What to know today

  • What will the sound and fury signify?
  • Check out this Amazon subplot…
  • Do you have a Credo?
markets

Calm, Cool, Collected, and Prepared

Always stick to your plan.

Nvidia $NVIDIA surged in the last hour of trading to close up 0.25 percent on Wednesday, mirroring intraday the up-and-down action of the previous four trading sessions.

The world’s favorite AI chip maker is back in the $3 trillion market cap club after a wild stretch where it shed several hundred billion dollars of value.

And all of the S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average closed in the green.

Nvidia hosted its annual shareholder meeting Wednesday, drawing a lot of interest from the retail investors who’ve piled into the AI play in recent weeks.

The 30-minute session included a brief question-and-answer session with CEO Jensen Huang, who had little substance to share.

NVDA dipped as much as 2.77 percent during the day but rebounded after the meeting. Perhaps some other investors, traders, and speculators were watching too, hard to say…

Easy to say that NVDA is going to be volatile for a while, if only based on the most recent five days of evidence, even as everything else is basically copacetic.

The S&P 500 has seen a drawdown of 10 percent or worse in 65 percent of all years since 1928 and 5 percent or worse 96 percent of the time.

Picking up where we left off Wednesday’s discussion of prevailing smooth conditions, Ben Carlson of A Wealth of Common Sense makes a good point.

According to Ben’s data, there’s been a drawdown of 10 percent or worse in 65 percent of all years since 1928. And corrections of 5 percent or worse have occurred 96 percent of the time.

“It would be more surprising if we didn't have some sort of correction this year,” Ben notes. So far, the 5.4 percent drawdown in April was as bad as it’s gotten.

We should be prepared for the calm to break, is the point. What could do it, is the question. 

Yesterday we discussed “a status quo supported by easing inflation, rate-cut expectations, AI enthusiasm, and earnings growth” and the importance of incoming employment data.

And the CBOE Volatility Index $VIX dipped another 2.26 percent on Wednesday.

The wild card could be presidential politics, and we’ll have an opportunity to collect some data beginning with tonight’s first and perhaps only debate before the November election.

Perhaps the candidates will discuss consequential policy. Perhaps they’ll ramble incoherently. Probably both.

It’s a terrible idea to introduce partisanship to your portfolio – and the release of Personal Consumption Expenditure Price Index data for May on Friday 8:30 a.m. ET is still way more material in the short and medium terms. 

But we should pay attention to these things.

It’s important to note that much of the major “up and to the right” price action of the last century-plus is supported by a healthy respect for the rule of law and the reliability of US institutions.

Anyway, stick to your investing plan. If you don’t have one, get one.

(And leave your politics out of it.)

deep dive

Volkswagen Gives Rivian a Jolt

And Amazon gets a boost too.

It was quite a day for Amazon.com $AMZN, which led the Dow higher with a 3.90 percent gain and crossed the $2 trillion market cap mark for the first time ever.

Amazon holds a 16 percent stake and is the largest shareholder in electric vehicle maker Rivian Automotive $RIVN.

And RIVN surged 23.24 percent on news of a joint venture with and a potential $5 billion investment from Volkswagen $VWAGY.

Amazon’s stake in Rivian was worth approximately $2.35 billion as of Wednesday’s close.

I couldn’t help thinking of the Amazon I first got to know in 1997, when it was selling books.

Books were always just a beginning, a means to an end. EVs may not be as spectacular as spaceships, but, hey, Bezos is doing that too.

Pretty good show (for Amazon Prime, natch…)

Rivian Automotive $RIVN was up nearly 25 percent after it announced a $5 billion joint venture with Volkswagen $VWAGY.

The initial $1 billion cash injection comes at a critical time for Rivian, which reported a net loss of $5.4 billion for 2023.

That’s less than the $6.8 billion loss in 2022, but a big burn rate is a big burn rate when you get to certain levels.

And Rivian was there, its share price sliding more than 50 percent so far in 2024 on its burn rate as well as slowing EV sales.

The deal with VW contemplates additional tranches totaling $4 billion through 2026. The JV will focus on electrical architecture and software technology for EVs.

The immediate effect will be to support ramped up production of the R2 SUV at Rivian’s plant in Illinois and a midsize EV platform at a plant in Georgia.

Rivian CEO and founder RJ Scaringe said the investment will help his company get to a point where it can generate positive cash flow.

“This deal is possible because we’re focused on vertically integrating our network architecture, topology, V-CPUs, and associated software platforms," Scaringe said.

deep dive |
June 27, 2024

Volkswagen Gives Rivian a Jolt

FROM THE RESEARCH DESK

It’s Time To Believe in Credo

Check out this customer base…

Credo Technology Holdings $CRDO occupies interesting spaces in the financial market and in its operating market.

It’s a mid-cap stock you’ve probably never heard of, but it counts big tech behemoths such as Amazon.com $AMZN and Microsoft $MSFT among its customers.

TD Cowen analyst Matthew Ramsey is in on it, though, and he’s upgrading the stock on its solid top-line growth prospects.

From the Research Desk, we learn that Ramsay has changed his rating on CRDO from “hold” to “buy” and sees it trading at $35 12 months from now, up from a prior target of $24.

That’s upside of 17.80 percent based on Wednesday’s closing price of $29.71 following gains of 52.59 percent year to date and 66.35 percent over the last 12 months.

High-speed data infrastructure solution provider Credo Technology $CRDO counts Amazon.com $AMZN and Microsoft $MSFT among its customers.

Credo provides high-speed solutions in the data infrastructure space, specializing in ethernet connectivity services. Ramsay said CRDO is likely to see an earnings inflection in the second half of its fiscal 2025.

“We upgrade to buy as revenue accelerates and broadens across programs and products,” the analyst writes in a note to clients.

Revenue acceleration and expansion of its product and service offerings make CRDO attractive at these levels and position it for more upside, according to Ramsay.

Credo is also diversifying its already solid customer base.

“Overall, we see the diversification of the company’s revenue base as a key de-risking of the model and should benefit the durability of revenues going forward,” Ramsay concludes.

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