An Omen? Nvidia Breaks Single Day Loss Record

In the world of Wall Street wizards where numbers dance around like sugar plum fairies, it’s common to experience irrational exuberance followed by rational resignation by investors. Nvidia has become the titan of Artificial Intelligence (AI) and experienced both of these emotions in Friday’s rollercoaster ride, with seasoned investors securing their wallets. After basking in the glory of a mind-boggling $2.2 trillion appreciation in 17 months, Nvidia’s rocket ship encountered shockwaves of profit-takers that trimmed almost $300 billion from its market cap intra-day. 

For some perspective, Facebook – that social media juggernaut we all love to hate – previously held the single-day loss title with a paltry $230 billion entry. That occurred during the 1st inning of the 2022 Bear Market with reports of the 1st ever decline in users and falling Advertising dollars. The mighty META had stumbled badly on terrible news in a paniced market. For Nvidia this was more akin to the world’s fastest runner tripping on a pebble. They are still the fastest runner, despite the competition riding along its lenghty jet-stream. Unlike Facebook’s tumult, we have a Bull market today and Nvidia’s news continues to surprise on the upside. As irrational as it may sound, analysts are likely to start targeting an unfathomable over-valued $3 trillion market cap near 1,200 once this stock breaches 1,000. This forward valuation potential and projected earnings beyond $70 billion in 2025 should provide significant bargain hunting in the 700’s for open-jawed investors sitting on the sidelines. Should the economy encounter more of a recessionary boulder instead of a pebble, Nvidia’s Bear market value could retrace back to the 400’s, but the se3cular AI wave will reward investors after any temporary detours. Thus far we see too much excess liquidity and innovation to keep the phoenix of Silicon Valley from rising further despite its meteoric run.

Nvidia’s recent 3 week sprint of 47% up the stock market hill has not only given the semiconductor SOX index a 20% boost but has also left investors gasping for air. With fast growing Nvidia, AMD, and Broadcom strutting their stuff and commanding 30% of the AI-led index, investors are placing their bets on profit growth rates that could break records faster than Usain Bolt. But with forward PE multiples soaring above 30 for the chip index, stock prices are tiptoeing on a tightrope, vulnerable to sudden liquidations.

 

On the other side of the market battlefield, we have the Utility stock index, the unsung hero of defensive investments in times of falling interest rates and economic slowdowns. While the semiconductor and large-cap growth stocks are partying with high valuations, the unloved defensive stocks are chilling at near-record low PE multiples. It’s like comparing a high-flying tech unicorn to a reliable old workhorse. Utilites deserve a small position if stock portfolios until more signs of the waiting for Godot recession arrive.

In February, we warned that too many money managers were whispering about a seasonal correction, expecting a downturn after Nvidia’s quarterly report on February 21st. But lo and behold, the surprise was on the upside, leaving the market pundits reevaluating their crystal balls. It seems like no market correction can crash the party until Nvidia decides to rain on everyone’s parade. At least a light drizzle of rain fell on Friday (03-08-24) when Nvidia fell 12% from its high. The stakes are high, like playing roulette in a fancy casino, with the next report due on May 22nd. Will it be a repeat of last year’s May madness, or will Nvidia throw a curveball that sends shockwaves through Wall Street? As we approach the end of Q2, comparisons are set to hit a more volatile note for chip stocks and the overall market. 

The long-awaited “modest” correction, expected to hit around the third week of March, seems to be playing hard to get. Perhaps Nvidia’s 12% profit-taking Friday will be the match that lights the fire for the 4 to 8% pullback in the broader marketplace. But beware, extreme overbought conditions are still playing hard to get, like that elusive jackpot in a crowded casino.

In reviewing our technical charts, the daily SP 500 Index RSI divergence and Nvidia’s outside day are whispering of short-term turbulence ahead in this relentless AI-led bull market. The lack of clear Sell signals on our weekly chart hints that any correction may be of the single digit variety. It’s like a rollercoaster ride—fasten your seatbelts and hold on tight as we navigate through the twists and turns of the market jungle.

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