T’was the night before Christmas… wait, that’s not right.

It’s not even Thanksgiving yet. Hold on. 

Twas the trading session before Nvidia Day (yeah, here were go), and futures were green…

Market leadership was in question, filling the bears with glee. Jensen put on his leather jacket with care. In preparation of a quarter that would be heard throughout the land...

And, that is as far as I got.

Happy Nvidia Day!

Don here to provide you a little context ahead of the most important quarter of earnings season at an integral time for markets. I am going to start by telling you what Wall Street is actually trying to figure out through the report (and what they’re not) and then provide some charts to help you gauge the market’s response. 

Good? Good!

What Doesn’t Matter

Let’s start with what Wall Street isn’t looking for: the revenue, earnings, and guidance. Yep. Doesn’t really matter… because the Street already knows they’re going to be triple A. Based on what we heard from Meta, Microsoft, Google, Amazon, Oracle, and Tesla during their reports that were delivered less than a month ago, we know topline, bottomline, and guidance from Nvidia are going to make countries look lesser. 

Of course, if the numbers aren’t blockbuster… then, yeah… it’ll matter. But, at this point, Nvidia’s actual numbers are much like stock valuations – they don’t matter until they do, which tends to happen when things go wrong. 

The Only Question that matters?

To get that answer, you need to know the current bear case. In case you missed it, Michael Burry – of big short fame – has recently called into question the depreciation schedule data centers companies, like Coreweave (CRWV) and Nebius (NBIS), are applying to their Nvidia GPUs. 

A little accounting: you depreciate an asset over its useful life. 

The data centers argue that 5 years makes sense because that is what they anticipate to be the useful life of the GPUs they’re purchasing.

Burry disagrees, asserting that the period should be shorter because of the rapid upgrade cycle being priced-in to analysts’ expectations for Nvidia’s future earnings. 

If Burry is right, then the data center companies will be stuck in ramp-up/capex phase for a much longer time, delaying the timeline to the massive profitability each have promised once they finished the capex/ramp-up cycle and enter the lower-cost phase of the business model that is operating a data center whose only major cost is energy. 

In Burry’s defense, Jensen has, in the past, quipped those who have suggested running AI on prior iterations of Nvidia GPUs. As of now, Jensen appears to have won this argument. In doing so, he shortened the upgrade cycle for GPUs, which increased the future earnings of Nvidia in the 1, 3, and 5 year timeframes. 

Congratulations… but how do you reconcile that with the data centers asserting a useful life of 5+ years, which implies a longer upgrade cycle, and Lisa Sue – AMD’s CEO – making the case on CNBC’s air that older GPU chips can and will be used for years to come, albeit for less advanced tasks. 

So which is it? Do these GPUs need to be upgraded every year, meaning the data center stocks are toast? Or, can you wait to upgrade your GPU, implying short-run numbers for Nvidia are too high? 

Is there a middle ground? I think so. I see a world where the GPUs have a useful life in the ballpark of 5 years, but for the hyperscalers, which are competing for dominance, their only choice is to ensure access to the latest and the greatest. 

BUT, it will be up to Jensen to walk this very fine line at a time when the AI-cohort is in flux. 

Gauging the Response

Shout out to Alvaro – my friend over at the Bilingual Stock Market Channel – for sharing with me the expected move for Nvidia’s earnings is $15. As of 8:30AM, the stock is on track to open around $185. A $15 swing equates to ~8% for my silverbacks out there living in percentage terms. 

Here’s how I am using this information. I’ll try to keep this brief because talking through all the potential permutations is as useless as it is exhausting… and it is exhausting.

If Nvidia gives us a move within the $15 (or 8%) expected move, then, in my opinion, it is most-likely that we got the quarter we all thought and Jensen did an okay job threading the needle on the depreciation debate. In that case, I would anticipate the quarter acting as a clearing event for the market and S&P 7000 before 2026 is still in play. 

If the stock moves beyond what is expected, then it means one of two things. First, it could be a short-term overreaction. Let’s say we get a good quarter and we all leave feeling better about the depreciation issue. We wake up Thursday, and the stock is up or down more than 8%. I’d shrug and assert the market is overreacting. Second, it could be that Jensen delivered something thesis changing, in a positive or negative manner. 

This is an extremely hard quarter to handicap. Any more discussion on potential outcomes enters the blackhole of permutations and speculation I mentioned earlier… so, while end the discussion here.

Thankfully, we’ll all get to find out together in real-time over the next 24-36 hours. If you’re an active market participant, you have til 4PM to make whatever adjustments you need. Appreciate you for stopping in for my Nvidia Day special. Take care. 

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