NVDA’s Earnings Miss That Wasn’t By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - What to understand about the investor sentiment revival…
- Why free cash flow yield is so important…
- NVDA’s earnings and a seasonal surge still in play…
- Get ready for “Tech Liberation” next…
The change in mood is striking… Think about where you were a month ago. Think back to peak tariff drama, with pundits endlessly fretting about the economy and warning of an Armageddon-style collapse. It was a dark tunnel with no sign of light or end. That’s not just vibe, it’s clearly in the data. The AAII Sentiment Survey reporting April 30 showed 59.3% of respondents were bearish. That’s the 11th most bearish reading since the survey began in 1987. Three of the top 10 most bearish readings were all from this year, with the April 3 report being the worst at nearly 63% bearish respondents. Today, the number is down to 41.9%. And nearly a third of respondents are turning bull. This is a good reminder of what sentiment is useful for. It’s at once a leading and lagging indicator. It leads in the fact that people’s moods determine their behavior. When people are predominantly bearish on stocks, they’re inclined to sell. When investors are all-in bullish, they’re going to buy. At the same time, sentiment can lag price. Nobody’s comfortable buying until things go up. And nobody’s even dreaming of selling until things are already well on their way down. The money is made in the extremes… especially the bearish extremes. Were you buying stocks on Feb. 27, March 13, April 3, April 10, and May 1 when the bears were out in full force and the bulls were nowhere to be seen? Five days where investor bearishness ranked in the top 20 readings of all time? I’m not saying buying into that was easy. But once you see this chart, you’ll wish you had: 
We see the lead/lag effect clearly here. Extreme bearishness begat more selling in the short term every single time. But the patient, brave buyers were rewarded. Buying on any of those extreme sentiment days would have you sitting in profits today. And extreme bearish sentiment really is the play here. Over the last five years, bullish sentiment never eclipsed more than 56.9% of AAII survey respondents. And none of those mild extremes coincided with major market tops. We’ll continue keeping an eye on sentiment here in TradeSmith Daily… and let you know when things get tilted in either direction. | Recommended Link | | | | A Wall Street veteran with a four-decade track record has issued a disturbing warning from his estate near Mar-a-Lago. He warns of an economic restructuring that will eliminate traditional career paths while creating unprecedented wealth opportunities. This message cannot be silenced. |  | | A key number to check before buying any stock… Setting sentiment aside a moment, it’s important to understand what you’re buying no matter what market environment we’re in. There are dozens of fundamental metrics under the sun, all giving you a different way of looking at a business. Valuations, cash flows, debt, dividend yields, buybacks, etc. But here at TradeSmith, we put a lot of stock in one simple, but powerful number: the free cash flow (FCF) yield. FCF yield simply takes the amount of free cash flow a business generates – that is, cash left over after expenses – and measures it as a percentage of a stock’s enterprise value. The higher the percentage, the more cash flow that company generates with respect to its size. According to Bank of America Merrill Lynch, FCF yield was the #1 return-producing investment factor from 1986 to 2016, with an average annualized return of 18.2%. At the same time, companies with high FCF yield showed the smallest drawdowns, with less than 17% of that period showing a negative rolling 12-month return. So these high-FCF-yield stocks are where you go for safety, for income, for value, and for the kind of moat that can keep your wealth intact as you reach the later stages of your wealth journey. For example, let’s look at everyone’s favorite stock, Nvidia (NVDA). (Disclosure, I own NVDA.) NVDA’s FCF yield is currently 2.18%. So, NVDA has positive free cash flow, but it makes up a very small part of its enterprise value. That makes sense – NVDA has extremely high operating costs. It’s not a dividend-forward kind of company. It’s busy winning the battle for supremacy in semiconductors. That doesn’t mean NVDA is a bad stock to own. It just means you can’t expect a large amount of cash flow to help you “sleep well at night.” You don’t want to depend on it for income. Generally, you want to look for stocks with an FCF yield above 5%. That’s when you start to get more into value territory. Let’s look at another example, this time in a stock with a higher FCF yield – Synchrony Financial (SYF). This consumer credit card company sports an FCF yield of 43.62%, meaning a little less than half of its entire $17.4 billion enterprise value is comprised of free cash flow. Can you expect breakneck capital gains from SYF? No, you cannot. But what you can expect is reliable, consistent income. SYF has a huge moat of free cash flow to continue delivering dividends and buybacks for shareholders. There’s room for both of these types of stocks in any portfolio. It really just depends on where you’re at in your wealth journey. But if you’re looking at value stocks, always check the FCF yield before you buy. You want to be sure that what you’re buying has a high likelihood of continuing to provide income and cash flows. If you have access to Ideas by TradeSmith, Trade360, and some of our newsletter services, you can filter all the stocks in our database by FCF yield easily with our Screener. Here, for example, are the top 10 S&P 500 stocks trading in the Green Zone sorted by Free Cash Flow Yield, out of 143 with positive FCF yield: 
The specter of NVDA earnings passes… So goes NVDA, so goes the market – at least that’s the perception. And thankfully, NVDA’s highly anticipated earnings report on Wednesday gave investors permission to keep their spirits light. NVDA’s initial earnings-per-share number came in at a miss, at $0.76 against expectations of $0.93. But that was quickly revised higher using some clever assumptions and arithmetic. From NVDA’s own press release: On April 9, 2025, Nvidia was informed by the U.S. government that a license is required for exports of its H20 products into the China market. As a result […] Nvidia incurred a $4.5 billion charge in the first quarter of fiscal 2026 associated with H20 excess inventory and purchase obligations as the demand for H20 diminished. Sales of H20 products were $4.6 billion for the first quarter of fiscal 2026 prior to the new export licensing requirements. Nvidia was unable to ship an additional $2.5 billion of H20 revenue in the first quarter. For the quarter, GAAP and non-GAAP gross margins were 60.5% and 61.0%, respectively. Excluding the $4.5 billion charge, first quarter non-GAAP gross margin would have been 71.3%. For the quarter, GAAP and non-GAAP earnings per diluted share were $0.76 and $0.81, respectively. Excluding the $4.5 billion charge and related tax impact, first quarter non-GAAP diluted earnings per share would have been $0.96. So while NVDA’s reported numbers were technically a miss, the tariff disruption equaled out to what would’ve been a beat… if there had been no tariff disruption. Revenue was also up 12% from the previous quarter and up 69% from the year prior. That was enough for Wall Street to celebrate NVDA’s complicated win. Shares were up 4.2% at last look on Thursday afternoon. Funny thing, that… Even funnier is the fact that our CEO, Keith Kaplan, anticipated strong performance for NVDA starting this week and lasting through mid-August. But it had nothing to do with NVDA’s earnings. At least, not directly… Posting on his X account (follow him here), Keith used our Seasonality software to show that NVDA has a historically strong period over the coming 10 weeks. 
I took to X myself (follow my account here) to show what the typical seasonal gain for NVDA would do to its stock price: 
In short: NVDA following its average summertime trajectory would put it at new highs by the end of the seasonal window. That evidence, plus NVDA’s upbeat forward guidance, means betting against King Chipmaker doesn’t seem like a wise move. And you know what NVDA itself is betting on? Artificial intelligence. While AI is still little more than a buzzword for some companies, NVDA is among the growing cohort that’s putting its money where its mouth is. In this case, $500 billion for AI semiconductors… made in America. If that number sounds familiar, it’s because separately, SoftBank, OpenAI, and Oracle also pledged $500 billion toward the new Project Stargate partnership with the U.S. government. But the Trump administration is just getting started. According to the latest research briefing by Louis Navellier of InvestorPlace, President Donald Trump is moving on from “Liberation Day” tariffs to Tax Liberation, Tech Liberation, and Energy Liberation – which altogether could unleash $10 trillion in new stimulus to the U.S. economy. To turn this political sea change into a generational “bull market” for your stock portfolio, Louis is deploying his Navellier Stock Grader on a new class of stocks poised to benefit from what’s coming. Click here as Louis explains what he has in mind – including a free stock idea to get you started. To your health and wealth, 
Michael Salvatore
Editor, TradeSmith Daily | 
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