The company’s outlook for the second quarter – with revenue projected to range from $990 million to $1.05 billion – also topped the average estimate of $976.2 million.

As a result, shares jumped 10%, from $12.42 to $13.68 following the announcement. And although the stock has dropped a bit (currently around $13) as investors are likely taking gains on the run-up, you can bet that shares will continue their upward trajectory in short order.

Here are two reasons why…

Reason #1: Apple Turning to NVIDIA for MacBook Pros

You know Apple’s (Nasdaq: AAPL) retina display that has people so enamored with the iPhone 4 and new iPad? Well, according to ABC News’ sources, it looks like the company’s equipping its MacBook Pro laptops with the ultra-high resolution screen, as well. And given the preliminary success of the new iPad, you can bet that consumers will flock to the new MacBook Pro once it launches (likely this summer).

ABC News’ sources also say that Apple is ditching Advanced Micro Devices (NYSE: AMD) and going with NVIDIA for the MacBook Pro’s graphics processing unit (GPU). 9to5 Mac and The Verge have confirmed this, too.

That’s great news for NVIDIA. As long as it proves it can deliver powerful enough graphics that take advantage of the retina display, it could become Apple’s standard GPU supplier for MacBooks down the road.

Reason #2: Creating a New Standard in Gaming

At NVIDIA’s GPU Technology Conference in San Jose yesterday, the company unveiled a slew of new innovations in graphics processing. The most important development from the event, however, is the company’s new system for cloud-gaming operators, the GeForce GRID.

Now, technology already exists for consumers to play video games straight from the internet. But thanks to server lag, the experience is never as good as playing games directly from a console or installed on a PC. Like NVIDIA says, “First-generation cloud gaming platforms suffer from long latency or lag [and] low-quality graphics.”

The GeForce GRID solves this issue, allowing users to stream top-quality games from cloud operators while avoiding server latency. Meaning it’s making cloud-based gaming so responsive that it feels like you’re playing on a console in your living room. But since it doesn’t require the actual hardware, you can play these high-quality games on anything that has a data connection. And the company hopes that it will eventually “make game streaming as common as renting a movie online.”

This could turn the gaming industry on its head, considering that console makers like Sony (NYSE: SNE) and Microsoft (Nasdaq: MSFT) depend on consumers remaining loyal to their system to build revenue. And we go along with it, not because it makes sense, but because it’s just what we’re used to. Like David Perry, CEO of gaming company, Gaikai, said at the conference, “Can you imagine making a movie and it only working on one kind of television? That would be crazy, but we put up with it.”

But remove that barrier (without sacrificing quality) and it could permanently change the current gaming ecosystem for good. The shift could happen sooner than you think, too, considering several gaming companies are already gearing up to release titles on NVIDIA’s platform. Like Capcom, Gaikai, Epic Games, THQ, Ubitus and Playcast.

Bottom line: With its reported inclusion in Apple’s upcoming MacBook Pros and potential to revolutionize the gaming industry as we know it, the recent surge in NVIDIA’s share price should be just the beginning.

Good investing,

Justin Fritz

It’s the rise of the U.S. dollar – or more precisely, the fall of the euro.

You see, oil and other commodities are priced in U.S. dollars, so as the dollar strengthens, their value declines. Conversely, as the dollar loses value, the prices of commodities increase to reflect that.

The dollar has been a very weak currency over the past decade, which has helped fuel the bull run in commodities. And for a long time, it looked as though the dollar would only get weaker.

After all, the U.S. Federal Reserve has held interest rates at a record low range of 0% to 0.25% since December 2008, and it’s pledged to keep them there through 2014.

Meanwhile, U.S. debt has grown at an exorbitant rate to where it’s now more than $15.7 trillion. And Congress has yet to come up with a comprehensive plan to reduce that sizeable burden.

In fact, lawmakers actually exacerbated the problem last year by engaging in a high-stakes game of chicken with the debt ceiling. That led to the country’s first ever credit ratings downgrade.

Under normal circumstances, the U.S. dollar would be plummeting right now. But we live in extraordinary times: As it grapples with austerity measures and a full-blown depression, Greece is pondering an exit from the euro that would undermine the currency bloc.

As a result, the euro – which had been surprisingly resilient – dropped to its lowest level in four months. The euro today (Tuesday) fell as low as $1.2681 at – the lowest it’s been since January 18.

Riskier, higher-yielding currencies have been victimized by Europe’s travails, as well.

For instance, earlier this week the Australian dollar declined to less than parity with the dollar for the first time this year amid concern that Greece will leave the euro bloc.

But the dollar has only grown stronger, reaffirming its role as the world’s dominant investment safe haven.

The U.S. Dollar Index, which tracks the greenback against six major world currencies, is seeing its biggest gains since 2008.

The Index traded at 81.267 today, making that the thirteenth straight day of increases. That’s the longest winning streak the Dollar Index has recorded since August 2008, just before the last financial crisis really took off.

That’s added fuel to the recent decline in oil prices, which today slid below $93 a barrel for the first time since December. They’re now down 12% since the beginning of May.

Similarly, gold is at its lowest price in six months.

However, both of these commodities have demonstrated some resiliency. And the Greek crisis notwithstanding, their fundamental outlook is unquestionably bullish.

In fact, a new report by members of the International Monetary Fund’s internal research team says there could be a permanent doubling of oil prices in the next 10 years.

“While our model is not as pessimistic as the pure geological view that typically holds that binding resource constraints will lead world oil production on to an inexorable downward trend in the very near future, our prediction of small further increases in world oil production comes at the expense of a near doubling, permanently, of real oil prices over the coming decade,” argues the report, entitled “The Future of Oil: Geology v Technology.”

The International Energy Agency (IEA) has also warned that crude prices will remain high in 2012. The group estimates global oil demand will expand by 800,000 barrels day this year.

The IEA’s assessment of global oil market conditions is broadly in line with the views of OPEC, which said last week that oil demand had “stopped its declining trend.”

The cartel, led by Saudi Arabia, has worked diligently to keep the market flush with crude, but the effect has been negligible.

Even at a near five-month low, West Texas Intermediate crude settled yesterday at $93.84. That’s still incredibly high by historical standards, and relatively sturdy amid all of the drama in Europe – especially considering increased global demand and political disruptions in Iran could lead crude significantly higher in the near future…

It’s just a matter of clearing that one huge hurdle – a task that unfortunately is getting more and more difficult by the day.

Cheers,

 Jason Simpkins

Bank of England Governor, Sir Mervyn King, warns of the “risk of a storm heading our way from the Continent” as he flagged the eurozone as the greatest threat to the U.K.’s recovery.

King’s warning came as the Bank said the U.K. economy won’t return to pre-financial crisis levels before 2014, after it cut its growth forecasts for the next two years. The Bank now expects growth of around 0.8% this year.

And the squeeze on consumer spending is set to maintain its grip as the rate of inflation falls more slowly than previously expected, remaining above the government’s 2% target for the next year or so.

While the Bank said it didn’t see a “meaningful way” of factoring an extreme financial event – such as the collapse of the euro – into its projections, it said the biggest risk to recovery stems from the single currency bloc, the U.K.’s main trading partner.

After three days, crisis talks among Greece’s parliamentary party leaders failed to establish a coalition government, necessitating a newly held election to take place in mid-June. In the meantime, an acting “caretaker” governance body will remain in place.

Evangelos Venizelos is a Greek socialist political leader:

“We shouldn’t have reached this point… we are forced to go [to elections]. Let’s go united, in the best way, to safeguard Greeks. Let’s move towards something better, and for God’s sake, let’s not move towards something worse.”

But whether it’s for better or worse, when mid-June arrives, polls show that anti-bailout party, the Radical Left Coalition, will be the likely victor of the re-held elections. The party’s leader, Alexis Tsipras, says he would overturn the $130 billion bailout and lift austerity measures, though he still favors Greece’s eurozone membership.

Many fear, however, that in the end Tsipras’ cannot have it both ways. If Greece reneges on its bailout agreement, it may be forced to exit the eurozone, leaving the country bankrupt and the euro in renewed economic turmoil.

Who cares? You should if you’re currently holding on to shares of Herbalife (NYSE: HLF) and Nu Skin Enterprises (NYSE: NUS).

Ever since Greenlight Capital’s David Einhorn raised skepticism about Herbalife’s sales on the company’s May 1 conference call, the rumor mill’s been working overtime. And when he takes the stage to present today, he’s widely expected to pan one or both of these multi-level marketing companies.

Whenever Einhorn targets a stock to sell short, we should take heed. In fact, his track record demands it.

Consider: In July 2007, he shorted Lehman Brothers based on his belief that the firm was using dubious accounting practices. And a little more than a year later, Lehman filed for bankruptcy protection, the largest filing in U.S. history.

Then, in October 2011, Einhorn raised questions about sales growth at Green Mountain Coffee Roasters (Nasdaq: GMCR). Since then, the stock’s off about 70%.

Even if Einhorn doesn’t target Herbalife and Nu Skin in his presentation today, I recommend you refrain from investing in either stock. Here’s why…

Pyramid Schemes By Any Other Name

Per SEC filings, Herbalife bills itself as “a leading global nutrition company that sells weight management, nutritional supplements, energy, sports & fitness products and personal care products utilizing network marketing distribution.”

And Nu Skin bills itself as “a leading, global direct selling company that develops and distributes premium-quality, innovative personal care products and nutritional supplements.”

Let’s be honest, though, folks. “Network marketing distribution” and “global direct selling” are nothing more than euphemisms for a pyramid scheme.

The data confirms it, too.

The overwhelming majority of distributors at Herbalife (90%) and Nu Skin (95%) didn’t turn a profit in 2011. These figures are in line with exposés in Newsweek, USA Today and Britain’s The Times on other popular pyramid schemes.

The only ones that make money are those at the top. Like Herbalife’s CEO, Michael O. Johnson. He was the highest paid CEO last year, earning $89 million, according to Barron’s.

So how does each company keep earning more and more money? In one word, churn. Or more specifically, they keep recruiting new distributors into the system.

Once again, the data backs me up.

Over the last three years, Herbalife’s turnover rate for “sales leaders” averaged 55.9%. In some regions of the world, it topped 60%.

And over at Nu Skin, management chooses not to disclose turnover rates in its filings. But they do admit, “We experience high turnover among distributors from year to year.”

This practice of relying on new recruits is eerily reminiscent of foreign currency trading brokers, FXCM Inc. (NYSE: FXCM) and GAIN Capital (NYSE: GCAP), which I warned you about last April.

It’s not sustainable. As time goes by, finding new customers becomes harder and more costly. And Herbalife and Nu Skin are already facing this reality…

Both companies have apparently exhausted the pool of fools in the United States, so to speak. Now they’re relying on uninformed citizens in international markets.

Case in point: In 2011, approximately 88% of Nu Skin’s revenue came from markets outside the United States. And for Herbalife, roughly 80% of its revenue came from outside North America.

Bottom line: It’s only a matter of time before the rest of the world wises up to the true nature of these businesses and, in turn, the stock prices plummet. Einhorn’s speech this afternoon could expedite that process.

If you want to try to profit from an eventual demise, be careful, though. Shorting the stocks poses a problem because they both pay dividends. And as a short seller, we’re responsible to pay those dividends. So the longer it takes for share prices to turn over, the more the dividends cut into our potential profits. The solution? Consider purchasing some cheap put options on either stock.

Ahead of the tape,

Louis Basenese

Essentially, it involves a pair of glasses that does almost exactly what you’d do on a smartphone. Only it all occurs in your field of vision and relies on voice commands and eye movements for input.

I thought the idea behind the technology was great, “since instead of bombarding you with constant information that could be distracting, it gives you immediate, helpful guidance when it’s needed.” The problem was the design, as its current form makes users look like characters on “Star Trek.”

Ultimately, packaging the technology in a pair of contact lenses would be ideal. And as I said then, that “could be possible, considering there’s a bio-nanotechnology specialist working on the project, Babak Parviz, who has already created an electronic contact lens that can be used to display pixels. But until he can design a way to power the contacts through blinking, I’d say that’s a long way off.”

Luckily, Stanford University scientists have come up with an even better solution to providing power to optical devices.

To be clear, they didn’t have Google’s Project Glass in mind when they developed the technology. Instead, they’ve been working on a way to provide power to optical implants that help patients see.

Innovations That Help Reverse Blindness

You see, scientists have discovered a few ways to restore sight for patients with certain degenerative retinal diseases.

An article by Ferris Jabr in this month’s issue of Scientific American, for instance, explained how German scientist, Eberhart Zrenner, was able to embed a chip that replaced damaged photoreceptors into a few patients’ retinas.

Although the patients weren’t able to make out sharp images or colors, they could see different shades of grey in order to identify basic shapes and large letters.

However, “the design left the patients vulnerable to skin infections [since] an external pocket-size battery pack delivered power to the amplifiers in the eye through a small cable threaded into the skin, leaving an open wound,” Jabr writes.

Then there’s a similar technology being tested at the Oxford Eye Hospital and King’s College Hospital in London. And while this technique doesn’t require an external battery, it does involve running cables from the eye to a power source located beneath the skin and behind the ear.

But Stanford researchers’ recent discovery could eventually eliminate “the need for complex electronics and wiring” altogether.

Here’s how…

Solar-Powered Retinas on the Way

Basically, the process involves implanting a chip in the retina that acts like a solar panel. Then special glasses blast infrared light at the chip, creating an electrical signal.

The infrared-beaming glasses are required at this time since ambient light isn’t strong enough to power the implant. However, according to Popular Science, “lab tests show that a very weak signal, illuminating just one pixel, is enough to elicit a neural response… This means future versions could be fully integrated infrared laser implants.”

So eventually, the process could be completely internal, with zero wires involved. Plus, since the solar implant is placed in the retina, too, it can simply be integrated with the chips described above.

Like the researchers (quoted in the BBC) say, “Because the photovoltaic implant is thin and wireless, the surgical procedure is much simpler than in other retinal prosthetic approaches… Such a fully integrated wireless implant promises the restoration of useful vision to patients blinded by degenerative retinal diseases.”

With that said, the solution probably won’t be used for Google Project Glass anytime soon, since users likely won’t want a chip inserted in their retinas in order to check their Twitter feeds. But knowing that self-powered optical electronics are at least possible is certainly a step in the right direction.

Good investing,

Justin Fritz

Finance ministers from 17 eurozone countries met in Brussels to discuss continued questions about the future of Greece and its impact on the eurozone.

Of particular concern is Greece’s tenability as a continued member of the EU. After the country’s failure to establish a government coalition in support of the bailout and austerity measures, its exit from the eurozone has become a more pressing possibility.

Still, there seemed to be general consensus among the minister that revoking Greece’s membership is not ideal.

“I don’t want to talk about a possible exit for Greece or any other country because I believe it would be a disaster for all,” says Spain’s Minister of Economy, Luis De Guindos.

Irish Finance Minister, Michael Noonan, agrees with Guindos, saying, “I would like Greece to stay in the euro. I think it is very important that the eurozone stays intact and that the very many countries who want to join the euro when things stabilize will have the stabilization necessary to allow them to join.”

But even if keeping the eurozone in one piece is ideal, there are those taking a more realistic stance. For instance, German Minister of Finance, Wolfgang Schaeuble:

“It is not about being more or less generous towards Greece. It is undisputed that the Greek people have to suffer from the consequences of decades of neglect. There is no easy path for Greece whatever the result.”

Regardless, eurozone finance ministers may have little say in matter, as the Greek citizens are becoming increasingly impatient and all the more likely to institute an anti-bailout government come renewed elections this June.

Groupon’s (Nasdaq: GRPN) had a sketchy history. A tech startup paragon in its pre-IPO days, Groupon found itself soon descending into investor disfavor over suspicious accounting practices and the tenability of its business model. Some analysts have even come to consider it a poster child for the dangers of overhyped tech stocks.

So after the long downward trend in its stock price, it came as a surprise when Groupon reported better-than-expected earnings results on Monday – and its share price ticked up about three points as a result.

Despite the surprising but minor reversal, Groupon might be a day late and a dollar short, says Peter Fader, a professor from University of Pennsylvania’s Wharton Business School:

“Groupon has clearly proven that they can’t [engage its market], and while they have been taking some baby steps in the right direction, trying to embrace the data a little bit more, trying to run it more as a business instead of as a crazy creative enterprise, I think it’s too little too late for Groupon.”

If there’s any hype still fueling the possibility of an earnings turnaround for Groupon, it may doomed to fade by the week’s end, as Facebook begins trading on the market on Friday and looks to steal the show from every other tech stock out there.

The loss, he explained, was a result of a “new strategy that was flawed, complex, poorly reviewed, poorly executed and poorly monitored.”

Details remain obscure, however, as JPMorgan hasn’t been forthcoming with exactly what this trade was and how it went so wrong. It’s referred to only as a “synthetic credit portfolio” and a “strategy to hedge the firm’s overall credit exposure.”

We do have a little more information, though…

In April, some hedge funds tipped off reporters to unusual activity happening in the credit default swap (or CDS) market. The story broke on Bloomberg that the trades were coming from JPMorgan’s London-based Chief Investment Office.  And the particular trader in question – dubbed by other investors as the “London Whale” (for his massive positions) and “Voldemort” (for his power over the markets) – was identified as Bruno Iksil at JPMorgan.

The trades Iksil made were based on the Markit CDX.NG.IG.9 Index. It sounds complex, but it’s simply an index that tracks the corporate bonds of 125 high-quality companies like General Mills, Pfizer and other household names. Iksil was trading CDSs – a type of derivative – on that index.

Exactly what method Iksil was employing is still up for debate, but so far the best theory is that Iksil placed a “flattening trade” on the Index (described in detail by Lisa Pollack). Here’s how the flattening trade works:

A CDS is a derivative contract, but it’s easier to visualize as an insurance contract. For any bond, you can find a price to “insure” that bond against default. If a bond is more risky, the price for insurance is higher. In the CDS market, traders can choose to be either insurance buyers or insurance sellers.

Now, if you chart the cost of insurance over different time periods, you get a curve like this one:

The above is the curve for the Markit CDX.NG.IG.18, a similar index to the one Iskil traded. It doesn’t show the change in price over time – like most stock charts – instead, it shows the price of insurance depending on how long you want to insure for.

The longer the period you insure, the more unexpected things can happen, so longer intervals cost more than shorter intervals. For instance, if you want to insure against losses on the bonds for one year, it will cost you about 54 basis points. If you want to insure for 10 years, it will cost about 141 basis points.

But it looks like Iksil and JPMorgan were betting that this curve would flatten. In other words, they were speculating that the usual difference between short-term insurance and long-term insurance would narrow.

You see, by buying the short-term swap and selling the long-term swap, a trader will profit when the curve flattens because the short-term swaps will rise faster than the long-term swaps fall. If the market as a whole goes up or down, the positions will offset each other, making the total position “market neutral.”

What would cause a yield curve to flatten? Simply, if fears about the short term increase, prices for short-term insurance will rise relative to prices for the long term.

And fear is exactly what JPMorgan was betting on. It appears as though it expected a crisis in Europe to cause anxiety in financial markets. Instead, the bailouts and interventions prevented any major events in Europe, at least so far.

Even so, given that the market didn’t make any big moves, how did Iksil lose such an enormous sum of money?

Whenever you initiate a spread position like this, you have to continually make new trades to maintain the proper balance and deal with expiring contracts. But the CDS market was too small and the amounts Iksil was moving were too large to let JPMorgan operate in secrecy. Once the story got out, smart hedge fund traders actively took positions designed to gain from the trades that Iksil had to make to keep the position going.

That activity negatively altered the prices on the CDSs that Iksil needed, and eventually his only option was closing the position for a loss.

In the end, $2 billion really isn’t that big of a loss for JPMorgan. The CIO division alone managed about $300 billion. So far, the only official loss taken is $800 million (with the rest set aside for future losses), which would be about 4% of annual operating income for the bank.

That said, the stock’s 12% slide since the announcement is probably an overreaction. But given the larger issues it raises about trading by banks, balance sheet transparency and its implicit confirmation of the need for the Volcker Rule, the misstep could change the way banks operates for decades to come.

Ahead of the tape,

Matthew Weinschenk

I’m nominating an up-and-coming technology company, which shouldn’t come as a total surprise.

As I’ve noted before, tech companies are dominating the IPO market this year. So far, 22 out of the 68 IPOs in 2012 have been technology companies. That works out to about 33% of the deal flow – well above the 10-year average of 23.4%, based on Renaissance Capital data.

Like so few IPOs, though, Exponential Interactive (Proposed Ticker: EXPN) possesses all the hallmarks of a hot IPO, which is precisely why we’re adding it to our “Hot IPO Watch List.”

Advertising Enters the Digital Age

Per the company’s S-1 filing, Exponential provides “an end-to-end solution that enables brand advertisers to learn about their optimal consumer audience, reach and engage that audience with emotive advertising and analyze and refine their marketing campaigns.”

Translation: It’s a digital advertising company. And its proprietary “eX Advertising Intelligence Platform” helps blue-chip companies reach customers digitally.

A need clearly exists for such services. Case in point: Of the $449 billion spent globally each year on advertising, only $64 billion (or roughly 15%) comes from digital advertising, according to ZenithOptimedia. And yet, consumers are abandoning traditional print in favor of digital media at an accelerating rate.

And since advertising always follows eyeballs, it’s only a matter of time before brand advertisers ramp up their digital media advertising.

Exponential is the obvious choice, as it’s already partnered with 1,900 advertisers, including 88 of Advertising Age’s 100 Largest Global Marketers.

As far as its investment merits go, Exponential stacks up favorably against all of our IPO criteria:

~ Age: The older and more established a company is when it goes public, the better the stock tends to perform. And founded in 1998, Exponential has been around long enough to demonstrate viability. That’s not something you could say about most IPOs during the dot-com collapse. The average IPO back then hit the public market at just four to five years of age.

~ Revenue: In another sign of its maturity, Exponential boasts almost $170 million in sales. Research from University of Florida professor, Jay Ritter, shows that companies with more than $50 million in sales before they go public perform best, rising by an average of 38.8% over three years. That compares to only a 5% rise for companies with less than $50 million in sales at the time of their IPO.

~ Verifiable Growth Opportunity: An IPO is an investment in the future growth of a company. And Exponential boasts ample growth opportunities, penetrating less than 1% of a market worth $64 billion. What’s more, the company’s established strong sales momentum. Since 2009, revenue increased an average of 35.2%.

~ Profitability: As I’ve said countless times before, share prices ultimately follow earnings. And the performance of IPOs during the dot-com era proves my point perfectly. Roughly 70% to 80% of companies that went public during that period were unprofitable. And go figure… roughly the same amount of companies crashed and burned in the aftermarket.

On the other hand, Exponential has been profitable on an annual basis since 2002. Increasingly so, I might add. Since 2009, net income increased an average of 51.2%.

Only If the Price is Right

The last criterion to consider, of course, is valuation. But we’ll have to wait until Exponential finalizes its IPO plans before we can determine whether the price is right.

For now, add the company to your “Hot IPO Watch List” for 2012. And stay tuned for future updates.

Ahead of the tape,

Louis Basenese