Masterstroke Creates More Risk

Please click here for an enlarged chart of NVIDIA Corp (NASDAQ:NVDA).

Note the following:

  • This article is about the big picture, not an individual stock.  The chart of NVDA stock is being used to illustrate the point.
  • The chart shows NVDA stock touched the low band of zone 1 (resistance) and backed off.
  • The chart also shows zone 2 (support).
  • Prudent investors need to look ahead.  For the entire stock market, not just for NVDA stock, NVDA stock breaking above zone 1 or breaking below zone 2 will be a major event.
  • Investors should carefully watch the reaction to Nvidia’s masterstroke to turn itself into an asset class.  The next major event will be August 26 when Nvidia reports earnings after the close.
  • Nvidia is contending that compute is a new asset class.  Six large Wall Street firms have bought into Nvidia’s proposition and have agreed to form "independent compute financing platforms" to invest about $500B in AI infrastructure.  
  • Many in the media are characterizing this as circular financing.  In our analysis, such characterization is highly flawed.  Under these arrangements, Nvidia will take some credit risk, but most of the financing will come from outside.  This is much better than the circular financing Nvidia has engaged in in the past.  Further in our analysis, such arrangements should alleviate circularity concerns – the reality is opposite of what many in the media are saying.  
  • In our analysis, availability of easy financing will accelerate the AI buildout.  This will be very positive for Nvidia.  This will also be positive for memory suppliers Micron Technology, Inc. (NASDAQ:MU), SK hynix Inc. (NASDAQ:SKHY), and Sandisk Corporation (NASDAQ:SNDK) and also positive for networking suppliers such as Marvell Technology, Inc. (NASDAQ:MRVL), Corning Incorporated (NYSE:GLW), Coherent Corp. (NASDAQ:COHR), and Applied Optoelectronics, Inc. (NASDAQ:AAOI).  It is an open question how it will impact Advanced Micro Devices, Inc. (NASDAQ:AMD), Intel Corporation (NASDAQ:INTC), and Arm Holdings plc (NASDAQ:ARM).
  • We previously shared with you that the stock market has been running up earnings growth headlines.  The key question that will define the stock market to 2028 and beyond remains – if this earnings growth is cyclical or secular. 
  • In our analysis, the availability of hundreds of billions of dollars of additional financing can clearly extend and amplify the earnings growth of Nvidia and other suppliers. The much bigger question remains unanswered – what will it do to the earnings of the companies buying all of this compute and ultimately paying for these data centers?
  • In our analysis, in some ways, the additional financing makes the answer even more uncertain. It can sustain enormous AI infrastructure spending for longer before we know whether the ultimate buyers will generate sufficient economic returns to justify it.
  • Intel has successfully raised over $20B in a secondary offering priced at $95 per share.  This is adding to positive sentiment.
  • There are signals for trade around positions in NVDA and INTC in our report.
  • Consumer Price Index (CPI) will be released tomorrow at 8:30am ET.  Producer Price Index (PPI) will be released Thursday at 8:30am ET.

Magnificent Seven Money Flows

Most portfolios are now heavily concentrated in the Mag 7 stocks.  For this reason, it is important to pay attention to early money flows in the Mag 7 stocks on a daily basis. 

In the early trade, money flows are positive in Nvidia (NVDA), Meta Platforms Inc (NASDAQ:META), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are neutral in Apple Inc (NASDAQ:AAPL).

In the early trade, money flows are negative in Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corp (NASDAQ:MSFT), and Alphabet Inc Class C (NASDAQ:GOOG).

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ).

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (USO).

Bitcoin

Bitcoin (CRYPTO:BTC) is range bound.

What To Do Now

Consider continuing to hold good, very long term, existing positions and add tactical positions based on signals.

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.