VIDEO: Thoughts on Nvidia Ahead of Earnings

In today’s Daily Rundown video, Chris Versace explains why the market is likely to tread water for the next few days. 

He also reviews our price target increase for Applied Materials AMAT and sheds light on why Axon Enterprise AXON shares have traded off, presenting a nice opportunity for subscribers. 

Transcript

CHRIS VERSACE: Hey, folks. Chris Versace here. It is Friday, April 17, end of the trading week. And as I'm taping today's video, the stock market's up slightly. And what I think is keeping the market in check, if you will, is something we talked about in our comments to you earlier this morning, it's that the Fed's reaction to the April CPI report simply was not as enthusiastic as the market's reaction.

And quickly to recap, in the April CPI report, we did see the core figure drop to 3.6% year over year, breaking out of that 3.8% to 4% range that it's been trapped in for several months. Nice, but still 3.6% is quite a distance from the Fed's 2% target. I think that explains why Fed officials Thursday afternoon came out and said, we're going to need to see more data, we're going to need to keep rates higher for longer, essentially reiterating comments from Fed Chair Powell over the last couple of weeks.

And again, I can't really argue with it, again, 3.6%, quite a distance from 2%. But what I think is going to happen here is the Fed is going to want to see core CPI dip below 3% on a sustained basis. As it sees that, I think it's going to become more comfortable with going from restrictive policy to less restrictive monetary policy, provided, of course, that the other inflation indicators continue to show good progress.

All of that means that we and the market are going to be treading water a little bit until the next key economic data point, which is the flash May PMI report and that comes out next Thursday. As you know, we tend to mine those flash PMI reports for a number of different things. We will be doing that again, first to assess the speed, the vector of the velocity, if you will, of the economy, and we'll be matching that up against the latest Atlanta Fed GDPNow model that puts current quarter GDP around 3.3%

But we'll also be taking a look at what the flash PMI reports have to say about inflation in the form of input, output costs and most recent trends there, but also about job creation and wages. Now that's again going to be a key report that comes out next Thursday. Ahead of that, however, we will have quarterly results from NVIDIA.

And as we know, NVIDIA is a key component of not only the S&P 500, but the NASDAQ. So its results are going to be very impactful on the market, just given what we've seen in terms of comments about AI and data center, whether it's spending or adoption or new programs being rolled out, there is increasing enthusiasm for AI and data center, of course, that is the sweet spot for NVIDIA.

So I do think that their quarter will be a very solid print. But as we've seen this earnings season, guidance is as important and to guide simply in line with market expectations is good, sometimes not good enough. So what we will want to see is NVIDIA deliver a beat and raise quarter. If we don't see that, and to be clear, I think that's going to be a low probability, we could see NVIDIA shares get a little volatile, maybe trade off in response.

If that's the case, we might have some room to add a little more of NVIDIA to the portfolio. And we say that because we recognize that even despite all the headlines, we are still in the early days of AI in the impact on data center demand. And of course, we want to be long NVIDIA shares as well as Marvell shares to really capitalize on that.

So between today and early next week, ahead of those results from NVIDIA and the flash PMI report, we will be revisiting price targets for a number of positions in the portfolio. When I held office hours yesterday, a couple of folks said, hey, Chris, Bank of America, Morgan Stanley bumping up against your price targets. We're aware, and as we said, we're going to reassess given the strength of the IPO market and some other factors, and we'll be doing that in the coming days.

But there are other positions that are also close to our price targets as well. So we'll be taking out a fresh pencil, if you will, putting it to paper and revisiting a number of price targets. And we'll be communicating any revisions with you in the next couple of days. We will also be digging into another bullpen stock. Yesterday we shared more thoughts on Eaton, ticker symbol ETN, and we'll be doing something like that in the next couple of days as well.

Now, before we close out today's video, I do want to talk a little bit about a couple stocks. The first is going to be Applied Materials. Today we did boost our price target. Company had a solid quarterly report topping expectations, top and bottom line. Guidance was bookended the consensus.

And what really stood out to me was the year over year improvement in margins. That tells us that even though revenue is flat year over year, the company is continuing to squeeze out cost, drive improving profits.

And I like that because when we see the kick in of reshoring spending, both US, Eurozone, Japan, and elsewhere, as well as incremental capital spending, given what I suspect we will see throughout the year, which is sorry, rising semiconductor chip industry capacity utilization. We're going to see a more profitable Applied Materials emerge.

So it's that type of leverage that we want to see that ramp probably isn't going to happen until sometime in the second half of the year. So we will continue to watch it, and the message I would make, at least in the short term is stay tuned. But I will also share that if we see Applied Materials shares dip back down around that 195 level or so, that could be a good area for us to pick up some additional shares in the portfolio.

And then finally, let's just talk a little bit about Axon. Again, yesterday when I want to held office hours there were a lot of questions as to why the shares were trading off. And I think there are really two things at play here. First, the company announced that it was going to file the sell up to 1.95 million shares. So there is some of that going on.

But also to the president of the company, Josh Isner sold about 44,000 shares. And to some folks, that is a big number, but we always have to have the context of was that a meaningful piece of the overall ownership position that was sold? And in this case, the answer is no. Isner still owns about 276,000 shares of Axon, meaning it's a meaningful piece for him.

We can't begrudge him for wanting to take some chips off the table, we do that from time to time. But I think the message here is that despite him cleaving off a piece of Axon shares, he still has a significant ownership stake. As far as us, do we continue to Axon shares? Yes, we do. The continued ramp year over year of public safety spending, Axon expanding its reach in terms of various customer base, but really most importantly, the mix shift towards cloud and what it is going to do for their margin profile.

So with that, I would just say we remain bullish on Axon shares. They have come back. There is nice support around the 287 level, that's the 100 day simple moving average. And for folks that are underweight Axon shares relative to where we are in the portfolio, I think this is a good setup to pick up some shares of Axon.

And that, folks is today's video. Thank you so much for watching. Thank you for attending office hours. We'll be having them again next week.

But remember, please be sure to check your emails, check your alerts. We want to make sure you're getting our latest thinking, and on top of any moves that we might be making with the portfolio. With that, have a great weekend. We'll see you back here next week.

At the time of publication, TheStreet Pro Portfolio was long AMAT, NVDA and AXON.