A Pair of $1 Trillion Names Ready to Replace Nvidia

My Wall Street mentor: Do you understand why farmers rotate their crops?

Me (a then-newbie trader from Philadelphia, where the only thing that grows is resentment): Not really.

Mentor: Farmers rotate crops to keep the soil alive. Investors rotate stocks to keep a rally alive. 

Sector rotation refers to capital moving from one group of stocks to another. Rotation allows the stocks that have been carrying the team to take a break, while simultaneously allowing well-rested benchwarmers to get in the game.

There’s a different type of rotation going on in the market right now, occurring within the Trillion Dollar Club, that handful of stocks that boast a market cap of $1 trillion or more.

Two stocks that have done a tremendous amount of heavy lifting are Nvidia NVDA (left) and Microsoft MSFT (right). The monthly charts below demonstrate outstanding gains over the past 10 years.

Year to date, Nvidia has gained 22%, and Microsoft has climbed 19%. Both names are outpacing the S&P 500, which has gained 10.6% this year.

While those figures are solid, they fall short of the spectacular returns some investors have come to expect. On the daily chart below, both Nvidia and Microsoft have fallen below their respective 50-day moving averages (blue), even as the key indexes trade near their all-time highs.

This type of price action displays a loss of momentum, highlighting the two stocks’ relative weakness versus the indexes. 

Does that mean the rally is doomed? Not at all, because a different type of rotation is underway. 

As two trillion-dollar companies hit the showers, two other trillion-dollar names, Apple AAPL and Broadcom AVGO, are ready to take the field.

Apple

Apple has been showing signs of life, closing at a six-month high last Thursday. Apple shares are down 2.5% year-to-date, but have gained 17% in the past month.

Apple aficionados will be watching Tuesday's event, scheduled for 1 p.m. ET, closely. Analysts are anticipating the introduction of several new products, including the iPhone 17 Air.

Broadcom

We first recommended Broadcom in December of last year. Shares of the San Jose-based chipmaker have gained about 90% since we alerted readers to the company’s massive opportunity in AI. Broadcom closed at an all-time high on Monday.

That said, I’d be careful about buying the stock right now. Friday’s post-earnings rally left a huge gap on Broadcom’s chart (point A). If that gap fills, the stock could drop as far as $308 before finding support. 

Bottom Line

It’s not the type of rotation that we’re used to seeing, but as long as Apple and Broadcom keep pulling the indexes higher, Nvidia and Microsoft can take a breather without putting an end to this rally.

At the time of publication, Ponsi was long AAPL, NVDA and AVGO.