NVIDIA (NVDA) stock rallied on Friday after announcing a blowout quarter in revenue expectations.
The company anticipates it will generate $11 billion in revenue in the second quarter thanks to incredible demand for “artificial intelligence” chips.
Now, remember that $11 billion would suggest a dramatic increase in customer spending – or CAPEX. That’s quite a sizable figure when companies are tightening their belts ahead of a recession.
And keep in mind that NVDA is now trading at 175 times earnings, 28 times sales and continues to ride a momentum wave on the back of “artificial intelligence.”
If you look at the chart below, you can see there’s a rather noticeable relationship between the performance of the Nasdaq and the marketing around “artificial intelligence.”
Now, AI might get all the attention, just like a high school quarterback.
But there was another earnings report that’s far more important to the state of the economy and your portfolio. And it tells us everything about the challenges ahead for the consumer.
NVIDIA Earnings v. Dollar Tree Earnings
It will take NVDA 175 years to grow into its earnings today. Yet shares jumped 27% today.
Meanwhile, Dollar Tree (DLTR) is coming off a short-term high before earnings and reversing at a breakneck pace. Shares fell 9.5% today after a brutal financial forecast and tough earnings report.
DLTR popped after Walmart’s earnings last week – as both companies remain highly correlated. But now, things are going in reverse for retail.
The company said that higher rentals and price inflation are hurting cash-strapped Americans.
The retailer projected that its fiscal 2023 earnings would come in at $5.73 to $6.13 per share. That’s down significantly from the $6.30 to $6.80 in its previous outlook.
This is a HUGE RED FLAG on the state of the American consumer. After multiple quarters of defying expectations, we’re now seeing the massive consumer wall appear.
Americans have record credit card debt, which could easily surpass $1 trillion this quarter. Thanks to inflation and higher costs, American credit card debt jumped 17% in the first quarter, year-over-year.
While inflation eats away at savings, and new debt hammers consumer budgets, Dollar Tree said it’s seeing a big drop in their high-margin goods, as consumers are turning to snacks and other perishables. That’s hurting margins. But the concern is that demand for even the snacks could evaporate over the next few quarters.
At a time when we see the U.S. government over-leveraged with debt, it’s the American consumer that serves as a serious threat to the retail sector in the year ahead.
I would advise that investors look to short DLTR further into the second half of 2023.
Meanwhile, pay attention to any retail stocks that are trading at 52-week lows. There’s a reason why they have hit these levels – largely around consumer demand and the broader economic spectrum.
Remember, they can go much lower in the year ahead.
To your wealth,
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
Market Momentum is Red
Well, that was fast. NVIDIA earnings may have topped expectations, but there was plenty of weakness in other names – like Dollar Tree – that have investors worried about the future. This is a risk-off event for investors in Tactical Wealth Investor – and a reason why we want to focus on the long-term in this environment.