Date: August 28, 2023

BUT BUT BUT Nvidia Had a Blowout Quarter

When I got back from the Midwest on Wednesday night my middle son immediately wanted to discuss Nvdia’s absolute blowout earnings report. Before you start thinking that he’s another example of insanely bullish sentiment on the stock and AI in general, he has been all over AI and the semis for a number of years. He just doesn’t understand the ebb of flow of stock price movement.

I told him that given the strong run up in the stock and the over the top positive commentary from its CEO, Jensen Huang, the earnings report should be a blockbuster. The hard part was getting market reaction right. My son asked why wouldn’t the stock soar if there was good news. That’s where my lesson began.

Below is the stock into earnings. Not a bad run this year.

Nvidia reported earnings after the markets closed on August 23rd. Below, right in the middle you can see that the stock gapped up from $470 to almost $505 from close to open on August 24th as traders and investors celebrated the amazing report.

As is often the case, the party ended quickly. From the $505 opening, the stock was quickly sold by smart money throughout the day and closed just above $471. Basically, the entire party was given back. In trading terms, that’s called a rug puller where they pull the rug from out underneath people. And it can hurt for those late to the party who bought on the news.

Below is the updated chart post-earnings and at the end of last week. To me, with lots of red days lately, the stock looks a little tired. About the only thing I would consider since we have a half-sized position is to return the position back to its original size by selling a little bit.

The moral of the story or the takeaway is that when it comes to investing or trading based on earnings, you have to get two things correct. You likely need to get the fundamental story and then market reaction. It isn’t always intuitive and it’s certainly not easily predictable. Oftentimes, markets pivot on earnings and begin a counter trend move that befuddles the masses. They do not understand and often give the old “BUT, BUT, BUT”. My readers know better.

On Friday we bought ERX, XLB, more LABU, more IWO, more RYDHX and more levered NDX. We sold some DXHYX.


Paul Schatz, President, Heritage Capital