Posts tagged ‘nvidia’
Economic & Inflation Information Create Market Jubilation
Ever since the Federal Reserve went on a crusade to increase interest rates and slow the progression of inflation at the beginning of 2022, investors have been cheering for a Goldilocks-type of economic “soft landing.” Last month, this narrative remained intact.
The S&P 500 index surged +3.5% for the month, the technology-heavy NASDAQ rocketed +6.0% (fueled by NVIDIA and other AI-related companies), and the Dow Jones Industrial Average a more modest +1.1% move thanks to the contribution of older economy stocks.
Despite the looming presidential election this November and the recent debate, the stock market has continued on a +56% bull market tear since the October 2023-low, eight months ago (see chart below). The not-too-hot, not-too-cold economic data have provided comfort to investors. For example, growth in Gross Domestic Product (GDP), the broadest measurement of economic activity, was positive (+1.4%) during the first quarter and it is expected to modestly accelerate in the second quarter (+2.2%), as forecasted by the Federal Reserve Bank of Atlanta.
In addition, the job and inflation stories are staying consistent with the “soft landing” plot line, as well. The unemployment rate has been creeping higher, but currently remains near multi-decade lows at 4.0%. Inflation also continued its downward trend as evidenced by last week’s Core PCE inflation data (the Federal Reserve’s favorite inflation gauge), which came in at +2.6%, the lowest level since March of 2021 (see chart below).
Gasoline and food costs are significant inputs to the overall declining inflation dynamics. The two largest crops in the United States are corn and soybeans, and with those prices down significantly year-over-year (see chart below), it should come as no surprise that consumers are finally seeing some relief in skyrocketing food prices. Declining gasoline prices have also chipped-in to the improving inflation outlook.
With all these economic statistics harmoniously aligning with a “soft landing” scenario, investors are currently comfortable in forecasting one interest rate cut over the next six months, and three and a half interest rate cuts over the next 12 months (see chart below).
Source: Yardeni Research
But a bull market cannot survive on interest rate cut expectations alone. Over the long-run, stock prices generally follow the direction of corporate profits, and as the chart below indicates (red line), fortunately, the path of profits has been rising after a period of stagnation last year.
Source: Yardeni Research
The last eight months have been an exhilarating ride in the overall stock market, which has been propelled by the multi-trillion dollar technology companies participating in the A.I. (Artificial Intelligence) buildout revolution (i.e., NVIDIA, Microsoft, Alphabet-Google, Apple, Meta Platforms, Amazon, et.al.). However, neither trees nor stock markets can grow, uninterrupted, to the sky forever. The recent environment has been jubilant for investors, but party participants cannot go on forever without experiencing a hangover. The best advice is to celebrate responsibly, while managing the risk of your investment portfolio, because eventually the cops will arrive and the party will come to an end.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (July 1, 2024). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in individual stocks , certain exchange traded funds (ETFs), including NVDA, MSFT, GOOGL, AAPL, META, and AMZN but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
The Art of Maximizing Gains and Minimizing Taxes in a World of AI
The AI Wave
The weather may be cold during winter, but stocks were scorching hot last month, fueled in part by the surge in performance from AI (Artificial Intelligence) stocks. More specifically, the Dow Jones Industrial Average was up +2.2% to 38,996. The S&P 500 surged +5.2% to 5,096. And the AI-heavy Nasdaq index climbed the most by +6.1% to 16,092.
Leading the bull market brigade higher was NVIDIA Corp (NVDA), which saw its stock launch higher by +29% for the month after reporting eye-popping quarterly revenues of $22 billion, more than tripling versus last year’s comparable quarter. Customers of NVIDIA, like Meta Platforms, Inc. (META), are also benefiting from the rising tide of investor sentiment.
To put this AI wave into perspective, you need look no further than to the comments made by Meta CEO Mark Zuckerberg, who stated by the end of 2024, the company should have 350,000 of NVIDIA’s H100 graphics processing units (GPUs) as part of the company’s AI infrastructure. At roughly $25,000 to $30,000 per GPU, the total cost is likely approaching $10 billion for just this one NVIDIA customer. Also, Dell Technologies’ (DELL) stock price opened more than +30% higher today after reporting quarterly financial results that exceeded forecasts due to robust demand for AI servers, which led to their backlog almost doubling in three months to $2.9 billion.
When you have corporate America in addition to the large cloud data center providers (think Amazon Web Services, Microsoft Azure, and Google Cloud) all battling to secure NVIDIA chips for their generative AI, machine learning initiatives, you can understand why NVIDIA’s stock is up +250% in one year to a company value of $2 trillion.
Japan’s Nikkei & Dow Both Break 39,000 Record Concurrently
Not only did the Dow hit an all-time record high of 39,000 last month, but a stunning coincidence also occurred in Japan. The Nikkei 225, which is like the Japanese equivalent of the Dow Jones Industrial Average, also hit a record high of 39,000 last month. What’s the big difference between these two indexes simultaneously surpassing a record 39,000 in the same month?
It took the Nikkei over 34 years to surpass its previous record peak, which was last achieved in 1989 when Japan experienced a massive bursting of an asset bubble. On the other hand, it merely took the Dow just one month to break its previous record…not four decades. Worth noting, so far in 2024, the Nikkei has been the world’s best-performing major index surging 19%, almost triple the gain of the S&P 500 index.
Tax Time
April is fast approaching, which means it’s that time of the year when Uncle Sam will come knocking on your door with your tax bill. Perhaps your taxes have already been prepaid and a refund is coming your way. Regardless, the goal of long-term investing is to master the art of maximizing returns and limiting taxes subject to your risk tolerance.
How does one create an investment masterpiece? One way to maximize return is to lower costs, including lower management fees, fund fees, and transaction costs. You can think of these investment costs as a leaky faucet. In the short-run, most people do not care about or are unaware of a leak.
The same principle applies to investment fees/costs. Investors can ignore these fees in the short-term, but over months or years, these costs can become enormous and destructive. I experienced this firsthand. Recently, normal monthly water bill was $40, but one leaky toilet resulted in an $800 monthly bill…ouch! Just imagine what unknown leaky costs on your investments could mean for your retirement. Do you want high or unknown investment fees to delay your retirement by years? I think not. Focus on lower costs because quite simply, the less you pay, the more you keep, and the earlier you can retire.
Another way to maximize your investment performance is to benefit from the power of compounding. This phenomenon can only be achieved via the snowball-effect of long-term investing. This is why Albert Einstein called compounding the “8th Wonder of the World.” At Sidoxia Capital Management, we have experienced this marvel on many of our investments, including our exponential gains in Amazon.com, which we first purchased in 2008 at s split-adjusted price of about $2.95 per share. The stock price recently closed at $177, a 60-fold increase from our initial purchase.
The risk-adjusted aspect of your nest-egg is also important because most people should consider decreasing risk as you more closely approach retirement age, especially if you are planning to tap your investments for liquidity. If risk wasn’t a consideration, going to the Las Vegas roulette table and betting your life savings on black might be a good idea. Sure, you might have a chance of doubling your money instantly, but you could also lose it all in a blink of an eye.
Another way of thinking about risk, since we are in the heart of ski season, is to contemplate a ski instructor’s advice for an 80-year-old beginner vs. an experienced Olympic downhill gold medalist. It wouldn’t make sense for the 80-year-old beginner to train on the steep, advanced black diamond runs. Similarly, it wouldn’t make sense for the gold-medalist Olympian to train on the flat beginner runs. The same concept holds true for investing. Young investors generally can take on more risk, while retirees often should be more conservative in their asset allocation, especially if they need liquidity from their investments to fund their living expenses and lifestyle.
Although it would be nice to have ChatGPT create a luxurious retirement for you with a click of a button, unfortunately life is not that simple. You certainly can, and should, take advantage of the AI revolution in your investment portfolio to support your retirement goals, but successful investing requires more than that. With over 30 years of investment experience under my belt, at Sidoxia, we understand there are multiple facets to successful investing. In a diversified portfolio that that takes account of your risk tolerance, we strongly believe low-cost, tax-efficient, long-term investing is the best way to create your retirement masterpiece.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (March 1, 2024). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in individual stocks, including NVDA, META, GOOGL, AMZN, MSFT, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in DELL or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
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