Super Micro Computer Stock Tumbles After Earnings Announcement

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In his podcast addressing the markets today, Louis Navellier offered the following commentary.

I expect that as the U.S. imports some deflation from China that key interest rates will likely decline to the Fed’s 2% annual target range in the upcoming months. This will allow the Fed to begin cutting key interest rates by its December FOMC meeting. I also expect further Fed cuts in early 2024.

As the Presidential election approaches, the Fed usually likes to crawl into a hole and hide, since it does not want to be part of the Presidential debates. Overall, I expect the breadth and power of the stock market to steadily improve thanks to healthy consumer spending.

Zero-Day Shenanigans

My energy stocks have emerged as market leaders and exhibited tremendous relative strength in August. You may be aware that I do not like August since it is a month characterized by light trading volume and some seasonal shenanigans. The latest shenanigans are “zero-day options” that can cause sharp sell-offs or short-covering rallies.

Zero-day options are ones that expire the same day they are created. Amazingly, zero-day options now account for 43% of all options, up from only 6% back in 2017. This essentially means that the “tail likes to wag the dog” as hedge funds and other active investors rush for cover. Internally, we like to call the option gyrations “Skynet” after the Terminator movies when AI takes over the world.

Speaking of AI, I am ecstatic with both NVIDIA Corp (NASDAQ:NVDA) and Super Micro Computer Inc (NASDAQ:SMCI), since they are characterized by explosive sales and earnings. Nvidia will announce its latest quarterly results on Wednesday, August 23rd. All AI is essentially our machines studying us, which is no different than our pets studying us. Whether our machines are merely observing us and providing a solution vs. plotting against us, is up to debate.

The self-driving cars in San Francisco occasionally drive on wet concrete or hit firetrucks, which is amusing to many of us, but self-driving technology is obviously being perfected. When the 5G network in San Francisco had a glitch, all the self-driving cars abruptly stopped, since they were waiting for instructions. So please do not worry about AI too much, since it can be unplugged any time it annoys you.

Super Micro Computer’s Earnings

Citadel’s trading algorithms are largely based on “mean revision.” That means that what is up, can be suddenly down. So after Super Micro Computer (NASDAQ:SMCI) only reported second-quarter annual sales growth of 70.3% (0.9% better than expected), it and other AI stocks got hit with profit-taking. Fortunately, our energy stocks have been an oasis as the AI stocks were being hit with profit-taking.

This is what mean reversion is all about because Citadel’s algorithms are striving to “shake out” those investors that do not believe that Nvidia and Super Micro Computer’s sales and earnings are sustainable.

Buy AI and Energy

I can tell from some client e-mails that many investors are over-concentrated in just AI stocks and do not have energy stocks. I remember telling investors that energy stocks benefit from a seasonal surge in demand in the summer months, but apparently, some did not believe me, even though this seasonal demand has happened every year I have been alive. I want you to have AI, energy, and other stocks I recommend, so you do not have to worry.

What our AI-driven stock optimization models do is strive to find stocks that “zig” when other stocks “zag.” These optimization models force me to allocate 60% to Conservative stocks, 30% to Moderately Aggressive stocks, and only 10% to Aggressive stocks.

Furthermore, our optimization models are striving to combine squiggly lines (individual stocks) to make a smooth line (diversified portfolio). Thanks to our optimization model and what I like to call co-variance stocks (i.e., energy), we can weather any correction in AI stocks.

In conclusion, the most recent two months have been my strongest relative performance compared to the S&P 500 since last October and November, since we have been benefitting from both AI and energy-related stocks.

So as long as you remain diversified, you can invest confidently. I should add that I do not have exposure to financial or insurance stocks that can suffer from higher interest rates as well as natural disasters, from earthquakes, fires, hurricanes, and tornados.

Fear sells and boosts ratings. However, if you have a diversified portfolio of our fundamentally superior stocks, you can invest confidently and not worry about all the distractions that can derail a fundamentally superior stock portfolio.

Coffee Beans: Au Naturel

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