VIDEO: Our Plan if Nvidia Earnings Fall Short

We have a jam-packed Daily Rundown video today as Chris Versace discusses the Portfolio’s move to pick up more shares of Universal Display OLED from earlier in the day and explains and why we cut our Qualcomm QCOM price target following Tuesday's Investor Day event. 

Plus, ahead of Nvidia’s NVDA earnings report after today’s market close, Chris shares the consensus expectations for the company’s October and January quarters and explains our plan if Nvidia doesn’t deliver a beat-and-raise earnings report. 

Transcript

CHRIS VERSACE: Hey, everyone. Chris Versace here. Wednesday, November 20, better known as NVIDIA's earnings day. But before we talk about that, let's talk about some of the alerts that we sent your way earlier today. Out of the gate, right after the market opened, we bought some additional shares of Universal Display, really taking advantage of the oversold nature that's emerged in the shares. Just given the pullback over the last several weeks.

We did this given a few reasons. One, a recent confirmation that our thinking that Universal's December quarter guidance could be a little conservative, call it overly conservative. But also, two, as we shared in the alert, a number of data points that really confirm that the organic light emitting diode display market is continuing to expand beyond smartphones.

Our take on this is that over time, new applications-- whether they're notebook displays, PC displays, tablets, automotive lighting, both interior and exterior and down the road general illumination-- will all drive an expanding total addressable market for Universal Display and its OLED solutions. So it's with that long-term opportunity in hand and the oversold nature in the shares today, and really the last few days, that we took advantage and picked up some additional shares.

So please be sure to read that alert in full. I think you'll find it very insightful, very helpful. We also had some comments on Target's quarterly results, which were very disappointing. And their disappointing, I would say, outlook for the holiday shopping season, given that they don't see any real growth in their comp sales.

If we think about this yesterday on the back of Walmart's quarterly results, which showed some nice comp sales but candidly inferior to those for Costco, we take a look at what Target had to say about its comp sales. Again, not only for the October quarter that it reported this morning, but what it expects for the holiday shopping season, it tells us that Costco is extremely well-positioned to continue to take consumer wallet share. It's that simple.

Also, too, when we took a look at Target's comments during the earnings call about the use of promotional activity, how shoppers are responding to that promotional activity, it tells us that what we saw yesterday from Walmart is likely to be a bit of an aberration. That more likely, we are going to see a challenging holiday shopping season.

Yes, the consumers may be spending a little bit more year over year, but where they spend it, it is going to be a battle. There will be winners, there will be losers. And as I think about how we are positioned with Costco and Amazon, I continue to think that we are well-positioned as consumers look to stretch their disposable spending dollars this holiday season.

So again, we are going to continue to hold these positions, given that they will likely be picking up incremental market share, but also to remember these business models at Costco and Amazon, they are not your run of the mill retailer.

They are differentiated, Costco because of the membership-driven business model. Amazon, we could argue because there is some membership-driven business model there. Thank you, Prime. It's also it's growing advertising business. But also, really, the power of Amazon Web Services. So a number of reasons why we continue to stick with those plays on the retail space over others that are out there.

And then today, we also shared some comments about Qualcomm's investor day. And as we hoped, it really did help us put our arms around management's diversification strategy away from smartphones, towards automotive and IoT. Did they share multi-year targets? Yes, they did. Did they give us a breakdown of what those targets are over the next few years so we can track their progress? Yes, they did.

So all in all, I would say that we like it. But as you saw in our alert-- and if you didn't read it, again, a lot of information in there. I really stress that you should. We did dial back our price target to 200 from 255, just given where the shares are. Yes, you could say that maybe we're becoming a little too conservative against those big numbers, that very large, total addressable market of $900 million by 2029, 2030.

Yes, maybe we are being a little too conservative, but I would rather be conservative and have to boost our price target as certain milestones are met than foolishly give the company full credit for something that is five years out. Folks who do that, I think that's a little bit of a recipe for disaster. Timing can slip. Things do happen. So I would rather take, again, a much more conservative tone, resetting our price target at 200.

But as I said in the alert, given where Qualcomm shares are, and we think about the last time they were here at the start of 2024 and all the things that have developed, I do think that Qualcomm-- today, as we see it-- is far better positioned to capitalize on these diversification opportunities than it was 12 months ago, 24 months ago, or even further back.

So from that perspective, we're going to see how the shares settle out. We do have some room. We can pick up some more shares and we may. So please be sure to keep a fine eye on your email and your alerts over the coming days. Because as you know, if we make any moves with the portfolio, we want to make sure you are, like I say, right there with us.

Now, that was this morning. And as you know, this afternoon, we have quarterly results from NVIDIA. And as we get ready for that, I just want to make sure that the context is set here. Because NVIDIA shares are now the largest in the S&P 500 at about 7.22% or so of the overall basket. It's also the second largest holding in the NASDAQ 100. And I believe there's something like over 500 ETFs that count NVIDIA as a holding in their baskets.

So expectations are high. Let's also think, too, that really since NVIDIA shares bottomed in early August, they're up about 45%. So expectations, again, pretty, pretty high for what NVIDIA is going to say. Now, over the last several weeks, we've received numerous data points about AI adoption being in early innings. We've seen rising data center capital spending and other capital spending levels from big tech, given what they see ahead for AI adoption and the need for data centers.

We've seen robust monthly chip revenue from Taiwan Semiconductor and ramping AI chip efforts from Amazon, Microsoft, Google, Meta and others, some of which is benefiting our position in Marvell. Now, all of that sets up what NVIDIA is expected to deliver after tonight's close. That's EPS of $0.75 on revenue of just over $33 billion. And that $33 billion is up 82+% on a year over year basis. That is a big, big number.

For the January quarter, the one that it will guide to, EPS is expected to be around $0.82 on revenue of $37 billion. So another step up on a year over year basis, another big step on a sequential basis as well. Key to all of this, I'm sure, Jensen Wang will have a lot of comments about adoption for AI, what various partners are doing.

He'll also provide an update on NVIDIA's all important, closely watched, closely followed Blackwell chipset. But again, as I said, the shares are already up 45% since they bottomed in August. Are they overbought? No. Are they oversold? No. But even so, that is still a very high bar, which suggests that we could see the market disappointed if NVIDIA doesn't deliver a beat and raise quarter.

The question as we think about it is, let's say that it doesn't. Perhaps the shares trade off. Well, you know that we are long-term investors. And again, given the comments that we shared just a couple of moments ago about where we are in the AI adoption cycle, and as we think about the start of AI adoption in smartphones, PCs, tablets, other devices, it's all going to drive, as we've talked about, capacity constraits-- constraints, excuse me, at data center and digital infrastructure.

So we continue to see NVIDIA, Marvell and others benefiting over the next several years as that adoption continues. So from time to time, NVIDIA shares could be a little bit ahead of where they should be. There might be some overreactions. Our job as investors is to take advantage of those opportunities when they present themselves.

So with that in mind, we will be sharing our full thoughts once we have dissected NVIDIA's earnings press release, management's comments on the earnings call, and kind of putting all these pieces-- together, excuse me, and updating our thinking. Could we possibly see a pullback in NVIDIA shares? If we do, that could be, as we think about it, an opportunity for newer members or members who have not picked up NVIDIA shares perhaps to step in and either start a position or add to their existing position.

As it relates to the portfolio, it is one of our larger positions. We would need to see a meaningful pullback in order for us to spring into action. So we may not, but that doesn't mean it can't be a potential opportunity for newer members. So with that, let's go through the earnings report and let's see what happens and plot strategically after that.

One other thing that I will share with you, because we have seen with shares of Axon recently, Dutch Bros and others, we have seen short squeezes drive stock prices higher. Well, roughly 1% according to NASDAQ data of NVIDIA shares are short. That gives us about-- just about a day to cover, 1.1 if we want to get very technical.

So I'm not expecting a massive short squeeze. However, because this is one of the largest positions in the portfolio, should NVIDIA deliver a beat and raise quarter, which I think is likely, it could lead us to potentially do some prudent portfolio management if the shares move noticeably above 4.5% position size for the portfolio. So folks, covered quite a bit of ground in this video.

But remember, when it comes to NVIDIA, we're going to want to get through the totality of the earnings press release, the earnings conference call. And based on what we learn, we will have comments early tomorrow morning sharing what our thoughts are and how to proceed from here. With that, please be sure to check your emails, your alerts.

We've got a lot of other things coming, both today and through the balance of the week. We want to make sure you're getting our latest thoughts. And again, if we make any moves with the portfolio, we want to make sure you are right there with us. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long OLED, QCOM and NVDA.