Nvidia smashes expectations, but does not take off like AMZN, AAPL or FB – why?
Nvidia reported earnings last week on Wednesday, beating expectations of analysts as well as following its peers in "FANGMAN" (Facebook, Amazon, Netflix, Google, Microsoft, Apple and Nvidia).
But unlike Amazon, Apple or Facebook, which pushed to new highs after earnings smashed expectations, its stock saw a drop – what happened?
Nvidia's data numbers stand out, but short-term the FED matters
Numbers from Nvidia showed that for the first time in the history of the company, its data center business outperformed the gaming unit while the company's CEO Jensen Huang said he expects a major second half of the current fiscal year in the video game market.
Nvidia reported earnings per share at $2.18 against $1.97 expected and revenue at $3.87 billion against $3.65 billion expected. In fact, overall revenue rose 50% on an annualized basis and grew 39% in the prior quarter.
And while the company's gaming business produced $1.65 billion in revenue (+26% (YoY)), it ended up with $1.75 billion data center revenue, up 167%.
But while data center numbers, including sales of graphics processing units powering artificial intelligence workloads for business use and, thus, continuing the supply of products to cloud providers such as Amazon, the stock dropped – how can that be?
There are a few points to consider here:
- Shortly before Nvidia published its earnings, the FED statement pointed out that some FOMC members were worried about yield curve control since this could result in excessive balance sheet growth.
- The expectation of such a rate cap was one potential driver for the recent rally in growth stocks
- Thus in Nvidia, a short-term downward trend once Equities see a correction, seems likely.
However, we think that the FED will sooner rather than later act here, stopping a potential rotation from growth stocks into value stocks which would result in elevated volatility in Equities, by implementing such a rate cap.
While we still see Nvidia Longs as an attractive mid- to long-term candidate which should be (and likely is due to its FANGMAN membership) part of any tech-oriented portfolio, a short-term corrective move lower in the stock price could be imminent.
How to trade #NVDA in this environment?
With trading significantly above its SMA(200), the mode remains technically bullish longer term, but a sharper drop seems also likely from a technical perspective.
A drop below 430.00, especially below 390.00 USD, would neutralize the picture.
Still, we consider a re-test of the region around 400.00 USD an interesting region for pro-cyclical long engagements from a risk-reward perspective:
Source: Admiral Markets MT5 with MT5SE Add-on #NVDA chart (between April 03, 2019, to August 26, 2020). Accessed: August 26, 2020, at 2:00 PM GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2015, #NVDA increased by 64.39%. In 2016, it increased by 223.85%. In 2017, it increased by 81.28%. In 2018, it fell by -31.01% and in 2019, it increased by 76.25%, meaning that after five years, it was up by 1068.9%.
Discover the world's #1 multi-asset platform
Admiral Markets offers professional traders the ability to trade with a custom, upgraded version of MetaTrader 5, allowing you to experience trading at a significantly higher, more rewarding level. Experience benefits such as the addition of the Market Heat Map, so you can compare various currency pairs to see which ones might be lucrative investments, access real-time trading data, and so much more. Click the banner below to start your FREE download of MT5 Supreme Edition!
Disclaimer: The given data provides additional information regarding all analysis, estimates, prognosis, forecasts or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:
- This is a marketing communication. The analysis is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
- Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
- Each of the Analysis is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter "Author") based on the Author's personal estimations.
- To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
- Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures that refer to any past performance is not a reliable indicator of future results.
- The contents of the Analysis should not be construed as an express or implied promise, guarantee or implication by Admiral Markets that the client shall profit from the strategies therein or that losses in connection therewith may or shall be limited.
- Any kind of previous or modelled performance of financial instruments indicated within the Publication should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
- The projections included in the Analysis may be subject to additional fees, taxes or other charges, depending on the subject of the Publication. The price list applicable to the services provided by Admiral Markets is publicly available from the website of Admiral Markets.
Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, you should make sure that you understand all the risks.