past 18 months reminds me of Cisco in the late 1990’s. I wrote about this recently… not much has changed. The path of earnings and the share price have been similar. NVDA’s revenues are up over 2.5x on a YoY basis, causing EPS to be up over 4x over the same period. 18% EPS growth in a single quarter is very impressive but here’s my question… will we see that in 2 or 3 years from now? We didn’t from CSCO – it collapsed. Time will be the judge of that…. not me. Despite the expected “beat and raise” from the AI chip maker – the rest of the market fell sharply. Without NVDA’s ~9% share price gain – the S&P 500 would have been down 1.5% for the day. That tells us how narrow this market is – extremely dependent on stellar earnings from a handful of companies like NVDA. That’s not a healthy setup.
For a full list of posts from 2017…