Memo - Closer To The End Than The Beginning

By: Wilson

"History doesn't repeat itself, but it often rhymes." - Mark Twain

I probably sound like a broken record by now, and with that, it's probably best to ignore my writing on this (although we did short ARKK for a handsome profit back in 2021, see our write-up).

But outside of this one-time phenomenon, I've been dead wrong on tech, and subsequently, my prediction on energy versus tech.

One of my favorite charts is the Nasdaq vs S&P energy sector. When oil prices went negative in 2020, tech massively and materially outperformed energy throughout 2020. But by November, things started to change with the approval of the Pfizer vaccine and the subsequent government reopening responses associated with it.

At the time, we wrote numerous articles pointing to the massive shift coming, and the subsequent energy outperformance vs tech carried our performance in 2021 to a stellar +242%. It was a year to remember.

But since then, things have not been so smooth. Following a successful yet painful (into year-end) 2022, tech rebounded with fury throughout 2023. And what was formerly FAANG has now morphed into the magnificent 7. Nvidia, the new boyband leader, has taken over the investing world, and with earnings skyrocketing, people started to wonder if the bubble was truly a bubble.

Let's face it, Nvidia is not your classic bubble stock. Gross margin quarter-over-quarter increased 5% to 79% and earnings are expected to double again. If Nvidia actually hits its earnings projections, the stock would trade at 28x P/E. That's a far cry from "bubble" territory. And while I'm not saying that it's cheap, it is just a fact that Nvidia is currently earning its way into its valuation.

But today was an interesting day for semiconductors.

Nvidia looked unstoppable on its way to $1,000, which I am almost certain had the attention of most retail investors looking at weekly call options.

I mean just look at the volume trading the $1,000 strike options today and the amount of open interest. It was begging the market makers to push it to that price.

But as the famous saying goes, "What the wise do in the beginning, fools do in the end."