Is the AI Bubble Going to Blow Up? (February 26-March 1)
February 26-March 1, 2024 by Adit Dayal for RIPPYGLOBAL.
Happy weekend everyone and welcome back to the Rippy Global weekly outlook. The stock market continued its rip higher last week, mainly off of continued interest in AI and a blowout quarter by NVDA. Stocks show no signs of slowing down, and with all this pressure on the gas, there’s so much room for opportunity.
Let’s take a look at what next week has in store for us!
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Unless you’ve been living under a rock, you know that AI has been the rage all around, and more specifically Nvidia’s positioning as a player in the game. Investors have deemed this the company that’s selling the shovels in this gold rush, and earnings expectations were sky high before they reported this Wednesday. In fact, Wall Street analysts had really no idea how it was going to go as you can see by this graphic from Bloomberg:
They beat on earnings and guided higher, stating that there was no slowdown in demand for their GPU’s (the main bear case against the company) and they added $247B in market capitalization- the LARGEST one day increase in market capitalization ever. The second was just 20 days ago with META ($196.8B). Is this a bubble? Well it comes down to how long Nvidia can keep their edge. According to MarketWatch, Nvidia now has 98% of the market for data processing GPU’s which is massive, but both Intel and AMD are rushing to take their share back. My personal view is that Nvidia is matching in line with estimates, and the real edge for investors now lies in the beneficiaries of this GPU craze (aka- it may be more valuable to look at the gold miners instead of the shovel sellers).
Warren Buffett released his annual shareholder letter, including a tribute to Charlie Munger - the Buffett described “architect” of the business. Buffett, the king of value, has a record amount in cash, selling more in 2023 than most and warning of overly high valuations in the market. In fact, he even warns that there are no companies large enough and doing enough for Berkshire to invest in for the company anymore: “[a]ll in all, we have no possibility of eye-popping performance.” That being said, they still hold stakes in their Japanese equities, a large one in Occidental Petroleum, and more (Apple, Coca-Cola, etc.).
Apple is hosting an investors day this week, and the topic of AI may seem overplayed in this edition of the newsletter, but it really is something that moves the needle right now. My take is that Apple is working hard (they’ve been doing strategic acquisitions under the radar on AI companies for a while now) on building a valuable product and will showcase it off at their developers conference this year. News recently has alluded to iOS 18 being one of the biggest upgrades to the iPhone recently, and I’m hoping this can create more interest in the phone segment for the company.
Not all stocks can be value driven, and if you remember anything about the GameStop saga, the name “Reddit” should come up somewhere. Well, they’re planning to IPO under the ticker $RDDT and it’s a very interesting one to look at. Running a loss of >$90M last year, 500M users, and offering IPO shares (typically fought over by the big banks to give to their best clients) to loyal Reddit users is going to make this a very interesting name and something that retail crowd will go crazy over and the institutional crowd wants to take advantage of.
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#1) Earnings week is getting interesting with growth names I’m interesting giving us reports (ZM, IONQ, HIMS) this week. I really like a lot of these companies and will be diligently listening to their earnings calls for any gems that could give us an indication of an upcoming winner.
#2) On Tuesday, NASDAQ is going to release the official short interest numbers, giving us one of the most accurate gauges on where investors are over positioned short.
#4) On Wednesday, there are a few Federal Reserve speakers during the day and Apple will have their shareholder meeting. This will be interesting because Apple has made small comments about AI recently, and it’s likely investors will be interested in what they’re going to do about this wave.
#5) On Thursday, the PCE Price Index will release at 8:30 AM. This will give us a better gauge on the prices consumers are paying for their goods and services.
#6) On Friday, a few Chinese auto manufacturers (XPEV, LI, NIO) will release delivery numbers, and these usually have a strong impact on those names.
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S&P 500
The S&P 500 ($SPX index) continues to trade up in this channel. The 1.618 huge Fibonacci extension is at $508.73 and where I think we may see a small pullback.
My key breaks are $512.17 for bulls and $504.04 for bears.
The best ways to play the S&P 500 are via. SPY/SPX options or SPXL (3X Bull S&P 500 ETF.
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INDIVIDUAL STOCKS & LEVELS
Let’s recap some of the levels of some popular names:
TSLA
Last week I mentioned I didn’t think the rally in Tesla was sustainable at all and thought it would be short lived, and that happened to prove itself even more this week as EV sentiment sours. Still think this relative weakness is very noticeable and the name has much more room down to go.
AAPL
Apple is still in a bearish pattern here, but I’m excited to see they’re improvements from talking to investors and in their conference in June. Reports of users returning their Vision Pro headsets are taking away from the boost they got from that product launch.
PLCE
The Children’s Place is a super interesting story, but has piqued my interest too. Our Instacart short squeeze play worked out great ($26->$32) and has increased my belief in short squeeze plays, especially after the big move in NVAX last week. PLCE short interest has increased to 58% and makes it super interesting at the gap fill support here.
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Insider Activity
Insider buys increased in IOVA and CART (after the IPO lock up expired last week), but nothing super interesting to me recently.
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Thanks for reading this weekend’s article, have a great week!
-Adit Dayal (https://twitter.com/tradelikehulk)