Nvidia Could Be Spark for Everything Rally

It’s been a pretty placid week for markets since the S&P 500 hit a new all-time high. That could change dramatically if Nvidia (NVDA) blows the doors off again and breaks out to a fresh record.

There are already some signs that investors are gearing up for an “Everything Rally.” Small-cap stocks in the Russell 2000 are trying to get past their old technical nemesis at 2,100, gold just broke back out to a new high, and crypto markets are waking back up after falling behind equities last month. And, of course, bond bulls have been wrestling control of that market.

As long as FOMC Minutes or tomorrow’s jobless data don’t roil the bond market – and there’s no reason to think they will – the tinder is set for an Everything Rally. It just needs a spark, and Nvidia presents the best, possibly only, chance for that to happen.

Despite a massive sector-wide rally in semiconductors, Nvidia is in a galaxy of its own. They’re expected to post sales growth of 243%, which does mean their boom has peaked (last quarter was 265%), but the highlight for this quarter should be margins and profitability. Gross margins should hit 77% and EPS are supposed to quadruple.

Super Micro Computer (SMCI) is the only other semiconductor business that comes close to these figures, and it’s a pretty steep drop-off to the rest of the sector. Even Taiwan Semi’s (TSM) mighty fabrication business, booming in the midst of this A.I. revolution, is a different business model that doesn’t offer the same profitability that Nvidia’s designs and software do. Advanced Micro Devices (AMD), often mentioned in the same breath as Nvidia, is still getting dragged by its legacy cyclical business and offering a meager single-digit growth trajectory. Many other big winners in the category have fundamental issues such as lackluster growth or earnings. Look at Coherent (COHR), up 34% this year, but it barely eked out a profit last quarter. Micron (MU), up 49%, is riding the A.I. wave to huge incoming growth, but still trading at an enormous valuation given a year of erosion in its memory business. If there’s any slowdown in A.I. buildout, most of these trades look very susceptible.

If anyone can lead us to the promised land of a frothy, animal-spirits run-up in risk assets, its Nvidia. That’s true. But it also seems true that if it can’t, no one else will. With the stock coming into earnings almost exactly at its old high and previous resistance level, we should be getting fireworks in some direction, and the broad market will almost certainly follow.