Latest / Markets with Megan: A Quick Financial Markets Update / Will NVIDIA's Sky-High Valuations Hold? | Episode 165 | 08-28-24

Transcript

Will NVIDIA's Sky-High Valuations Hold? | Episode 165 | 08-28-24 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: Well, the day is here for the much-anticipated NVIDIA earnings for the second quarter of this year.
• 0:06
  Megan Horneman: This is your regular segment of Markets with Megan.
• 0:09
  Megan Horneman: It is Wednesday, august 28th, and why in the world are we focusing on one individual company?
• 0:14
  Megan Horneman: We typically don't do that, however, nvidia.
• 0:18
  Megan Horneman: It's unfortunate that the entire market's kind of been in a standstill after we got the Jackson Hole speech from the Fed last week, waiting for these earnings.
• 0:27
  Megan Horneman: When you have a company that makes up about 7% of the S&P 500 index and whose market cap has ballooned to over $3 trillion and, to put that into perspective, that's bigger than the economy of France and it's almost as big as the economy of the UK that gains some attention from investors.
• 0:47
  Megan Horneman: Now, if you've lived under a rock NVIDIA just to understand it is a company that has really been the darling in regards to AI, because they make the high-speed chips.
• 0:58
  Megan Horneman: These chips are difficult to manufacture, but NVIDIA seems to have the stronghold on this.
• 1:04
  Megan Horneman: So what we've seen is some people try and enter this space, but, in fact, most have just decided to buy chips from NVIDIA.
• 1:12
  Megan Horneman: So that's why we've seen the stock price go up over 750% since 2022.
• 1:18
  Megan Horneman: So why is NVIDIA earnings so important today?
• 1:22
  Megan Horneman: Well, technology rising so much and making up so much of the S&P 500 return from 2020, the end of 22 to 23, and even the beginning of this year, it's really started to lose momentum.
• 1:34
  Megan Horneman: If you just look, since the end of the second quarter, the NASDAQ is underperforming the S&P 500 equalal Weight Index by almost 6%.
• 1:46
  Megan Horneman: So we're starting to see some broadening out away from these technology names because they've rallied so so much.
• 1:52
  Megan Horneman: Now this euphoria in AI has also started to wear off and people are starting to say whoa, whoa, whoa, there's these elevated multiples.
• 2:02
  Megan Horneman: We need to see something for this.
• 2:04
  Megan Horneman: Now.
• 2:04
  Megan Horneman: We've had a couple of tech companies already report and what's happened is that they've put a significant amount of money into CapEx spending on AI, but their revenues aren't really generating anything off of it yet.
• 2:18
  Megan Horneman: So investors are getting scared not scared of this is a long-term theme, but scared that they're paying way too high in multiples for that.
• 2:25
  Megan Horneman: So we've started to see that pull back.
• 2:28
  Megan Horneman: Now what do we think going forward?
• 2:30
  Megan Horneman: We believe in AI.
• 2:32
  Megan Horneman: This is going to be a fundamental change for the future, and when you have that saying, history doesn't repeat itself, but it often rhymes.
• 2:42
  Megan Horneman: This does seem to us a little bit like a dot-com type of momentum trade.
• 2:46
  Megan Horneman: Now, we don't think these companies are in the same financial situation as the companies in the dot-com bubble Not at all.
• 2:54
  Megan Horneman: These are well-established companies, but this is a brand new idea and when you have so many people that are afraid of missing out that FOMO, that fear of missing out and they decide to pay any multiple for these companies, you tend to see these bubbles start to exist, and we do think that some of this technology sector is looking bubble-like.
• 3:14
  Megan Horneman: We've often expressed our concern about how long this is sustainable.
• 3:18
  Megan Horneman: We don't know what NVIDIA will come out with today.
• 3:21
  Megan Horneman: Will it reinforce that they continue to be the king here of the AI market, or will it disappoint investors?
• 3:30
  Megan Horneman: And we'll be back.
• 3:31
  Megan Horneman: We'll give you some updates tomorrow on what the earnings showed us, but more primarily from the tech sector as a whole.
• 3:37
  Megan Horneman: How did the rest of the tech sector perform after the NVIDIA earnings?
• 3:44
  Megan Horneman: Because, again, we're not focusing on one specific company for the long run.
• 3:50
  Megan Horneman: Now, that's what we have today, just to kind of give you an idea on NVIDIA.
• 3:54
  Megan Horneman: We will be back.
• 3:55
  Megan Horneman: There's more economic data and, as I said, we'll mention NVIDIA earnings as well.
• 3:59
  Megan Horneman: But between NVIDIA earnings and next Friday's employment report.
• 4:04
  Megan Horneman: These markets are going to stay pretty quiet until we get both of these reports.
• 4:08
  Megan Horneman: The NVIDIA is going to either confirm or deny this continued reach towards record high for equities, and the employment report will let us know how much the Fed can cut rates in September.
• 4:21
  Megan Horneman: That's all we have Again.
• 4:23
  Megan Horneman: If you like this podcast, please hit the like button, subscribe that alarm bell.
• 4:28
  Megan Horneman: That's there as well, and if you'd like to see historical episodes of Markets with Megan, please reach out to themarketswithmegan.
• 4:34
  Megan Horneman: fm.
• 4:36
  Megan Horneman: Thank you.