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Thanksgiving is just around the corner, and NVIDIA (NVDA) shareholders certainly have a lot to be thankful for this year. Will the company’s upcoming earnings report keep the stock’s momentum going?

The computer hardware manufacturer is just one of several big tech stocks that are due to report earnings in November. It’s also going to be a big earnings month for the oil and gas industry.

Must read: The rise of NVIDIA

NVIDIA has been around for more than 30 years, but until recently, it was a fairly obscure company outside of the PC gaming and computer engineering worlds.

That’s no longer the case today, because NVIDIA’s graphics processing units (GPUs) have found themselves at the center of several major technology trends, and the company is battling with Meta to be the best-performing stock in the S&P 500 in terms of one-year return.

Lately, NVIDIA has seen a rush of artificial intelligence (AI)-related interest in its products — and its share price has more than tripled over the last year. Some investors might be wondering whether all that hype is really deserved, especially ahead of NVIDIA’s upcoming earnings report on Nov. 21.

Why is NVIDIA stock up more than 200% this year?

Despite their name, GPUs are used in a lot more than just graphics processing. They’ve become the go-to hardware for just about any kind of high-performance computing, such as bitcoin mining or, more recently, AI.

NVIDIA was an early pioneer of non-gaming applications for GPUs and has developed lines of GPUs that are specialized for data centers, such as those that power AI. Today, data centers account for most of NVIDIA’s revenue, and the company controls more than 80% of the global GPU market.

NVIDIA’s market cap first crossed the $1 trillion line back in June, and it has generally stayed above that level since then, buoyed by three strong earnings reports this year in which the company’s earnings per share (EPS) and revenue beat Wall Street expectations. In the most recent quarter, data center revenue rose 171% year-over-year.

So in short, NVIDIA’s rapid stock price gains are largely due to its revenue growth — but another factor, according to one financial advisor, is NVIDIA’s reputation as the dominant provider of AI hardware.

“If you take the Wall Street analyst consensus view that Nvidia is two years ahead of any competitors when it comes to developing chips, that has to be worth something,” Malcolm Ethridge, a Washington, D.C.-area certified financial planner with CIC Wealth Management, said in an email interview.

Is NVIDIA valued properly?

NVIDIA’s steep rise in share price over the last year has given the company a dizzying valuation. Its price-to-earnings (PE) ratio — a relative measure of share price as a multiple of profits — is about 100 at the time of writing.

That’s considerably higher than other trillion-dollar tech companies like Alphabet (GOOG), whose PE ratio is about 24, and Microsoft (MSFT), which has a PE ratio around 33.

A high PE ratio doesn’t necessarily mean that the stock is overvalued, but it does mean that NVIDIA is under a lot of pressure to deliver on shareholders’ lofty expectations.

“I think NVIDIA bulls should also be taking into account whether NVIDIA can actually produce enough chips fast enough to meet all of the demand that is out there and fill all of the orders they're currently receiving,” Ethridge said.

“If the answer to that question is no, then I think it's fair to call the stock overvalued,” he said.

Term of the month: Moving averages

Investors trading individual, highly volatile stocks rely on various technical indicators to inform their decisions. In this month’s issue, we’re looking at one stock analysis tool some traders use to try to optimize their timing: moving averages.

What are moving averages?

A security’s moving average is its mean price over a particular period of time. For example, a stock’s 50-day moving average is its mean price over the last 50 days, while its 200-day moving average is its mean price over the last 200 days.

Moving averages come in a few different flavors. Simple moving averages (SMAs) just use the calculation above — the average price over a set period of time. Exponential moving averages (EMAs), on the other hand, change more rapidly in response to recent price changes because they use a weighted average formula that emphasizes more recent prices.

Moving averages change every day, hence the “moving” part. A stock’s 50-day SMA as of yesterday is its mean price over the 50 days before yesterday, while its SMA as of today is its mean price over the 50 days before today. As a result, moving averages can be drawn as lines on stock charts, and some traders look to them for buying and selling signals.

How do you use moving averages?

One of the simplest ways to use moving averages is to look for points where a short-term moving average intersects with a long-term moving average.

For example, if a stock’s 50-day moving average rises above its 200-day moving average, that’s called a “golden cross” and is generally considered a positive signal for the stock’s future price. You can see a golden cross on the chart above, in which Apple’s 50-day SMA crossed above its 200-day SMA in late March. The stock price rose significantly in the months after that cross.

Conversely, a “death cross” is when a stock’s 50-day moving average falls below its 200-day moving average, and it’s generally considered a negative signal for the stock moving forward.

Ethridge said that this kind of strategy can be useful for deciding when to get in and out of a stock you’ve already decided you want to buy or sell — but not for initially picking stocks.

“Technical patterns such as these are better used as a way to confirm your thesis after you've already decided a stock is a buy or sell,” he said.

Dates that could move markets this month

Economic events

Earnings

Spooky season is upon us and thrill-seekers around the country will be crowding into horror movies and haunted houses throughout October.

But for investors, there are other — potentially more lucrative — ways to find some excitement this month. October 2023 is shaping up to be a make-or-break earnings season for tech stocks, and it’s also seeing unprecedented volatility in Treasury bond markets.

Must-read: Big Tech earnings season in focus

When we talk about “Big Tech,” we’re talking about a handful of publicly traded companies with market capitalizations in the hundreds of billions or trillions of dollars. Almost all of these companies will report earnings in the next month:

What do experts expect from the Big Tech earnings season?

Todd Walsh, the CEO and chief technical analyst of Irvine, California-based registered investment advisor Alpha Cubed Investments, says that he expects these companies to report earnings and future guidance that is in line with investor expectations.

Part of the reason he expects a positive outcome from this Big Tech earnings season is because companies like Microsoft, Alphabet, Meta and Amazon have become important artificial intelligence stocks.

"We think they will deliver on earnings. These are companies that are at the epicenter of the AI ecosystem, which is a real phenomenon — similar to the PC revolution in the late '70s and the internet," Walsh says.

What does it mean for the stock market as a whole?

Walsh says that Big Tech earnings could be important to more than just Big Tech. "This is probably the most critical earnings season we’ve seen in quite a while," Walsh says.

"You’re talking about the companies that have been carrying the entire market return this year," he says — noting that the non-Big-Tech portions of the S&P 500 index have largely been stagnant in 2023.

"If those companies don’t meet expectations and then set guidance that meets expectations, as a group, we’re going to be in a lot of trouble here," Walsh says.

Term of the month: 10-year Treasury yield

In late September, the yield on the 10-year Treasury note rose above 4.5%, hitting its highest level since before the Great Recession — and it remains above 4.5% at the time of writing.

That presents an opportunity for investors who are interested in bond trading.

High yields mean low prices

A key principle of bond markets is that prices go down when interest rates go up, and vice versa.

All bonds have a “coupon rate,” which is equal to the bond’s annual interest payments divided by its face value. (The face value is the principal amount of the bond, which is paid back when the bond matures. It's often $1,000). A bond’s face value and coupon rate are set in stone, no matter what the market does.

Bonds also have a “yield,” which is equal to the bond’s annual interest payments divided by the price the investor paid for the bond. Bond prices — and yields — are subject to market fluctuations.

When market interest rates go up — as they have recently due to Federal Reserve policy and other factors — investors aren’t willing to pay face value for an old bond with a coupon rate lower than the market interest rate. They expect a discount on the price of the bond, so its yield is in line with market interest rates.

That means that the rapid rise in interest rates over the last two years has caused a rapid drop in bond prices.

Bond trading 101

Satoru Asato, a Bloomington, Minnesota-based certified financial planner and former bond trader, said in an email interview that bond day trading may not be appropriate for nonprofessional investors due to its high bid-ask trading spreads, mathematical complexity and the need for access to real-time options data, futures data and news.

However, Asato acknowledged that some investors might be tempted to buy bonds during the current period of high yields and low prices, “with the hope of riding the future interest rate cut scenario,” in other words, in anticipation of a future rise in bond prices.

In that scenario, a portfolio that blends different kinds of fixed-income investments could benefit from an eventual rise in bond prices, he says.

For example, that might mean splitting bond allocations between various bond products, such as money market funds, short-term and floating-rate notes, and intermediate and long-term bonds.

Asato noted that interest rates aren’t the only risk factor bond traders need to keep track of — they also should monitor the creditworthiness of the companies or government entities that issue bonds, as well as the risk that their buy or sell orders will be executed at subpar prices due to the high spreads.

Dates that could move markets this month

Earnings

Economic events