Here’s Why Nvidia Stock Will Reach $10 Trillion Market Cap By 2030

Posted on June 10, 2024June 30, 2026 by io-fund

This article was originally published on Forbes on Jun 7, 2024,09:15am EDTForbesForbes on Jun 7, 2024,09:15am EDT

Nvidia has a market cap of $3 trillion today. We believe Nvidia will reach a $10 trillion market cap by 2030 or sooner through a rapid product road map, it’s impenetrable moat from the CUDA software platform, and due to being an AI systems company that provides components well beyond GPUs, including networking and software platforms.

In 2021, I published an analysis on Forbes “Here’s Why Nvidia Will Surpass Apple’s Valuation in 5 Years” that stated: “Nvidia has a market cap of roughly $550 billion compared to Apple’s nearly $2.5 trillion. We believe Nvidia can surpass Apple by capitalizing on the artificial intelligence economy, which will add an estimated $15 trillion to GDP.”an estimated $15 trillion to GDP.”

Yesterday, Nvidia officially surpassed Apple in market cap, which means I delivered on my prediction 2 years early.

This lends itself to the question, what do I foresee next for Nvidia, and how am I approaching this heavy hitter in AI. My firm champions full transparency by issuing trade alerts for every buy and sell we make; thus, I’ve included at the end a transparent discussion on how my firm is managing our position today.

But first, I unpack why I believe Nvidia can achieve an astonishing $10 trillion market cap by 2030. As you’ll see from the key points to my thesis, there is a bull case where a $10T market cap estimate in a little over six years’ time is not high enough.

“Millions of GPU Data Centers are Coming.”

On June 2nd, Jensen Huang made a very important statement about the future of AI that answers quite succinctly why Nvidia is on the verge of becoming the World’s Most Valuable Company:

“The days of millions of GPU data centers are coming. And the reason for that is very simple. Of course, we want to train much larger models. But very importantly, in the future, almost every interaction you have with the Internet or with a computer will likely have a generative AI running in the cloud somewhere. And that generative AI is working with you, interacting with you, generating videos or images or text or maybe a digital human. And so you're interacting with your computer almost all the time, and there's always a generative AI connected to that. Some of it is on-prem, some of it is on your device and a lot of it could be in the cloud […]

And so the amount of generation we're going to do in the future is going to be extraordinary.” – Jensen Huang, CEO of Nvidia, Computex keynote

Today, there are tens-of-thousands of GPUs in data centers. By end of 2025, there will be hundreds-of-thousands of GPUs in data centers. Due to the market’s forward-looking nature, 2025 is getting close to being fully priced in. Here is a slide of what this looks like from the perspective of scaling the ethernet networking to support a million-plus GPU cluster.

Source: Nvidia, Computex Keynote Presentation

Here’s what we know about Big Tech’s purchases, thus far. Microsoft is reportedly looking to triple its GPU supply to 1.8 million GPUs this year to meet elevated demand for Azure, while Meta has disclosed its GPU orders with an announcement for 150,000 H100s last year and 350,000 H100s or H100-equivalents this year. Musk announced that X’s 100,000 H100 cluster would be online in a few months and hinted at a possible 300,000 B200 GPU purchase.

According to Next Platform, Meta has roughly 600,000 GPUs deployed including previous generations, such as Ampere. This could include some from AMD, although AMD is more likely to ramp in 2025 and beyond. Right now, Nvidia has a $100 billion run rate on its data center compared to AMD’s $4 billion, therefore, any portion of GPUs from AMD is nominal as it stands for 2024.

If we look closer at semantics, Huang used the word “millions” and not the singular word “million,” and “data centers” rather than the singular “data center.” Therefore, my firm is making the assumption that companies like Meta will grow their data center GPUs by a minimum of 233% from 600K to 2M by 2030.

Broadcom shares a similar view, noting that management expects million-GPU clusters by 2027, compared to clusters with tens of thousands of GPUs today. This is even more bullish than Jensen Huang’s comments. Coming back to Meta, even with 600,000 H100 equivalents, it’s building clusters of 24,000 GPUs. In order to see singular clusters scale to the hundreds of thousands and millions, as Broadcom is predicting, we would need to see GPU shipments far in excess of those levels. This alone could get us to $10 trillion market cap based off Big Tech’s data centers, and we have not factored in the enterprise. The enterprise includes companies like the Fortune 500 or Global 2000 that build on-premise AI systems.

We can cross-examine this by looking at comments by CEOs, such as Lisa Su who stated AI accelerators will reach $400 billion by 2027. Nvidia has over 95% market share of data center GPUs but with custom silicon ASICs and more GPUs coming online, this is closer to 80% market share of AI accelerators.

If this estimate materializes, Nvidia’s data center segment will be at $320 billion in 2027, up from data center run rate of $90 billion today, with consensus at roughly $145 billion data center segment by end of calendar year 2025 (consensus is total revenue of $157.51, deducting for other segments).

Source: I/O Fund

In my analysis last month on the Blackwell architecture, I made the argument these estimates are too low and that my firm expects we will see a $200 billion data center segment by end of CY2025 propelled forward by the B100, B200 and GB200, including the following points: “Taiwan Semi’s CoWos capacity, which is essential for Blackwell’s architecture, is estimated to rise to 40,000 units/month by the end of 2024, which is more than a 150% YoY increase from ~15,000 units/month at the end of 2023. Applied Materials has boosted its forecast for HBM packaging revenue from a prior view for 4X growth to 6X growth this year.”

Data center segment for Nvidia of $320 billion by 2027 would result in 260% growth for Nvidia’s DC from where it stands today and up 120% from DC revenue estimates for end of CY2025. Using Lisa Su’s prediction, there would still be another three years to achieve the additional 120% needed to reach $10 trillion.

Industry analysts have a high-30 percent CAGR for AI accelerators through 2030 ranging from 36.6% to 37.4%. If we round this up to a 40-percent CAGR for Nvidia, then it’s not out of the question that Nvidia ends the decade with $800 billion from AI systems. That would be 450% growth from $145 billion at end of CY2025. This is the most bullish case scenario, which is why my current prediction is a bit more tame (for now) at predicting 233% growth by 2030.

Valuation is one of the most important points that confuses many investors (and short sellers) on why Nvidia’s stock continues to extend. We’ve called the valuation eerily loweerily low as most hypergrowth stocks would trade well above historical averages after a 500% move in 18 months. However, due to the 600% increase in earnings and 400% increase in revenue, the stock has remained well below its historical averages, while in fact, trading near October 2022 levels. To put this in perspective, on a forward PE basis, Nvidia was more expensive at the start of 2023 than it is today. Currently, it is trading at a forward P/E ratio of 44 compared to 62 in January 2023. You can view a clip here where I stated the stock was trading eerily low. This is still true today.

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The Technological Feat that Nvidia Accomplished

Many investors are surprised that Nvidia has surpassed Apple, and will pass Microsoft any day now to become the world’s most valuable company. Really, a gaming company? All of this from GPUs?

I want to make it abundantly clear that from a technological standpoint Nvidia has run circles around the FAANGsrun circles around the FAANGs over the past 8 years. Apple has sat stagnant while Nvidia is in its Steve Jobs-era. What has resulted is that Nvidia is no longer a GPU company; it’s an AI systems company. The best ten or fifteen minutes an investor can spend in today’s market is understanding what exactly Nvidia accomplished to get to $3T, otherwise, it will not be clear how we can get to $10T.

Below, I take you through the key points from each generation, including the moment Nvidia transitioned from being a GPU chip company and a gaming company to become the AI systems company that is powering a $15 trillion economy.

For ease of reading, I’ve bolded key takeaways and also underlined the not-to-miss points:

Pascal:

In 2016, Pascal featured 7.2 billion transistors and increased CUDA cores compared to the previous generation, Maxwell. CUDA cores are parallel processors that can perform complex calculations and execute tasks on graphics cards much faster than a central processor. Parallel computing is at the heart of why Nvidia transitioned from gaming to AI, as GPUs can execute multiple tasks at the same time (concurrently). Each generation increases CUDA cores, which helps to accelerate what workloads are possible. CUDA cores distribute compute across thousands of cores to train large scale neural networks and can process big data at exponential rates.

Pascal was built on TSMC’s 16nm process and Samsung’s 14nm FinFET process with 16-bit floating precision, plus NVLink bi-directional interconnect to scale multiple GPUs for applications. TSMC’s CoWoS packaging was used to support high-bandwidth memory (HBM2).

Volta:

Volta was built on a 12nm FinFET process with 32GB of HBM2, 900GB of bandwidth and 21 billion transistors. The breakthrough here was the introduction of Tensor cores for AI, machine learning and deep learning.

Tensor cores handle tensor and matrix operations, resulting in higher performance for neural networks. Tensor cores are capable of mixed-precision calculations, which contributes a significant amount to the “1,000 times increase in AI compute” quoted by Nvidia this past weekend. For example, switching from a 32-bit floating point to a 16-bit floating point can significantly increase training speed by requiring less memory and speeding up data transfer operations.

Due to introducing Tensor cores, Volta was the officially the first AI accelerator in history as it was designed for large scale training and connected up to eight GPUs. With Tensor Cores, Nvidia combined the benefits of parallel process and general-purpose compute from CUDA cores (which distributes tasks across thousands of cores) with the specialized acceleration offered from the matrix computations from Tensor Cores.

NVLink also saw an upgrade to 2.0 in this generation for higher data transfer rates.

Volta with Tensor Cores was launched in 2017 and further developed with two more releases launched in 2018. My firm began covering Nvidia’s AI thesis around this time, stating CUDA created an impenetrable moat for data center GPUs.

In 2019, Volta’s AI capabilities prompted me to say on my premium stock research site: “To be bold – I believe Nvidia will be one of the world’s most valuable companies by 2030. The research below organizes my investment thesis for the GPU-powered cloud and why I believe Nvidia will emerge as a clear leader.”

That premium research note was written on September 17th 2019 when Nvidia was at a $110 billion valuation.

The market cap of Nvidia when I first stated it would become the world’s most valuable company at $110.3B compared to a $3T market cap today, for a return of 2,600% in less than five years.

Source: YCharts

Pictured Above: Y-charts, the market cap of Nvidia when I first stated it would become the world’s most valuable company at $110.3B compared to a $3T market cap today, for a return of 2,600% in less than five years.

Turing:

Turing was built on the 12nm FinFET process with upgraded HBM2 memory (GDDR6) for higher bandwidth and 8-bit floating precision. Nvidia’s T4 GPUs delivered up to 40 times more performance than CPUs and are capable of real-time inference due to exponentially better throughput.

The architecture expanded to include more CUDA cores, second generation Tensor cores and the newly introduced RT Cores for real-time ray tracing. RT cores provide a boost to gaming and introduced professional visualization. The RTX platform was invented by Nvidia to “physically simulate light behavior in the world” and combines RT cores for ray tracing with Tensor Cores for AI.

Ampere:

If Tensor cores made Volta the first AI accelerator, then Ampere was the architecture that marked the moment Nvidia would no longer be considered a cyclical, gaming stock. I began to call Nvidia “secular” with this release and it’s when I doubled down on my conviction by taking my thesis from behind the paywall to the public, stating Nvidia would Surpass Apple in 5 Years. Nvidia not only became secular in revenue, but it’s secular-level gains have surpassed the world’s most celebrated software companies (every single one of them) since Ampere.

Source: YCharts

In fact, as one of the leading investors in semiconductors on record, I can assure you semiconductors have gone through a deep, cyclical trough industry-wide over the past 8 or so quarters while Nvidia powered higher with historical beats/raises. By providing in-demand AI systems, Nvidia has become decoupled from consumer spending and macro.

Pictured Above: Nvidia outperforms secular software and did not participate in the steep, cyclical trough over the past eight quarters like its semiconductor peers.

Source: YCharts

The A100 was built on TSMC’s advanced 7nm FinFET process node with 54 billion transistors. The third-gen Tensor cores featured new mixed-precision calculations, such as Tensor Float (TF32) and Floating Point 64 (FP64) with TF32 delivering up to 20X faster speeds for AI. By using automatic mixed precision, FP16 can be utilized for an additional 2X performance. Nvidia calls this the sparsity feature, which doubles throughput, runs 10X faster than the V100, and is 20X faster with sparsity.

What was special about the A100 is that it unified training and inference on a single chip, whereas in the past Nvidia was mainly used for training. With the specs described above, the A100 also offered a 20x performance boost.

As a multi-instance GPU, the A100 can make one GPU look like up to 7 GPUs for optimal utilization. This is key for cloud service providers, such as Amazon’s AWS, Google Cloud and Microsoft Azure, as it increased GPU instances by 7X.

The A100 was the first architecture where Nvidia was no longer simply a GPU chip company, but rather it marked the moment Nvidia became an AI systems company. The A100 offers the ability to scale-up multiple GPUs for one giant GPU using components such as third-gen NVLink to double GPU-to-GPU bandwidth, NVSwitch which is leveraged for fast data transfers, plus InfiniBand and SmartNICs following the Mellanox acquisition.

Hopper:

Hopper is when Wall Street became aware of Nvidia’s AI story. As you can see in this timeline, it was quite late for the Street to finally discover Nvidia is a promising AI stock!

The H100 GPUs and the DGX H100 server pods and super pods solved an important bandwidth issue and sped up algorithms by offering dynamic programming on GPUs to break down problems to simpler subproblems. The GPUs also boost bandwidth by 3X with SHARP in-networking computing and Infiniband Switches, and the H100 can leverage NVLink to connect eight H100s into one giant GPU for 640 billion transistors, 32 petaflops, 640GB of HBM3, and 24 terabytes per second of memory bandwidth.

The H100 has about 50% more memory and interface bandwidth than the A100. Memory later got a big boost in Blackwell, shipping this year.

The H100 stands apart with the leap in performance of 3X more performance than the A100 and is up to 6X faster. The A100 lacked support for FP8 compute at default whereas the H100 leverages a transformer engine to switch between FP8 and FP16, depending on the workload.

According to Nvidia, the H100 delivers 9X more throughput in AI training, and 16X to 30X more inference performance. The company also states in HPC application-specific workloads, the H100 is 7X faster. The goal of the H100 was not only to add more transistors and make the H100 faster, but to also offer function-specific optimizations. This is achieved through the transformer engine.

Although there are many highlights to consider with the H100, the biggest breakthrough was the transformer engine as it allowed generative AI to come to market. Transformers helped to define generative AI as the neural-network models apply self-attention to detect how data elements in a series influence and depend on one another.

Prior to transformer models, labeled datasets had to be used to train neural networks. Transformer models eliminate this need by finding patterns between elements mathematically, which substantially opens up what datasets can be used and how quickly.

The “T” in Chat-GPT stands for transformer and it was the H100 that created the GenAI breakthrough moment.

Blackwell:

Blackwell is the architecture that I stated on Fox Business News will deliver the “ultimate fireworks by the end of this year.” In the analysis Blackwell and the $200B Data Center, I stated: “Blackwell is for the trillion+ parameter era of generative AI. The architecture is designed to support the largest language models today and is future-proofed […]”

The full analysis is worth a read as it spells out how Nvidia will drive growth through the end of 2025 and why I think current data center estimates are too low. In fact, I wrote that prior to the last earnings report and analysts are already proving me correct as FY2026 (ending Jan 2026) have been revised up by a whopping $20 billion since I wrote that only three weeks ago!

Source: Seeking Alpha

Pictured Above: Seeking Alpha, on May 23rd FY2026 revenue was estimated at $125 billion, it is now at $145 billion for an increase of $20 billion on the data center. This means that within three weeks, my prediction (that was written prior to earnings) for 60% higher data center revenue is quickly materializing, as in the last three brief weeks, the consensus has been revised so rapidly, the difference is only 38% now. On Bloomberg Asia, I also discussed why investors should pay close attention to intra-quarter revisions, which is exactly the reason the price moved in the past three weeks.Seeking Alpha, on May 23rd FY2026 revenue was estimated at $125 billion, it is now at $145 billion for an increase of $20 billion on the data center. This means that within three weeks, my prediction (that was written prior to earnings) for 60% higher data center revenue is quickly materializing, as in the last three brief weeks, the consensus has been revised so rapidly, the difference is only 38% now. On Bloomberg Asia, I also discussed why investors should pay close attention to intra-quarter revisions, which is exactly the reason the price moved in the past three weeks.

Unlike previous generations where the V100, A100 and H100 were the show-stoppers, it will be the GB200 and B200 that creates the biggest leap generationally. Therefore, I want to emphasize that I said the fireworks would come at the end of the year and into early 2025. The fireworks begin when the GB200 NVL36/NVL72 ships in late 2024 and then they continue with the B200 GPUs in early 2025.

The B200 GPU chipset due in Q1 of next year will deliver a 2.5X training improvement and 5X inference improvement over the H100. This is due to the B200 having 208 billion transistors compared to the H100’s 80 billion transistors.

The B200 will also have 20 petaflops of FP4 compared to the H100’s 4 petaflops of FP8 reaching 32 petaflops of FP8 in the DGX H100 systems. The difference is that the smaller bit size allows for an economical way to achieve more speed when giving up a small amount of accuracy doesn’t make a critical difference. As discussed, this also helps in the face of a slowing Moore’s Law. The B200 will have a second-generation transformer engine that supports 4-bit floating point (FP4) with the goal of doubling the performance and size of models the memory can support while maintaining accuracy.

The second-generation transformer engine in the Blackwell architecture will offer FP4. This is helpful because AI models are moving toward neural nets that lean on the lowest precision and yet still yield an accurate result. In this case, 4 bits double the throughput of 8-bit units, compute faster and more efficiently, and they require less memory and memory bandwidth.

TheGB200 NVL72 will deliver real-time trillion-parameter LLM inference, 4X LLM training, 25X energy efficiency, and 18X data processing. The GB200 will provide 4X faster training performance than the H100 HGX systems and will include a second-generation transformer engine with FP4/FP6 Tensor core. As stated above, the 4nm process integrates two GPU dies connected with 10 TB/s NVLink with 208 billion transistors.

NVLink Switch is a major component to the Blackwell upgrade. Fifth-generation NVLink enables multi-GPU communication at high speed, reaching 1.8 TB/s bidirectional throughput or 14X the bandwidth of PCIe for a single GPU.

Takeaway: Blackwell is the architecture that will make trillion+ parameter models possible, up from billion parameter models today.

Every Thursday at 4:30 pm Eastern, the I/O Fund team holds a webinar for premium members to discuss how to navigate the broad market, as well as various stock entries and exits. We offer trade alerts plus an automated hedging signal. The I/O Fund team is one of the only audited portfolios available to individual investors. Learn more here.Learn more here.

Nvidia’s 1-Year Release Cycle is Wild

If you’re exhausted reading that, imagine producing it in 8 brief years. Per the Computex keynote, from Pascal to Blackwell, the AI systems delivered “1,000 times increase in AI compute,” while simultaneously decreasing the “energy per token by 45,000X.”

Now, imagine cutting the time in half by producing four generations of AI systems in 4 years instead of 8 years.Now, imagine cutting the time in half by producing four generations of AI systems in 4 years instead of 8 years.

In the analysis “Nvidia Q1 Earnings Preview: Blackwell and the $200B Data Center,” I stated that “should [the CUDA] moat become breached, the company’s rapid product road map is the first line of defense,rapid product road map is the first line of defense,” and later I also stated: "The product road map is the single most important thing investors should be focused on. A good chunk of the AI accelerator story is understood at this point. What is not understood is how aggressive Nvidia is becoming by speeding up to a one-year release cycle for its next generation of GPUs instead of a two-year release cycleThe product road map is the single most important thing investors should be focused on. A good chunk of the AI accelerator story is understood at this point. What is not understood is how aggressive Nvidia is becoming by speeding up to a one-year release cycle for its next generation of GPUs instead of a two-year release cycle."

After writing that, I realized it would be impossible to ask investors to focus on the upcoming road map if we did not look more closely at the road map that got us to $3 trillion. By now, it should be crystal clear that Nvidia is not a cyclical GPU chip company, rather it’s a secular AI systems and software platform company that has a near-monopoly in building supercomputers for the $15 trillion AI economy. If you are still not convinced that Nvidia is more than a GPU company, perhaps these two pictures can help.

Here’s a Blackwell GPU chip and a Hopper GPU chip — can easily fit in your hand.

Here’s a Blackwell GPU chip and a Hopper GPU chip, can easily fit in your hand.

Source: Nvidia

Here’s what AI factories look like (or what I’m calling AI systems):

Source: Nvidia Newsroom

What’s Next for Nvidia:

This past weekend, Nvidia announced the names of future generations: Blackwell Ultra, Rubin, and Rubin Ultra. The specifics of these future generations will be revealed at future GTC conferences.

Here is what you keep an eye out for in future generations:

3nm process node and 2nm process node, which I covered here in a TSMC analysis
HBM3e memory and HBM4 memory, which I covered here under the subheading “More on Memory”
Future generations of NVLink, which I also covered in my Blackwell writeup
InfiniBand and Spectrum-X Ethernet for AI workloads: I’ve covered InfiniBand since the Mellanox acquisition yet also covered the importance of Ethernet networking in-depth on my premium site in February. Last year, networking grew five-fold to a $10B run rate, which technically marked a higher growth rate than AI accelerators.
AI Software and Automotive: I wrote a deep dive on Nvidia’s software opportunity exclusively for my premium members in July of 2022. I will update my free readers in the coming quarters on these two opportunities which will help us end the decade strong. This market will rival Nvidia’s hardware market by 2030 (yes, you heard that correctly).

Our Price Target for the Next Entry

Some of you reading this own Nvidia, and others do not. For those who do not own the stock, the most important question is not what market cap will Nvidia have by 2030, but rather, where is the stock going in the near-term.

My firm is an actively managed portfolio that publishes our trades in real-time. However, we are not financial advisors and each investor must decide for themselves whether to buy or sell a stock. What my firm does is simply state when we are buying or selling for unrivaled transparency. You will be hard pressed to find anyone else publish every single trade in real-time outside of professional fund managers (who are required to do so).

Since I first began covering Nvidia publicly in 2018, my firm has issued 9 buy alerts under $200 and we have been taking nominal profits along the way. We plan to take profits again in the $1225 to $1315 range. Nvidia is trading in this potential topping zone, at time of writing. Once price moves below $1035, it will signal that the anticipated reversal is underway. Once this happens, our process allows us to get more precise with identifying buy targets. Until then, we have a general range between $920 – $715. Keep in mind, this range can shift once a reversal is identified.

For some stocks, we get more aggressive and would try to time a buy in the lower range of the target zone, which would be around $715 for NVDA. However, due to the strength of its thesis, we will likely buy at the upper end of that target around $920.

Source: I/O Fund

If you had bought Nvidia January 1st 2022 instead of October 18th of 2022, your returns would be 387% instead of 1,034%. Therefore, 230% returns by 2030 would be phenomenal, but when entering at lower prices, the total return can multiply. For example, let’s say an investor can buy the stock at $900. In this hypothetical situation, the returns would be 350% compared to 230%. This is simple in concept yet is challenging to execute.

As of now, Nvidia stock should be watched closely between $1225 to $1315. It’s crystal clear that Nvidia owns the AI market, yet the stock will need the broad market to be aligned for its phenomenal run to continue. We’ve been tracking the fading Mag 7 since early March. At this point, the Mag 7 had become the Mag 4, when we stated…

“when the cycle leaders start to underperform, it tends to mark the start of a trend change. The FAANGs have been the undoubted leaders of this bull run, and we are now seeing them start to trend lower against the indexes.”

After the rally we saw this week, it’s worth noting that Nvidia is the only stock in the Mag 7 that is making new all-time highs. Amazon, Alphabet and Meta are making lower highs as of today.

Source: I/O Fund

Until we see more market leaders breakout, Nvidia remains the last one standing. Therefore, if Nvidia cannot break above the $1225 range, then the market is communicating that Nvidia’s weaker peers may be influencing its price action. We’ve stated many times that Nvidia is a buy on the dips (as opposed to a buy on breakouts), specifically as “we brace for Blackwell by the end of the year.”

What’s worth noting is that while SPX, NDX and NVDA are making new highs, almost every other major index (RUT, DJI, NYA, RSP, XLF, XHB, to name a few), including the Mag 6, are not.

For Nvidia to continue moving up in a straight line means the stock will have to operate in a vacuum. This is unlikely, and thus we are waiting for the next dip before we buy again. Our current target, once again, is in the $920 – $715 range, although depending on market dynamics this could shift. We update our premium research members with real-time trade alerts and weekly webinars.

Conclusion:

The boldest prediction I have made on Nvidia was to state in an analysis to my premium research members in September of 2019: “To be bold – I believe Nvidia will be one of the world’s most valuable companies by 2030. The research below organizes my investment thesis for the GPU-powered cloud and why I believe Nvidia will emerge as a clear leader.”

The world’s most valuable company at that time was Apple hovering at a $1 trillion market cap compared to Nvidia’s $110 billion market cap. As many fierce critics pointed out to me, I was not only predicting that Nvidia would skyrocket but that Apple and every other FAANG would falter. This was a challenging prediction to make as many things had to line up: 1) Nvidia must blow the doors off, and 2) every FAANG would have to plateau.

Here is what happened next:

Source: YCharts

All said and done, I will keep the 2030 deadline for the $10 trillion market cap, although I suspect, as with my other predictions, it will be delivered to you sooner.

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in NVDA at the time of writing and may own stocks pictured in the charts.

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Positions Report – June 2024

Posted on June 7, 2024June 30, 2026 by io-fund

Nvidia (NVDA)

I spent extra time on NVDA, considering it is our largest position. The smaller time frame seems to be quite clear – we are trending up into the $1050 – $1315 target zone that we identified in our April report. The developing pattern is 5 waves, which means that we now have a fully formed 5 wave pattern into the target zone. This should set us up for some type of a reversal.

While a pullback from the current swing high appears to be reasonable, the question is what degree of correction will this become? When we zoom out to answer this question NVDA’s chart provides two potential answers.

When charting, there are two scales to measure price – linear scale and logarithmic scale. In linear scale, the Y axis has the same division in price from top to bottom. So, if the division is every $100, then a move from $100 – $200 is a 100% move. However, a move from $1000 – $1100 is only a 10% move. This gives the appearance of small moves at the based on the trend and dramatic moves the higher we go.

The other option is logarithmic scale for the Y axis. The measurements here are divided by equal % gains, not equal price measurements. This gives a more balanced account of historic trends up into the current one.

There are no rules on what scale to use. Some analysts prefer one over the other, while I tend to use both. I have found that some stocks tend to work better in one scale vs. the other. With Nvidia, each scale is telling us to wait to buy. Where they differ is the size of the drop that is likely building.

When we put NVDA in linear scale, it appears that we are completing a large degree 3rd wave, which could keep extending. The coming 4th wave would retrace the prior swing, before bottoming and starting a new large degree 5th wave higher. The targets for this 3rd wave are in the $1200 – $1300 range. A breakdown below $1035 will signal that we are in this correction, which we would use to setup buy targets.

When we put NVDA in logarithmic scale, it appears that we have a fully formed 5 wave pattern, where the 5th wave extended. The targets overhead are roughly the same and the break down price point remains $1035. However, this count suggests that we would see a deeper pullback than the count in linear scale.

Interestingly, the fundamentals simply do not line up with either of the counts, especially the one suggesting a deeper pullback is coming. The valuations are not exorbitant, as price would suggest. With each report, forward sales have continued to accelerate higher, and in some instance cases more than price increased.

A move to those levels would require deep revisions, or an unforeseen macro catalyst. This has been a fundamental story, as I have been forced to re-write this chart several times throughout the uptrend. So, we do not plan to take drastic measures now that NVDA has hit our technical targets.

Since 2023, we have seen three greater than 20% drawdowns in NVDA. Our plan will be to buy on these ~20% dips, and if we see an even deeper one, as outlined by these two counts, we will buy more. Until the story shifts and the fundamentals get reversed, we see no reason to not buy the dip on NVDA as it remains our top position, and will likely hold that spot into the foreseeable future.

Bitcoin (BTCUSD)

Bitcoin hit our $57,000 target and has bounced back to retest the highs. I still think we are going higher; the question is if it will be directly from here or after we make one more drop into the high $40,000s first? If we break out to new ATHs, then we should see the $83,000 level next.

There is an important cycle cluster coming up in late June. How we are trending into these cycles is what is important. If we are trending higher into ATHs, then we will likely see some type of a reversal. If we are trending lower, then we will likely see some type of low.

Broadcom (AVGO)

AVGO is a new addition and one that we plan to continue to buy on further weakness. The long-term trend appears to be quite bullish; however, we will need to contend with some volatility along the way. If we zoom in on the current uptrend that we are in, we are either in the final swing lower in the 4th wave correction, or still in the larger 3rd wave higher.

If we see a breakdown below $1305, we will be in the 4th wave and target the $1100 region for bigger buys. If we are still in the 3rd wave, then we should see a breakout to new ATHs (above $1450), followed by one more swing higher to complete the 3rd wave. This would mean that the larger 4th wave pullback would happen later into the year.

Broad Market Technical Analysis

Regarding the horizontal lines, black lines represent strong support/resistance, while dark red lines mark very strong support/resistance.

Elliott Wave counts are meant to provide context. Each colored count represents the most probable paths given the current price data. There is a pattern unfolding in real-time, one of which will play out. By monitoring price levels that are held/broken, it will help us figure out which one is in play, so that we can better manage risk.

We continue to track the secular bull market that started in March of 2009. Instead of 3 counts, as discussed in the April report, we are now only tracking 2 counts.

Red – The secular bull market that started in March of 2009, completed its final 5th wave in early April of 2024. We are now in the first corrective pattern of this new secular bear market. We should trend side-ways to down until early 2025, which would then see the larger drop.
Green – This count relies on an extended 3rd wave that pushed into the 2022 top. The 2022 bear market was the 4th wave, and we are in the final moves of wave 3 within a large 5 wave pattern. We should see a break above 5465, which would signal that we can see the bull market extend into 2025.

These two counts differ on where the large degree 5th wave in the secular bull market started. the red count has this 5th wave starting on the COVID low. This would make the 2022 bear market a 4th wave within this larger 5 wave structure.

What’s important to recognize in this count is the structure of the final 5th wave within this larger 5 wave pattern, which started in October of 2022. It is a common pattern for 5th waves, called an ending diagonal pattern. I discussed this pattern in great detail in the February Report. In short, it is a choppy, 5 wave pattern that has large swings in both directions, some overlap between each wave, and tends to operate within a defined trend channel.

This pattern best completed in early April. This would then put the current push to new all-time-highs as an extended bounce within a larger correction, and should give way to a sharp drop once completed.

The green count best fits as a much larger ending diagonal. While the red count has the final 5th wave of the secular bull market starting off the COVID low, the green count has the final 5th wave starting on the October 2022 low. While the pattern is the same, the green count has it playing out on a larger scale.

This would have us still in the 3rd wave of this larger ending diagonal, which would need to tag the 5750 range.

If we zoom into the ending diagonal that is currently playing out, we can get more context on the levels that we need to monitor for confirmation of a future direction in the market.

If we can see a push above 5465 in SPX then it will confirm that the green count, or some variation, is likely playing out. This means that we will be targeting the +5700 region more directly, which will be followed by a large correction into year-end. On the other hand, a break down below 5255 in SPX will confirm this the red count is in play. This means that the early April high was the top for the secular bull market that has been playing out since 2009.

Pro premium members receive deep-dive research on all the stocks in the portfolio and quarterly earnings kickoff webinars. In addition, the Advanced Market Signals Members receive regular technical and broad market analysis and weekly webinars from our Portfolio Manager, Knox Ridley. We closed Super Micro in early May for an average gain of 275% across all entries and exits. Also, we booked sizable gains in two cybersecurity stocks in April. Learn more here.We closed Super Micro in early May for an average gain of 275% across all entries and exits. Also, we booked sizable gains in two cybersecurity stocks in April. Learn more here.

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Positions Report – June 2024

Posted on June 7, 2024June 30, 2026 by io-fund

For reference to terminology used, please look at technical analysis under our resources section here. Regarding the horizontal lines, black lines represent strong support/resistance, while dark red lines mark very strong support/resistance.here. Regarding the horizontal lines, black lines represent strong support/resistance, while dark red lines mark very strong support/resistance.

I/O Fund Positioning

Over the last couple of months, we have held a healthy defensive posture while adding to strong strategic positions. We closed two stocks, and greatly reduced three others. We then continued to rotate that money into fundamentally sound companies that are in the middle of the AI trend, as well as crypto. This has netted us a lower cash position than last month and more market exposure.

Regarding the changes we have made since the last report, we closed Super Micro for an average of 275% gains across all entries and exits. We also closed Netflix for an average of 98% gains across all entries and exits. We cut our Lam Research position down to 1%, having to log an 8% loss, as the earnings call signaled that we are too early to this play. This followed further reductions in CrowdStrike and Cloudflare in April, for sizable gains.

We then added exposure to our crypto positions since our last report. We set up predetermined targets, and once these targets were it, we went on a buying spree, which included Bitcoin at $59,000, Chainlink at $12, Ethereum at $2,900 and Solana at $153.

We also added to our AI positions since the last report. We built out Micron, Broadcom and AMD positions around the late April lows. We then followed up with breakout buys in Dell and AVGO, which have since reversed.

Regarding these stocks, we have little to no concern with AVGO; however, Dell’s margins shrunk, which puts it outside the boundaries of our current fundamental process. We believe their margins are bottoming, as the technical picture also supports this being a correction, for now. If the tehncicals devolve from here, we may lower this position into a 2% holding, or even cut it all together. However, we have no plan to add until we get more clarity.

The below pie chart represents our invested assets, not including cash or hedges. As of now, we are about 60% invested in AI stocks, 30% in crypto, with small allocations to various tech trends. We do have a sizable overweigh to AI while still counter balancing this exposure with a healthy cash position. The market is at an inflection point, and if it decides to take the more bullish path, discussed below, then we will continue adding our cash into key positions on pre-determined breakout.

Nvidia (NVDA)

I will spend extra time on NVDA, considering it is our largest position. The smaller time frame seems to be quite clear – we are trending up into the $1050 – $1315 target zone that we identified in our April report. The developing pattern is 5 waves, which means that we now have a fully formed 5 wave pattern into the target zone. This should set us up for some type of a reversal.

When we put NVDA is linear scale, it appears that we are completing a large degree 3rd wave, which could keep extending. The coming 4th wave would retrace the prior swing, before bottoming and starting a new large degree 5th wave higher. The targets for this 3rd wave are in the $1200 – $1300 range. A breakdown below $1035 will signal that we are in this correction, which we would use to setup buy targets.

Micron (MU)

In our last report, we were targeting a 4th wave pullback into the low $100s. So far, this is exactly what we have seen, as we used our targets to pick up shares of MU around $110 on April 24. It is clear that we have been in a 3rd wave (note the vertical move higher). If accurate, we still need a 4th and 5th wave to complete to the larger pattern.

The current dip is simply not big enough in time to constitute a 4th wave of this degree. If we see one more drop back into the low $100s, then we will certainly have a fully developed 4th wave pattern. This is demonstrated by the red count in the chart below.

Note the decelerating momentum in the composite index on the weekly chart. This is happening while price is making a higher high. To me, this looks like a B wave. A drop below $120 will signal this count is in play.

On the other hand, if we simply breakout over the $134 high, then the odds will start building that we are still in the larger 3rd wave. This is my blue count below, and it will mean that the 4th wave will likely happen later this year.

Bitcoin (BTCUSD)

Advanced Micro Devices (AMD)

The size of the bounce off of the May low tells me that the 38% drawdown from the March high is likely over. The question I have is what type of bounce are we in? My green count has us in the 5th wave in a large degree diagonal pattern, which would target new highs in the coming months. Diagonals are characterized by large swings in both directions that tend to overlap with one another.

The red count will look similar to the green count; however, we should see an overlapping uptrend that fails to make new highs. This would have us in a large degree B bounce within a larger correction.

If we zoom in on the current bounce, keep in mind that both counts are expecting a 3 wave uptrend for both counts (A wave higher, B wave lower, and then C wave will be the most bullish portion of this move).

It looks like AMD has completed the A wave higher and is still in the B wave contraction. If we breakdown below $158, the final move of this B wave should hit our target box at $152 – $148. On the other hand, if we instead breakout over $174, then I’d consider us being in the most bullish portion of the bounce, which is the C wave. This would likely push toward $195. If this happens, we will reassess what count is in play, as both will point to the same general target. The type of pullback we get from this region will tell us if we are going higher.

Broadcom (AVGO)

Ethereum (ETHUSD)

I’ve been reworking the count on Ethereum to fall in line with the Bitcoin count. I still think we are in a minor 4th wave and need one more drop to complete the pattern. Note how we got 3 waves down from the March high, which was followed by 3 waves higher off the April low. I think we need one more small push into the low $4000 region to complete the B wave. If we see any sizable drop from this high, and it is in the form of a 5 wave pattern, then we know that this thesis is correct. If we instead breakout above $4,259 then the 4th wave is over, and we will continue higher in the larger 3rd wave.

Dell (DELL)

Like Micron, Dell appears to be tracing an incomplete 5 wave pattern. Note the vertical move higher on heavy volume and max momentum; this is what 3rd waves look like. If accurate, this drop should only be a 4th wave, which could take a month or more to play out. The current drop should be the A wave, and we should see a B wave bounce soon.

The $135 region has proven to be solid support, so far. The below levels to monitor are $121, $116, $106. If we see any further weakness below $105, the 5 wave pattern will be in threat of invalidating, which means a bigger top could be developing.

Chainlink (LINKUSD)

We only have a 3 wave drop from the high, so far, followed by another 3 wave bounce. This is what we wanted to see, and further supports the bigger move higher that we have been preparing for. However, we are now watching for the potential for one more drop to complete the bigger B wave, which is the green count below.

If the next drop is a 5 wave pattern that breaks below $14.15, then we will be in the green count, and target the $10 – $9 region for the next buy. As long as any further weakness holds over $7, we can keep looking higher; however, below the $7 support and the uptrend is in threat of getting invalidated.

If instead, we drop in a 3 wave pattern that holds over $14.15, followed by one more high, then we have strong evidence that the drop to $11.75 was all of the B wave, which is shown in the blue count below. We will continue to buy the dip in this scenario until we reach our targets overhead, or break below a critical support.

Solana (SOLUSD)

Solana is in a large 4th wave. What we are trying to determine is when that 4th wave will turn lower and complete the pattern around the $100 – $90 level. The red count has us in the early stages of the final leg lower. A break below $159 will confirm this, and we will likely setup more buy targets in the low $100 region. On the other hand, if we can keep trending higher, the B wave can extend to the $209 – $230 region, which is shown in the green count below. If this happens, we will likely start taking gains in Solana.

Crowdstrike (CRWD)

CRWD is still in its large degree 4th wave. After giving us a double top, which counts best as the B wave in this larger 4th wave, we then got a direct drop that followed. It’s a 5 wave pattern. This is important because the final leg in all corrections is a C wave, which is always a 5 wave pattern.

As long as we see a bounce that holds the $350 region, I’m still expecting CRWD to drop into our target zone, which has been on our charts for months. If this happens, we will buy more. The levels to monitor are: over $365 and the 4th wave is over, as we target new highs; a breakdown below $304 will signal the C wave drop is developing and we will setup buy targets.

Baidu (BIDU)

BIDU still appears to be in a consolidation pattern. Our purchase was on a false breakout, and we are hanging on until the downward wedge pattern fails to the downside. This will be somewhere between $90-$85. These momentum plays are risky, and always come with stops. We prefer to layer in small and set a wide stop, while some prefer a tighter stop. We’re going to give this one some more room to develop before bailing. We will need to see the low hold and a breakout above $116.50 for us to add to this position.

Tencent (TCEHY)

Tencent is a lower conviction momentum play, but this is what a breakout from a falling wedge looks like. TCEHY should be in a minor 4th wave. If true, then we need to hold the $45 – $43.30 region. Below here and the uptrend pattern we are tracking has failed. If it continues higher, we will continue to raise our stop along the way.

Microsoft (MSFT)

The monthly chart from MSFT is flashing a warning. First off, we have a fully completed 5 wave pattern off the 2009 low. I think this is a 3rd wave within a larger 5 wave pattern, but it is still setting up for a reasonable 4th wave pullback. The symmetry of the move is also signaling the double top at $432 is the final target for this very large 5 wave pattern.

To further back the claim, look at the momentum indicators below. The composite index is flashing negative divergence (making lower highs while price makes higher highs). It is rare to see a monthly chart provide divergence, and when it does, it tends to precede a turning point in the trend. The detrend oscillator is also in a precarious spot. It is at the same amplitude as the 2022 top.

If we zoom in on the final 5th wave of this large 5 wave pattern just discussed, we can see a very mature trend. All 5 waves are in place, which has led into the March 21st top.

If we zoom into the current correction, what is interesting is that we are in what looks like an expanded flat correction. The B wave made a slight new high, and what has followed is a clean 5 wave drop followed by a 3 wave retrace.

So, the down side setup, from the monthly to the hourly charts are in place. If MSFT breaks below $404, then it will be confirmed, as the next drop targets $365 – $325. If it can instead break to new all-time highs, it will invalidate this setup, and it can keep pushing higher in an extended B wave or 5th wave.

Lam Research (LRCX)

LRCX looks like it is still in a correction. Note the 3 waves down and 3 waves up into a lower high. The red count suggests that we will see the final leg of this correction into the $827 – $750 region. This would set up a nice push higher for the final swing in this developing 5 wave pattern. The alternative scenario in green suggests that the correction is over. This means that we will breakout over $1007 and continue into the $1160 – $1350 range.

Cloudflare (NET)

Our decision to exit NET with a +60% gain has proven to be the right call. Since our last report, which warned readers that the $90 support was failing, NET has dropped over 25%. As of now, there is a path higher; however, it will need to hold $59 on any further weakness.

If we instead break below $59, then we are in the red count, which suggests that we should retest the 2022 lows. If we can hold $59 and turn higher, then we are in the green count, which suggests we will see a 5th wave within a large leading diagonal pattern. Because the pattern higher will look identical to a corrective bounce pointing lower, it will be tough to gauge what count is playing out if $59 holds and we do see a bounce.

Hedge Strategy and Underlying Data

This section was a contribution from the creator of our hedge signal, Vincent Duchaine of WealthUmbrella. He provides an update on the I/O Fund hedge as well as the internal components that push the signal from buy to sell and also gauge the health of the market.

As the market is making new all-time highs this week, it would be tempting to conclude that we should not be concerned with the hedge strategy triggering a sell. However, the on-going volatility we have experienced since May has brought several of the internal metrics within the hedge strategy to their key thresholds, signaling that the market is unhealthier than most suspect.

When designing the hedge strategy, one of the objectives was to find the optimal threshold for each indicator that historically distinguished between a correction and larger bear event. This implies that in many instances we should see a reversal, or bounce, just before these significant separation points. This is exactly where the internal metrics are. The good news regarding the signal is that price is only 1 of many metrics that we use to determine if we hedge. This allows us to raise our shields relatively close to the market highs and reverse around lows in these bigger bear events.

Market Breadth

One of the most important inputs for the hedge is related to market breadth. Over prior decades, this data set usually does not trigger often. However, since 2021, it has provided an unusual amount of sell signals due to several periods of narrow leadership.

Outside of its use within the hedge signal, the indicator alone is helpful in identifying unhealthy markets. When the indicator is moving higher, it is signaling that market breadth is fading. This is even more concerning when the indicator is moving higher while the market is at all-time highs. This pattern is what triggered the hedge signal in November 2021, a month and a half before the 2022 bear market started, and it is starting to play out right now.

While the trend is worth monitoring, we are not yet at the threshold that will trigger the hedge. This reflects an unhealthy market, but the current position of this indicator is not yet at a decision point. If it starts to fall, and breadth starts to improve, this will likely be a headwind for stocks and potentially justify another leg higher. However, if it resumes ticking up, indicating breath is deteriorating, while the market continues higher, this should quickly reach the point of telling us to exit the market.

Options Market

When the price action started to go sideways around May 16th, one of the things that struck me was that the options market was not positioned in a way that would usually allow the market to fall at a high velocity. As you probably know, although the options world is a separate market from the stock market, some of the bets that investors take in this arena force them to buy or sell the underlying assets, particularly the market makers. This creates selling or buying pressure that usually pushes the market in one of the two directions.

Two weeks ago, the options market was relatively bullish while the real market was taking a breather. Today, our assertion is that this market is now sending mixed signals.

One of the most bearish signals is our Options Model, which is presented below. The Options Model is not directly part of our hedge signal (probably in the next version), but it is a model that has a very good historical hit rate (around 78%) and often has the advantage of leading the market. Look at how often it led the market in 2023.

This signal is now on the brink of flipping red, which is usually not a good sign, and in fact did flip red through today’s trading day.

While the above two indicators are weakening, the one indicator that is still hearty is our Vix Ribbon. This measures various VIX contracts of different durations – from 9 days to 1 year. This is, in essence, how the futures market perceives the potential for volatility over these durations. The lower it is, the more confident and clam the markets react.

While the VIX 9-day contract is still in backwardation with the VIX 1-month contract (blue moving into orange), the overall ribbon is healthy, as it is historically low and trending downward. This is what we want to see, and as long as this trend holds, we should be in an environment that has low volatility, which is usually favorable to the market.

Another interesting signal that came from the options world was from our indicator that measures at-the-money (ATM) and outside-the-money (OTM) puts and calls. It is based on the CBOE SKEW data, which is a robust way to measure sentiment and perceived risk in the markets.

When the market is nervous and uncertain, OTM put options are used to protect portfolios, because they are relatively cheap. This increased demand for options having strike prices below the underlying asset drives up these options' implied volatility. The SKEW index detects this increase in profitable downside protection or lack thereof, and our indicator detects anomalous spikes within this data.

On Friday, May 17th it triggered a rare spike that tends to precede uptrends in the market.

The spike signaled a significant change in how investors were positioned in the options world in terms of ATM and OTM puts and calls.

As you can see on this graph, an impulse of that magnitude is usually followed by good times in the market, even in a bear market. This was actually one of the signals I was looking for, along with the phase angle, to gain confidence in re-entering the market during the 2022 bear market.

In conclusion, many of the hedge signal’s inputs are at a decisions point. Based on our experience it could swing either way, as there is ample evidence to support both cases. We will monitor some of these key data points to rapidly assess in which direction the market is heading. At this moment, if I had to bet, I think that this data could swing either way, but is slightly more bullish, at the moment, than bearish. I could be wrong, and the good news about the mixed data is that our hedge is currently not far behind and should rapidly tell us to exit the market in case the wind turns. We will keep you informed.

Broad Market Technical Analysis

We continue to track the secular bull market that started in March of 2009. Instead of 3 counts, as discussed in the April report, we are now only tracking 2 counts.

Red – The secular bull market that started in March of 2009, completed its final 5th wave in early April of 2024. We are now in the first corrective pattern of this new secular bear market. We should trend side-ways to down until early 2025, which would then see the larger drop.
Green – This count relies on an extended 3rd wave that pushed into the 2022 top. The 2022 bear market was the 4th wave, and we are in the final moves of wave 3 within a large 5 wave pattern. We should see a break above 5465, which would signal that we can see the bull market extend into 2025.

This would have us still in the 3rd wave of this larger ending diagonal, which would need to tag the 5750 range.

If we zoom into the ending diagonal that is currently playing out, we can get more context on the levels that we need to monitor for confirmation of a future direction in the market.

Supporting Markets

There are only four basic corrective patterns markets take. This is true for a decade-long secular bear market or a small correction throughout the trading day. These patterns are repeated in all markets and all time frames, over and over again. The type of correction that the above red count is suggesting is what is known as an expanded flat.

StockCharts.com

What is unique about this type of corrective pattern is that the B wave will go above the start of the A wave. This is typically followed by a rather sharp C wave, which is always in the form of a 5 wave drop.

The most famous expanded flat correction was in the S&P 500 is 2018 – 2020. The C wave was 200% the length of the A wave, while the B wave went just past the 1.618 extension of A.

The current price action we are in does resemble a potential expanded flat, yet on a smaller time frame. Note the 3 waves down for A, and another 3 waves up for B. The B wave in SPX appears to still be pushing higher, and is targeting the green box in the chart below.

The final drop in a correction is a C wave, and they are always 5 wave moves. What is key to understanding this type of analysis is that these patterns are all fractal. So, a small 5 waves will turn into a larger on until you hit your target. If we can find evidence of a smaller 5 wave pattern developing where a C wave should be starting, then we have strong evidence that we are heading lower.

Equal Weight S&P 500 (RSP)

The Equal Weight S&P 500 appears to be in a standard correction, called a Flat corrective pattern. These are the most common corrections that we see. This is when the B wave retraces most of the A wave drop but does not make a new high. It is then followed by a C wave, which more times than not, makes new lows.

That being said, we have a very clean 5 wave drop from the B wave top in the equal weight S&P 500. While SPX is making new highs, RSP noticeable bellow it’s high. Instead, it is giving us a choppy and messy bounce higher, indicating that it is at risk of moving lower. Unlike SPX, which is still pushing higher, RSP appears to be in an on-going correction.

Dow Jones Industrial Average (DJI)

The DJI looks similar to RSP. We have a vertical drop from what looks like a B wave bounce. This vertical drop is best counted as a 5 wave pattern, which lines up with us being in a C wave down. While we are tracking SPX making a new high, DJI is clearly following through with a C wave lower. It has retraced most of the bounce that started in late April in a vertical fashion and is giving us a choppy bounce higher.

New York Stock Exchange (NYSE)

The NYSE has a similar setup as the above major indexes. After completing a 3 wave bounce that made marginally new highs, we have seen a vertical drop that resembles a 5 wave move down. This, as stated prior, lines up with the C wave portion of the correction. The 5 wave pattern has also been followed by a choppy, 3 wave bounce, signaling that waves 1 and 2 of the C wave are potentially in place. If this is playing out, the 3rd wave will break below the end of the 1st wave and we will continue lower

Financial (XLF)

Financials is also looking like the above indexes. We have a clean 5 wave drop for wave 1, followed by a 3 wave bounce for the 2nd wave. We then have what looks like another small 5 wave drop, which is threatening more downside. XLF appears to be in a developing C wave, and as long as it stays below its May highs the risk remains.

NASDAQ-100

Now, let’s compare the above markets to the NASDAQ-100, which is heavily weighted toward tech. It looks identical to SPX. The price action best counts as a B wave in an expanded flat. If we see a larger 3 wave drop from the next high, it would be an indication that tech is going higher, and an early warning that the green count in SPX might be what’s developing.

In conclusion, not all markets are in sync. Divergences like this tend to precede trend changes, which is why we are cautious right now. The S&P 500 and NASDAQ-100 are heavily weighted toward Big Tech and AI. In fact, over 28% of the S&P 500 is focused in the biggest 7 tech names. So, Big Tech, especially the stocks tied to AI, are why SPX and NDX are making new highs.

However, when we take the same 500 stocks and weight them equally (RSP), which gives the same weighting to Home Depot as Microsoft, we have an entirely different picture unfolding. This same downside setup is present in the New York Stock exchange, which has 1897 stocks, and the Dow Jones Industrial Index, which has 30 stocks, and the Financial Index, which has 71 stocks. These indexes are not making new highs, and simply not participating in the recent rally we are seeing in the S&P 500.

So, once again, we are at a point where Big Tech, specifically AI, is hanging in, while your more value oriented names are notably correcting. What is different this time is the amount markets and stocks giving us a 5 wave drops from B wave highs. In order to break these setups, we need to see SPX break above 5465, while the above indexes invalidate the developing downside setups. In order to do this, they need to push to new highs. We are open and prepared to pivot completely out of a defensive posture if this happens.

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CrowdStrike Q1: The Strongest Best-of-Breed Cloud and Cyber Stock in the Market

Posted on June 5, 2024June 30, 2026 by io-fund

As we near the end of the Q1 earnings season with a few reports left to go, there is no denying what is the strongest cloud stock and cybersecurity stock in the market. Every single cloud and cybersecurity report this quarter has carried a line item or two of disappointment. CrowdStrike shrugged off the cloud woes and is continuing to set itself apart in a meaningful way.

The company delivered a strong quarter as it beat on both the top and bottom line, and increased its full-year revenue guide. Net new ARR growth was far ahead of management’s expectation from last quarter. Cash flows rose to new records, and module adoption rates increased sequentially. However, operating margins took a step backward, as operating expenses increased 13.5% QoQ, driven by a more than 20% QoQ increase in sales and marketing spend.

Consolidation was the primary theme on the call as it led to the beat/raise that other cloud companies, almost without exception, have been unable to deliver. CFO Burt Podbere said the quarter was characterized by “strong execution and platform adoption as customers increasingly consolidate on the Falcon platform.”

CEO George Kurtz elaborated on the consolidation in the earnings call, and reiterated that the company is still “firmly on the path to $10 billion in ending ARR.” This would be up from $3.65 billion in ARR today. The timeline is a bit unclear as to when this will be achieved, but the vision that management has for where the company could go certainly doesn’t hurt to hear.

The high-profile exclusivity deal with AWS for Falcon and a deal with Google Cloud were announced in May, and were also a focus of the opening remarks and Q&A.

For additional reading on CrowdStrike, please read “CrowdStrike: Steady Growth, Strong Bottom Line” with information on its full product suite and also CrowdStrike Q4: RPO Surges, Net New ARR Impresses with more information on why AI revenue won’t be easy to detect.CrowdStrike: Steady Growth, Strong Bottom Line” with information on its full product suite and also CrowdStrike Q4: RPO Surges, Net New ARR Impresses with more information on why AI revenue won’t be easy to detect.

Revenue and EPS:

CrowdStrike reported 33% revenue growth in Q1, a slight QoQ acceleration, though revenue growth is expected to continue decelerating through the rest of the year.

CrowdStrike reported revenue of $921 million in Q1, representing YoY growth of 33% and beating estimates by $16 million. This marked a 40 bp acceleration in YoY revenue growth from 32.6% last quarter.
Adjusted EPS was $0.94, increasing 63% YoY and beating estimates by $0.04. GAAP EPS was $0.18, compared to $0.00 in the same quarter last year.
For Q2, CrowdStrike guided for revenue of $958.3 to $961.2 million, for YoY growth of 31.2% at midpoint. This was slightly above the consensus estimate for $956.3 million in the upcoming quarter.
CrowdStrike guided for adjusted EPS of $0.98 to $0.99 in Q2, an increase of 33.1% YoY at midpoint.
CrowdStrike increased its full-year revenue guide, now seeing FY25 revenue between $3.976 billion and $4.01 billion, compared to its prior view for $3.925 billion to $3.989 billion. Adjusted EPS guide was increased to $3.93 to $4.03, versus a prior view for $3.77 to $3.97. The boost adds confidence to management’s view that operating leverage will be felt more heavily in the back half of the year.

Margins:

While GAAP gross margin remained flat, CrowdStrike felt some margin pressures down the line on a sequential basis, as operating expenditures ramped higher in the first quarter. This pushed both GAAP and adjusted operating margins lower sequentially.

GAAP Gross margin in Q1 was 75.6%, staying flat YoY. Adjusted gross margin was 78.3%, a 30 bp expansion from 78% in the year ago quarter.
GAAP operating margin was 0.8%, for a third straight quarter of positive GAAP operating margin; this compares to 3.5% last quarter and (2.8%) in the year ago quarter. Adjusted operating margin was 22%, compared to 25% last quarter and 17% in the year ago quarter.
GAAP net margin was 4.6%, down from 6.4% last quarter but up from 0.1% in the year ago quarter. Adjusted net margin was 25%, down from 28% last quarter but up from 20% in the year ago quarter.

Cash and Debt:

Cash flows have been strong for CrowdStrike, and the company reported record cash flows this quarter.

Operating cash flow was $383.2 million, increasing more than 27% YoY, for a margin of 42%.
Free cash flow reached a record $322.5 million, rising nearly 42% YoY for a 35% margin.
CrowdStrike reported cash and equivalents of $3.702 billion.
Debt totaled $742.9 million.

Key Metrics:

ARR:

ARR increased 33% YoY to $3.65 billion, a 1 percentage point deceleration from Q4.

Net New ARR:

CrowdStrike had guided for Q1’s net new ARR to increase “at least double digits up to the low teens,” yet it easily surpassed this guide as it reported 22% YoY growth in net new ARR to $211.7 million.

CrowdStrike has notched three consecutive quarters with net new ARR growth >10%, with two straight quarters above 20% growth. This is a notable shift in the trends that we have seen recently in net new ARR.

Given that this is one of the most tracked metrics for the company, maintaining strong growth in net new ARR in the double digits reflects positively on business momentum as we progress through 2024 and entering 2025. Management noted that while they “did not specifically guide to net new ARR, our net new ARR year-over-year growth assumptions for the second quarter of the fiscal year are at least double digits, up to the low teensour net new ARR year-over-year growth assumptions for the second quarter of the fiscal year are at least double digits, up to the low teens,” implying that we may see a deceleration in Q2 relative to Q1.

Module Adoption:

Customers adopting 5+, 6+, or 7+ modules all increased sequentially, and one of the highlights here was that deals involving 8+ modules nearly doubled YoY — CrowdStrike reported that these large deals increased 95% this quarter. In addition, CrowdStrike noted that the number of deals involving cloud, identity, or next-gen SIEM more than doubled YoY in Q1.

RPO:

RPO was $4.7 billion in Q1, accelerating to 42% YoY growth from 35% last quarter, though on a QoQ basis, growth was minimal, at just 2% QoQ from $4.6 billion in Q4.

Earnings Call:

Consolidation = CrowdStrike is a Fierce Competitor

Consolidation on Falcon was one of the core topics of the Q1 earnings call, with CrowdStrike touting strong initial momentum for Falcon Flex. Analysts pressed management about their long-term $10 billion ARR target, as well as the recent AWS exclusivity deal and generative AI slowing down other software deals.

CEO George Kurtz discussed how consolidation is one of CrowdStrike’s strengths: the “foundational theme underpinning CrowdStrike's results is the power of the Falcon platform to consolidate cybersecurity at scale. This is coupled with the market's unequivocal desire for a single AI-powered software platform consolidator. We're landing with more modules than ever before. The number of deals involving cloud, identity or Falcon Next-Gen SIEM modules more than doubled year-over-year, and we're closing some of our largest deals ever.foundational theme underpinning CrowdStrike's results is the power of the Falcon platform to consolidate cybersecurity at scale. This is coupled with the market's unequivocal desire for a single AI-powered software platform consolidator. We're landing with more modules than ever before. The number of deals involving cloud, identity or Falcon Next-Gen SIEM modules more than doubled year-over-year, and we're closing some of our largest deals ever.

We're consistently hearing that customers want to partner with us as they consolidate, standardizing their cybersecurity future on the Falcon platform and investing their trust in CrowdStrike as cybersecurity’s North Star. Let me explain why.

We built the right architecture from the start, the industry's lightest weight, easiest to install sensor embedded with AI, no system reboot required a single AI native platform console, not disparate stitch together or siloed multi-platforms. … The Falcon platform's differentiated architecture creates a technological competitive moat around our ability to be cybersecurity's premier platform consolidator. … And now with Charlotte AI, customers are experiencing more platform utility at faster speeds, shrinking hours of their security workdays into minutes… The Falcon platform's differentiated architecture creates a technological competitive moat around our ability to be cybersecurity's premier platform consolidator. … And now with Charlotte AI, customers are experiencing more platform utility at faster speeds, shrinking hours of their security workdays into minutes.” This consolidation “delivers extreme cost savings, [meaning] the more modules customers adopt, the more cost savings they realize,” up to $6 for every $1 invested in the Falcon platform.

Building on the consolidation point was some interesting commentary from management about its subscription model, Falcon Flex, which also underpinned the recent AWS deal. Management said that “in the 3 quarters since we've built the Falcon Flex program, the customers who have subscribed to this new licensing model represent over $500 million in deal value, growing our share of customer wallet while consolidating and simplifying their security.” CFO Burt Podbere added more color on Falcon Flex, saying that the “Falcon platform's unique ability to consolidate multiple vendors along with the early success of our Falcon Flex program drove bigger consolidation deals in the quarter.” the early success of our Falcon Flex program drove bigger consolidation deals in the quarter.” It also was noted that Falcon Flex aided in CrowdStrike reaching “record levels of pipeline for the year.”

Exclusivity Deal with AWS:

CrowdStrike’s recent deal with AWS as its exclusive cloud security provider was underpinned by Falcon Flex, and Barclays analyst Saket Kalia questioned management about the deal, asking how the relationship with AWS was expanded and how it sets CrowdStrike apart in cloud security.

CEO George Kurtz responded, saying it is “really reflective of what we’ve built” in terms of the scope of the platform, spanning agent and agentless, code to cloud solutions, and the “technical advantages that our offerings have for our customers. When you look at someone like AWS, they’re obviously looking for the best cloud technology in the market, and we believe we have it, and it’s fantastic to be able to expand our relationship there. This is also a Falcon Flex deal, again reflective of the fact that customers want to do more with us, they want to buy more, and we’re giving them the opportunity to do this.”

The Impact of Generative AI

Analysts were also curious as to how generative AI was impacting the customer journey.

Q, Matt Hedberg (RBC): “In the spirit of a customer's overall GenAI journey, one of the things we're hearing is that, that could potentially slow down deal cycles for the broader software landscape. I'm wondering, as your customers adopt your AI platform, maybe more specifically Charlotte AI, are they seeing faster time to production for GenAI application? In other words, does it speed up a customer's GenAI journey?”

A, CEO George Kurtz: “Yes. I think what we're seeing is that customers are really embracing the fact that we can reduce their operational workload for their stock analysts. We can take hours of mundane front work and turn it into minutes. And not only answer questions with the collective wisdom and knowledge that CrowdStrike has developed over the many years, but also drive automation. We talked about the Falcon Fusion or technology built in. So when they look at what we've built and how we can save time and how we can drive AI automation into an AI-native SoC, I think this is really important for them.”

Double-Clicking on the $10B ARR Target:

While generative AI is likely aiding growth via significant reductions in operational workload, there was no specific commentary as to the revenue impacts from genAI products. However, management’s confidence in its $10 billion ARR target was scrutinized.

Q, Fatima Boolani (Citi): “what do you feel like will help your relative velocity in attaining that [$10 billion ARR]. So frankly, what would have to go really right for that outcome to be realized within 3 years versus 5 years, appreciating that you haven't put a time frame on it.”

A, CEO George Kurtz: “When we look at our ability to consolidate, and I talked about in the call, Falcon Flex, I think is a game changer for a lot of customers, buying more, buying bigger, leveraging the platform and you see velocity of adoption using Falcon Flex. So really excited about that and what it's going to mean for CrowdStrike.

The second piece again, as I talked about in my prepared remarks is, that Next-Gen SIEM is natively built in. So rather than sending data out somewhere else and paying for the transport costs and all the complexity around that, the bulk of the use cases and the data that's generated that goes into a SIEM is already in the platform of choice for customers, and we see that being a meaningful opportunity for us to massive market opportunity.”

While Kurtz primarily focused on the product opportunities from Falcon Flex and SIEM, CFO Burt Podbere explained CrowdStrike’s target in terms of its TAM: “We talked about cloud being around in that same time frame, $2.5 billion to $3 billion. We talked about identity being $1 billion to $1.5 billion. We talked about Next-Gen SIEM being $1 billion to $1.5 billion. So you start adding up those numbers and you get more and more confidence in terms of being able to attain that number. That's how we think about it internally.”cloud being around in that same time frame, $2.5 billion to $3 billion. We talked about identity being $1 billion to $1.5 billion. We talked about Next-Gen SIEM being $1 billion to $1.5 billion. So you start adding up those numbers and you get more and more confidence in terms of being able to attain that number. That's how we think about it internally.”

Essentially, cloud is expected to remain the largest overall driver in dollar terms, but SIEM and identity are expected to quickly catch up to the billion-dollar range – Next-Gen SIEM and identity ARR surpassed $450 million in ARR combined last quarter, and Podbere’s comments point to both combining to a $3 billion opportunity, or nearly 6x growth over the next 5 to 7 years. He also noted that CrowdStrike grew its headcount 15% YoY in Q1 to support its trajectory to the $10 billion – this was a likely culprit of the increased operating expenses in Q1 and subsequent QoQ margin weakness.

Conclusion

CrowdStrike delivered a strong quarter, reporting a rare QoQ revenue growth acceleration for Q1 in what has unfolded as a difficult quarter for cloud stocks. Margins dipped down the line, though key metrics, particularly net new ARR, remained strong. CrowdStrike also boosted its full-year revenue and adjusted EPS guide, as it continues to sign larger deals, benefitting from the strength of its Falcon platform. It is not only the excellence of this report that stands out, yet the also the weakness of CrowdStrike’s peers. As you can imagine, we are currently looking to add to our position. Our goal is to buy at lower levels (worth a shot), or if price does not cooperate, we will buy on a breakout.

Damien Robbins, Equity Analyst at the I/O Fund, contributed to this article.

Recommended Reading:

CrowdStrike Q1 Earnings Preview: All eyes on Net New ARR

Posted on June 4, 2024June 30, 2026 by io-fund

CrowdStrike will report its Q1 earnings today. The company was founded with the goal of reinventing security for the cloud era. CrowdStrike’s Falcon platform delivers comprehensive breach protection against today’s most sophisticated attacks on the endpoint and beyond. The company has found a niche due to its AI native platform, which is easy to deploy and allows it to scale more modules for its customers.

CrowdStrike’s AI-based security model is focused on collecting large amounts of data, centrally storing it in a single model, and continuously training its algorithms with vast amounts of threat intelligence data. The more data that the Falcon Platform collects, the more intelligent the platform becomes in detecting and stopping breaches. The company has been GAAP profitable for the last four consecutive quarters. The company has been reporting strong metrics and has set a high bar to clear in the coming quarters. One of the key metrics, the net new ARR, accelerated 14 points in Q4 to 27% YoY growth and the management has guided for “Q1 net new ARR year-over-year growth to be at least double digits up to the low teens.”

Revenue

The management revenue guide for Q1 is $902.2 million to $905.8 million, representing a YoY growth of 30.5% at the midpoint. The analysts expect revenue to grow 30.7% YoY to $904.82 million and a similar growth in Q2. The company reported 32.6% YoY growth to $845.34 million in Q4.

Margins

The company has achieved a remarkable feat of GAAP profitability in the consecutive four quarters and full year GAAP profitability. The management guide for the adjusted operating income is $189.45 million for Q1 or 21% of revenue, which is a 4-point deceleration sequentially. However, on a YoY basis, the guide is a 4-point acceleration.

The FY2025 ending January guide implies a flat adjusted operating margin of 22%. In September 2023, during the Investor briefing at the Fal.Con, the company set a new financial target for the adjusted operating margin of 28% to 32%, which it expects to achieve within FY2027 to FY2029.

The Q4 gross margin was 75%, flat sequentially and up 300 bps YoY. The subscription gross margin was flat sequentially at 78% and up 300 bps YoY.
The Q4 operating margin was 4%, up from 0.4% in the September quarter and (-10%) in the same period last year. The adjusted operating margin was up 300 bps sequentially to 25% and a stellar 1000 bps improvement year over year was helped by operating leverage.

Q4 net margin improved 300 bps sequentially and 1300 bps YoY to 6%. The adjusted net margin improved 300 bps sequentially and 1000 bps YoY to 28%. The management adjusted net margin guide for the next quarter is $221.75 million or 25% of revenue, if reported will be down 300 bps sequentially and up 500 bps YoY.
Q4 adjusted EPS grew by a whopping 102% YoY to $0.95 and beat estimates by 15.3%. The management guide for the next quarter is $0.89 to $0.90. The analysts expect adjusted EPS to grow 56.3% YoY to $0.89.

Management expects operating leverage to improve in the second half of the year. CFO Burt Podbere said during the earnings call. “Third, given our strong momentum in the market, we are increasing our pace of hiring in FY 2025 as we continue to invest in our innovation engine and go to market functions to scale the business to $10 billion of ARR and beyond. As a result of increased hiring in the first half of the year, changes to the timing of our merit cycle and the timing of certain marketing programs, we expect operating leverage to be more weighted to the back half of FY25.”

Cash Flow and Balance Sheet

The company generates strong cash flows. Q4 operating cash flows grew by 27% YoY to $347.02 million or 41% of revenue, an improvement of 600 bps sequentially and down 200 bps YoY.

The free cash flows grew by 35% YoY to $283 million or 33% of revenue, an improvement of 300 bps sequentially and flat YoY. Management has increased the full-year free cash flow guide to 31% to 33% from 30% to 32%. FY 2024, the free cash flow margin was 31%, a 100 bps improvement YoY.

The company had cash and short-term investments of $3.47 billion and debt of $742.5 million, compared to $3.17 billion and $742.1 million, respectively, in the previous quarter.

What More to Watch

Key Metrics

ARR

Q4 ARR of $3.44 billion was up 34% YoY compared to ARR of $3.15 billion and growth of 35% in the previous quarter. Management has stated: “We continue to aggressively invest in our innovation engine and flank the company to achieve its vision of reaching $10 billion in ARR over the next 5 to 7 years.” That would imply about 200% growth in 5-7 years.

Net New ARR

The net new ARR is the most tracked key metric for the company. The net new ARR accelerated to 27% YoY growth to $281.9 million in Q4, a 14-point acceleration from 13% growth in the previous quarter. The management does not always provide the net new ARR guide, however due to the strong Q4 the CFO said in the earnings call, “Second, while we do not specifically guide to ending or net new ARR, given the incredible performance of Q4, I will share our current seasonality assumptions with respect to net new ARR and Q1, which calls for Q1 net new ARR year-over-year growth to be at least double digits up to the low teens.”

The management also sounded confident to net new ARR building from Q1 and beyond.

Matthew Hedberg (Analyst)

Great. Thanks for taking my question. I'll offer my congrats as well, guys. Burt, your new ARR commentary was helpful for Q1. I'm curious, this time last year, I believe you talked about flat net new ARR growth for fiscal 2024. And obviously, I think you guys did about 6% this year. Any just sort of like directional guardrails you give us from a full year perspective in terms of sort of just thinking about from a net new perspective.

Burt Podbere

Hi, Matt. Thanks. So with respect to ARR, obviously, we don't guide to it. But we have talked about in the past where we've started the year in Q1 and build and that's kind of really all I can really comment on ARR. You can kind of infer where we're going with our guide. And — but at the end of the day, our guide, the methodology has remained consistent, and that's how we think about it.

Matthew Hedberg

So it sounds like Q1 — it sounds like your commentary on linearity, you would expect Q1 to low point for net new growth or net new dollars for the year.

Burt Podbere

Yes, That would be accurate.

Billings

The company’s primary focus is on ARR as a more comprehensive measure of its business. We track billings since they are reported for other cybersecurity stocks. Billings were strong in Q4 accelerating to 39% YoY and 65% QoQ growth to $1.36 billion from a (-2%) QoQ decline and 9% YoY growth in the previous quarter.

RPO

RPO accelerated to 35% YoY growth to $4.6 billion from 32% in the previous quarter.

Subscription customers with multiple modules

Subscription customers grew by 26% YoY to 29,000. The number of modules per customer is also increasing, which is very positive. In Q4, they showed a one-point acceleration in subscription customers with five or more, six or more, and seven or more to 64%, 43%, and 27%, respectively. Deals with eight or more modules accelerated to more than double from 78% in the previous quarter.

Dollar-based net retention rate

The Q4 dollar-based net retention rate was 119%, the same as last quarter. The company offered visibility (finally) into the quarterly DBNRR over the past year: “Net retention was 119% in Q3, 119% in Q2 and 122% in Q1.” These numbers had been left vague before. It’s softening a bit and 120% is the benchmark CrowdStrike has stated they want to achieve.

The CFO further provided the guide for the year, “Looking into FY 2025, we expect our dollar-based net retention rate to fluctuate within plus or minus a few points of 120% as the business scales to even greater heights and customers continue to land bigger and with more modules.”

Other key points from the earnings call

The company’s cloud security, identity protection, and next-gen SIEM solutions are driving growth. George Kurtz, CEO and co-founder, said in the earnings call, “Next, delivering the right solutions. Our market-leading cloud security, identity protection, and next-gen SIEM solutions are in demand, because they solve painful customer problems. These businesses collectively are more than doubling year-over-year. Each are IPO able businesses and each play lead roles in Falcon platform consolidation. I'd like to start with our breakout cloud security solution where we are setting new records and winning at scale.

Our cloud security momentum accelerated in the quarter with net new ARR growing nearly 200% year-over-year. At more than $400 million in ending ARR, CrowdStrike is one of the largest cloud security businesses in the market and was recently positioned as a market leader in Forrester's cloud security wave.”

Similarly, Identity protection doubled YoY and surpassed $300 million in ARR in the recent quarter. He continued, “Lastly, let's discuss LogScale next-gen SIEM, an inflecting Falcon platform solution. We added record net new next-gen SIEM ARR in Q4, growing over 170% year-over-year. As of the end of Q4, our next-gen SEIM-ending ARR is now greater than $150 million, selected by well over 1,000 customers.”

The company pointed out several wins from its competitors in its Q4 earnings call. We have highlighted the below two to showcase the company’s competitiveness.

“An eight-figure transaction with a major chip manufacturer added identity to their Falcon deployment. Trapped in a large Microsoft ELA, this organization realized Microsoft needed to bring in a startup to augment its current offering.”An eight-figure transaction with a major chip manufacturer added identity to their Falcon deployment. Trapped in a large Microsoft ELA, this organization realized Microsoft needed to bring in a startup to augment its current offering.”

“A global financial services giant replaced their Palo Alto Prisma Cloud products in a large seven-figure deal. The Palo Alto cloud security products required separate management consoles and separate agents because cloud security is on a separate Palo Alto platform altogether. CrowdStrike was able to deliver an expected 70% time reduction in management as well as more than $5 million in annual staffing cost savings.”The Palo Alto cloud security products required separate management consoles and separate agents because cloud security is on a separate Palo Alto platform altogether. CrowdStrike was able to deliver an expected 70% time reduction in management as well as more than $5 million in annual staffing cost savings.”

Valuation

CrowdStrike is trading at a forward P/S ratio of 18.63 compared to 11.79 for Zscaler, 11.78 for Palo Alto, and 6.62 for SentinelOne. We understand the market expectations are high going into earnings due to its outperformance this year.

Conclusion

The company has done exceptionally well by achieving GAAP profitability. Its modern cloud-based cybersecurity solutions are driving growth. The stock reaction post-earnings for cybersecurity companies have been mixed this quarter. Zscaler stock rose, while Palo Alto and SentinelOne slumped due to the weak guidance.

At the time of writing, YTD CrowdStrike has outperformed its peers.

However, if we take a bit longer time horizon of three years, Palo Alto outperformed by 113%, and thereby, the market had a higher expectation of Palo Alto. It should be watched closely as leaders among their peers. The company might also be included in the S&P 500 as it has been GAAP profitable in the last four quarters and is another near-term catalyst for the stock.

Royston Roche, Equity Analyst at the I/O Fund, contributed to this article.

Recommended readings:

CrowdStrike Q4: RPO Surges, Net New ARR Impresses, GAAP Margins StrengtheningCrowdStrike Q4: RPO Surges, Net New ARR Impresses, GAAP Margins Strengthening

CrowdStrike Q3 Earnings: Net New ARR Accelerates, Billings DecelerateCrowdStrike Q3 Earnings: Net New ARR Accelerates, Billings Decelerate

CrowdStrike: Steady Growth, Strong Bottom LineCrowdStrike: Steady Growth, Strong Bottom Line

Crowdstrike: Cybersecurity is Tech’s Leading SectorCrowdstrike: Cybersecurity is Tech’s Leading Sector

Taiwan Semiconductor Stock: April Sales Soar From Advanced Nodes

Posted on June 2, 2024June 30, 2026 by io-fund

This article was originally published on Forbes on ForbesForbes on May 30, 2024,03:26pm EDT

Taiwan Semiconductor (TSMC) is the supplier for major design companies, such as Apple, Nvidia, AMD, Arm, Qualcomm, Broadcom, MediaTek and Marvell. TSMC is a foundry that manufactures the world’s most advanced chips, designated by node size. The most advanced node in production today is the 3nm and is primarily used by Apple in iPhones and MacBooks. The 5nm/4nm is used by Nvidia and others for AI accelerators, with high-performance computing quickly moving to 3nm and even 2nm.

Taiwan Semiconductor reported earnings on April 18th. The company topped analyst estimates and its internal guide with revenue growth of 12.9% YoY growth for US$18.9 billion. EPS beat by 4.5% at $1.38 reported compared to $1.32 expected.

Advanced node revenue continues to remain strong, though 3nm revenue dipped sequentially. Per the opening remarks: “3-nanometer process technology contributed 9% of wafer revenue in the first quarter.” This is down from 15% last quarter. The decline is temporary with Trend Force expecting 3nm production capacity utilization to be up 80% by year end. This quarter, revenue from 5nm and 7nm both expanded 2 points.

Despite warning of a slowdown in the broader semiconductor industry this year, TSMC’s April sales surged 60% YoY and 21% MoM. This marks a positive start to the 20-percentage point acceleration to 33% revenue growth that analysts expect as soon as the September quarter.

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Background on Advanced Nodes: 5nm, 3nm and upcoming 2nm

Currently, AI accelerators use TSMC’s 5nm process. Nvidia’s Hopper and Blackwell are built with a N4X process that is tailored for high-performance computer applications. This is a customized variant called “4N” that Nvidia uses, yet TSMC recognizes this as 5nm revenue in their earnings report. AI accelerators are expected to quickly move to smaller nodes to help lower power consumption. TSMC’s 3nm process is more energy efficient, and energy efficiency will improve further with the 2nm process.

3nm (N3) and 2nm (N2) technology:

The 3nm process is currently the most advanced semiconductor technology, representing a full node advance from the 5nm generation. At the foundry level, the 3nm process offers 15% better performance than the 5nm process when power level and transistors are equal. TSMC also states the 3nm process can lower power consumption by as much as 30%. The die sizes are also an estimated 42% smaller than the 5nm.

In 2023, TSMC made 3nm chips for Apple’s iPhone 15 Pro, iPhone 15 Pro Max and MacBook’s M3 chips. In 2024, TSMC will expand its 3nm customers to include AMD and Intel. What is interesting is that Nvidia is not using the 3nm node in 2024, despite industry-wide expectations Blackwell would feature the most advanced node. Instead, Blackwell is relying on architecture for its advancement leap from the Hopper architecture.

TSMC offers enhanced 3nm processes, such as the N3E, N3P and N3X, which allows a company like Apple to customize the 3nm chips differently than those for hyperscalers. N3E is the baseline for IP design with 18% increased performance and 34% power reduction, N3P has higher performance and lower power consumption, whereas the N3X will offer high-performance computing very high performance but with up to 250% power leakage.

The 3nm marks the end of FinFET transistors, which stands for field-effect transistor. With FinFET, the gate is wrapped on three sides, whereas with gate-all-around (GAA), as the name implies, the gate is wrapped around on all sides. FinFET is used in 14nm, 10nm and 7nm nodes. TSMC uses FinFETs in the 5nm, yet will phase out FinFET after the 3nm. As TSMC moves toward GAA for the 2nm, having the gate wrap “all-around” will create a greater surface area for better electrostatic control and to also reduce leakage.

Regarding FinFET, the FinFlex technology unique to TSMC allows for chip designers to customize the number of fins per transistor. There are three configurations that balance performance with power consumption. Hybrid CPUs use FinFlex where high-performance cores are matched with power efficient cores, with the ability to activate whichever cores are needed most depending on the workload. The end result is that chip designers can have control over the configuration.

2nm: Nanosheet Transistors and Backside Power Delivery

The 2nm will be the first node to use gate-all-around field-effect transistors (GAAFETs), which will increase chip density. The GAA nanosheet transistors have channels surrounded by gates on all sides to reduce leakage, yet will also uniquely widen the channels to provide a performance boost. There will be another option to narrow the channels to optimize power cost. The goal is to increase the performance-per-watt to enable higher levels of output and efficiency. The N2 node is expected to be faster while requiring less power with an increase of performance by 10%-15% and lower power consumption of 25%-30%.

For TSMC, the 2nm will feature NanoFlex technology, which is similar to FinFlex to where designers can use cells from different libraries. However, due to the new gate-all-around (GAA) nanosheet transistors, there are additional benefits, such as customizing the width and height of cells.

Intel’s 20A will be the first to feature backside power delivery for faster switching and to alleviate routing congestion. With this release, Intel is introducing the “angstrom” era” which translates to future process generations where the process nodes are not smaller necessarily, rather the transistors they’re built with will be improved upon. For Intel, instead of the GAAFET, the company is introducing RibbonFET transistors where multiple flat nanosheets are stacked to enable better current flow.

In the future, we will dive deeper for our free newsletter subscribers into the fierce competition that is heating up between TSMC and Intel at the foundry level. For now, the main points are that TSMC’s N3 will rely on FinFET with GAAFET being introduced for N2. The expectations is that N2 will be available by the second half of 2025. Intel is emerging as a more capable competitor to TSMC with the 20A featuring RibbonFET gate-all-around and backside power delivery, due late 2024-early 2025.

Here is what TSMC’s management has stated about the competition, which communicates that TSMC is not sweating Intel right now:

"In fact, let me repeat again, our 2nm technology without backside power (N2) is more advanced than both N3P and 18A, and will be the semiconductor industry's most advanced technology when it is introduced in 2025."

In terms of timing, management recently offered the following: “Randy, the N2's ramp profile we say is very similar to N3 because of, look at the cycle time, we start the N2 production in the second half of 2025, actually in the last quarter of 2025. And because of the cycle time and all the kind of back-end process, and so we expect the meaningful revenue will start from the end of the first quarter or beginning of the second quarter of 2026.”so we expect the meaningful revenue will start from the end of the first quarter or beginning of the second quarter of 2026.”

Advanced Nodes Contribute 65% of Revenue in Q1

TSMC’s advanced nodes (3nm to 7nm) contributed 65% of revenue in Q1, up from 51% last year. This was driven primarily by the 5nm node, at 37% of revenue, as well as the continual ramp of the 3nm node, although 3nm revenues dipped quite heavily QoQ.

Source: I/O Fund

Revenue contribution from TSMC’s most advanced 3nm node dropped QoQ from 15% to 9% in Q1. Revenues fell nearly 40% QoQ from $2.9B to $1.7B in the most recent quarter. This is not necessarily unusual in the early ramp stages, given that the 5nm node saw a similar pattern in Q4 2020 and Q1 2021, where revenue contribution dipped before accelerating for multiple quarters. There is indication that TSMC will have to allocate more resources to 3nm, and this will come from 5nm fabrication equipment. Therefore, it may be in 2025 that we see 3nm exceed 20% percentage of revenue, which was forecast by management in a previous earnings call.

“We can convert one technology node capacity to the next one is because of our GI's physical advantage, meaning, let me give you one example, our 3-nanometer and 5-nanometer are adjacent to each other, the fabs, and they are all connected. So it's much easier for TSMC to convert from 5 to 3. And that doesn't mean that every node can do the same.”“We can convert one technology node capacity to the next one is because of our GI's physical advantage, meaning, let me give you one example, our 3-nanometer and 5-nanometer are adjacent to each other, the fabs, and they are all connected. So it's much easier for TSMC to convert from 5 to 3. And that doesn't mean that every node can do the same.”

In dollar terms, advanced nodes notched their two best quarters in Q4 and Q1, generating $13.2 billion and $12.3 billion, respectively. Q1’s soft 3nm sales were offset by sequential dollar gains in 5nm and 7nm, with advanced node revenue falling just 6.8% QoQ.

CEO C.C. Wei clarified in the earnings call that most of the current AI accelerators on the market “are in the 5- or 4-nanometer technology,” hence why we’re seeing strong 5nm sales and sequential growth in a seasonally slower quarter.

Source: I/O Fund

Despite most AI accelerators currently being produced on a 5nm node or 4NP node, including Nvidia’s upcoming Blackwell lineup, TSMC sees a clear path to increasing the 3nm node’s revenue contribution through the rest of the year. This will include converting 5nm node tools to support 3nm capacity and demand. Some of the capacity constraints are coming from HBM3e and the surge in CoWoS advanced packaging, which we’ve covered in more detail in our analysis: “Nvidia Q1 Earnings Preview: Blackwell and the $200 Billion Data Center.”

While 3nm’s ramp so far has been strong, management has been dropping hints that customer adoption on its upcoming 2nm node, set for production by year end 2025, will be even strongerwill be even stronger.

On the most recent earnings call, it was stated: “observing a high level of customer interest and engagement at N2 and expect the number of the new tape-outs from 2-nanometer technology in its first 2 years to be higher than both 3-nanometer and 5-nanometer in their first 2 years.”

Margins Guided Sequentially Weaker

Despite strong HPC growth, bucking what’s normally a seasonal decline in Q1 to report sequential growth, margins face some headwinds through the rest of the year.

TSMC reported a 53.1% gross margin in Q1 and a 42% operating margin. For Q2, TSMC guided for a lower gross margin of 51% to 53%, primarily impacted by the recent 25% electricity price hike in Taiwan, some impacts from the earthquake, and 3nm’s ramp with the 3nm not at corporate gross margins yet. Operating margin was guided to be 40% to 42%, pointing to a slight 1-point QoQ decline, at midpoint.

Here’s what management said about Q2’s guide and some lasting headwinds through the rest of the year:

“After last year's 17% electricity price increase from April 1, TSMC's electricity price in Taiwan [has] increased by another 25% starting April 1 this year. This is expected to take out 70 to 80 basis points from our second quarter gross margin. Looking ahead to the second half of the year, we expect the impact from higher electricity costs continue and dilute our gross margin by 60 to 70 basis points […]

In addition, we expect our overall business in the second half of the year to be stronger than the first half. And revenue contribution from 3-nanometer technologies is expected to increase as well, which will dilute our gross margin by 3 to 4 percentage points in second half '24 as compared to 2 to 3 percentage points in first half of '24.

Finally, as we have said before, we have a strategy to convert some 5-nanometer tools to support 3-nanometer capacity given the strong multiyear demand. We expect this conversion to dilute our gross margin by about 1 to 2 percentage points in the second half of 2024.”

Overall, the largest headwinds to gross margin stem from ramping the 3nm node, which is to be expected, given TSMC has historically seen 3 to 5 percentage point headwinds in the initial (3-4 quarters) ramp phase before ultimately realizing higher margins once the node has scaled. This has occurred with both the 7nm and 5nm node.

AI-Related Revenue Reaches Fresh Record, Driving Strong Outlook

As the leading foundry for AI accelerators, TSMC is riding the enormous wave of demand from Big Tech. The chipmaker’s high-performance computing (HPC) revenues rose 3% QoQ to ~$8.68 billion, a fresh record despite the first quarter typically being seasonally weaker. HPC revenues (which are AI-related) increased 18% YoY as well.

Source: I/O Fund

Q2 is already off to a strong start. TSMC’s April sales rose nearly 60% YoY and 21% MoM to NT$236.02 billion, or US$7.28 to 7.30 billion.

TSMC had guided revenue for Q2 between $19.6 billion and $20.4 billion, and April’s surge puts it on track to land in the upper half of or above the guided range.

Much of this surge is likely attributed to HPC applications, given that we saw Big Tech discuss increased capex spending this year, predominantly for AI infrastructure. Our firm has been especially strong on correlating capex to AI investments for our paid research members, where we held a 1-hour webinar in April discussing our expectations that capex would increase in Q1 in support of AI stocks. We followed this up with free analysis in our newsletter that tracked a 35% YoY increase to $200 billion across Big Tech companies. A disproportionate amount of this will go to Nvidia.

We’re closely tracking Big Tech’s capex plans for 2024 and how this will flow downstream to AI hardware companies. The I/O Fund had a 45% allocation to AI going into 2023, one of the highest on record. Today, the AI allocation is higher with many lesser-known names. Learn more here.here.

There are also reports of Nvidia and AMD fully booking out TSMC’s advanced packaging capacity through the end of 2025, signaling strong demand from some of TSMC’s primary HPC customers. This lends to a strong AI-driven outlook.

Notably, TSMC’s management was much more cautious on the broader semiconductor industry. CEO C.C. Wei explained that for 2024, “We lowered our forecast for the 2024 overall semiconductor market, excluding memory, to increase by approximately 10% year-over-year.”We lowered our forecast for the 2024 overall semiconductor market, excluding memory, to increase by approximately 10% year-over-year.”

That caution does not translate through to AI, with TSMC seeing a “strong AI-related demand outlook.” Wei noted that the “continued surge in AI-related demand supports our already strong conviction that structural demand for energy-efficient computing is accelerating.”

TSMC’s positioning and value to the AI supply chain is expected to increase in the age of AI and high-performance computing. Wei added that TSMC forecasts “revenue contribution from several AI processors to more than double this year and account for low-teens percent of our total revenue in 2024. For the next 5 years, we forecast it to grow at 50% CAGR and increase to higher than 20% of our revenue by 2028.” This will include more than just data center GPUs, but will also include on-device AI.

The I/O Fund has been covering on-device AI on our research site to prepare for the next leg up in AI with many lesser-known names.

Analyst Estimates Falling Slightly

What’s interesting to see is that consensus revenue estimates have not only failed to move higher, but have actually been revised lower despite a top and bottom line beat in Q1 and strong guide above consensus for Q2.

Analysts are expecting revenue growth of 29.1% YoY to $19.94 billion in Q2, before accelerating to 32.1% YoY to $22.32 billion in Q3. This is expected to be ‘peak’ growth, with revenue growth rates decelerating back into the low 20% range heading into 2025.

Source: I/O Fund

Now compare this to analyst estimates from late January – while Q2’s estimate has moved higher, we’ve actually seen Q3’s revenue estimate revised $110 million lower, even with a $50 million increase to Q4’s estimate. Here’s January’s figures below for reference:

Source: I/O Fund

It’s not unusual to see EPS estimates come down slightly given the quantified gross margin headwinds TSMC is expecting to see in Q2 with 3nm’s ramp headwind persisting through the rest of the year.

Regarding the Q3 revenue estimates softening by $110 million, it may be linked to management not raising full year guidance, which was addressed in the Q&A from the recent earnings call:

Mehdi Hosseini (SIG):

You had a very nice upside to revenue expectation for the first half of '24, but has kept the year-end unchanged. Is that a reflection of that slow recovery that you were highlighting? Or would you prefer to wait to have more visibility before updating 2024 target?

[…]

Wendell Huang (CFO, TSMC):

Yes. Mehdi, our guidance for the quarterly profile did not change. We always said that quarter-over-quarter, there will be growth. And also, the full year guidance will stay the same. So I don't think there is a so-called upside, as you just said.

—End Quote

Conclusion:

As we’ve emphasized in this analysis and many others on AI stocks, the weakness is coming from non-AI segments. TSMC is a bellwether for semiconductors and can offer unparalleled visibility. In other commentary, this is what management stated in terms of where a lack of upside is coming from, which matches our understanding.

“Yes, smartphone end-market demand is seeing gradual recovery and not a steep recovery, of course. PC has been bottomed out and the recovery is slower. However, AI-related data center demand is very, very strong. And the traditional server demand is slow, lukewarm. IoT and consumer remain sluggish. Automotive inventory continues to weaken.” -TSMC

Our firm closed our TSMC position late last year for a 22% gain, when it was at $92. We decided to instead focus on stocks with heavier AI concentration with less geo-political risk. The stock has risen an impressive 62% since then. Around that time, we re-allocated and built an AI position that is up 51% in a similar time frame. We continue to be focused on stocks with high AI concentration and TSMC will remain on our watchlist as we build out our AI portfolio with many lesser-known names.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

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