The Magnificent Seven – TSLA and NVDA

Over the summer, we began publishing our "Quantamental" analysis of the most widely owned and known stocks in the market every Tuesday.

This analysis framework is one we have developed over the last three decades as a professional money manager.

It combines both “quantitative” (technical analysis) and “qualitative” (fundamental analysis). Our goal is to create an analysis framework to gain a view of a stock quickly.

This framework is the beginning of our own analysis process for both TRADING and INVESTING.

Our goal in sharing it is to give a quick view of these leading stocks.

We began this process by analyzing Tesla, Inc. (NASDAQ: TSLA) in early July.

Here is a table showing the data from all the analyses we have published on "The Magnificent Seven."

As we enter the heart of earnings season, we thought it would be a good time to update the analysis for each of these stocks.

Today, we will start with the first two: Tesla, Inc. (NASDAQ: TSLA) and NVIDIA Corporation (NASDAQ: NVDA). Over the next two days, we will cover the rest of them.

Tesla Inc. (NASDAQ: TSLA)

TSLA has been in the news quite a bit with their recent “Robotaxi” unveil day.

Here is a chart of the recent stock price along with the "relative strength index" (RSI) chart…

When we first published on TSLA, the stock had just experienced a massive run-up. From a technical perspective, we appreciated the stock's recovery and the potential establishment of a new upward trend.

However, the stock had moved so far and so fast that it was very overbought. Its RSI was over 80.

We pointed out the stock's history and said we thought it was likely to consolidate and trade lower.

This is what it has done since our initial view. The stock is -17% from where we originally wrote about it.

Beyond the technical analysis, we also had serious concerns about TSLA's earnings. The company has been seeing a steady stream of negative earnings revisions, which has driven the stock lower.

Here is an updated chart showing the earnings revisions for 2024 EPS and the stock price…

In the chart, you can see the correlation between the two.

Looking at the most recent revisions, they may have bottomed out for now. Unfortunately, they have appeared to do so before, only to go lower.

In our experience with these types of situations, we prefer to see higher revisions for at least a two-quarter (six-month) period. Even if we miss the first part of the move, the higher certainty is worth it.

How does all this play into the fundamentals for TSLA?

Right now, we think it is a simple story. They are the leading manufacturer of electric vehicles (EVs) in the US and the world. They have outstanding technology and a great track record.

The challenge is that there is a lot of new competition. They have dropped their prices to defend their market share and take advantage of their manufacturing scale. In our view, this is the right action to take.

However, it comes with the problem that they are seeing lower earnings as a result.

Do we think that, eventually, they will get a handle on earnings visibility and go higher?

We do, but we would rather wait to see it happen (the six months mentioned above) before betting on it. Again, we don’t mind missing the first +50% in a stock move if it might go up two—or threefold in the future.

What about the big “Robotaxi” reveal?

We thought it was incredible. Musk truly has a vision to turn TSLA into the global robotics and artificial intelligence (AI) leader. We honestly believe he can turn TSLA into a $40 trillion company.

Over the next year, though, the company needs to regain visibility of earnings. If not, the stock will continue (at best) to trade in a range and (at worst) move lower. Be patient and wait for the positive earnings revisions.

UPDATED CONCLUSION - AVOID

NVIDIA Corporation (NASDAQ: NVDA)

The next stock we examined with our "Quantamental" approach was NVDA.

Our analysis occurred in mid-July, near the end of the first half of the year. NVDA had helped propel the entire stock market higher.

Here is the stock price and RSI chart over the past twelve months…

From a technical analysis perspective, the stock was in a similar position to TSLA, which was very overbought. This concerned us.

We were also concerned that the stock could use a rest after six months of driving the entire stock market.

This view was despite our belief that NVDA would continue to report strong earnings. Here is the chart of the 2024 EPS revisions, along with the stock chart…

Both views were correct.

Soon after we wrote our initial view of "AVOID," the stock proceeded to trade down.

When the overall stock market got hit hard at the start of August, we decided to revisit our first group of recommendations.

We stuck with our negative view on TSLA but felt the overbought NVDA scenario was gone. Given our positive earnings outlook, we thought the stock was a BUY.

Our timing was excellent, and the stock is +30% since we changed our view.

We still like the near-term prospect for NVDA earnings and think they will continue to report substantial numbers. One concern, though, is that the strong numbers needed to be stronger in this most recent quarter, and the stock traded down.

Right now, though, all of the technology and the semiconductors have the potential to break out higher.

Given the strong end-of-year seasonality and the positive fundamental outlook, we still think the stock will go higher.

We have a couple of concerns about it in relation to its peer group in "The Magnificent Seven,” though.

First, the stock is very overbought right now. We could easily see a pullback.

Second—and this is a very unpopular view—we think NVDA has the most intermediate-term earnings risk in the group, right up there with TSLA and perhaps even more.

You can read our thoughts in a note we published a couple of months ago here.

We think NVDA is a good short-term trade but have real concerns in 2025.

UPDATED CONCLUSION – BUY

In tomorrow's HX Daily, we will continue our analysis with Amazon.com, Inc. (NASDAQ: AMZN) and Alphabet Inc. (NASDAQ: GOOG).