The big Nvidia earnings are due tomorrow after the market close.
And as we discussed in my note yesterday, Nvidia's quarterly growth capacity seems to have hit a wall (constrained by manufacturing capacity). The market seems to have recognized it, based on the behavior of the stock after last November's earnings release.
With that, and given some of the risk-off behavior in markets today, the set of outcomes looks skewed toward negative for Nvidia shares from tomorrow's earnings. And that would set up as a catalyst for some broader stock market weakness (a correction).
With that, let's look at a few charts …
Above is the chart on Nasdaq futures. You can see the influence of the "ChatGPT moment" (as coined by Jensen Huang). A move down to this trendline would represent an 11% correction.
Next, is Nvidia.
A move back to this trendline in Nvidia would be in the low $80s. A retracement to the day of the stock-split-announcement (May 22, 2024) would be about $95.
This next chart would argue: If we are in the midst of a correction in the American AI-theme, the movement of capital into Chinese AI—where substantial value opportunities exist—confirms the investor confidence in the AI theme. It's an opportunistic shift towards value, not a retreat from the theme.
And as I said in my note yesterday, the AI revolution is real and well intact. And a correction in the AI-theme would be a welcome buying opportunity.
