Dow Jones Futures Rise; Tesla Deliveries Due, Nvidia Forges New Buy Point

Dow Jones Industrial Average futures surged on Tuesday, driven by optimism surrounding Tesla's upcoming delivery report and Nvidia's new buy point. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all hit record highs on Monday, while the small-cap Russell 2000 finally decided to get in on the action.

The Dow Jones Industrial Average futures rose 150 points, or 0.5%, to close at 28,080.47 on Tuesday, while the S&P 500 futures gained 0.7% to end at 3136.64, and the Nasdaq Composite futures climbed 1.2% to close at 8645.49. All three indexes ended at record highs. The Russell 2000 futures, meanwhile, rose 2.0% to close at 1624.90, its first 52-week high in almost 15 months.

Tesla's upcoming delivery report is expected to be a significant catalyst for the market. The electric vehicle (EV) manufacturer is set to report its third-quarter delivery numbers on Wednesday, October 28. Analysts expect Tesla to deliver around 345,000 vehicles, which would represent a year-over-year growth rate of 8%. This growth rate is in line with the company's historical averages and analyst expectations.

Tesla's delivery numbers have a significant impact on its market share in the electric vehicle (EV) market. As of the third quarter of 2024, Tesla has delivered a total of 1,313,851 vehicles, with 343,830 deliveries in the quarter alone. This strong performance has allowed Tesla to maintain its position as the leading EV manufacturer in the United States and one of the top players globally.

Tesla's market share in the U.S. EV market has been steadily increasing, reaching 81% in the third quarter of 2024. This dominance is a result of Tesla's innovative technology, strong brand recognition, and extensive charging infrastructure. The company's ability to consistently deliver high-quality vehicles and meet customer demand has been a key factor in its success.

Nvidia's new buy point is also driving market optimism. The semiconductor giant reported a generally accepted accounting principles (GAAP) operating margin of 62% in the third quarter of 2024, indicating its strong financial performance and efficiency in generating profits. This high margin, combined with its leadership in AI-focused components, makes Nvidia an attractive investment opportunity.

Nvidia's partnership with Taiwan Semiconductor Manufacturing Company (TSMC) is crucial for its production and growth potential. As a leading chip design company, Nvidia relies on TSMC for manufacturing its advanced processors. This partnership allows Nvidia to leverage TSMC's state-of-the-art manufacturing capabilities, enabling it to produce high-performance, energy-efficient chips that cater to the growing demand for AI and data center applications.

TSMC's advanced manufacturing processes, such as 7nm and 5nm, allow Nvidia to create more powerful and efficient GPUs, which are in high demand for AI workloads, data center applications, and gaming. This partnership has been instrumental in Nvidia's success in the AI boom, as it has enabled the company to maintain a wide lead in AI-focused components like the new Blackwell platform.

However, the cyclical nature of the semiconductor industry poses a potential risk to Nvidia's long-term sustainability and growth prospects. The semiconductor industry is known for its boom-and-bust cycles, with prices and inventory levels fluctuating rapidly. This cyclicality can impact Nvidia's business, as it relies on foundries like Taiwan Semiconductor Manufacturing Company for manufacturing its chips.

In the context of Nvidia, the cyclical nature of the industry could lead to a few challenges:

1. Supply chain disruptions: The semiconductor industry's cyclical nature can result in supply chain disruptions, which could impact Nvidia's production and sales. For instance, during a downturn, foundries might reduce their production capacity, leading to shortages or delays in Nvidia's chip supply.
2. Price fluctuations: The cyclical nature of the industry can also lead to price fluctuations. During a boom, prices for semiconductors may increase, which could lead to higher production costs for Nvidia. Conversely, during a bust, prices may decrease, potentially impacting Nvidia's profit margins.
3. Market demand shifts: The cyclical nature of the industry can also result in shifts in market demand. For example, during a downturn, customers might reduce their spending on high-end products, which could impact Nvidia's sales, particularly in its gaming and data center segments.

Still, a big rally in the stock market was part of my bullish thesis. In fact, it might be essential. Bull markets end in excess, and so far, most investors have decided to sit out one of the greatest in history. If mutual and hedge funds take a less cautious tack, retail investors start putting their money to work, and companies keep buying back their stocks, there is more than enough cash to push the market higher.

And then there is the Federal Reserve and other central banks who are trying to keep the economic expansion going by cutting rates and buying bonds. What might result from that? “Near term, central bank liquidity could help the S&P 500 overshoot the upper end of our 2024 bull case of 3250, but by April, the liquidity tailwind will fade and the market will focus more on the fundamentals, where uncertainty is higher than normal,” writes Morgan Stanley strategist Mike Wilson.

In conclusion, the rise in Dow Jones Industrial Average futures on Tuesday is driven by optimism surrounding Tesla's upcoming delivery report and Nvidia's new buy point. The electric vehicle manufacturer is expected to report strong delivery numbers, while the semiconductor giant's high profit margins and leadership in AI-focused components make it an attractive investment opportunity. However, the cyclical nature of the semiconductor industry poses potential risks to Nvidia's long-term sustainability and growth prospects.