The 67 technology names in the S&P 500 posted combined year-over-year growth of just under 75%. Even with those results, strong reports have not paid off for buyers this month.
Nvidia (NVDA): great report, weak follow-through
Nvidia's (NVDA) report was good, and the guidance was the shock. On the call they pointed to revenue growth of 70% out to 2028, while some analysts had modeled around 45%. The stock jumped through 210, 212, 215 and reached 229. Then Marvell (MRVL) earnings came out that night and pulled the rug out from the whole tech trade. Marvell (MRVL) fell 10% the next day, and Nvidia (NVDA) followed, quietly giving back half its gains to trade near 218, down about 4%. Strong first reaction, no follow-through - the pattern all month.
This has been a contrarian month. Chasing moves gets punished. What works is fade trades: shorting rips and buying dips.
One overlooked point: over the last two years, Nvidia (NVDA) was actually lower one month after the earnings report in seven of the last eight quarters coming into this one. Another liquidation event into the heavy liquidity that earnings bring is possible.
The bigger picture on Nvidia (NVDA): the AI leader growing revenue 70%, yet the stock has gone nowhere. One year ago it was $212; today it is $218. The leaders over the past year have been the memory names - Micron (MU) and SanDisk - not Nvidia. Some see the flat move as consolidation before a move higher; some see a crowded trade starting to uncrowd. Company performance is strong, stock performance is muted.
The law of large numbers
What moves stocks is the surprise, more than the numbers. Nvidia (NVDA) did a good job Wednesday afternoon, but surprising gets hard at this size. Growing a company from roughly $4 to $5 or $6 trillion is far harder than growing something like AMD, which sat at a $500 billion market cap a year ago. That is why Nvidia (NVDA) talks about robotics and spreading into everything - at $5 trillion you have to get into everything to grow. This is not only an Nvidia problem. Apple's (AAPL) revenue growth also gets tricky once a company is this large, even though the stock has done okay.
The Mag 7 has picked up lately but has been underperforming. The market has been driven by memory names - SanDisk and Micron (MU) - while many other tech trades lagged over the past year.
September could change things. August is one of the slowest trading stretches, with many traders on holiday. When institutional money managers return to their desks, they may come in wanting the tech trade on into year-end. For now, the tech trade is guilty until proven innocent. Even the leaders like Micron (MU) and SanDisk are showing buyer exhaustion. SanDisk is up 2,000% in the last year; these stocks will struggle to climb further because everybody is already long.
CrowdStrike (CRWD) and cybersecurity
Cybersecurity has been rewarded fairly consistently within software, with Zscaler (ZS) as another example, even as the market questions software's role and margins after Salesforce (CRM) this week. The numbers have been strong enough that no one wants to question cybersecurity.
CrowdStrike's (CRWD) numbers were fantastic, the stock had an awesome reaction, then a hangover the next day - the summer pattern again. That could be seasonal or a sign of buyer exhaustion. CrowdStrike (CRWD) has doubled in four months, from 110 to 220, so a lot of gains are already priced in and the bar may have been too high.
In a world dominated by AI, cybersecurity demand will be there. The Cloudflare (NET) CEO said a month ago that by 2030 internet traffic will be 1,000 times more AI agents than humans online. AI will make companies more productive, but bad actors will also use AI to hack computers and steal information. Competition for CrowdStrike (CRWD) and Palo Alto Networks (PANW) may come from unknown sources, but demand for the space is not going away.
Next week's reports and the bar
Next week wraps up tech earnings: Dell (DELL), Palo Alto (PANW) and Broadcom (AVGO) headline, joined by NetApp (NTAP), HPE and Ciena (CIEN). Broadcom (AVGO) is in some ways the counterpart to Marvell (MRVL); Palo Alto (PANW) is the counterpart to CrowdStrike (CRWD).
The earnings should be fine - the reaction is what matters. A great report can still send a stock down if the bar going in was high. Broadcom (AVGO) has a lower bar: it has come off its highs, with an all-time high of $366 and now sitting near $495 - it has been sitting near the lows doing little. Palo Alto (PANW) is the opposite: a $190 stock back in May, now around $370, so the bar is very high. Both could beat and raise, but Palo Alto (PANW) has to deliver a bigger report because its bar is higher. The numbers are one thing; the bar is everything.
Volatility hidden under the surface
Volatility at the headline index level is not telling the real story. The VIX is below 15, but the VIX EQ - the average single-stock volatility - is still around 35 even as it falls through earnings season. The moves under the surface are large: Marvell (MRVL) down 10%, Nvidia (NVDA) down 4% with no earnings that day, CrowdStrike (CRWD) pulling back. The rotation keeps running.
Navigating a market with no everything-rally
There is no everything sell-off and no everything rally anymore. When they sell Nvidia (NVDA), they buy Apple (AAPL), which trades more like a staple - everyone has a phone, so it is more defensive. On a tech-wreck day driven by Marvell (MRVL), the screen is not all red; about half the names are green. Berkshire Hathaway (BRK) is up - the anti-AI portfolio Greg Abel has built. Some banks trade higher. Software names like Microsoft (MSFT) and hardware like Apple (AAPL) trade up. Rotation exists even inside tech. Netflix (NFLX) moves opposite the market almost every day. Sell Nvidia (NVDA) and you might as well buy Amazon (AMZN), up 3.5% that day.
The trading approach follows this: when Nvidia (NVDA) starts to rally, short some staples, because staples are probably down more if Nvidia is strong. The S&P is insulated by all this rotation, and that will not change soon.
The turning point can be dated to April 29th, when a group of mega-cap tech firms depleted their free cash flow. The two trades - AI-heavy tech and the rest - have been at odds since.
