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Nvidia blows the top off estimates, driving a decisive Wall Street rally

Intermediate

One of the big stories of 2023 has been the impressive rally of the NASDAQ and the huge outperformance of Big Tech. The main driver of this has been US chipmaker, Nvidia. The semiconductor company that provides the processors crucial for Artificial Intelligence applications such as ChatGPT, has been at the forefront of the tech rally. After seeing a corrective move on Wall Street in recent weeks, the anticipation of Nvidia’s Q2 results has helped to shift the mood in recent sessions, helping US index futures higher again. The announcement of its results did not disappoint, with the positive reaction to a blowout set of numbers driving a decisive improvement in markets. I’m going to look at what this all means for US futures.

  • Nvidia’s blowout results
  • Big Tech has been carrying the market in 2023
  • The technicals turn more positive again
Nvidia

Huge numbers from Nvidia

Along with countless other market participants, I have been waiting for these Nvidia results for a while. And boy, did they not disappoint. There is always a worry that stellar expectations might not be met. A stock that has been jacked up to eye-watering valuations (a price/earnings ratio north of 200x), could have a tough task remaining stable on such a high pedestal. However, those worries were blown away by the incredible numbers that Nvidia posted yesterday.

Market consensus estimates had pencilled in sales of $11.13bn on an earnings per share of $2.07. I have been reading that some analysts had felt that it would need sales above $11.50bn and earnings of $2.15 to justify the hype of recent days.

The actual results were mindblowing, with revenue of $13.51bn and earnings of $2.70 per share. That was not all either. Forward guidance was massively bumped up too. The company said that Q3 sales would be around $16bn. That compares with the Bloomberg consensus of c. $12.5bn. The demand for chips to support the massive growth potential of AI continues to accelerate. Oh, and another little Brucie bonus that will help to prop up the Nvidia shares, an additional $25bn of share buybacks have also been approved.

Nvidia soars again

Now, I don’t know whether a company trading on over 200x earnings is justified as a viable long-term investment. However, the momentum in the run higher of the shares this year has been incredible to see. Nvidia continues to live up to the hype of being the poster boy company in the explosion of AI. The shares have already been on an incredible run throughout 2023, and these results could fuel the next leg higher into the stratosphere. The chart below shows some of the biggest names of Big Tech, and how Nvidia tops the lot in performance this year.

stocks

The shares have climbed over +6% in after hours trading since the results and are sure to have a strong session today. Nvidia shares are up 222% this year (not including the after-hours move). The shares hold a significant weighting of the NASDAQ 100 (up 36%) and the broader S&P 500 (up 16%), accounting for 4.5% of the NASDAQ 100 and 3.1% of the S&P 500.

The run higher in Nvidia shares has been the driving force behind the tech rally of 2023, helping the wider market too. This can also be seen looking more nearer term, as the run higher in Nvidia is helping US index futures recover recent losses.

NASDAQ 100 futures rebound

The significance of the Nvidia results can be seen in the impressive rebound seen on the e-mini NASDAQ 100 futures in recent days. Technical analysis shows that a rebound (from 14667 on the September contract) has changed the outlook. A three-week downtrend has been broken decisively. The daily RSI is back above 50 and continues to improve, whilst the move is also back above the 55-day moving average.

NASDAQ

The rally has quickly recovered the futures to the test of an important crossroads. There is a medium-term pivot band (of almost 175 ticks) between 15325/15498 that needs to be overcome. A close back above resistance at 15610 would signal that this rally is likely to continue, opening a test of the late July high of 15917. Intraday charts show that there is initial support between 15295/15334 from the initial reaction to the Nvidia news breaking. If this support is breached to the downside, it would suggest that the market is having second thoughts.

Editor

Richard is an independent market analyst with over 20 years of experience working for brokers in London. Most recently he has worked with Hantec Markets and Infinox, focusing on trading education, ana... Continued

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