In this edition we cover the equity market’s monster, Nvidia Corp., which reports earnings on Wednesday and explain why it’s even more important than you think. Google’s “Code Red” in response to ChatGPT is also discussed and the diversion covers new developments in poetry (seriously).
Nvidia CEO Jensen Huang poses for a selfie after a press conference in Mumbai, India, October 24, 2024.Arsheeya Bajwa/Reuters
Earnings
Wednesday is a big day
I wrote a column about Nvidia Corp. (NVDA-Q) in July 2017 called “’The smartest company in the world’: Why this stock could be a solid bet for future riches.” Did I buy any? No. This cements me firmly as NOT the smartest investor in the world.
Nvidia’s stock price is up 3,438.1 per cent since I wrote that column. That’s 62.4 per cent annualized, almost 50 percentage points higher than the S&P 500 per year. Nvidia is the largest, richest company in the world. It is a monster.
Nvidia reports earnings after the close on Wednesday, which makes it potentially the most important remaining day on the market calendar for 2024.
BofA Securities equity-linked analyst Gonzalo Asis explained why in a Monday research report. He said Nvidia drove 20 per cent of the entire S&P 500’s return over the past 12 months. It is forecast to determine 25 per cent of the entire benchmark’s profit growth for the third quarter. He concludes that “with the market taking a breather last week following the election rally, we believe NVDA earnings can dictate the near-term direction of the market.”
The derivatives market is pricing risk for Nvidia and the S&P 500 equally this week. This doesn’t happen for major economic reports, suggesting that Nvidia’s earnings present more market risk than monthly non-farm payroll employment releases, consumer price index reports, and even Federal Reserve interest rate announcements.
Hedge fund managers will have derivative trades on this week to hedge their portfolios against a Nvidia-related storm of volatility. Mr. Asis is recommending a put spread (selling a put at a higher price and buying a put at a lower price) that costs US$2 to put on, and pays 500 per cent if the Nasdaq 100 falls 3.3 per cent after Nvidia reports.
There are also broader trends that Nvidia’s earnings report might affect. BofA’s own quantitative U.S. equity strategist Savita Subramanian is noting a record valuation discount between the conventional, Magnificent Seven-dominated market cap weighted S&P 500 and the equal weighted benchmark. Nvidia, as the most magnificent of the seven, could hasten the trend away from recent technology market leadership.
Dado Ruvic/Reuters
Tech
‘Code Red’ at Google
Google management called an all-hands on deck “Code Red” in 2022 to response to the potential existential threat represented by ChatGPT. The resulting internal disruption of working groups – it’s not hard to guess that the most talented staff were redirected to AI-related projects – also included the return of company founders Sergei Brin and Larry Page to day-to-day duties.
Morgan Stanley analyst Brian Nowak published a report last Thursday to assess the extent to which Google is losing its entrenched position in search. Mr. Nowak found that Google still dominates, but there are some important caveats.
The analyst found that searches relating to lucrative sectors (for Google) like autos, financials, and health care are still done through Google search. Comparison shopping and online travel planning also remain with the company.
But, younger cohorts are increasingly using TikTok, Meta and GPT “at the top of the e-commerce research funnel,” according to Mr. Nowak. Innovations in visual search like Amazon StyleSnap, which takes an image and finds similar products for sale, have shown significant growth.
Google has responded (quickly) with products like Lens and Circle to Search (they describe uploaded pictures with text) but it is clear things are changing in search.
I use the Microsoft Copilot AI for all my search that doesn’t involve images. I like that all answers come with footnotes so I can check accuracy. Copilot is faster, cleaner and more reliable in the sense that I don ‘t (yet) have to fight through sponsored links.
Diversions
Poetry is automated
I try and read at least a little poetry every month whether I enjoy it or not - kinda like eating my vegetables. I write every day and can fall into stylistic habits. Poets are the most successful linguistic contortionists and reading it can quickly remind me of other word choice and sentence structure options.
With this in mind, I’m a bit uneasy about AI-generated poetry is indistinguishable from human-written poetry, a blog post by economics professor Tyler Cowen. It cites a study published in Nature that found “participants were more likely to judge AI-generated poems as human-authored than actual human-authored poems.”
The essentials
Looking for our updates on market movers, analyst actions, stock technicals, insider trades and other daily, weekly and monthly insight? Click here to visit our Inside the Market page.
Globe Investor highlights
If you think economist David Rosenberg couldn’t get any more bearish, guess again. He’s revised his overall market view and now is saying to stay clear of almost anything other than cash. Meanwhile, columnist Ian McGugan advocates for a more even-keeled but still cautious approach on equities.
Mark Rendell explains why Donald Trump has been such bad news for our loonie
Turns out, TFSAs are an investing success story for women more than men
Norman Rothery provides updates on three of his most successful U.S. stock portfolios
David Berman explains why investing in Power Corp. of Canada has become a bet on growth
What’s up next
CPI for October is the most important domestic economic report by a considerable margin. It’s out on Tuesday and the month-over-month increase is expected at 0.3 per cent, and 1.9 per cent year over year.
A quiet week for earnings sees only George Weston Ltd. ($3.553 per share expected) and Metro Inc. ($0.978) of wider interest.
The U.S. leading index of economic indicators for October is out on Thursday. A drop of 0.3 per cent is expected but this data set has been misleading by predicting a slowdown when none occurs. The November S&P Global U.S. Manufacturing PMI survey will be released Friday and a contractionary reading of 48 is forecast.
As mentioned, Nvidia’s earnings report is Wednesday and will likely be the biggest market moving event of the week, maybe month. Analysts expect US$0.742 per share - 97 per cent higher than the third quarter of 2023. Other earnings this week include Lowe’s Companies Inc. ($2.823) and Medtronic PLC ($1.251) on Tuesday and, on Wednesday, Target Corp. ($2.299).
See our full economic and earnings calendar here (You can bookmark the page - it gets updated weekly)