More Articles | Free Reports | Premium Services I couldn’t lose… I was guaranteed to make money. The world’s best chipmaker – with an effective monopoly on the semiconductor market – was down 20% from its high. I figured it was time to aggressively buy the dip. So, I did. And then I bought more… And more…. And even a little more... Even as that 20% drop turned into 30%... then 40%. By the time my favorite chipmaker stocks hit bottom, it had plunged 80%. But I’m not talking about today’s darling chipmaker stock, Nvidia. I’m talking about the Nvidia of the 1990s – Intel. Without “Intel inside,” there would have been no internet revolution… no dot-com boom… no digital transformation. Intel made it all possible. I don’t remember when exactly I eventually sold Intel. But I remember taking a bath on it. Thankfully, I was a young man without a lot of money to invest, so the losses weren’t catastrophic in dollar terms. But it was a lesson I’ll never forget. Even 25 years later, the memory pains me. Intel was a fabulous company when I bought in. But it was a terrible stock. And as we’ll look at today, it has some ominous similarities with today’s chipmaker darling, Nvidia. Of course, most investors believe Nvidia is bulletproof… just like they thought Intel was in the late 1990s. But that’s precisely why it could be so dangerous… particularly if it makes up an outsized chunk of your portfolio. We’ll get into that in just a moment… as well as an upcoming demo of a breakthrough analytics tool that can tell whether Nvidia is a buy, sell, or hold this year. First, let’s take a closer look at what happened to Intel… Great Company… Terrible Stock After the internet bubble burst in March 2000, spending on tech slowed. Layoffs rippled through the economy, so companies bought fewer computers for their workers. They had less need to buy additional servers. Meanwhile, cash-strapped consumers squeezed every last drop of life from their existing PCs and laptops. In 2001, Intel’s sales fell from $34 billion the previous year to $27 billion. But sales didn’t stay down for long. This was still a growing market, and Intel had the best chips. By 2004, they had rebounded to new highs. By 2018, Intel’s sales were double their 2000 levels. It’s earnings per share – a key measure of profitability – more than tripled. But Intel’s share price continued to languish, never getting back to its past highs. So, what happened? Why didn’t the stock price follow the sales and profits higher? | Recommended Link | | | | TradeSmith analyst Jason Bodner is revealing the name and ticker for his next AI stock pick. It’s an off-the-radar stock that he believes is set to power the whole world economy with AI. And it could crush all other AI stocks. Jason has agreed to reveal his new AI pick for free. For full details – down to the ticker symbol – go here and check out his latest video bulletin. | |
It’s the Price, Stupid At its 2000 peak, Intel traded for 16 times sales and 66 times earnings. To put that into perspective, the long-term average price-to-sales (P/S) ratio for the S&P 500 is about 1.2. Its long-term average price-to-earnings (P/E) ratio is 15. So in 2000, the market was pricing in better than 50% annual earnings growth for years into the future. It was priced for perfection. (Without burying you in the math, think of the P/E and P/S ratios as a function of profitability and expected growth rate. Using the current profit margins, you can work backwards to see what growth rate is implied by a company’s P/E or P/S ratio.) Only… Intel didn’t grow earnings this fast. Instead, the semiconductor market matured. Cheaper competitors started muscling in on Intel’s turf. So Intel stock began trading at a more modest – more reasonable – valuation. By 2010, Intel’s P/S ratio had dropped from 16 to about 3 and its P/E ratio dropped from 66 to about 25. That’s still aggressive and wildly higher than the S&P 500’s long-term averages. But it’s a long way from the nosebleed valuations of 10 years before. Cracks in the Growth Narrative Intel is yesterday’s news. Thanks to a mix of strategic missteps, manufacturing delays, and increased competition, the company is no longer the force it once was. It’s still worth considering though. Let’s take a look at some of the valuations of the so-called Magnificent Seven group of Big Tech stocks. We’ll look at the same two metrics – P/S and P/E ratios. And we’ll pay extra close attention to today’s chip dominator, Nvidia. As you can see, Nvidia is even more expensive today than Intel was 25 years ago. Nvidia trades for 27 times sales and 49 times earnings. Like Intel back in the 1990s, this implies that Wall Street expects the company to keep up its current blistering growth years decades into the future. And yet… We’re already seeing cracks in that growth narrative. According to a research note from tech-focused research company TD Cowen, Microsoft has cancelled leases with at least two data centers. This could indicate an oversupply of data center – and chip – capacity. Microsoft insists that it’s planning to allocate more than $80 billion to new capital expenditures – with virtually all of that going to AI infrastructure, including chips. And it’s possible that the cancelled leases were due to Microsoft moving some of that processing to its own in-house data centers. We’ll see… But when a market is priced for perfection, it doesn’t take much to disappoint. | Recommended Link | | | | A brand new technology is lining up to be more disruptive than the internet or even today’s most advanced artificial intelligence. Those who prepare now could see massive stock gains. Those who don’t could find themselves on the wrong side of history. Click here for 3 steps to take today. | |
How to Play Today’s Melt-Up in Tech For the moment, money is still flooding into tech stocks. We’re still in the melt-up phase, when just about everything tech related is going up. The inevitable meltdown may be months or even years away. That means there’s still money to be made – even if the road is getting rockier and more treacherous. And a rocky, treacherous road is par for the course. During the 1990s internet boom, the tech-heavy Nasdaq 100 index dropped by 5% or more 25 times. In the summer of 1998, the Nasdaq briefly plunged 24%, before roaring back. That October, it fell 20%... only to return more than 100% the following year. A true market melt-up is a chance to earn profits you simply can’t earn in a more sober market. But you also need to know when to get out so that you don’t end up taking a bath like I did in Intel. That’s why I’m excited for this Thursday’s Last Melt-Up event from colleague Keith Kaplan. If you don’t already know him, Keith is a computer-programmer-turned-investor and CEO of TradeSmith. That’s a software platform that provides data driven tools to help everyday investors make better decisions. I’m a regular user. From personal experience, I can tell you that it's one of the most advanced and sophisticated platforms of its kind. During his event, Keith will unveil a breakthrough new analytics tool called the MQ algorithm. And he’ll demo it for the first time in front of a general audience. It’s designed to detect and model melt-ups mathematically. Kieth will reveal what it’s saying about the market we’re in right now… and where it’s headed next. His team crunched 5.2 billion data points… over 125 years of stock market history… to create this breakthrough. And they’ll be sharing its prediction for the next 12 months with attendees at Thursday’s event. If you own Nvidia, you’re definitely going to want to be there… Keith will also use the MQ algorithm to reveal whether Nvidia is a good way to ride the market melt-up… and whether it’s a buy, sell, or hold, according to the data. It kicks off this Thursday, February 27, at 8 p.m. ET. I’ll be tuning in with keen interest. I hope you will too. Here’s the link to sign-up for free. To life, liberty, and the pursuit of wealth, | 