The Most Important Stock/Tech/Trend on Earth

By TradeSmith Research Team

Listen to this post

All eyes on Nvidia… Intel’s trying to turn around a decade of underperformance… The elephant-sized risks of Taiwan Semiconductor… Unleashing An-E 2.0…

By Michael Salvatore, Editor, TradeSmith Daily

Whether we like it or not, the word comes from the Goldman Sachs trading desk that Nvidia (NVDA) is “the most important stock on planet earth.”

It certainly feels that way. The semiconductor company’s late-season earnings report comes as its stock has fallen nearly 9% from its all-time high. The Valentine’s Day top also pegged the recent high in the S&P 500 and Nasdaq 100, where NVDA represents about 4.2% and 5%, respectively.

This heavy weighting — and past blowout earnings reports, which have added hundreds of billions to the company’s market cap overnight — meant all eyes were on NVDA to deliver again after Wednesday’s close. There’s risk in that. The shock of a miss would’ve likely dragged the whole market lower.

But deliver it did.

It reported $22.1 billion in revenue against expectations of $20.4 billion, and earnings of $5.16 per share against expectations of $4.20. There’s the “beat.”

It also revised its forward revenue guidance to $24 billion. There’s the “raise.”

We’ve shown you before how the “beat and raise” is exactly what you want to see in any stock reporting earnings.

And with NVDA being the hardware backbone of the A.I. trend, this beat and raise was met with thunderous applause.

The stock, previously down almost 9% from last week’s close, is set to open more than 13% higher Thursday as I write. That’s an overnight reversal, peak to trough, worth roughly $350 billion.

Most interesting to me was three specific words CEO Jensen Huang used in his statement:

“Accelerated computing and generative A.I. have hit the tipping point. Demand is surging worldwide across companies, industries and nations.”

That phrase, “the tipping point,” says it all. We’re about to cross the Rubicon on A.I. technology, and the world’s biggest tech leaders know it.

And what this tells me, more than anything, is that the A.I. trend has staying power more than any buzzy tech investment story of the past decade.

Think back to 5G, or 3D printing, or decentralized finance and NFTs. All of these trends came just about as fast as they went.

But we’re more than a year into the A.I. dominance, and we’re seeing nothing but green flags for it to continue.

Companies are continually beating earnings expectations and raising the bar. Waves of capital are flowing into virtually any stock responsible for future A.I. infrastructure. Even the competition is heating up.

Take this under-the-radar news out of Intel (INTC), for example…

❖ Intel’s making moves for a turnaround…

Intel (INTC) has been around a long time, but not a good time.

Its stock has managed to rise just 76% in the last decade… a pretty sad-looking chart when pitted against its competitors. Just look how it compares to Nvidia (NVDA), AMD (AMD), and Taiwan Semiconductor (TSM) since the bull market accelerated in 2017.

But could that be set to finally change?

News came out Wednesday that Microsoft — you know, the world’s biggest tech company and majority partner to OpenAI — has signed on with Intel to manufacture a custom computing chip.

Details on what exactly this chip is and what it would do weren’t explicitly stated. But allow me to connect some dots on this one.

OpenAI CEO Sam Altman attended the Intel Foundry conference where Intel made the announcement. (Intel Foundry is the company’s new manufacturing operation designed to compete with Taiwan Semiconductor — which we’ll get to.)

Intel also announced it’s partnering with Arm Holdings (ARM) — another red-hot A.I. chip stock — to manufacture chips in its factories.

And the company is said to hold a special technology that should be useful at creating faster, more power-efficient chips designed for artificial intelligence.

Intel lost its early chip manufacturing lead years ago — the primary reason its stock has disappointed. But when new CEO Pat Gelsinger stepped up three years ago, he set a goal to retake that lead by 2025.

Since then, the main moves to get there seem to be what was announced Wednesday… along with potentially more than $10 billion in funding from the U.S. government.

There are plenty of lines to read between on the Intel story. And to be clear, it’s a long shot even with all these developments. Intel has disappointed time and again with its inability to keep parity with other chipmakers’ manufacturing processes.

On top of that, the stock just plain doesn’t go up. Simple as it sounds, it’s rarely a good idea to buy stocks that don’t go up.

But the lynchpin of it all is Intel’s closest competitor, Taiwan Semiconductor (TSM), and the geopolitical risks surrounding it…

❖ Taiwan Semiconductor faces an elephant-sized risk…

And that’s its profound economic importance to the world’s No. 1 and No. 2 largest economies.

China has made it perfectly clear that it considers the country of Taiwan an extension of the Chinese mainland. Taiwan largely, and increasingly, sees it differently. The Democratic Progressive Party in Taiwan recently won a third consecutive term, and its platform favors independence.

Taiwan is so strategically important precisely because of Taiwan’s semiconductor industry, which makes up a fifth of the global industry, and Taiwan Semiconductor, the world’s largest contract chip manufacturer.

TSM makes more than 60% of the world’s chips and more than 90% of the most advanced chips.

Thus the problem. The world’s most prolific chip manufacturer is headquartered in a country threatened to be absorbed by a communist country… which has no qualms about making this happen with the world’s largest military.

Investors rightly see the risks facing Taiwan as a reason to diversify away from Taiwan Semiconductor’s stock. Taiwan Semiconductor, itself, is building out a new plant in Japan to mitigate the risks.

Still, the U.S. is not discounting a potential future where China attempts to take over Taiwan by force. That’s where the $280 billion CHIPS Act, signed in 2022 and designed to bolster U.S. manufacturing, comes into play.

Investors aren’t discounting that future, either — as we can see by the tremendous focus on U.S.-based semiconductor companies like Nvidia, AMD, and now Intel.

I said recently that it’s best to play it safe and steer clear of owning Chinese stocks. I think that carries through to what we’re talking about here.

We should follow where the big money is going and focus on the U.S. semiconductor renaissance playing out before us as the A.I. trend grows in importance.

We’re busy doing our part here at TradeSmith, too…

❖ Introducing An-E 2.0…

Short for Analytical Engine, this tool forecasts the share price of any stock we track 21 trading days out to the future.

You also likely know we’re not the kind of firm to rest on our laurels. We’ve been hard at work on improving An-E in the background, ensuring it continues to exceed your expectations.

With An-E 2.0, we’ve found a way to translate the algorithm’s predictive power into even bigger, even faster backtested gains: 300%, 493%, and even 1,420% by using a new kind of trading strategy.

You may have already seen An-E 2.0’s predictive power in TradeSmith Finance. If you haven’t, check it out now on your TradeSmith Finance dashboard.

While you’re there, be sure to check out the latest trade recommendations from An-E in Predictive Alpha and Predictive Alpha Options.

And be sure to tune in to tomorrow’s TradeSmith Daily, where I’ll share a video interview with one of the leading minds behind An-E 2.0… and he’ll reveal a bit about how the new upgrade works.

To your health and wealth,

Michael Salvatore
Editor, TradeSmith Daily