Good morning! Nvidia tumbled on Thursday, dragging the the S&P 500 and Nasdaq with it.

Fresh housing data, meanwhile, suggests builders and house hunters alike are struggling in the current market.

In today’s edition: Bank of America’s optimism for Nvidia, red flags in tech stocks, and endangered bears on Wall Street.

The Nvidia bull case is still intact

Nvidia and Microsoft continue to play hot potato for the title of world’s biggest company by market cap, with the former passing the latter earlier this week before flip-flopping again Thursday. 

Still, to Wall Street’s most prominent strategists, it’s going to take more than one day of red trading to rattle the bull thesis for Nvidia.

“With AI demand remaining robust and the technology likely to disrupt and transform industries in the years to come, we think it is important for investors to ensure they’re sufficiently invested,” said Solita Marcelli, the chief investment officer for the Americas at UBS Global Wealth Management. 

Nvidia finished Thursday down 3.5%, which pulled its market cap to $3.217 trillion, below Microsoft’s $3.312 trillion and just ahead of Apple. 

The stock is now bigger than the entire stock markets of Germany, France, and the UK. 

As of its last closing price of $130.78, Nvidia is up 171% this year.

By comparison, the S&P 500 is up just over 15%.

Bank of America analyst Vivek Arya told clients this week that the outlook for Nvidia remains bright, given the still-hot investor enthusiasm for artificial intelligence. 

He said the stock’s sharp rally “could make it vulnerable to near-term profit-taking,” but any volatility will be short-lived.

He outlined four reasons why Nvidia has room to run:

1. Generative AI hardware deployments are only part-way through a multi-year cycle

2. The upside of the Blackwell AI accelerator systems haven’t hit yet

3. On-premise enterprise and sovereign AI demand, as well as software monetization, remains in early stages

4. Valuation looks cheaper today than a year ago

Bank of America maintains a price target of $150 per share, representing about 15% upside from current levels. 

To be sure, it’s not obvious that Nvidia can maintain its breakneck trajectory.

Stock market history favors optimists, but nothing goes up forever without a hitch.

At an index level, the S&P 500 has a trailing 12-month price-to-sales ratio (P/S) of 2.9x, according to data from Bespoke.

The S&P 500’s tech sector specifically, however, has surged to 9.8x — far above its peak in 2021. 

During the current bull market, shares of Nvidia have surged more than 1,000%.

Arguably more notable, though, is how its P/S has gone from 9.7x to 41.9x, outpacing every other stock in the index.

And yet Nvidia, like other top-performing tech names, are riding a rally that’s fueled by both earnings and valuations.

It’s possible that means it’s more sustainable than past bubbles that stemmed from just one of the two. 

“We are counting on the stock market rally to broaden as the customers of tech companies use technology to boost their productivity,” said Ed Yardeni, president of Yardeni Research.

“We also believe that the earnings expectations for tech are more realizable than they were in the late 1990s. That's especially so since we aren't expecting a recession anytime soon.”

Are you more bullish or bearish on Nvidia for the next 12 months? Hit reply to this email or let me know on X @philrosenn.

*At a glance:

Elsewhere:

🐻Wall Street bears have become more rare. The economy is humming, markets expect the Fed to cut rates soon, and AI enthusiasm has buoyed stocks. Now, equity strategists can’t seem to turn bullish fast enough. Fear and trembling among investors is running out. (Bloomberg)

📊Housing market activity is stalling. Building permits dropped 3.8% in May, well below the expected 0.7% decline. Plus, homebuilder confidence also came in below forecasts, hitting the lowest level since December. (WSJ)

📦️The cardboard box recession is over. This recession indicator flashed last year when demand for packaging fell to 15-year lows. A new survey, though, suggests a more robust growth outlook for the coming quarters — and that’s good news for the economy. (Business Insider)

Rapid-fire:

• Chicago Fed President Goolsbee said the Fed can cut if it sees more inflation reports like May’s (Bloomberg)

• Shares of Trump Media fell nearly 15% on Thursday (CNBC)

• Record heat waves and expensive natural gas have pushed electricity bills higher this summer (WSJ)

• Money-market funds just saw the first outflows in two months (Bloomberg)

• Russian companies are building more than one-third of new nuclear reactors around the world and earning plenty of influence along the way (FT)

• The Swiss National Bank cut interest rates again to loosen up constrictions on the economy (Bloomberg)

Last thing:

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