A few notable events in the market from yesterday morning:
Meme stocks seem to be back in full effect
Nvidia lowers forward guidance on revenue expectations to $6.7B down from $8.1B
IRS auditing crackdown announced to start impacting gig workers
In borrowing a quote from a recent Michael Burry tweet, when gamblers start losing money, they start gambling harder. This typical gamblers’ mentality continues to show its face in this bear market as evidenced in the recent run-up in the meme stocks. This same type of mentality has also been propping up the ARKK 0.00%↑ fund as millennials and Gen Z continue to throw good money after bad into the fund that is comprised of the market’s riskiest growth stocks. It is also amazing that we had at one point last week the newest member of the meme stocks reach a $400B valuation ( HKD 0.00%↑ ). The gains on the stock were so spectacular I had to plot it in a separate chart from the rest of the meme stocks so the graph wouldn’t be completely out of proportion.
But to put this in perspective, these are the only companies in the world with a market cap greater than $400B:
AMTD Digital was up as much as 12,815% last week as HKD 0.00%↑ skyrocketed past all but 13 worldwide companies in market cap. This is just a reminder that phenomenon like this do not happen in healthy markets and show that we have extreme excesses remaining in the markets, despite the Federal Reserve’s recent removal of a small amount of liquidity. The stock market remains a casino where gambling addicts throw funny money all over the place after being liquored up by cheap money and credit.
Now here is something much more important; Nvidia. The company announced preliminary financial results for the second fiscal quarter of the stock and had to lower future revenue guidance. Data center revenues which have to do with the cloud software sector of the economy that we have been discussing are more negative than the company initially anticipated. The company sees future revenues coming in somewhere around $6.7B vs. their initial expectation last quarter of $8.1B. That is a 17% decrease in forward guidance, which is expected from a slowdown in the gaming business and cloud software spend from the broader economy. A 17% decrease is substantial, especially for a stock priced for perfection. While the broader market was able to shrug this news off, NVDA 0.00%↑ closed the day down substantially.
As I have been saying, so goes the chip stocks, so goes the rest of the market. That thesis did not hold up so much yesterday. Although, stocks started the day on a very strong note and lost steam intra-day as investors re-evaluated the strength of the consumer and future guidance for corporate earnings in general. Let’s keep in mind the highly anticipated CPI release is on Wednesday, and inflation is still the key driver for markets.
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