Can Nvidia Top Lofty Expectations? w/ Thomas Thornton

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1:32can nvidia top lofty expectations hi everyone welcome to the real vision daily briefing with me today is tom thornton founder of hedge fund telemetry hi tommy how you doing hey i'm good it's nice to see you same here absolutely we're thrilled to have you back so we have uh nvidia earnings that are going to cross here after the close. So we'll dive into that in a moment as we get a little closer. And I know you're going to watch your screens for that. But we're also, of course, waiting on the debt ceiling talks. I know everyone thinks we're going to have a deal. Everybody calls a political theater.

2:07But the closer we get to this holiday weekend, do they run the risk of just pushing it too far? Well, I am. You can include me in the The ones that think that, you know, the 11th hour, they're going to come up with some miracle solution and everything is fine. You know, look, it's a kabuki theater. We've all talked about it. It started off, you know, they were talking and they were in the White House and it sounded good. And then everything, you know, fell apart and they walked away. And they'll try and figure something out. They may kick the can down the road. nothing really significant will come out of it, in my opinion.

2:46They're still going to spend too much and leave it for future generations to clean up later. And it's kind of senseless, but these are what politicians do. And I have my opinions about politicians. You have the greatest line that I tell everyone, that we're in a bear market for political leadership. At one of our events, you said that. That's the best bear market we can all agree on. You know, competent political leadership has been in a bear market for a long, long time. And I don't necessarily see us coming out of that bear market anytime soon. Yeah. So let me ask you this. For the markets, as far as the markets are concerned with this, what would cause upset for them?

3:30I mean, you know, because I think it slightly complicates it that we're heading into this holiday weekend. Are we going to see a market reaction? Or is it going to be when if we go into the weekend and we don't have anything, how do you go into the weekend if there's no deal? Do you just ignore it? I would I hate to say this, but, yeah, maybe you do ignore it because they'll they'll find a way to come up with a deal and then everything will bounce. And then it might be the best sell the news type of thing ever, because what's going to happen is then the Treasury is going to have to raise, you know, a boatload of debt.

4:08And with rates already moving higher, it's going to be very difficult, I think, for them to raise that debt without moving rates higher. So I think there's real risk after that because I think you also have, a lot of people have talked about it, there'll be less liquidity in the market. And I think after that, as they start to raise rates, and it's just absurd that we have$57 billion remaining on the treasuries in their cash account when we have$31 trillion in debt. It just don't get me started. It's just insane. That's like the line for pretty much everything we see going on in D.C. So when you say, I just want to be clear, when you say they are going to have to raise rates, and you're right, we are starting to talk about it, especially folks coming on our air are talking about it.

5:05I think more than it's being spoken about elsewhere, this idea that that's a lot of issuance to absorb. Yeah, I'm not saying they're going to raise, they're not raising rates. I think that since rates are already pretty elevated and they've run up with this debt ceiling kabuki theater, I think that they're going to have to raise or they're going to have to issue debt at pretty elevated levels. And who's going to be the buyer there? And I think I think that could be a real risk for the overall market. Yeah, I saw it for the overall market. I saw someone, I think, asking related to that, are bonds the most dangerous trade?

5:47I think they were saying is the two-year the most dangerous trade. But that's a big problem for both bonds and stocks if there are not enough buyers to meet that issuance, right? Yeah. I mean, look, I'm not sure that I could say bonds are the biggest risk in the market right now. I think there's lots of risky things out there. But look at the volatility that we saw just a little while ago in the two-year. We had 100 basis point swings. And that was pretty extreme and really caught a lot of people off guard. And I think there's a lot of people that say, oh, well, the commitment of traders data shows that bond futures are super net short.

6:31And I thought maybe those large funds that mostly are out there, their positions are super short because they're going to be buyers of that debt. They will cover their bond short with this issuance. It's something that I've thought about. I'm not quite sure. It's just sort of a thesis that I'm putting it out there. Interesting. That's a good one. OK, so Bo is asking a question. A lot of people excited to see you right out of the gate. What's your take on the quality of earnings and the amount of first quarter beats we've seen? That's a good one. Yeah, I'm actually really pretty surprised with the quality of earnings that came out.

7:19Honestly, I thought we'd see more demand destruction. And we have seen that. We're starting to see it sort of happen now. We've seen some of the retailers, and I watch consumer stocks pretty closely. We've seen a lot of them start to really say that the consumer is starting to slow down. It's not necessarily the halt, crash type thing. It's just I think that they're spending less when they go to Target or Walmart or some of the others that are out there. And that is the early stages of what happens ahead of a recession. And my base case is that we're still going to see a recession. And when, I can't tell you, but I think that that's definitely on the horizon.

8:06Perhaps we'll see something moving closer to that third quarter. So we've had, I mean, a lot of people are anticipating this recession, right? And yet we've seen these technology stocks just rocket higher. A lot of people missed it. A lot of people weren't expecting it. And we started off the show talking about NVIDIA, which has really been leading the pack. The stock seems like going into this earnings, it seems like it's just price to perfection. How are you thinking about that ahead of the release? I think it's trading around 30 times earnings. And last week, we saw it go up their entire year's worth of earnings in a day.

8:49And so I think that it's getting a little obscene. and you know look i think nvidia is a great company they're completely mispriced i i i will be honest i bought them at like 120 and i sold it way way too early i thought i was a genius for selling it but uh it uh it's at this place uh it's it's gotten a little uh over its skis to say the least and the funny thing about nvidia is they're they're genius at reinventing themselves with their products and what the markets they go for. I mean, it used to be, let's go back. It was crypto mining at one point. It was data centers, which is still there, and it's a big part of their business.

9:35And that part is starting to slow. They went up on the announcement of the metaverse spending by meta. They were big in crypto, or not crypto, during COVID with laptops and desktops. They were autonomous driving play at one time. So now it's all AI. And I have a bet on how many people, how many times they're going to say AI on their conference call. And I think it's, I mean, I went low and I said it was 50, but I heard Google said it 125 times on their conference call. I think AI is really exciting. It's new and it'll be a cool technology. I think that it's just a little ahead of themselves. And I think that we have a clip from Peter Bachbar that I saw that I can comment after.

10:26Yeah, so let's get to that because he was talking about on the show earlier this week, just concerned around some of the hype around AI. So let's have a listen and we'll talk on the other side. But I need to make an important point here is that the top 10, like the top eight stocks are doing business with the other 492. And look at the Russell 2000, which is close to its October lows. So the 2000 stocks in the Russell, the other 492, so you're talking about 2 ,500 stocks about. These eight companies that everyone's piling into, their customers are the other 2 ,500. We all breathe the same economic air.

11:07So you can't have it on a sustainable basis, eight stocks going up and everything else going down. Either everything else is going to catch up or the eight stocks are going to experience some gravity. And if AI, which is extraordinarily impressive, we all agree, is going to do so much for the economy and productivity and efficiency, well, the 2 ,500 that are using AI should really see a benefit. But the market's not giving them any benefit. They're just giving benefit to the companies that are going to be sort of creating some picks and shovels. So there needs to be, so this is not just a technical analyst theoretical debate of, okay, a few stocks are leading the way and that typically portends this.

11:55There is a fundamental sort of disconnect that's happening here when, like I said, 2 ,500 stocks are going down and eight are going up, considering that they all do business together. Hey, everyone. We're going to take a quick break right now to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

12:20So Raul has been doing a lot on AI in his Exponential Age series, and we have a lot more interesting stuff coming up, which we will tell you more about next week. But you need to be a member for a lot of it. So scan the QR code and come on and join our community. So, Tom, interesting point that Peter brought up, I think. Does the narrow nature of the rally worry you? Well, one thing that Peter brought up also is that, you know, you have very few companies that are really developing this AI technology. And I think it's just it's super early in the formation. And if you went back and you looked at the dot-com period, it was just everybody had a new company and they were all putting their products online and selling it.

13:05And so it opened up a whole new opportunity. So I think he's right. It's very few companies currently that are going to really crush it. But it will be technology that we'll all be using, and it'll almost seem as seamless as using just Googling something, I think. Yeah. So it will have that effect, but we're just not there yet, right? Because if three companies are trading like it's this revolution, but all the other ones aren't, then something's up. Either they're early or we're on the cusp, but it's hard to reconcile. I like when you said they breathe the same economic air. It's like, what's going on?

13:43I think that's what we're all trying to figure out, right? Does somebody have the answer? Well, you just asked me about the narrowness of the market. And I do it all the time. I talk about attribution. And there are seven stocks that have led the majority of the market higher. And one thing that I think is important to look at is that the majority of stocks peaked on February 2nd this year. And January was a legitimate short squeeze. You had really offside positioning going into the beginning of the year and shorts got squeezed. The Russell went up, I think, 15%. And it's below that level now, I think.

14:26But if you think about it, so let me just give you a couple of stats. The NDX for year to date has 77 stocks up and 24 down. If you went and looked at from February 2nd, oh, actually, I'll give you this. The S &P has 248 up, 260 down. And there's always additions and some taken out. So you got to add a couple more. But if you go and you look at the from February 2nd, the NDX has 47 up and 54 down. So you actually have negative breadth there. And it's up 10 % since that period. And then if you go and you look at the S &P, this is really important. If you go to the S &P and you look at from February 2nd, it's up 13 basis points from February 2nd.

15:16And you have 134 stocks up and 373 stocks down. So somebody on Twitter said, are we in a bull market or is it still a bear market? And I'd say that that last stat saying that there are more stocks down from that February 2nd level, it tells me that everything is very narrow. And here's the risk. I've done this for 100 years, and I've studied this. What happens is when you have these narrow stocks going higher, one by one, they start to fall off. And if you have an overbought market because of just those stocks, and everything else is very oversold, those big ones, if they come down, they will push the major indices lower.

16:06And guess what else happens? Those oversold stocks that are already on shaky ground will move lower as well. And it's not going to be necessarily this reversal where you have small cap and mid cap start to outperform. I mean, maybe relatively they'll outperform, but I still think that there's, I mean, maybe they'll go down a little less than some of the big mega cap names. So that is something that I'm watching. And we haven't seen NVIDIA come out, but I did add, I got one. I shorted Snowflake today, and it's down 13 % after hours. Good for you. Somebody else in the chat was also talking about a position in Snow going into it.

16:48Why were you short that? What were you looking at in that stock? You know what? I look at a lot of short interest, and the stock has had a really big run-up into the numbers. And I mean, I think the stock is, you know, it's another one that's super overvalued at 170 times earnings. And I think that you're starting to see some of the weakness go through enterprise technology stocks. And we started to see it through a few others in hardware. Cisco is one of them. Intel. But this is one where I think that you're going to start to see some software companies that have had really big moves come back and discover gravity.

17:35Yeah. Michael was the one holding snow. Do you think it drops more by the weekend? Do you think this is the beginning of the reversal or there's a pretty big move down? It's down 12%, 13%. So I might just cover it tomorrow and take the W. Yeah, absolutely. So I know we're going to get NVIDIA output, but on the chip sector, by the way, the chat's on fire today, y 'all. It's a lot of good comments in here. Someone's talking about political risk around chips with China, China-US relations. It's Something that doesn't come up a lot. By the way, there is a meeting, a high level meeting between the Commerce Secretary and Chinese counterpart at the Washington.

18:19In Washington, I believe it's Thursday, there's a dinner, some headlines about hoping to mend repairs. But as you and I were talking when we came on air, Tommy, there's reports crossing about Microsoft and, you know, Chinese infiltrating communication systems. So, you know, there just seems to be every time they try to get stuff back on track. Another reason for tensions flaring. Are we thinking enough about political risk around the chip sector? Well, we've already seen some with the semiconductor capital equipment where the U.S. government has basically put some big restrictions on the U.S. companies selling their wares to China for their development of more chips.

19:00So I think that's already happened. And I think that we had Micron this week where they said that they're going to ban Micron chips because of a security risk. I mean, I think that they could basically do whatever they want. The real risk is if they go after some really big name US companies and put restrictions on them. And I'm talking about, I mean, the nuclear one would be Apple. I don't necessarily see that happening. I think Tim Cook has a pretty good relationship with the Chinese government. I mean, I think he's the best CEO in the business because he really does know how to work all political parties all over the world.

19:45And so I think that would be the nuclear one. I mean, you always have Tesla mentioned in there as well. I don't know. I think that they're going to go back and forth and do this little cold war with using technology as the weapon. Speaking of CEOs and politics, Tesla, it seems like Elon Musk is getting more involved than we might have thought he was. Interesting move, certainly for political watchers. What do you think about the impact on the stock? Would there be one? Should he get more visible and engaged in that? Some people are kind of referring to him as the L's now, the Roger L's of the.

20:27Yeah, I you know, look, I think that any time a CEO goes out of his way to bring in some political discourse or bias, I think that causes a risk for their their business because it will. I mean, we're so polarized, it could alienate some of his core. I mean, his core consumer has been the green type people, liberals. California is a huge market. So I don't think it necessarily is a good idea, but that's Elon, and Elon does what Elon wants to do. And I don't think anybody's going to tell him, I think that's a bad idea, Elon. He's going to just fire you then. This is true. A couple of questions coming in about DMARC signals.

21:18John asking, what's the most interesting DMARC signal you're seeing right now? Okay. I will post this on Twitter, but on SPY and QQQ, we do have, and I didn't think we'd get this signal because it takes some steps, but on SPY and QQQ on the daily, we have the DMARC combo exhaustion 13. And that has been a very good signal. And when you do get these signals, the rule of thumb is after 10 days or within 10 days, you should expect some sort of price reversal or at least some sort of stalling because the buyers basically, the last buyers bought and it just exhausts itself that way. So I think those are the two that I'm watching the most.

22:09I think the markets should pull back. I mean, I will say 5 % is sort of a no-brainer, but I think also a 10 % or more would probably be a healthier thing. I mean, if you get me going offline, I can tell you some of the really deeper worries that I have where the markets could go. But look, again, we've had seven stocks moving the market higher. And if those decide to fall out of bed, I think then, you know, the market could be down. It could be down 20 percent. I think we're just still going to be in this this long range for quite a while. We're going to take another quick break to hear a word from our partners.

22:54We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

23:02So we've got a couple of questions about the dollar. Are you watching the dollar? Ed asking, question for Tommy, with all the Treasury debt coming at us, dollars getting sucked out of the system, student debt repayments potentially starting up again in a few months, what happens to the U.S. dollar? Well, everybody's also, NVIDIA's up 10%. So there you go. Market saved. Yay. We'll see if it stays there. That's kind of surprising. I haven't looked at the report, obviously. I've been thinking that this thing was looking really toppy, right? So once again, that's a big move. The data that I have, there aren't really a lot of people short NVIDIA from what we have.

23:43Well, from a sentiment perspective, everyone keeps thinking. So the question is always, gosh, do I get in here? It's so high. Who would possibly chase this thing higher? Well, one of the problems you have is you have people that are indexed to the S &P. They are they're that's their benchmark and they have to stay, you know, with the S &P. So they they're forced to buy those seven stocks and the ones that are leading. NVIDIA up 11 percent is one of those and they have to be buyers. And, you know, look, I think the stock's completely overvalued. I have no position in it. I was short, took a little loss on it and nothing, you know, too major.

24:27But bottom line is, I think it's overdone. But, you know, it's AI. Yeah, that's going to be interesting. Do you think it's going to carry? Well, we'll get back to that dollar question in a second. We haven't forgotten, Ed. OK. Let's answer the dollar question, then we'll go back. So we've had a lot of people that have been really vocal, Stan Druckenmiller, saying that the dollar is going down. That's his biggest position or his biggest conviction call. And I don't like to say, oh, Stan, no, I think you're wrong. Never. But I've been watching the dollar go up. And we actually have a potential for a DeMarc countdown to start, or it started, actually.

25:14So we could see the dollar move up and then really cause some problems. I think the dollar going up is a problem for US companies because you've had the dollar. The dollar down has been sort of a tailwind for earnings for US companies. And if it goes up, I think it'll become a headwind again. So we'll see how far it goes. It's made a pretty good move off the lows. So that's generally it. I think that when you have difficult markets and markets that are more under turmoil, you're going to see the dollar move higher. And I'm not saying the dollar's not done going up. I think it could, but it definitely has potential to keep moving.

26:01Yeah, it's interesting because there's, I think, the longer-term thesis about the dollar decline, but then you have these short-term issues. And there, as you point out, are a lot more people on that side who are just not sure about the dollar going down right now and see some reasons for it to go up. So I'm seeing a big divide depending on what your time horizon is. Semis, do you think semis are going to get a lift from this NVIDIA news? Could that spill over to the wider sector? Is this an NVIDIA story only? Well, I'm looking at a bunch of them after hours moving higher. And yeah, they're going to get the lift.

26:38But it's really, I mean, like AMD's up 7%, and they've moved up. And their earnings were atrocious, and their guidance was terrible. And they've moved up so much with the thought that they are now going to get into AI and they're going to be a big beneficiary. And maybe they will. But I think that these stocks are just well, well, too far gone. I mean, look, NVIDIA is at 348. It's up 14%.

27:10Markets do these types of things. I'm glad I'm not short. I'd love to be long, but I don't have the stomach to buy a company at the valuation where it's at or where it was 10 minutes ago. So we're going to jump around a little bit because we've got a lot of different questions. TrillionX asking, what's your view on homebuilders? I'm currently short homebuilders, and they've had an enormous run. I think that as they really started their run as interest rates peaked last year, late last year. And as interest rates have come down, it's really moved people into, OK, now it's time to go buy a house.

27:54And there's no inventory on the market because everyone is locked into their, if you bought a house in the last 10 years, you're locked into a very low interest rate. So you're not going to sell. And the only game in town is to buy something new. And so they've had a nice tailwind with that type of thesis. But I'm short. I think they're overdone. The good news is move the stocks higher. But now I think that you can sell them here. I think that's, especially with, I think I saw the 7 % interest rate on the 30-year fixed, something. I think that's going to be difficult for a lot of buyers to get involved with those interest rates.