That’s The Takeaway from this morning’s Brief, which you can do register to receive in your inbox every morning along with:
The weight of high expectations is often a heavy burden to bear.
In life, if you are a high performer at work, you are expected to show up as a high performer every day. Having a bad day? This is not allowed, so go take that crap somewhere else.
Of course, a college professor who gave an inspirational leadership speech at a TED Talk 10 years ago and is now appearing in one-minute clips on your Instagram feed might suggest that it’s okay to have bad days at work, too. if you are a winner.
Trust me, it’s not – and don’t let that social media clip make you think otherwise.
The same philosophy can be applied to the stock market’s most important stock: Nvidia (NVDA).
I know you love that transition, Morning Brief readers! Hear me about this best performer on the market.
Over the past week, we’ve been reminded just how inflated expectations are for Nvidia and how the stock has entered dangerous waters that many traders who arrived late to the Nvidia game have never navigated before.
On June 18, Nvidia’s market cap reached $3.34 trillion, eclipsing Microsoft ( MSFT ) to become the world’s most valuable company. Over the next three trading days, on seemingly no substantive news, the company shed $430 billion in market capitalization.
For perspective, Coca-Cola’s ( KO ) market cap is $275 billion.
Several people I spoke to told me that people were taking profits from Nvidia early in the second half of the year. Others I spoke to for my “Opening Bid” podcast told me there’s some chatter about new competitors entering Nvidia’s turf, and maybe the company won’t be as absurdly dominant over the next five years as many predict.
All of this is fair, but it reinforces the view that the stock is prone to sharp negative swings in sentiment because it’s up 3,000% in five years.
But if you go further, you can see how intense the expectations have become at Nvidia.
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Shares of Nvidia now trade at about 21x (super steep) forward sales, up from 12x (also steep) two months ago, according to research by Creative Planning chief market strategist Charlie Bilello. That’s a significant premium to Microsoft at 12x and Apple ( AAPL ) at 8x, two tech titans that are performing very well fundamentally and are likely to continue to falter in the years ahead.
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Shares of Nvidia recently traded about 100% above its 200-day moving average, noted BTIG Chief Market Technical Officer Jonathan Krinsky. Since 1990, the widest spread that any US company has ever traded above its 200-day moving average while being the world’s largest company was 80% by Cisco ( CSCO ) in March 2000, which marked the most its all-time highs. “In other words, Nvidia is in a league of its own,” Krinsky said.
It sure seems that way.
Similar expectations applied to chip maker Micron ( MU ) entering earnings this week. Stocks exploded due to “in-line” guidance that fell short of wild expectations for anything related to AI demand.
And I stress it like crazy: On Monday, several sell-side analysts raised their estimates and price targets for Micron ahead of the report. As someone who used to manage a team of stock researchers, I can tell you that this action going into an earnings report is not the norm.
It smelled like analysts bought a lot of ads and hoped for a giant one-day rally in the stock.
“When you get a reaction like Micron’s, where the numbers have to be good enough to avoid a selloff, let alone trigger a rally, that’s a bad sign — an indication that expectations are so high that they don’t can be overcome.” Interactive Brokers chief strategist Steve Sosnick told me.
Others disagree with my assessment that Nvidia has a price for excellence, and that’s perfectly fine. I don’t have a monopoly on good ideas!
“But for medium- and long-term investors, the story is still unfolding as we look at how far their capacity is booked and how much the price is strengthening,” said Tematica Research co-founder and chief investment officer Chris Versace.
One thing we can all agree on: Nvidia is a top performer in the market, and there will be no pass for trying to take a day off if invited.
Speaking of expensive tech stocks, shares of Amazon ( AMZN ) are up 55% in the past year. However, questions remain about its culture. WSJ reporter Dana Mattioli talked about her explosive new book “The Everything War: Ruthless’s Quest to Own the World and Remake Corporate Power” on an episode of the “Opening Bid” podcast. Listen below.
Opening offer List of Episodes
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