VRA Investment Letter: Bull Market Tells. NVDA; Another Massive Beat. Our Base Case Remains Unchanged. A Personal Note.
/Good Thursday morning. Another day featuring sharp early morning losses, followed by a strong rally in the afternoon which saw the Dow Jones rally close to 400 points off of the lows. That’s back to back days, one featuring a straight up move in Nasdaq and one day in the Dow Jones. This is the repeating pattern action we’ve seen in US markets over most of 2024.
If you’re a bear that’s seeing this…combined with the rather massive broadening action (even as the semis and Mag 7 trade sideways to lower)…you’re a not so happy bear. Repeating patterns are an investor’s best friend (in both directions).
Nvidia Q3 Earnings — Another Massive Beat (with shades of slowing)
Because NVDA reports earnings so late in the quarter, investors have been on pins and needles over the last 2–3 weeks, waiting for yesterday’s Q3 report…and NVDA did not disappoint with another blowout quarter that beat on both the top and bottom line by wide margins. However, their bar is set so high that past comps make for future success that’s hard to top.
Revenues continued to surge at Nvidia, rising 94% during the quarter. Still, that’s a consecutive slowdown from the previous three quarters, when sales rose 122%, 262%, and 265%. Nvidia’s Q4 forecast implies y/y growth of about 70%…also a slowdown from 265% growth from last year. Nvidia shares have nearly tripled in 2024, making it the world’s most valuable company with a market cap of $3.6 trillion.
VRA Bottom Line: while we do not own NVDA directly, we own it through our two positions in our leveraged ETFs (learn more at VRAletter.com), which has exposure of roughly 20–25% in NVDA shares (direct, but mostly derivatives).
The future of NVDA, for now, is about their Blackwell chip, which is only now coming out of production and entering sales this quarter (slowly surpassing Hopper). Know this; with demand outstripping supply by more than 15:1, we fully expect NVDA’s share price to continue to rise, just not at the pace of the last 2 years, which saw NVDA jump more than 1200%. Here’s what Wall Streets best analyst on NVDA had to say…Dan Ives could hardly be more bullish;
Our Base Case on the Semis Remains Unchanged
Below we see that SMH is close to bouncing off of its 200 dma while also hitting the lower trend line thats been in place from early August. In addition, SMH is hitting heavily oversold levels (but not yet extreme oversold), while sitting 14% below its all-time high of July 11. The next move is important.
We’ve focused on this relative strength chart of SMH to S&P 500 often over the last 2 years, a chart we’ve called “the most important chart for the markets”, as the semis lead the markets, and do so in both directions.
Below we see that the leadership of the semis broke down at their July peak. Following the summer shakeout, which sent the semis into a 3 week bear market with losses of 28%, the semis began leading again (in early September). This ratio is also hitting the same oversold levels that has resulted in a bottom over the last two years. Here too, what happens next is important.
I repeat; we do not expect the semis to break down here. Our base case remains that we are in the first inning of the Innovation Revolution and AI Boom, which will continue to be powered by the semis. The semis have already had their 28% 3-week bear market. We’ve now entered the best 3 months of the year for the markets and semis/tech, even as the semis remain 14% below their ATH’s. Our call remains; the Semis are must-own here.
A Personal Note
IMO, something extraordinary is happening but so many have been indoctrinated with worst case scenarios they’ve yet to see it. This has been our view for more than two years and with Trump back in office, we now expect this mood…true animal spirits…to become the norm.
Some history…
I became a stockbroker in 1985. I come from that second America…not quite middle class, not quite poverty (but close). I didn’t belong on Wall Street, or so I was told. Just couldn’t have cared less about how my betters saw me. I out-worked them and by 26 was the firms youngest VP.
Over 15 years helped take 7 co’s public while also managing $100 million. From pretty much day one in 1985 I heard the fearmongering; “US debt levels will sink us…prepare for the worst.” That message “sounded” smart…it’s exactly the same today, but amplified 100 x.
It was wrong then and it’s wrong now. When you have the world’s reserve currency, govt debt is (largely) an illusion. But this is also why we own gold and Bitcoin!
After retiring from WS at 38 I started a global investment seminar company (Wealth Masters) and along with my partner Karl Bessey (RIP my dear friend) took it to $100 million revenue in 9 years. Started the VRA in 2003, where we’ve beaten the market 17/20 years.
From the bear mkt lows of 10/13/22, where we went aggressively long, our average buy rec is up >90% with combined net gains near 2000%. We ignore the MSM propaganda and aren’t blinded by the group-think and permabear negativity that prevents so many investment professionals from getting the markets right.
Tyler and I wrote “The Big Bribe” in Q3 2022 where we forecast a melt-up bull market and economic boom time that would result in the roaring 2020’s. It’s well underway now. This “innovation revolution” is beyond extraordinary, with record levels of wealth creation already taking place, in the US & globally.
Bitcoin, the blockchain, tokenization & fractional ownership are part of it…just unbelievable innovation & disruption on the way here…but the technological revolution occurring elsewhere is also mind-blowing.
Space exploration, quantum computing…technological advancement across all sectors…financial engineering, disruptive change, Tesla, AI, etc, will provide life altering change…inventions we cannot even fathom today are on the way.
My advice? Stay locked in. There’s never been a better time to be an investor, entrepreneur, adapter of change…and an optimist. And don’t discount the red-pilling of America. It’s (really) happening now and it’s a powerful force for positive change. Ignore the negativity and absolutely ignore the permabears.
These indoctrinated backward-thinking “smart people” have been wrong the entirety of my 38 years in the business (yes, bear markets and even crashes are normal, as they wring out the excesses).
Today, we’re in the Roaring 2020’s. The perfect time for Trump and Team to lead. Time to maximize your opportunities…and guard your mind like you would your family. I cannot wait to see what happens next.
Until next time, thanks again for reading…
Kip
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