The Week in Charts (5/30/24)

View the video of this post here.

Don’t miss my big live show with YCharts on June 18 @ 2pm EST. Register HERE to reserve your spot. What will we be discussing?

• Why the War Against Inflation Isn’t Over
• Navigating a Higher for Longer World
• Why You Shouldn’t Mix Politics and Your Portfolio
• The Biggest 1st Half Surprises in Markets
• 4 Charts to Watch in the 2nd of Half of 2024
• And Much More!

The most important charts and themes in markets and investing…

1) The AI Show Goes On

All eyes were on Nvidia last week as they reported Q1 earnings. Expectations could not have been any higher. And once again, they blew those expectations out of the water:

• Nvidia revenues surged to a record $26 billion in Q1, up 262% over the prior year. Their revenue projection for Q2 is $28 billion, which would be a 107% YoY increase.

• Nvidia’s Net Income hit another record high at $14.88 billion in Q1. That’s was an astounding 628% increase over last year’s Q1 Net Income of $2.04 billion.

• Nvidia’s net profit margin surged to 57% in the 1st quarter, another record high and up from 28% a year ago.

2) Will Nvidia Become the Largest Company in the World?

That question would’ve seemed absurd just a few years ago.

For at the start of 2020, Nvidia had a market cap of $144 billion.

Fast forward to today and it’s market cap stands at $2.82 trillion, over 19x higher.

The only companies in the world with a bigger market cap than Nvidia: Microsoft ($3.19 trillion) and Apple ($2.92 trillion).

If you think that’s an incredible stat, how about this one: Nvidia’s market cap is now over $1 trillion higher than all of the companies in the S&P 500 Energy sector … combined.

Is that because Nvidia’s profits are higher? Not yet. Nvidia’s Net Income of $43 billion over the past year is 66% below the $128 billion in Net Income for the energy sector.

Which means, of course, that investors are betting on a lot more growth from Nvidia to come.

The only question: is the current share price already pricing in that growth?

That remains to be seen, but Nvidia’s 132% year-to-date gain has already surpassed the expectations for 2024 revenue growth (+97%). And we’re only in May.

As compared to the other members of the Enormous Eight, Nvidia is in a league of its own, both in terms of performance and valuation.

3) The Groundhog Day Housing Market

Just like Bill Murray in the movie “Groundhog Day,” Americans seem to be waking up to the same housing market every single day: one with low activity, low demand, low supply, and affordability at record lows.

US Existing Home Sales fell 2% over the last year. That was the 32nd consecutive month with a YoY decline, the longest down streak in activity since 2007-2009.

But unlike 2007-09, home prices are not going down but instead are hitting record highs, month after month. The Case-Shiller National Index is up 6% over the last year and all 20 cities in the Case-Shiller 20-City Index are higher than a year ago.

With home prices far outpacing wage increases and mortgage rates still hovering close to 7%, affordability remains near record lows. The median household would need to spend 41.7% of their income to afford the median priced home for sale. That’s an unbearably high number for most households to stomach. Hence, the Groundhog Day housing market continues.

4) Jamie Dimon on Buybacks & Credit Spreads

Jamie Dimon (CEO of JPMorgan Chase) made some interesting comments last week on buybacks and credit spreads…

“I want to make it really clear, OK? We’re not going to buy back a lot of stock at these prices. Buying back stock of a financial company greatly in excess of two times tangible book is a mistake. We aren’t going to do it.” – Jamie Dimon

“The investment grade credit spread, which is almost the lowest it’s ever been, will be dead wrong. It’s just a matter of time.” – Jamie Dimon

5) Roaring Kitty Says Goodbye

The meme stock revival sparked by Roaring Kitty’s unexpected return on May 12 did not last very long.

On May 17, he posted a cryptic farewell video on X with scenes from the movie E.T. accompanied by the song “Goodbye Stranger” (Supertramp). He hasn’t posted since.

If all of this sounds ridiculous, that’s because it is. Nothing fundamentally changed in any of the major meme stocks to warrant their explosive moves higher.

And so, it’s only a matter of time before the weighing machine takes hold and prices revert back to their fundamental values.

Perhaps the most insane example of this is Faraday Future Intelligent Electric ($FFIE). Caught up in the meme stock mania, its shares rose 7,700% in just 5 trading days, moving from $0.05 to a high of $3.90.

Did the gains last? No. It’s already back down to $1.17 and with no fundamental change at the company will likely continue lower. Faraday has never made a profit and lost $83.8 million in their last reported quarter (Q4 2023). For all of 2023, they lost $283 million with just $800k in revenue. Meanwhile, cash and equivalents have fallen to under $2 million. Even the world’s best meme can’t save a company with these financials. If it isn’t headed for bankruptcy soon, that would be a miracle.

6) Trouble at Target

Target’s recent earnings report provided more evidence that the US consumer is pulling back.

Revenues declined 3% over the past year, the 3rd YoY decline in the last 4 quarters. CEO Brian Cornell noted “continued soft trends in discretionary categories.” In an effort to boost demand, the company is relaunching their loyalty program and cutting prices on thousands of everyday items (ex: milk, bread, paper towels, and diapers).

Target’s loss has been Walmart’s gain as consumers feeling pinched by inflation have increasingly moved to the discount retailer.

In the past 3 years Walmart’s stock ($WMT) has advanced 43% versus a 30% decline for Target ($TGT).

7) A Few Interesting Stats…

a) Semiconductor gains from the AI boom haven’t been evenly distributed. Exhibit A: Nvidia’s stock has advanced 613% over the past 3 years versus a 42% decline for Intel ($INTC).

b) Elon Musk was once again the lowest paid S&P 500 CEO, earning $0 in 2023.

c) Share of key battery metals controlled by China…

• Cobalt: 75%
• Lithium: 67%
• Nickel: 58%

d) The median S&P 500 CEO earned a record $15.7 million in 2023, up 8% over the past year and 113% over the last decade.

e) “Housekeepers in Palm Beach and South Florida are cleaning up, with salaries often topping $150,000 and bidding wars between mansion owners becoming common, according to staffing companies.” – CNBC

And that’s all for this week. Have a great week!

-Charlie

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