Friday File - This Only Happens At Market Tops

Dear Shareholder Intel Action reader,

There’s no doubt about the scale and speed of the AI boom.

That’s why we still think it has the potential to be the next big stock bubble.

But it’s not going to be a straight line all the way to the top.

There will be major dips and times to reload along the way.

Right now it looks like a big correction is building now.

Why?

Because this only happens at market tops.

Great Expectations Must Come
Before Great Disappointments

The processing power required to power the AI boom is exponentially more than anything ever created before.

Think of it like on demand video.

It took 10+ years of steady buildout of fiber networks and major leaps in compression technology before high-definition video on demand was available.

The same is true for AI systems.

It will take years to build out the processing power required to power the advanced AI systems.

The demand for processing chips will be endless for years.

That’s why NVIDIA (NVDA), the maker of the most powerful processing chips in the world, is at the heart of the AI infrastructure buildout.

And its business is booming just like AI.

But NVIDIA stock is not a business.

It moves up only if it can exceed expectations and will fall if it fails to meet them even if it has years of backorder for the world’s most expensive and powerful chips that are unmatched by any other company in the world.

That’s what happened this week when the company released earnings.

Every part was stellar.

Revenues increased 170% to $13.5 billion for the quarter.

Net earnings per share exploded from 26 cents to $2.48.

And it’s going to get even better.

Revenue guidance for the next quarter was $16 billion.

There was, however, one problem.

NVIDIA shares jumped from $471 to $511 on the news.

But, it’s been down ever since.

NVIDIA shares ended the week at $460.

That’s a 2% decline, normally nothing to worry about.

The problem is that decline came when the company posted one of its strongest earnings reports ever and showed its future is as bright as ever.

That’s a sign that expectations have gotten too far ahead for NVIDIA and probably most other AI stocks.

Conclusion

There’s a lot of good here though.

First, the massive growth NVIDIA posted shows the AI buildout is legit.

Second, the NVIDIA correction is a good sign that we haven’t hit the AI euphoric high.

Third, we’re still in the early innings of this.

There will be even hotter stocks that do far better than NVIDIA when the AI bull turns into a bubble.

Will keep this in mind as we look for targets to jump on if the AI correction really gets going.

All the best,

Shareholder Intel Action