The smoke signals from the FOMC conclave suggests that Jay Powell will not gift the Street a pacifier nor deliver an electric shock, so expect a hawkish pause with no rate hike. The trillion-dollar shrinkage in the Fed’s balance sheet (QT) amplifies the liquidity squeeze since the ECB, BOE, RBA, BOC and yes, even Ueda-san’s BOJ are also slimming down their bloated balance sheets. Is this a head wind for long duration risk assets like my obsessions du jour Nvidia and AMD? You bet. I view my métier as not a gazer of crystal balls that predictably force me to swallow crushed glass but as a student of some of the most exciting global macro trends and Silicon Valley themes that can and do create 3-4X money making opportunities if I get the risk/reward calculus, lady luck and probabilistic value zones right.
It was surreal to see Nvidia (NVDA) trade as low as 392 after hitting 516 in the aftermarket last summer when AI mania reached its peak and the 10-year Uncle Sam note was still below 4% and had not yet gone ballistic, when Gaza was not news and Brent was a mere $70. Sadly, merde happens on Nasdaq.
NVDA’s 25% slam by Mr. Market now sets my pulse racing even though I concede that the bottom could be as low as 340 since the shrinkage in global liquidity and a recession in Europe, China with geopolitical risk and deadly wars in the Mideast/Ukraine is not exactly a benign milieu for risk assets. Expect blowout 3Q earnings on 21st November as Jensen Huang owns the $150 billion AI chip market and his data center business has tripled in 2023. This is the 800-pound gorilla in the Valley’s most explosive gorilla game. Chat GPT was the iPhone moment for AI and NVDA will introduce new generations of GPU chips in 2024 and 2025. It dominates the entire stack with its innovation curves, from inference to training GPU chips and is reinventing the data center/specialty networking at scale.
Microsoft Office co-pilot is only the tip of the iceberg of the exponential rise in Gen-AI adoption by the world’s largest businesses and government agencies, with NVDA as the preferred partners of ServiceNow/Adobe – the Next-gen software model is being birthed in real time and NVDA’s GPU chips are its midwife. Can NVDA do $20 a share in calendar 24 earnings? Yes we can! So Mattinomics takes advantage of the pop in implied vols to 58% to sell six month 430 puts and pocket a no brainer $68,000 on a 10-contract put sale on the CBOE. Ooh, baby, ooh…
Love the price action after AMD’s earnings. Lisa Su confirmed my conviction that the M-100 chip will be to AMD what the H-100 GPU was to NVDA and transformed it into a trillion-dollar gorilla. 92% market shares in AI chips will erode overtime, though I concede the Valley has created global quasi monopolies like MS-DOS and the Google search engine. AMD has been gutted from 158 to 94 as I write even as it is poised to win the silver medal in history’s hottest tech marathon and trades at 24X. No brainer. Voilà!
Also published on Medium.
