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This week is all about Nvidia, as the market anticipates the company’s fiscal third-quarter results. The biggest question is whether Nvidia will continue beating expectations by $2 billion and raising guidance by an additional $2 billion, or will it present something new?
If Nvidia delivers another ‘2-and-2’ quarter—beating expectations and raising guidance by $2 billion each—it may not suffice this time, as the market likely already anticipates this move. Isn’t that quite apparent? Given these expectations, I predict they will report revenue of $34.5 billion and forecast $36.5 to $37 billion. The introduction of the new Blackwell chip could potentially disrupt this pattern, but that remains to be seen.
It’s not entirely clear what’s behind Nvidia’s revenue pattern, though it may be related to how new supply is introduced to the market compared to existing orders. Unless the company unexpectedly guides next quarter’s revenue to between $38 and $40 billion, there’s little room for an upside surprise.
This could explain why the stock has been mostly range-bound since mid-June, moving within a rising wedge pattern. A break below $140 would likely be bad news not only for Nvidia but for the entire market as well.
The entire semiconductor sector appears to be struggling currently, with the SMH (Semiconductor ETF) trading at the lower end of its own rising wedge pattern and on the verge of breaking down.
Small caps took a hit on Friday, and trends in the South Korea Kospi suggest that the Russell 2000 is relinquishing its post-election gains. The Kospi’s performance has been dismal, showing a steady decline recently. This indicates that the rally in the Russell is unlikely to persist.
In the meantime, US rates continue to rise, with the 10-year closing this week at 4.44%—its highest close since June. The uptrend seems driven by several factors. First, there’s a rising term premium, as investors demand more return for holding longer-duration bonds. Additionally, concerns about inflation are escalating, as evidenced by the upward movement in inflation swaps.
Another contributing factor is the recent increase in the Japanese 10-year JGB yield, which has risen from approximately 0.80% to about 1.06%. This surge reflects market anticipation of a potential Bank of Japan rate hike as soon as December.
Similarly, British 10-year yields have climbed from approximately 3.75% to 4.46% over the same period. This indicates that the rise in US rates is part of a broader global trend, not an isolated phenomenon in the US alone.
Of course, the key question is whether rising rates will adversely impact the stock market, and whether Nvidia can save it. Perhaps a more pertinent question is not if Nvidia will save the market, but whether Nvidia could be the catalyst for its decline, with rising rates exacerbating the situation.
The answer is likely to be Yes.
Mike
Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.Â