Weekly Review – Earnings Bank Shot

What Happened: Nvidia Beats on Earnings but Stock Falls

What Does It Mean?

Nvidia (NVDA) unveiled its Q4 fiscal 2025 earnings on Wednesday, delivering a strong performance and surpassing Wall Street expectations on both revenue and earnings. Over the past months, headlines have speculated about a potential AI slowdown, but the numbers tell a different story, with revenue growing 78% in the quarter. However, concerns over future growth led to an 8% decline in the stock on Thursday. The sell-off accelerated following Trump's announcement of additional tariffs for China.

Why Do We Care?

(For my non-Kentucky friends out there, I hope you still appreciate this reference.) When Koby Brea shoots a three-pointer in a game, what’s our expectation? Absolute money, straight through the net, probably without even touching the rim, right? That’s the standard every time he shoots. But what if he banks in a three-pointer? It still counts for three points, but we might think, "Is he off today? Will he miss the next one?"

In my opinion, NVDA’s earnings report reflects a similar scenario. Expectations are sky-high for a company that has led the market for the past two years. So, even though they made the shot with strong earnings, concerns—right or wrong—arise about whether the next one could miss.

But what does the data show? In our view, the AI movement is far from slowing down, despite some media speculation. NVDA's data center revenue surged 93%, alongside its overall 78% revenue growth. We believe this indicates that AI remains strong, though the growth opportunity may now be expanding beyond hardware chip companies into areas such as energy, software, and AI infrastructure. However, in our opinion, with the uncertainty of policy changes and tariffs, the market has struggled to find stability during this recent pullback.

While this pullback has been sharp at times, we believe it remains a healthy correction for a market that has been surging for the past two years. This environment allows us to be patient with our capital, watch as headlines and data points unfold, and seek strategic opportunities to put capital back to work.

What Happened: Bearish Sentiment Jumps to 60%, #7 Highest Spike of All Time

What Does It Mean?

Both of these charts reflect the latest data from the American Association of Individual Investors (AAII) on investor sentiment. The survey asks a straightforward question: “What direction do you think the stock market will move in the next six months?” Over the past week, the percentage of respondents predicting a decline (bearish sentiment) jumped from 40% to 60%, marking the seventh-highest spike in AAII survey history.

Why Do We Care?

Markets can be unpredictable. In our experience, when the majority of investors strongly believe the market will move in one direction, it often does the opposite. Looking at past instances of extreme bearish sentiment, we can see that these moments have sometimes signaled turning points in the market.

In our opinion, the recent data reflects uncertainty stemming from government policy and tariffs, combined with a 4.5% market decline, which has fueled extreme fear about what comes next. We believe this pullback is more of a healthy correction than the end of the bull market. However, after two strong years and increased uncertainty, markets could continue to face pressure.

We have reduced risk for this reason and now have created buying power if the market presents opportunities. We are aligned with Warren Buffett’s approach, maintaining reserves to seize future opportunities. As always, we continue to monitor each data point and assess market direction, while remaining mindful not to get caught up in daily emotional swings.

Have a great weekend.

- Logan Gilland CFP?

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