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The Nasdaq awaits NVDA’s Q1 earning report on Wednesday for confirmation of a bullish summer.

The semiconductor bellwether is the best performing large cap stock on nearly every timeframe due to its revenue explosion and earnings report beats throughout the AI boom.

It’s a stock we’ve held in the newsletter’s portfolio since inception a little over a year ago and while we expect volatility in both directions, it’s a stock we plan to own for years to come.

The options markets imply an 8.5% move in reaction to earnings - considerably lower than the 10.6% move markets expected prior to last quarter’s report.

We’re previewing the NVDA earnings report in today’s newsletter. We’re also doing a deeper dive into China’s real estate bailout.

Crypto continues to march higher with bitcoin cleanly over $67,000 and Solana at $179. There’s no obvious catalyst - as long as global liquidity continues to loosen, crypto will be an outperforming asset class.

Other stories to watch this week? Federal Reserve board members are speaking at various events throughout the week and the FOMC Meeting Minutes drop on Wednesday.

Nvidia Earnings Preview: Key Insights and Expectations

Nvidia is set to report its fiscal Q1 earnings on Wednesday, with Wall Street expecting a 474% rise in EPS to $5.22 and a 241% revenue jump to $24.5 billion. Despite potential deceleration and slightly shrinking gross margins, Nvidia remains a critical player, driving the AI revolution and influencing broader market sentiment.

The company's stock, up 87% in 2024, reflects its central role in powering generative AI technologies, with analysts maintaining a bullish outlook despite supply constraints and rising competition. Investors eagerly await Nvidia's guidance for future growth and market leadership.

• Growth Prospects:

  • New Product Launches: Nvidia plans to ramp up production of Spectrum-X in Q1 FY25 and H200 in Q2 FY25, driving revenue growth.

  • AI Demand: Despite macroeconomic challenges, Nvidia is expected to benefit from the demand for generative AI (GenAI) applications, which businesses use to optimize operations through automation.

STRATEGIC INSIGHT

• Production Capacity: Taiwan Semiconductor's expansion of CoWoS capacity by the end of 2024 is expected to alleviate supply constraints, boosting Nvidia’s sales.

• Next-Gen Chips: The H200 chip, doubling the performance of H100, and the energy-efficient Blackwell architecture will likely see quick adoption among hyperscalers, driving Nvidia’s growth.

• Revenue Projections: Nvidia’s data center segment is expected to see significant acceleration in sales from eFY25 into eFY26 as new manufacturing capacity comes online.

DATA POINTS

• Earnings Forecast: Analysts expect Q1 FY25 earnings to be a pivotal indicator, with potential for strong growth despite broader economic challenges.

• Stock Performance: Nvidia shares, currently valued at 37.34x trailing sales, are seen as justified due to its robust growth trajectory. The stock has a price target of $1,451/share, based on an 18.35x eFY26 Price/Sales ratio.

Fortune, Seeking Alpha

Unpacking The CCP’s Housing Market Bailout

WHAT HAPPENED

Four years ago, China launched a "deleveraging" campaign to control its housing bubble, which was the largest asset for the middle class. Critics predicted the campaign would fail and lead to an inevitable property sector bailout with more debt.

The result: major real estate developers collapsed, the housing market fell into a deflationary spiral, the economy stagnated for five years, and social tensions increased.

In response, China announced a housing market bailout last week with several key measures:

• RMB300 billion relending quota: Aimed at helping local governments purchase existing housing inventory for public housing. This is expected to support RMB500 billion in bank lending.

• Downpayment ratio reductions: Lowered by 5 percentage points to 15% for first-time buyers and 25% for second-home buyers.

• Mortgage rate cuts: Nationwide floor for mortgage rates removed, giving local governments the discretion to lower rates further.

• Government purchases: Local governments directed to buy existing housing inventory to convert into public housing.

WHY IT MATTERS

• Nationalization Trend: Government purchases of housing inventory signal a move towards nationalization, potentially stabilizing home sales and prices but limiting new construction.

• Developer Relief: Some relief for developers, but new construction and investment will likely remain subdued due to tight funding conditions.

• Future Easing: Expect more demand-side easing measures. Potential funding sources include policy bank bonds, commercial bank loans, and possibly increased relending quotas.

• Implementation Challenges: Local governments are financially stretched, highlighting the need for substantial central government support to make these measures effective.

IMPACT

• Home Sales: Lower downpayments and mortgage rates could boost sales, but the small magnitude of reductions and constraints on banks' net interest margins may limit impact.

• Developer Conditions: Developers may see some improvement in funding conditions, but overall investment in new projects will likely stay low.

• Policy Monitoring: Upcoming policy events, such as the July Politburo meeting and the Third Plenum, will be crucial for additional measures addressing funding and implementation issues.

Bottom Line: China's bailout aims to stabilize its struggling housing market, but it falls short of sparking new growth. It’s a strong signal that the CCP has seen enough pain in the Chinese economy and is willing to step in to mitigate worsening.

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Got feedback? Follow the writer on Twitter @frank_locascio and send a message.

The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.ll