With Nvidia (NVDA) the dichotomy between the short-sighted traders and the eyes-on-the-prize investors —like our Club members — continues. As much as the positive reaction on Wall Street to Broadcom (AVGO) buying VMware (VMW) and the excellent earnings of Dollar Tree (DLTR) say about the psyche of the market, the remarkably Lazarus-like move of the stock of Nvidia (NVDA) could lead to an important shift in snap-versus-thorough judgments of stocks. Hmm, maybe there is more to the irony of the SNAP sell-off than we thought. First, let’s examine the set-up. As we have been telling Club members, Nvidia’s substantial decline anticipated all that could go wrong AND THEN SOME. That’s why we were shocked to see people actually blown away by the increase in the stock price, especially the ill-advised people who sold the stock down $15 after the report. I want to delve into that down 15 moment because it has much to do with the current psychology, one that may be on the ropes after this week, when those who shot first got shot themselves. Nvidia’s stock has become a house of hell ever since it traded at $750 billion, an excessive amount that will most likely haunt the stock for some time. It may take ages, if ever, to get back to 60 times next year’s earnings versus the 29 times earnings it traded at going into the quarter. And remember: that was with shares 8 points higher than it was the day before. What made the sellers sell? This is crucial. They looked at the guidance cut, not the earnings, and judged it catastrophic. I don’t want to drift too far afield here. But recall that the sellers made similar judgments when it came to Dick’s Sporting Goods (DKS), Best Buy (BBY) and Williams-Sonoma (WSM), all of which were giving boilerplate cautious estimates that seemed reasonable but were in NO WAY a judgment of current business. Alas, these companies, like Nvidia, did beat the earnings. The sellers, still reacting just to guidance cuts — fearing a Cisco -like reaction, the epitome of disappointment because it beat the earnings and then lowered guidance and saw its stock crushed — wanted to get the jump. They wanted to avoid the proverbial $52-to-$42 decline by selling Nvidia 8 points lower than where it had gone out before yesterday’s run into the close. That’s not unlike Cisco’s aborted run into the close. This time, though, there’s no dividend protection and a retest off the low at $155 seemed a given. So, that’s the trader mindset. The traders also never listen to the calls. The traders often react to so-called sophisticated programs that spell out how low to sell a stock of a company that offers guidance cuts. Now, let’s go over the investing case that made us buy after some pretty darned good sales. You can say something like that when you beat yourself up daily for Paypal (PYPL) and Wynn and a couple of other problematic stocks. These were before our November pivot to companies that make things and do stuff for a profit and return some of that profit to shareholders either in the form of buybacks or dividends and sell at a reasonable price relative to its growth rate. The Nvidia call was like no other. It starts with a bang-up summary of the quarter and outlook by the brilliant CFO Collette Kress, and then goes to a thoughtful Q & A where some of the answers emanate from Jensen Huang, the founder and CEO of this amazing graphical-user-interface company, NOT a semiconductor company which would be governed by the out-of-date Moore’s Law. Oh, the heresy!! Last night’s call was the most engaged I have heard Jensen since the Ethereum debacle that offered a welcome entry several years back. Club members from my former enclave will recall how we did our best to sidestep that decline as we did this one. Jensen weaved through a course of stunning expanse as he answered the question. If I can summarize, he made it quite certain that the guidance cut stemmed from Russia and total lockdown in China. Given the huge percentage of GPUs and gamers in China, the forecast cut seemed meager and far less important than the coming gigantic product cycle and refresh that Jense and Collette explained. Then they discussed the 80% growth in data center orders — something, by the way, that had been talked about as being flat by the bears. Quite a difference between flat and 80%. The size of that market bodes well for the share price of Advanced Micro Devices (AMD), which is in the league with Nvidia, but NOT Intel (INTC), which is an also-ran with the gulf only growing. Is Intel a value trap? Certainly for the moment. Then Jensen dropped the next leg of this amazing company: the multibillion dollar growth of auto, perhaps as much as $10 billion, on a short horizon, certainly shorter than any analyst expected. Not in the numbers, so to speak. I am certainly glad that Jensen explained this forecast because year over year there was a decline in orders. He dismissed the importance of that decline. For most executives this would be called out as puffery, but not by Jensen. The broader nature of the next generation GPUs is astounding. The digital twin inspired by the AI-omniverse will make recommendations child’s play and will leap from Amazon (AMZN) to banks, retailers and call centers. It will be the first actual labor savings that might increase the gross margins of all of those companies. I would not rule out a fast food partnership for drive-through lanes either. The next generation will only enhance Nvdia’s sacred relationship with Disney (DIS) animation. Having seen the GPUs programmed in action, I can tell you that you might be able to do away with actors altogether—talk about a savings—as I was not able to distinguish between “me” as created by Jensen and me as created by my mother and father. You could see stars who are non-existent on the horizon. Now there’s some gross margins for you, although I don’t know who will step up to replace Scarlett Johannsen with a GPU version. Perhaps the most exciting use of the next generation processors comes from the close partnership with Facebook ‘s Metaverse. You know i continued to believe that Zuckerberg’s Metaverse — as opposed to Jensen’s omniverse — could be one and the same. My faith in Zuckerberg, stemming from both his Reels challenge to TikTok and his meta platform included a buy of stock the other day we had sold much higher. Nvidia’s Collette pounded the table on the $15 billion buyback as something that showed the board’s unhappiness with the stock price. I find buybacks like this comforting because it makes Nvidia part of the pivot even as I know that it could be considered a drop in the bucket by the bears. Now zoom outside (no pun intended) to Broadcom’s buy of VMware and you can assume not just that Nvidia is cheap but that the cohort has gotten too cheap relative to the market. That’s good news for Microsoft (MSFT) and Salesforce (CRM). Not so much for Apple (AAPL), unless you can factor in the Chinese shutdown at $8 billion which, ex- Alibaba (BABA), now seems way low. So the question becomes: If Apple was to pre-announce, say, a new figure, would it actually go down? How about if Qualcomm (QCOM) did? Would they be Cisco post-quarter or Nvidia post-quarter. The machines/traders would tell you they would fall hard, but the action in Broadcom’s stock and Nvidia’s stock might say otherwise. Which brings me full circle to the bizarre reaction to also-ran Snap. As someone who knows all too well the ROI of Instgram/Reels and Google (GOOGL), it is hard to believe anyone would advertise with Snap, other than those seeking a demo that has no money whatsoever. To the studious and thoughtful victor belongs the spoils and Snap is neither. Twitter (TWTR) is in the same group until it is cleaned up and the mentions column effectively eliminated to accelerate advertising. Going forward we do not know if this rally, nailed Friday, is countertrend and seasonal or the real deal. It’s tough to lose a giant cohort like Target (TGT)/ Walmart (WMT), although those are attempting meager comebacks versus the well-prepared Macy’s (M) and the big box hardware stores that got blessed weather through most of the gardening country. I would be circumspect about the rally because it is based on sentiment — a bull-bear ratio that shows the fewest bulls in memory — and a belief that many stocks reflect a doozy of a recession, not a short, sharp one. I would feel better if energy was down, but our vast overweight position and our desire to add to by buying more Pioneer Natural Resources (PXD) and eying Sempra Energy (SRE), would tell you otherwise. Then again they have become the ultimate in companies that make things and do stuff and return money to shareholders with outsized dividends and buybacks, while also selling at an incredibly reasonable price. If I am right about Nvidia then I will most likely be right about Salesforce and Microsoft, neither are attached to China and both are selling well below previous levels. The former seems questionable by many because co-CEO Bret Taylor must be preoccupied by his unfortunate role as Chairman of Twitter, and Marc Benioff is seemingly spread everywhere teaching the gospel of many things. The most important takeaway though, is that AMD, Nvidia, Marvell Technology (MRVL) and Qualcomm, may be a little more valuable than we think. Marvell is enterprise (terrific) and 5G (conceivably deadly) and Qualcomm, which is Uber bad. But what if they spell it out in guidance cuts and they react like Nvidia not Cisco? The betting here is that’s precisely what happens. And if they don’t? We’re buying. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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With Nvidia (NVDA) the dichotomy between the short-sighted traders and the eyes-on-the-prize investors —like our Club members — continues.
