VRA Investment Letter: Nvidia Q2; Game Changer for NVDA and the Entire AI Space. Momentum Stocks Are Back. Iran is Toast; Oil Prices & Rates are Breaking Lower.
/Good Thursday morning. In chart after chart we see the same thing; following recent ATH’s in each of our major indexes, significant coiling has been taking place underneath the surface. “Coiling” represents the markets waiting on a near term catalyst(s) that will either extend the primary trend (higher), or potentially signal further consolidation may be required first. Nvidia’s latest results should prove to be the catalyst that brings back buyers to semis/tech/momentum stocks, sending the markets to new ATH’s. Nvidia didn’t just crush Q2 earnings, they reset expectations of the entire AI boom, in a single earnings call.
First, Q2 results: Nvidia’s extraordinary results and stunning guidance have served to reinforce investor confidence in the Innovation Revolution, with CEO Jensen Huang saying the “golden age” of labs and startups is now here.
- Sales and earnings surge. NVDA sees revenue in the current period at $108 billion, which will make them just the second company in history to book $100 billion in revenue in a single quarter. Revenues doubled over the last year, as did earnings, with profit margins coming in at 75%. Utterly remarkable.
- There’s no let up in demand. This was the news that catapulted the stock higher in after hours trading. As the call began, Nvidia’s CFO said they would be growing revenue by 75% in fiscal 2028, blowing away analyst estimates of 45% (FactSet). Game changer.
VRA Bottom Line: on the news, NVDA is trading up 6% this morning to $222. We fully expect Q2 earnings to propel the stock to fresh ATH’s in the near term ($236), followed by a move to $300 within the next 6 months. One of the most important lessons I learned from dot-com was to hold your winners, including using monthly dollar cost averaging to continue adding to your positions (which serves to remove emotions from the equation).
Yes, many of these are short term overbought right now, but we see that as a near term issue only. These moves are real and will continue higher.
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VRA Market Update
This week we also got the Fed’s preferred inflation data (PCE), which came in largely in line with estimates. Most importantly, core PCE came in at 3.3% y/y, which was the exact estimate. Nothing about this data calls for a Fed rate hike.
Our view remains unchanged, inflation is a rear-view mirror issue.
In what was the most important news of the week, the financial stranglehold on Iran is paying big dividends, with multiple Iranian leaders acknowledging the economic damage being done and publicly stating that they want a return to the original MOU.
The oil gurus that assured us oil was headed to $150-200/B appear to have turned off their transponders. They really hate the fact that the US military controls the Strait, absolutely and completely, as 25 million barrels of oil passed through yesterday. As I write, oil is back down to the low $80/B range. Another signifcant factor for bringing down inflation.
The chart below of WTI shows a symmetrical triangle, which in and of itself is a neutral pattern, but as WTI is also below our shortest term moving averages (8 & 21 day ema), this is clearly becoming a dangerous chart with high risks of breaking below the lower trend line. Should we get the break we’re looking for (lower), the next near-term targets are $77.50, then $74.25 and $67.
In what may be the most interesting near term development, we see that short interest in TLT (20+ Year T-Bond ETF) has grown to 19% and the potential for a short squeeze is building.
Our view remains; go to war against the 3 Amigos at your own peril…rates are going lower. What makes Trump/Bessent/Warsh unique, and such a threat to those actively wishing for the war to continue, for oil prices to soar and for the administration lose out to the bond market vigilantes, is the fact that they are excellent problem solvers. Unlike past Dem administrations, Team Trump doesn’t operate via virtue signaling and the inherent control of a propagandist MSM. They get to work and solve the problem at hand.
Below, we also see what may well be a head-and-shoulders pattern developing in TLT (highly bullish for bond prices and bearish for rates).
Last item on rates, below we see that 10-year yields are in the process of rolling over. Remember, before the war kicked off, 10 yr yields were as low as 3.88% and headed sharply lower. The war may have interrupted the move lower but our call remains; the primary trend for rates remains “lower”. We continue to pound the table on our interest rate sensitive holdings.
Finally for today Bitcoin’s move higher continues. The major cycle lows have been spaced almost exactly 3.91 years apart. Jan 2015 → Dec 2018 → Nov 2022. The current window points to an Aug/Sep 2026 low. If the cycle is right again, as we expect, Bitcoin has bottomed and will move sharply higher from here (thanks to All Star Charts).
Until next time, thanks again for reading.
Kip
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