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November 20, 2024

New Highs for NVIDIA, Bitcoin and MicroStrategy

NVIDIA (NVDA), which is now the world’s most valuable public company, representing more than 7% of the S&P 500 Index, reported third quarter earnings after the close today. NVDA surpassed analyst estimates across metrics and demonstrated robust demand for the company’s market leading AI-related products. Meanwhile, Bitcoin and “Bitcoin treasury company” MicroStrategy (MSTR) also continued their post-election surge and reached new highs today.

AI and crypto represent two of the most important themes supporting the stock market and the broader economy. Both continue to enjoy clear underlying momentum as markets also continue to react to anticipated political and regulatory support for these technologies in the wake of Trump’s victory and the Republican sweep of Congress.

NVDA Q3 results

NVDA reported third quarter 2024 earnings results after the close of trading today. The shares declined modestly in after-market trading, but this comes on the heels of a strong share price performance that brought NVDA close to $150 per share in recent days. NVDA shares are up nearly 200% year to date.

Overall revenue for NVDA grew 94% on a year over year basis to $35.1 billion, which was driven by 112% growth in the now all-important data center segment, which reached $30.8 billion. GAAP earnings per share advanced 111% on a year over year basis.

Questions on the earnings call focused on the company’s production and delivery of its next generation Blackwell Graphic Processing Units (GPUs). Blackwell sales are growing sharply and are anticipated to overtake prior generation Hopper GPUs in coming quarters.

The tremendous growth in our business is being fueled by two fundamental trends that are driving global adoption of NVIDIA computing. First, the computing stack is undergoing a reinvention, a platform shift from coding to machine learning from executing code on CPUs to processing neural networks on GPUs. The $1 trillion installed base of traditional data center infrastructure is being rebuilt for Software 2.0, which applies machine learning to produce AI. Second, the age of AI is in full steam. Generative AI is not just a new software capability, but a new industry with AI factories manufacturing digital intelligence, a new industrial revolution that can be -- that can create a multitrillion-dollar AI industry… The age of robotics is coming. Countries across the world recognize the fundamental AI trends we are seeing and have awakened to the importance of developing their national AI infrastructure. - Jensen Huang, NVIDIA CEO, Q3 Earnings Call (11/20/2024)

While we have not included NVDA within our Model Portfolios, as we view the stock as very widely held by most investors through index exposure, it is arguably the most important bellwether of demand for and deployment of AI technology. As such, we expect investors across the AI space to take comfort in the strong growth and outlook communicated in today’s results.

The development of AI is a high policy priority for the incoming Trump administration. We view the election of Trump as supportive of the AI buildout, especially with regard to meeting the substantial power needs of the industry. We discussed the relevance of Trump’s election to AI and other sectors in our recently published Guide to Investing in the New Trump Economy.

Bitcoin hits $95,000

While the AI story continues to impress, Bitcoin has kicked into overdrive. The election of Trump and the Republican sweep have translated into significant upside in Bitcoin.

Bitcoin investors are enthusiastic about a number of anticipated developments. Legislation to create a Bitcoin strategic reserve has been introduced by Senator Cynthia Lummis of Wyoming and is seen as having strong support.

A number of recently announced nominations to Trump’s cabinet are viewed as strong Bitcoin champions, including Howard Lutnick (who has stated he owns several hundred million dollars worth of Bitcoin) as Commerce Secretary. There is also speculation that Trump may seek to nominate a seasoned digital assets attorney to lead the Securities and Exchange Commission (SEC). Additionally, there are reports that Trump may seek to name a special advisor on crypto who would function as a “crypto czar.”

MicroStrategy (MSTR) is the leading public company in the digital assets space and continues to have extraordinary momentum. MSTR shares broke new highs again today. They have more than doubled over the past month and have advanced some 650% year to date.

MSTR’s market capitalization is now $100 billion, which reflects a large premium to its underlying Bitcoin holdings. MSTR has changed its perception in the marketplace from merely being a way to get Bitcoin exposure through a listed vehicle into a company that utilizes leverage and other tools to manufacture additional value from Bitcoin upside.

MSTR’s success in the equity market also enables it to buy more Bitcoin, which has fueled a virtuous cycle. MSTR sells its own equity, which trades at a large premium to its Bitcoin holdings, to fund purchases of Bitcoin, which it holds on its balance sheet.

If you missed Trish’s recent interview with MSTR Executive Chairman and Founder Michael Saylor, we encourage you to watch it. Saylor has arguably become most influential and closely followed voice within the asset class.

As we discussed in September, we view Bitcoin as a high risk, high reward emerging asset that, for a variety of reasons, investors should consider for a material long-term portfolio allocation. While Bitcoin has risen sharply since then, we continue to favor an allocation to Bitcoin for investors with a long time horizon and capacity to endure the high volatility.

The MAGA sweep represents a genuinely positive development and will likely accelerate institutional adoption of Bitcoin and its ongoing integration within the traditional financial system.

We do expect the Trump administration and Congress to be highly supportive of Bitcoin’s growth as a monetary network. Bitcoin is increasingly being viewed as a complement to the U.S. dollar and the American financial system, rather than a competitor or threat. Supported by appropriate regulation, Bitcoin can function as a conduit for global capital to flow into the American economy.

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