NVIDIA Just Got Cheaper! - Your Money for May 26th, 2023

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Nvidia shares had an out-of-this-world move this week! It turned out to be one of the largest single-day gains in market value ever, but after a 24% gain, the chipmaker’s stock was valued cheaper than the day before. Ponder this: The day before, NVIDIA's price-to-earnings ratio was 66 times earnings based on full-year 2024 estimates and 49 times earnings based on 2025 projections. On Friday, the forward P/E for this year was 53, and just 40 for next year.

Seem odd? Here’s how this unfolds. The metrics on which NVIDIA is being valued are the forward earnings estimates and not the past.  They are altered on a percentage basis by a degree quite a bit more than the percentage gain in the stock price. As a result, the valuation (which is simply price divided by the forward estimates) declined materially. When you observe NVIDIA being historically cheaper than it really is, this is why it ends up being lower in valuation. Analysts time and time again undervalue the real earnings potential of the company and then play a game of cat and mouse when catching up with their estimates. The short sellers, also not seeing the potential, got handed their shorts and lost their shirts betting against NVIDIA to the tune of $2.2 billion. What about Cathy Woods? Well, she sold ahead of earnings...not so smart. Remember, price is what you pay. - value is what you get.

In Canada, the Canadian Banks reported their numbers, and they weren’t so rosy. In fact, three of the major six banks saw greater than 5% declines in their shares due to lower profits and necessary moves to put more reserves aside to deal with non-performing loans. Higher interest rates and a slowing economy appear to be the culprits.

Commodity prices remained weak right up until today on recession fears, sinking shares of Teck Resources and Interfor leaving the TSX finishing off the week down 2.2% to 19,920.

U.S. stock indices were mixed with the S&P 500 flat for the week alongside the Dow which was lower by 1.4%. However, last week I mentioned strength in the semis and how A.I. is heating up this sector - that continued as NVIDIA's blowout earnings blasted the stock up 24% for the week and over 160% in 2023, making it the first trillion-dollar chip firm. Marvell Technologies gained 44% for the week helping to lift the NASDAQ higher by 3.3% by the close of the week.

U.S. consumer spending surged in April which heats up the inflation narrative once again and adds fuel to the fire as the Feds view the need for higher rates. Add the risk of a U.S. debt ceiling deal going south and that leaves plenty of risk in the markets.

Looking ahead to next week, there are a lot of economic numbers to unpack, including consumer confidence, initial job openings, the ISM numbers, and the U.S. unemployment report which includes the unemployment number as well as the year-over-year wage increases. Still, some Q1 earnings are set to arrive into next week and the June 1st debt ceiling battle is one to look forward to.

Finally, we are ready to climb this weekend to help the Ocean Wealth team at PI Financial get to the summit of Mount Logan through the Power to Summit challenge! This event raises funds for young kids and adults with mental and physical barriers in life. There is still time to help the Ocean Wealth team at PI Financial. Go to https://www.oceanwealth.ca/ to learn more and donate to a cause we are proud to support every year.
Happy trading and Stay Safe.

Ian David Clark

Portfolio Manager CIM, CFP