🤖 Nvidia Keeps Printing Money

Forget about JPow and the Fed. The real money printer is Nvidia. May 23, 2024 | Peel #716 Silver Banana goes to... [Interactive Brokers. ](=) In this issue of the Peel: - 🏠Existing home sales in the United States fell 1.9% in April… - 💸 Is everyone’s consumption just bargain hunting? Target stock is down. - 🖨 Forget about JPow and the Fed. The real money printer is Nvidia. Market Snapshot 📸 = Banana Bits 🍌 - Are JPow’s parents coming to pick him up? Bc he definitely seems [scared of inflation again…]( - OpenAI strikes another deal with a media firm to [rob them of their IP for training data]( - Solar stocks (especially [WSO Alpha’s](=) Enphase Energy) were [popping off yesterday]() - CEO pay set records in 2023, with half of them earning more than I will [make in my entire life combined at $15.7mn]() What interest rate does your broker pay? = Earn Market Rate Interest on Your Instantly Available Cash Balances. 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Macro Monkey Says 🐒 Could Be Worse! They say, “Don’t knock it ‘til you try it!” So… maybe homelessness isn’t that bad of an option? We might even be able to make some friends along the way. After all, the guys chilling under that bridge down the street seem pretty friendly when they’re giving each other what I can only assume to be C-19 and Ozempic vaccines. That’s what I and likely many other wannabe homebuyers are thinking after yesterday’s Existing Home Sales report from the National Association of Realtors (NAR). The headlining figures were tough to get excited about, but looking under the hood (and maybe under the bridge), it wasn’t all bad. Let’s get into it. The Numbers According to the NAR, existing home sales in the United States fell 1.9% on both a monthly and annual basis in April. [Source]() And this time, there wasn’t one region ruining the party. Only the West saw an increase in sales, and this was limited to just an annual basis, growing a measly 1.3%. The Northeast saw the deepest drop off, falling 4% both annually and monthly as overpaying to live with the highest taxes and sh*ttiest weather in the country apparently doesn’t have much appeal. But still—go Celtics. Both of the above regions also saw the highest increases in median sale price, rising 8.5% in the Northeast to $458k and 9.3% in the West to an insane $629.6k. In the South, sales activity fell by 3.1% annually, accompanied by a 3.7% increase in the median price to $366.2k. Clearly, Americans see this region as the place to be, given that 46% of recent existing home sales took place in the South. Not that anyone lives in the Midwest, but just to round it off, this region saw sales fall 1% while the median price grew 6% to $303.6k. [Source]() All told, this led to a nationwide increase in the median sales price of 5.7% to $407.6k. So, given the increase in sales price along with the decrease in the number of sales, this suggests the issue remains on the supply side. We kinda knew that already, given the enormous demand from Millennials and Gen Z coming into their household formation years. But at the same time, we got an update on exactly how screwed prospective buyers are based on supply-side data. And surprisingly, housing inventory actually rose by a meaningful amount… for once. Total inventory grew to 1.21mn, a 9% increase on the monthly side and a 16.3% annual increase. Despite the increase, however, unsold inventory sits at only a 3.5 month supply, an improvement from 3.2 months worth of supply in March and 3.0 months in April 2023, but still well below pre-pandemic and especially pre-GFC levels. The other notable factor here is exactly what kind of homes are getting bought up and how this impacts the headline sales and price data. [Source]() As we can see above, the price range posting the largest increase in sales is the $1mn+ range. Especially when paired with the data in the sub-$500k range, this dynamic will pull up the nationwide median (and, more so, average) sales price. So, given the concentration of sales growth in the rich people range, even if there are fewer homes sold within this bracket, this dominance could artificially increase the median home value data in a way that renders it irrelevant to the average buyer. [Source]() And that means that, much like Jayson Tatum in the fourth quarter, the above chart creates a lot more worry than there should be. The Takeaway? To summarize, existing home sales data in April told us: - Despite declining sales almost across the board, demand remains high - High demand and low supply are pushing up prices, but… - Concentration of sales growth in the +1mn range is artificially inflating that median price increase Based on that summary, our primary takeaways include: - Young people looking to not be homeless are still f*cked and - That isn’t gonna change for a while given low inventory levels, so - Maybe it’s time to make Grandma & Grandpa homeless for a bit Alright, that might take things a little too far at the end there, but the point remains. U.S. housing, while in a far better position than other countries like Canada, puts homebuyers in an egregiously tough position. It’s great for homeowners to see prices not only continue to increase, but to see that increase actually accelerating. However, home sales tend to be a “lagging” indicator as most buyers make their decisions in response to interest rate moves. Plus, the data above is based on closings, so these sales were likely agreed to in January and February, for the most part. Instead of lowering rates or buying more MBS, perhaps the best way the Fed could help would be by starting a damn GoFundMe for homebuyers still too scared to break ground on more housing units despite enormous demand, price growth, and mortgage rate spikes. Perchance. What's Ripe 🤩 Analog Devices (ADI) 📈10.9% - Although the S&P fell from all-time highs, Analog Devices didn’t give a damn, closing at a record on strong quarterly earnings and solid guidance. - The IoT hardware maker earned $1.40/sh on $2.16bn in sales vs estimates of $1.26/sh on $2.11bn as CEO Vincent Roche says they’re seeing a “cyclical recovery.” - Apparently, the boring stuff works as inventory management was the biggest driver in EPS growth. Further, new order data gave reason to be optimistic. TJX Companies (TJX) 📈3.5% - This is like the retail equivalent of when Tiger King was all the rage—it’s only successful because everything else sucks. But still gotta love TJ Maxx. - The discount retailer posted strong earnings, in line with overall spending data, and seeming to take customers from other retailers, like Target below. - While it’s great for them, reporting in-line sales and an earnings beat, it’s not a good sign for the economy at large when everyone’s bargain hunting. What's Rotten 🤮 Williams-Sonoma (WSM) 📉11.0% - If Taylor Swift was a shareholder in this home goods maker, expect a new album soon as the heartbreak felt yesterday was worse than their Wildest Dreams. - By open, shares were up 9.6%. But, shares subsequently plummeted 18.7% intraday, thanks to macro data or Mr. Market’s lack of reading comprehension. - William-Sonoma beat on earnings, posting a 70% jump in profits to $4.07/sh, eviscerating estimates for $2.67/sh. Sales beat too, but only by 0.35%. - Although margin and revenue guidance were raised, weak existing home sales data seems to be the only reason for the humiliating share price performance. Target (TGT) 📉8.0% - Heroes get remembered, but legends take an 8% crash like a champ. Target plummeted in response to earnings data and their efforts to crush inflation. - Although JPow’s new best friend, the market threw up shares in this retailer as the company missed on earnings by 0.98% while sales beat by only 0.06%. - Pouring salt in the wound, CEO Brian Cornell highlighted “continued soft trends in discretionary spending.” But, even sales of things like groceries fell off. Thought Banana 🤔 Earnings Spotlight: Nvidia Inc A few years ago, retail traders thought they’d found the elusive “infinite money glitch” via Robinhood’s margin shenanigans. But it turns out, the real infinite money glitch was right under our noses the whole time. Instead of pumping $GME, we should’ve been manufacturing advanced AI semiconductors and software platforms in our spare time. This is f*cking insane. I thought Fed Chair Jerome Powell was good at printing money, but Nvidia CEO Jensen Huang is clearly the true GOAT. Once again, Nvidia absolutely smashed their latest quarterly earnings, sending shares higher after hours and allowing markets to take a 3-month deep breath until the firm’s next earnings release determines the fate of the entire market once again. The Numbers The leader in AI chips managed to deliver revenue of $26bn in the first quarter of its fiscal ear 2025. Despite struggling to count years, they clearly have no issue counting racks. Sales beat estimates by 7.02%, but the real top-line metric to marvel at is once again annual growth. Revenue more than tripled annually and boomed 18% higher than that of their previous quarter. That translates to 4-year revenue growth of 744.16%, which I don’t think has been done since the Dutch East India Company discovered spices. Data center revenue was up 427% annually to another record high of $22.6bn. This shouldn’t have been much of a surprise, given that Huang was shouted out on every earnings call from Meta to Alibaba last quarter. Nvidia stated that 40% of revenue is now attributable to “large cloud providers” like AWS and Azure, underscoring just how crucial the firm’s technology is to what they’re calling the “next industrial revolution.” Instead of factories filled with smoke and child labor like the last one, this one is filled with GPUs and computing power, identifying their biggest market opportunity going forward as “AI factories.” Essentially, they’re referring to the compute clusters used to power data centers, LLMs, and other high-tech needs, such as the 24,000 Nvidia H100 chips Meta uses to power Llama 3. Despite the success of the H100, Huang stated that the firm is “poised for [their] next phase of growth” with the nascent Blackwell platform, new chips set to be even more capable than the now-legendary Hopper line of chips. Needless to say, at this point, Nvidia’s net income obviously ballooned alongside revenue, as it has seemingly every other quarter. Last quarter, net income clocked in at $14.9bn, a 621% leap from last year and up 21% from the prior quarter. What Else Is Happening? If that’s not enough for you, some of the other insane developments Nvidia is making include: - Reporting $7.7bn worth of buybacks - $98mn in dividends, while raising by 150% as well (although, that’s to just $0.01/sh) - A 10-for-1 stock split occurring on June 7th, which doesn’t actually matter, but retail traders will pump anyway At the same time, free cash flow grew by over 465% to a record of $14.94bn. Gaming revenue, which Nvidia used to be known for before hitting corporate puberty and becoming the hottest stock on Earth, was up 18% to $2.7bn while professional visualization sales came in at $427mn and automotive sales made up $329mn. I’m not sure if I said it already, but wow, this is f*cking insane. The Takeaway? As goes Nvidia, so goes the market. This has been the case since the firm started popping off in late 2022, powering markets alongside the release of ChatGPT into this AI wave. But, now is when the hard world really begins. There are no more easy comps for Nvidia, so expect these insane growth numbers to be slightly less insane going forward. Hopefully, that doesn’t bring the rest of the market down, but markets really have become Jensen Huang’s world, which we’re just trading in. Shares were up as much as 7.21% after hours. 💭 The Big Question 💭: How long can Nvidia continue to sprint in this marathon? What other companies will become the firm’s top competitors? Is this “AI factory” idea just hype or just right? Banana Brain Teaser 💡 Previous 🗓 A certain high school has 5,000 students. Of these students, x are taking music, y are taking art, and z are taking both music and art. How many students are taking neither music nor art? Answer: 5,000 - x - y + z Today 🕐 Each person who attended a company meeting was either a stockholder in the company, an employee of the company, or both. If 62 percent of those who attended the meeting were stockholders and 47 percent were employees, what percent were stockholders who were not employees? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “Never stop asking questions and seeking answers. Curiosity fuels progress.” — Jensen Huang How Would You Rate Today's Peel? 😁[All the bananas]() 😐[Meh]( 😩[Rotten AF]() Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]( // [WSO ALPHA]( // [ACADEMY](=) // [COURSES](=) // [LEGAL]() [Unsubscribe]( IB Oasis Corp. 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