Nvidia crushes earnings – once more… no signal of an AI slowdown… jobs information surprises to the upside… the Technochasm widens… navigating a slowing economic system and overvalued tech performs… Eric Fry is discovering the fitting stability in well being care…
Simply after this morning’s opening bell, the market breathed a sigh of aid.
Final night time, Nvidia Corp. (NVDA) delivered the earnings report that Wall Avenue desperately needed – crushing expectations and, a minimum of for a second, silencing doubts in regards to the AI growth.
Since late October, the tech/AI commerce has been wobbling. The narrative driving sky-high valuations seemed shaky as questions mounted about whether or not the AI growth was overheating.
Traders had been asking: Has the commerce peaked, or will it snap again?
Final night time, with its earnings report, Nvidia confirmed that the AI infrastructure growth may be very actual with an earnings report that legendary investor Louis Navellier known as “good.”
The corporate didn’t simply clear modest expectations…it blasted previous them
Each income and earnings beat forecasts. As importantly, administration painted a rosy image of the longer term.
This was key. Wall Avenue needed reassurance that the gravy prepare would proceed.
Right here’s The Wall Avenue Journal:
The corporate elevated its steerage for the present quarter, estimating that gross sales will attain $65 billion—analysts had predicted income of $62.1 billion for the quarter.
Additionally essential, the data-center phase (the engine of this AI infrastructure wager) generated roughly $51.2 billion, signaling that the compute spine of the AI build-out stays in full throttle.
But it surely wasn’t simply the numbers that got here in sturdy – it was the commentary
Right here’s CEO Jensen Huang:
There’s been lots of discuss an AI bubble. From our vantage level, we see one thing very totally different.
Huang went on to say that “cloud GPUs are bought out,” and gross sales for Nvidia’s Blackwell chip are “off the charts.” However right here was the doozy:
We’ve entered the virtuous cycle of AI.
AI goes all over the place, doing every thing, .
And it didn’t cease there. Tech bulls had been thrown one other bone – robotics.
Administration highlighted robotics as a key development space, with Q3 automotive and robotics gross sales rising 32% annualized.
This aligns with what our tech skilled Luke Lango, editor of Innovation Investor, has been monitoring – the approaching wave of humanoid robotics that can rework manufacturing, healthcare, and past. We’ll have extra on this from Luke in an upcoming Digest.
However whereas Nvidia’s sturdy earnings goosed the inventory market simply after the opening bell, that wasn’t the tip of the story
As of mid-morning, it appeared at the moment can be an enormous “up” day on Wall Avenue, led by NVDA, up about 5%. However because the session is progressing, that acquire has turned to a lack of almost 1%.
In the meantime, the broader market has adopted swimsuit: early power within the S&P, Dow, and Nasdaq has totally reversed, with all three indexes turning detrimental.
This flip displays a deeper rigidity beneath the floor.
Even with Nvidia’s blowout outcomes, at the moment’s reversal reveals that Wall Avenue nonetheless isn’t totally satisfied in regards to the near-term payoff of the AI growth. Traders might love the long-term story – however the market is signaling that the trail from right here could also be bumpier than Nvidia’s “good” quarter suggests.
However this isn’t the one information impacting Wall Avenue at the moment…
The most recent jobs information breathes new life right into a December price minimize
This morning, after weeks of silence through the federal authorities shutdown, the Bureau of Labor Statistics launched its September jobs information, which had many traders on edge.
Would we discover a crumbling labor market? How unhealthy wouldn’t it be?
In an surprising twist, the U.S. economic system added considerably better jobs than forecasted.
Right here’s CNBC with the main points:
Nonfarm payrolls elevated by 119,000 within the month, up from the 4,000 jobs misplaced in August following a downward revision. The Dow Jones consensus estimate for September was 50,000.
Whereas this displays a fairly wholesome labor market – definitely one not on the point of recession – the unemployment price crept larger to 4.4%. That’s its highest studying since October 2021. Plus, many of the job good points got here from healthcare and eating places, not widespread hiring.
So, how would possibly this have an effect on the Fed’s rate of interest resolution subsequent month?
The stronger-than-expected development reveals that the labor market isn’t on the sting of a cliff as has been feared. And whereas some would argue that this implies the Fed will take a breather on price cuts in December, some on Wall Avenue see it otherwise…
Moderately than specializing in that 119,000 acquire, merchants are zeroing in on that larger 4.4% unemployment price and deciphering it as “extra purpose to chop.” Plus, if we common job good points over the past 4 months, the determine clocks in at about 44,000 – not precisely sturdy.
So, some on Wall Avenue are rising extra optimistic about one other minimize. We are able to see this by trying on the CME Group’s FedWatch Software. This reveals us the chance that merchants are assigning to totally different fed funds goal charges sooner or later.
Yesterday, merchants put roughly 30% probability on a December price minimize; that quantity has risen to 42% at the moment within the wake of the brand new jobs print. Nonetheless, this leaves almost 60% of merchants banking on a pause.
Circling again to Louis, right here’s his fast take from this morning’s Growth Investor Flash Alert:
Let’s hope the Fed does the fitting factor – cuts charges on December 10 – but when not, they’ll be chopping charges within the subsequent yr. They need to.
Returning to Nvidia and the AI growth, if zoom out, a darker story emerges
Nvidia’s earnings victory isn’t only a win for shareholders. It’s one other information level in a narrative we’ve been monitoring intently within the Digest – the wealth divide powered by tech and now accelerated by AI.
Our macro investing skilled Eric Fry, editor of Fry’s Investment Report, has been on the forefront of this story for years, serving to his readers revenue. The most recent instance is the 110% return that Fry’s Funding Report booked on tech chip darling Superior Micro Units Inc. (AMD) final month.
Longtime Digest readers will recall Eric’s time period, the “Technochasm” which describes the extensive – and increasing – wealth hole in the US that, largely, is being pushed by expertise.
More and more, a small group of expertise enterprise homeowners, key workers, and traders are on the receiving finish of AI’s wealth creation.
For instance, let’s circle again to Nvidia.
Right here’s The Kobeissi Letter from August:
That is unimaginable: Roughly 50% of Nvidia workers at the moment are price over $25 million.
Roughly 80% of Nvidia workers at the moment are millionaires.
The AI revolution is producing unprecedented wealth.
Unprecedented wealth…for some.
Due to AI, wealth focus is now accelerating and exploding the hole between the “haves” and “have-nots” to the best stage of our fashionable age.
Whereas Nvidia workers are contemplating their colour choices for his or her subsequent Ferrari, almost 42 million Individuals – about 12% of our inhabitants – are on the Supplemental Diet Help Program (SNAP), the meals stamp program.
For the newest on this from Eric, let’s go to his November problem of Funding Report from earlier this week:
The AI funding growth is one other power that’s powering the rising divide between wealthy and poor.
These large investments will generate lots of financial stimulus, however it would accrue narrowly to capital homeowners, to not bartenders and baristas. The GDP might look okay, however the paycheck distribution doesn’t.
America isn’t collapsing; it’s diverging.
Given this divergence, Eric argues that traders ought to be pondering rigorously about their publicity proper now
We’re more and more coming into a “stability beam” market.
Lean too far to at least one facet and also you’re uncovered to firms hemorrhaging gross sales as stretched shoppers on the mistaken facet of the Technochasm pull again.
Right here’s Eric’s associated funding takeaway:
The cautious investor would possibly need to loosen up on the businesses with heavy publicity to stretched households.
That group would come with industries like mass-market eating places, discretionary retail, subprime credit score, and auto finance.
However lean too far the opposite means, and also you’ll end up uncovered to shares that – although high-flying – are more and more dangerous as a consequence of extreme valuations (at the moment’s market reversal illustrates such danger).
Again to Eric:
Trimming positions in high-flying AI stocks may additionally be a prudent plan of action.
As a result of many of those shares are “priced for perfection,” even small doses of unhealthy information could cause outsized selloffs.
So, how can we keep squarely on the stability beam and transfer ahead at the moment?
One possibility?
Well being care.
Right here’s Eric with why:
Valuations throughout the healthcare sector have tumbled to report lows relative to the S&P 500.
You’d have to return greater than 30 years to search out valuations this depressed.
As one instance of a terrific firm promoting at a cut price value, Eric highlights Pfizer Inc. (PFE). It’s buying and selling at a historic low cost to the S&P:
Traders at the moment are paying about 70% much less for a greenback of Pfizer earnings than for a greenback of earnings from the S&P 500 as an entire.
That is the biggest low cost since 1993 – proper earlier than the beginning of a strong bull marketplace for healthcare stocks.
Over the subsequent six years, PFE soared greater than 1,000% over the S&P 500 index.
Need one other concept?
Eric factors towards Bristol-Myers Squibb Co. (BMY), one of many world’s largest pharmaceutical firms.
Again to Eric for a couple of numbers:
The corporate raised its midpoint income steerage for the yr from $46 billion to $47.75 billion and bumped its earnings-per-share steerage to $6.50. Free money circulation is rising sharply, and internet debt continues to say no.
Bristol-Myers trades for about seven instances ahead earnings – one-third of the S&P’s a number of – and yields greater than 5%, backed by sturdy free money circulation and an A-rated stability sheet.
These numbers counsel a drained, no-growth firm, but its enterprise is clearly regaining momentum.
Eric has beneficial two different drug shares in Fry’s Funding Report – each up almost 50% in 2025, roughly tripling the S&P’s 13% acquire.
In case you’re desirous about figuring out which of them, Eric breaks down his full healthcare technique – together with these two profitable positions – in his newest problem. Click here to learn how to join Fry’s Investment Report and see his full analysis.
General, AI is accelerating the wealth divide, leaving some firms flush with capital – but maybe with dangerously lofty valuations – whereas others battle underneath the burden of shrinking client budgets.
Well being care provides a center path – collaborating in the identical highly effective forces reshaping the economic system, however at valuations that counsel loads of room to run.
Right here’s Eric’s backside line:
Pharma’s money flows are on the rise, gross margins are nonetheless roughly double the S&P’s, and the sector is starting to combine AI in ways in which may make drug improvement quicker, cheaper, and extra exact.
As an added plus, the sector provides a wholesome 3% dividend yield – greater than double the S&P 500’s.
We’ll preserve you up to date on all these tales right here within the Digest.
Have an excellent night,
Jeff Remsburg
