Can the market move higher in May?
Summary
The Investment Committee debates whether earnings can drive stocks higher in May. They are broadly bullish on tech and semiconductors, recommending buying in May due to strong earnings growth and AI capex. Specific stock picks include NVIDIA, Micron, and Qualcomm.
- Strong Q1 earnings growth (28.8% overall, 40% for tech) supports market upside.
- The AI trade held up with $700 billion in hyperscaler capex driving demand.
- Committee advises buying in May rather than selling, citing earnings momentum.
- NVIDIA seen as the bellwether with an attractive entry after a pullback.
- Micron and Qualcomm recommended based on earnings growth vs valuation.
- Custom chips from Amazon and Alphabet pose some competitive risk to NVIDIA but not seen as a near-term threat.
- Semiconductor stocks are overbought per some analysts, but fading momentum has been painful.
- Earnings growth is projected to broaden to energy, materials, and other sectors.
Trade Ideas
Tech sector to lead market higher
Technology and AI are the core drivers of the market's upward momentum. The $700 billion in hyperscaler capex, strong demand for chips, and positive earnings from tech companies support continued outperformance of the tech sector. The rally can broaden without a market decline as other sectors see rising earnings projections.
Market higher on earnings growth
The market can move higher in May driven by strong earnings growth (19% projected YoY for S&P 500), with technology as the primary catalyst. The recent earnings season validated expectations and the AI trade held up, so investors should buy rather than sell in May.
Micron attractive on growth vs multiple
Micron's valuation is not overextended despite its run-up; its earnings growth rate justifies a higher multiple. It is one of the chip stocks where the growth-vs-multiple relationship looks attractive, making it a good pick.
Qualcomm attractive on growth vs multiple
Qualcomm is another chip stock where the earnings growth rate versus its multiple looks attractive. Like Micron and NVIDIA, it benefits from strong demand in the semiconductor space.
NVIDIA attractive entry after pullback
NVIDIA is the bellwether of the chip sector and the best company in the world driving markets. After setting a record at 213 and pulling back to 199, this is an attractive entry point. Demand continues to outstrip supply, and competitive threats from custom chips do not change the overwhelming demand for NVIDIA's products.
