Markets Maintain Momentum

WEEKLY UPDATE

Positive Sentiment

Another week has gone by marked by positive sentiment in the financial markets, with stock prices near record highs and interest rates remaining flat as we await rate cuts at the upcoming ECB and Fed meetings.

Midweek, we received an inflation figure of 2.2% for the Eurozone in August, confirming that the downward trend continues, further supporting a 0.25% rate cut at the ECB's meeting on September 12th.

However, it's hard to overstate that the most significant event of the past week was NVIDIA's earnings report. The stock dropped about 6% following the report, indicating disappointment. But was the report really all that bad - is the rally over?

NVIDIA earnings

In our opinion, NVIDIA actually delivered quite a strong earnings report. The Blackwell chips are now scheduled for delivery in Q4 rather than Q3 as initially planned, due to some adjustments, that had to be done. Regardless, NVIDIA still guides for higher-than-expected revenue in Q3, highlighting the demand for Hopper chips.

As mentioned, NVIDIA fell on the report despite strong numbers and positive guidance. In our view, this is due to valuation. NVIDIA's growth has now peaked, and gross margins will also decline going forward due to an increasing amount of external content in their chips, such as high bandwidth memory from Micron and SK Hynix. Therefore, it would be surprising to see EV/s rise above the previous peaks from November 2021 and May 2023. See the graph.

We are working with a hypothesis of a trading range from $100 to $150 in the coming months, and if the price reaches the lower end of this trading range, we will seize the opportunity to build a solid overweight in the portfolio.

However, the future for NVIDIA is very bright, and we expect price increases as we approach the next fiscal year because we believe that the growth for the coming years is significantly underpriced. In the table from Koyfin, you can see the analysts' average growth expectations:

We believe that the expected growth will be significantly higher year by year. Therefore, we anticipate very attractive long-term price development. There are a couple of key points:

1. The most crucial ingredient for the next generation of Llama, ChatGPT, Claude, and similar, are the Blackwell chips. These chips will be in high demand when they become available because major transformer models need to ensure they are at the forefront with that generation of models.
2. Due to the CUDA software platform, NVIDIA is already the only general-purpose accelerator (as we discussed in Week 33, and with the expansion of NIM and Omniverse functions, the general applicability of NVIDIA’s chips is enhanced. Therefore, every player with the exception of Big Tech will see the best ROI by using NVIDIA’s chips. Big Tech is large enough to develop their own chips and/or the necessary software to use AMD or Intel accelerators.

For these reasons, we see strong growth for NVIDIA in the coming years, and we believe it will be a long time before competitors can seriously challenge NVIDIA. We see a good chance that the real threat to NVIDIA's dominance will come from new players like Etched and Cerebras.

Pinduoduo In a Dramatic Stock Decline

Pinduoduo, the parent company of the Chinese e-commerce giant Temu, experienced a dramatic drop in its stock price this week, falling by nearly a third. This occurred after the company’s earnings for Q2 disappointed in terms of revenue, and management issued a subdued forecast, stating that "revenue growth will inevitably face pressure." The company also pointed to intense competition in China and margin pressure. Recent economic data from China continues to show weakness, negatively impacting both personal income and consumer confidence.

Crowdstrike Survives First "Trial"

CrowdStrike has just presented its first earnings result since the massive outage in July. The stock performed well through this trial. Sales in Q2 exceeded expectations, and a -3% downgrade of the year’s revenue forecast was less severe than feared. However, the forecast for the year's earnings was reduced by -12%, impacted by so-called "customer engagement packages" – a subtle term for large compensations to the many customers affected by the significant outage.

Solid Earnings from Dell and Marvell

Dell and Marvell delivered solid reports and spoke of accelerating growth in their AI-related businesses. Both of these companies are affected by cyclical weakness in their other business areas, which may give them additional tailwinds in the coming years.

Overall, we are extremely optimistic following a series of earnings reports that confirm that AI is the right place to be invested. NewDeal Invest strives to be the best investment option for investors who want to invest in AI.

NDI-FUTURETECH

NDI-FutureTech is up 14.38% this year and 2.43% for august.

Why invest in NDI-FutureTech?

A few of the advantages of investing in NDI-FutureTech over a passive index fund are:

1. Active selection of the best tech companies in leading technological trends. You won't find this in a passive investment product. We steer clear of the old, mature tech companies and choose the up-and-coming ones instead. Bessemer Venture Cloud Index, which is an actively managed fund, focused on cloud, has delivered over 20% annual returns since 2013 and stands as a good example of what can be done actively managing a tech fund.
2. Quarterly rebalancing - It is well known that rebalancing increases returns in a diversified portfolio, and since tech stocks are highly volatile, there is much to gain
3. Knowledge sharing - We share deep insights into our holdings, every week, exclusively on eToro.

THE COMING WEEK

Focus Shift to Labor Market

To look ahead, we must sometimes look back. For now, we only look back a week to when Jerome Powell, took the podium in Jackson Hole. We mentioned in last week's update that there has been a shift in rhetoric from Powell, which is best illustrated by his opening remarks last Friday. Here, Powell reminded us of the difference in the situation this year compared to the same time last year, where one of the Fed’s objectives was wildly off-target and certainly not where they wanted it to be. The Fed has three overarching goals in monetary policy:

1. To achieve full employment
2. To achieve price stability (low inflation)
3. To maintain moderate long-term interest rates

Although there are three separate goals for monetary policy, the Fed’s mandate for monetary policy is commonly known as the “dual mandate.” The reason is that an economy where people who want to work either have a job or are likely to find one quickly, and where the price level (i.e., a broad measure of the price of goods and services consumers buy) is stable, creates the necessary conditions for interest rates to stabilize at a moderate level.

Back to the 2023 speech, where, of course, it was price stability that was the issue, and inflation was far too high. At the same time, we had something close to full employment, where the Fed’s full focus was naturally on curbing inflation with rate hikes.

This year, inflation is, at least for now, under control, and instead, we have seen unemployment rise from 3.4% to 4.3%. So, while this increase seems moderate, it could be a turning point in the economy, which has caused the Fed to shift its focus from the “inflation mandate” to the “employment mandate.” This means falling interest rates, which is good news for both homeowners with variable loans and investors in smaller tech companies.

That’s why we are closely watching the upcoming week, where we will get JOLTS data on Wednesday, Jobless Claims on Thursday, and the big US labor market report on Friday. JOLTS, which are job openings, will, together with Jobless Claims, provide a prelude to the overall job report on Friday.

Friday’s job report is expected to show decent job growth and a slight decrease in unemployment. This is primarily due to seasonal fluctuations, but it could be a real market disappointment if the report underwhelms, reigniting fears of a recession.

Upcoming Earnings Reports

In the coming week, we’ll be keeping an eye on the earnings reports from Zscaler and GitLab on Tuesday, as well as Broadcom on Thursday.