Nvidia's Quarter Cleared the Fears
Nvidia (NVDA) beat all its numbers. Margins held near 75%, with guidance of about 74% going forward. All the worries tied to weak price action got relieved. The stock traded as high as 226.81 overnight, and names around it rose too - AMD (AMD), Broadcom (AVGO), and CoreWeave (CRWV) all up in the morning.
Jensen Huang delivered the key message: no drop-off, no deceleration in demand at all. He called demand "insane" one time, the same word used a few quarters back. He said the cyclical spending is merited, pointed to a wave of startups, and framed this as a once-in-a-lifetime moment. He also said Nvidia could double sales if not for supply constraints. On top of that, the stronger Vera Rubin chip is coming.
The reaction broke a pattern. The last four quarters, even with great numbers, the stock sold off. This time it went up - up 6%, more than the roughly 5% one-day move the options market had priced in through implied volatility. Options with a 220 strike price now sit against a stock near 222.
I still expect a very volatile trading day. Implied volatility and the expected one-day move are only part of the answer; the real answer comes when the numbers land and the stock actually moves. Lately many names have moved far past their expected moves - Palantir (PLTR) and Walmart (WMT) among them. Nvidia's huge float matters here. Some holders will take profits on the move, so it has to play out.
The Float and the Split
A three-year chart shows Nvidia growing quarter after quarter, in some cases 100%, while the stock stayed relatively calm. The 10-for-1 stock split pulled a lot of volatility out and pushed the float to big numbers. Anyone holding 1,000 shares before the split held 10,000 after, giving more reason to lighten positions on rallies. The float is enormous, but the stock is still moving.
Memory Is the Real Headwind
The price of memory chips surprised even Jensen Huang. Prices have been rising and rose again that day. He said Nvidia has to compensate for this cost and will pass some of it on to customers through price hikes.
Memory trades like a commodity, the same as grains or crude oil. Right now there is a shortage, so prices climb. It costs chip makers more to build their products, and they add price hikes to cover it. Micron (MU) was up in the morning. The normal cycle applies: shortages lead to more production and eventually excess, but nothing like that has happened yet - prices stay high and these stocks are doing very well.
The supply-demand imbalance itself pulls in competitors. When the relationship gets lopsided, more businesses enter. With this AI build-out now 18 months to three years in, and AI having taken over much of the US economy, expect many startups flooding into the chip and memory space, trying to do things cheaper, better, and with their own twists. That is the normal push and pull of supply and demand.
Valuation
Analyst price targets that day: Susquehanna at 315, JP Morgan at 320, and a high end of 465. Some argue this is nothing like the 1999 tech bubble. Back then tech ran at high multiples, while on a long-term view Nvidia's valuation, near 20 times earnings, looks reasonable and to some even a value.
Other Moves and the Jobs Data
A move for Hugging Face came up - the name became familiar during the OpenAI rogue-agents episode, when it turned out there were hundreds of agents rather than the one or few first assumed.
Jobless claims, the weekly Thursday data on first-time filers for unemployment insurance, came in strong at 203,000. The four-week average sits at 205,500. Continuing claims were 1.778 million. This points to an historically strong labor market. The unemployment rate has ticked down from 4.3% to 4.2% to 4.1%, and it is worth watching the next two months to see if it drops further. This came ahead of Jackson Hole the following day.
