Is there a hotter story than artificial intelligence (AI) right now?
You’d be hard-pressed to find one.
And if AI is the hot story, there’s really just one stock associated with that story…
That’s Nvidia (NVDA).
It has almost become the new bellwether for stocks.
If Nvidia “does good,” the market will “do good.”
If Nvidia “does bad,” the market will “do bad.”
Well, after the market close yesterday, Nvidia reported quarterly earnings. The result?
As Yahoo! Finance tells us:
“Nvidia earnings trounce estimates…”
And so they did. It should be good news for the market, right? Let’s take a look. First, a quick glance at a selection of today’s key market action…
Market Data
The S&P 500 closed up 0.41% to end the day at 4,556.62… the Nasdaq gained 0.46%, to close at 14,125.86.
For individual stocks, Microsoft closed up 1.28% to $377.85… Apple ended higher by 0.35% at $191.31… and Tesla ended the day at $234.21, a 2.9% fall.
In commodities, West Texas Intermediate crude oil trades at $76.79, down 97 cents since this time yesterday… gold is $2,002.80 per troy ounce, a gain of $2.10… and bitcoin is higher by $2,049 at $37,800,80.
And now, back to our story…
The Market’s Nvidia-Boost
To prove our point that what’s good for Nvidia is good for stocks, check out the chart below. We’ve overlaid Nvidia’s price with the Nasdaq:
We’ve just gone back six months, but you can see the clear correlation.
Of course, it’s not all that surprising. Nvidia has a $1.2 trillion market capitalization. It’s one of the so-called “Magnificent Seven” tech stocks.
So it’s only natural that if Nvidia is doing well, the other six of those tech stocks should be doing well too… in which case, the Nasdaq will do well.
After all, those seven stocks make up 48.7% of the weighting of the Nasdaq Composite index, as of September 30.
And it’s not just the Nasdaq. Overlay the S&P 500 and the chart pattern is pretty much the same.
No wonder that when Nvidia “does good,” the market “does good.”
(Editor’s note: Those same seven stocks account for 29.1% of the S&P 500 market weight.)
So what were the results? The revenue tells it all.
Nvidia reported $18.1 billion in revenue, up 206% compared to one year ago.
It seems so unbelievable. But it’s true. Third-quarter revenue for 2022 was just $5.9 billion.
It shows you how much – and how quickly – AI has become an important part of the economy.
Think about it, pretty much this time last year, most folks considered AI to be futuristic tech. ChatGPT launched on November 30, 2022. Less than a year later, it’s a household name.
Today, it wouldn’t be much of an exaggeration to say that every dollar of Nvidia’s increased revenue over the past year is due to AI.
The question now, of course, is whether the Nvidia stock price can keep moving higher… or if its days of fast growth are over.
It’s a fair question. Year-to-date, the stock is up 231%. That’s more than six times the return of the Nasdaq.
But go back three months, to just before its previous quarterly earnings result, and the stock is only up around 10%.
That’s still double the return of the Nasdaq over the same time. But it should make any investor wonder if there aren’t better returns elsewhere.
After all, this isn’t to say the AI boom is over… it could just be that Nvidia’s AI boom is over – although we wouldn’t want to bet on that by short-selling the stock. That would be a little too spicy for our tastes.
The good news is, there are alternatives…
The “Fantastic Seven”
To find out what those alternatives are, we tapped the shoulder of Colin Tedards, our in-house tech guy.
He’s followed the AI story closely and has gone all-in to find the best non-Nvidia plays out there.
So far, he’s done a great job.
Here’s the performance of Colin’s seven recent AI-related picks (let’s call them Colin’s “Fantastic Seven”), compared to if you had bought Nvidia instead:
Colin has been able to help his subscribers double the return of NVDA in the past few months… while still benefiting from the AI growth story. It’s an impressive feat.
Here’s how Colin explains his take on AI:
Like the internet build-out in the 1990s, the AI investing cycle begins with spending on hardware.
Amazon, Microsoft, Google, Meta, and other tech firms are expected to spend $250 billion in hardware over the next year.
And as more companies join the AI race, spending will ramp up. AI chipmaker Nvidia says the bill will top $1 trillion in three years.
That’s why we’ve seen shares of Nvidia and other AI hardware makers go berserk this year.
But Colin isn’t playing the AI boom by recommending Meta and Google.
He’s backing the “next level” companies… those who are suppliers to the tech giants… or those who will benefit indirectly from their billions of dollars of investment.
Colin calls it his “Hardware, Software, Everywhere” strategy. It’s a neat way to describe how AI will touch so many parts of the tech (and even non-tech) economy.
And that’s why there are so many opportunities. And it’s why Colin has been able to successfully scour the market for other ways to play the trend. If you haven’t checked out Colin’s research yet, it’s a must. To hear all about it in his own words, just go here for details.
(Editor’s note: By the way, that link will also show you how to get access to Colin’s “Fantastic Seven” winning AI picks. Check ‘em out.)
It’s All a Distraction, Folks
Speaking of AI, Sam Altman is back in at OpenAI.
OpenAI is the firm behind the ChatGPT AI program. To bring you up to speed on the story, the board of OpenAI fired Altman last week.
But they apparently didn’t consult major shareholders in the business, including Microsoft.
According to the Economist, Microsoft has invested $13 billion in OpenAI going back to 2016. That has given it a 49% stake in the company.
You’d think the board would let Microsoft know of its plans to fire Altman. That’s what you would call a blunder.
And Altman is such a critical player in the AI world that Microsoft hired him right away. And the more than 700 OpenAI employees who resigned following Altman’s ouster.
But cooler heads have now prevailed. Altman is back, and Microsoft’s investment in OpenAI looks astute.
Well, now that Altman is back, everything is surely back to normal. Maybe. Maybe not. But whatever happens at OpenAI, Colin Tedards says the whole thing is just a distraction.
He says, to paraphrase him, that OpenAI panicked, because they can’t keep up with the demand and the speed of innovation that’s taking place in AI right now.
And the board’s solution to the problem…? Fire the CEO!
Ridiculous.
As Colin explained to his subscribers earlier this week:
Look, you can choose to focus on the negative headlines around AI, the drama, or the distractions. I’m going to stay focused on where the money is going.
About six months ago, I started giving public recommendations for a flagship product that I call the Near Future Report. Every recommendation that I have made is higher. Every stock we’ve recommended has gone up.
Our software pick from last month is up 26%. The month before that, we singled out the best AI software play, besides Microsoft. That stock is up 10%. Our top semiconductor play is up 9% since August.
Earlier this month, just a couple of weeks ago, we recommended two semiconductor stocks. Both of them are up 7%. And look, some of you guys don’t want to pay for research, I get it. We’ve recommended the SMH Semiconductor ETF numerous times here in the newsletter and on the channel.
It’s easy to be distracted in these markets. The media, other investors, the government, shoot, even the companies themselves like OpenAI are all creating distractions.
This investment cycle we’re seeing in AI doesn’t come along very often. Microsoft is committing $50 billion a year to AI data center buildout, and it still can’t meet the demand OpenAI is seeing.
Altman as Jobs?
We’ve heard folks describe Sam Altman as today’s Steve Jobs or Elon Musk (although arguably, Elon Musk is today’s Elon Musk, but whatever).
Jobs left Apple in 1985. He didn’t return until 1996. The rest… well, you know how that turned out. Altman left OpenAI last week… he’s back at his desk this week.
Who knows yet if there’s any kind of parallel? We won’t know for several more years.
But the bottom line is that, for all the headlines and the drama, the AI trend is going strong. And it may just keep the stock market trending higher.
Unconnected Dots
Our main task at the Daily Cut is to try to “connect the dots.” That is, we help you figure out what events are about, what makes them important, what their consequences are, and what it all means for you.
But sometimes, we see the individual “dots,” but can’t yet figure out how they connect to anything. Maybe they never will connect to anything.
Regardless, if those unconnected dots feel as though they could be important, we’ll mention them here. And we’ll let you draw your own conclusions.
Today’s unconnected dots…
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We’ve gotten nauseous from knowing whether to cheer or jeer the EV (electric vehicle) industry.
We cheer it because of the new technology. We jeer it because it’s still debatable whether EVs are more environmentally friendly than cars when all factors are considered.
As reported by Reuters, the Argonne National Laboratory in Chicago calculated in 2021, that a Tesla 3 needs to drive around 13,500 miles before it reaches breakeven for its environmental impact.
Reuters also noted that a study from the University of Liege estimated an EV needs to drive 40,200–90,600 miles to break even. That researcher had revised down his previous estimate from 420,000 miles!
Regardless, who really knows the truth? The impact also largely depends on the energy source used to recharge the battery… which can vary wildly from place to place. Not to mention the raw materials required to make the car.
One of the biggest environmental impacts involves battery production and specialty metals, such as cobalt and lithium.
Well, now, according to the Financial Times, a breakthrough:
Northvolt has made a breakthrough in a new battery technology used for energy storage that the Swedish industrial start-up claims could minimize dependence on China for the green transition.
The Swedish group, backed by Volkswagen, BlackRock, and Goldman Sachs, has developed a sodium-ion battery that has no lithium, cobalt, or nickel – critical metals that manufacturers have scrambled to obtain, leading to volatility in prices.
Peter Carlsson, Northvolt’s chief executive and co-founder, told the Financial Times that the new technology could be worth tens of billions of dollars as it opens up regions such as the Middle East, Africa, and India for battery-powered energy storage for the Swedish group.
He estimated that in 10 years the order book for energy storage could be ‘as big or potentially bigger than the current portfolio’ of batteries for electric vehicles, for which Northvolt has received orders of $55 billion.
Is this the revolutionary technology the EV market needs?
It better be if the sector hopes to succeed. Recent reports suggested weak demand for EVs meant it would be hard for it to grow past the current 7% market share in the U.S. And companies like Ford Motors are scaling back multi-billion dollar investments in EV technology.
Plus, range anxiety is still an issue. It doesn’t matter if 98% of your usage is distance trips. The buyer still has in their mind those one or two long-distance trips they’ll want to make each year.
The EV breakthrough is still more likely to come than not (in our view), but it’s a ways off yet.
More Markets
Today’s top gaining ETFs…
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Global X MSCI Colombia ETF +1.8%
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Invesco Dorsey Wright Healthcare Momentum ETF +1.6%
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Xtrackers MSCI Japan Hedged Equity ETF +1.5%
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WisdomTree Japan Hedged Equity Fund +1.5%
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Siren Nasdaq NexGen Economy ETF +1.4%
Today’s top losing ETFs…
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VanEck ChiNext ETF -1.75%
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KraneShares MSCI China Clean Technology ETF -1.6%
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VanEck Indonesia Index ETF -1.5%
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Global X Lithium & Battery Tech ETF -1.2%
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iShares MSCI China A ETF -1.2%
Mailbag
Today, a letter from subscriber, Gregory H:
One of my pet peeves, which you’ve just triggered, is the incorrect usage of the words ‘nauseous’ and ‘nauseated’.
Something nauseous causes one to become nauseated.
So, in the 11/20/23 Daily Cut, you feel nauseated admitting to using TikTok. Apparently, TikTok is nauseous to you. Thanks for listening.
We love someone else who has pet peeves. Thanks for sharing with us. We have them too. Our biggest pet peeve right now is folks who get the whole “less” and “fewer” thing wrong.
We have others… many of them. We’ll share them another time.
If you have any questions or comments for our experts here at Legacy Research, we’d love to hear from you.
Write to us at feedback@legacyresearch.com and just type “Daily Cut mailbag” in the subject line.
Cheers,
Kris Sayce
Editor, The Daily Cut