Nvidia Stock's Breathtaking First-Half Performance
We have finally come to the end of the first half of 2024. It has been a highly eventful start, as Nvidia (NVDA) stock led the Magnificent Seven with a total return of more than 150% YTD. NVDA's breathtaking performance briefly took its market cap ahead of Apple (AAPL) and Microsoft (MSFT) as the world's most valuable company in late June 2024.
In my market outlook in mid-December 2023, I provided insights on how 2024 could pan out. As we head into the third quarter next week, I believe it is timely to assess how my thesis has progressed.
Magnificent Seven Continued Their Outperformance
Except for Tesla (TSLA) and Apple stock, the rest of the Mag Seven have outperformed the S&P 500's (SPX) (SPY) YTD total return of just over 15%. In December, I underscored my conviction that the "strongest companies with the most sustainable competitive advantages" should continue to thrive. The thesis has panned out, as the market rewarded Mag Seven investors handsomely.
Moving into the second half, I still believe that maintaining a core position in the Mag Seven is vital to potential market outperformance. Why? The Generative AI upcycle is expected to benefit big tech companies significantly. We are still early as GenAI adoption broadens to enterprise customers.
Nvidia is seeking new growth opportunities to expand AI factories and capitalize on nascent growth drivers in sovereign AI to further its growth proposition.
In addition, cloud hyperscalers such as Amazon (AMZN), Google (GOOGL) (GOOG), and Microsoft (MSFT) are expected to strengthen their moat competitive moat further. It should accelerate the cloud transition while helping these companies capitalize on GenAI monetization opportunities.
Meta Platforms (META) is leading efforts to develop open-source LLMs. In addition, Meta can capitalize on having access to proprietary data on Facebook and Instagram. As AI companies could run out of data to train increasingly advanced models, proprietary datasets could provide a crucial advantage in AI leadership. Let's also not forget Apple's GenAI take with Apple Intelligence, which could spur a new wave of AI smartphone upgrades over the next few years.
Automotive EV Plays Continued Their Underperformance
With TSLA down more than 20% YTD, the EV leader has clawed back some losses since bottoming in late April 2024. Pure-play EV makers have had a first half to forget, even though legacy automakers have performed reasonably well.
While General Motors (GM) stock outperformed the market, Ford (F) and Toyota (TM) stock have underperformed the S&P 500 in the first half. Despite that, they managed to outperform TSLA's underwhelming report card. In addition, investors in pure-play EV makers like Rivian (RIVN) and Lucid (LCID) have endured a hammering in H1 as investors rotated out of these unprofitable companies.
A recent Bloomberg report likely justifies why the market has become more optimistic about legacy automakers. Plug-in hybrids have witnessed a tremendous revival and have become "the fastest-growing drivetrain segment in the global passenger vehicle market over the last five years." As a result, what was initially considered a "transition" technology has become a mainstream effort as part of the EV transformation roadmap.
Therefore, the market likely assessed that legacy automakers have a more diversified product portfolio to navigate the transition challenges more effectively. I don't think anyone is doubting that EVs are the future. However, the market has baked in higher uncertainties now as these EV makers were priced for growth.
With the Fed expected to stay higher for longer, the growth thesis faced a harsh reality check. As a result, legacy automakers can continue benefiting from their profitable ICE vehicles while investing prudently in next-gen EVs.
My assessment suggests that TSLA could face even more challenges moving forward. As enunciated in a recent article, I've also assessed increasingly worrying price action in TSLA. Therefore, with the EV leader potentially falling into a long-term downtrend, it doesn't augur well for the rest of its full-fledged EV peers.
Takeaway
As we head into the second half of 2024, there is much chatter about weak underlying market breadth. I've assessed that as well. As a result, market conditions are likely mixed and less clear. A potentially slower economy has likely added to the worries as investors anticipate whether the Fed could be compelled to cut interest rates faster.
Notwithstanding the uncertainties, I assess that the Mag Seven is expected to continue its leadership as we enter the third quarter. However, Tesla and its pure-play EV peers could continue to face intense challenges from legacy competitors and a potentially more hostile economy. Therefore, continued underperformance from EVs might not be over.
Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Consider this article as supplementing your required research. Please always apply independent thinking. Note that the rating is not intended to time a specific entry/exit at the point of writing unless otherwise specified.
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Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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