BIG TECH WEEKLY | Apple needs a second chance, with all in AI

Big-Tech’s Performance

The FOMC meeting essentially guided the market sentiment this week, cautious market expectations often bring surprises. After the Fed reaffirmed that the interest rate for this round of cycle has reached its peak and confirmed the start of rate cuts this year, tech stocks and growth stocks also reached new highs.

As of the close on March 21, among the big tech companies over the past week, the best performer was $NVIDIA Corp(NVDA)$ +1.18%, followed by $Microsoft(MSFT)$ +0.97%, $Meta Platforms, Inc.(META)$ +44%, $Amazon.com(AMZN)$ +0%, while the other three fell, with $Alphabet(GOOGL)$ $Alphabet(GOOG)$ -0.77%, $Tesla Motors(TSLA)$ -1.62%, $Apple(AAPL)$ -4.09%,

Big-Tech’s Key Strategy

Apple's Big Turnaround

Apple is one of only two companies in Big Tech this year with negative returns since the beginning of the year. The current crisis is enough to give investors no reason to be optimistic in the next two quarters:

1. The main product, iPhone, is in a "small year" of the cycle, the main growth region, Greater China, is "lowering prices" and "slowing down", and Cook is being sued by investors for "inappropriate statements";

2. Despite Apple store's efforts to reduce fees, it still faces controversy. Previously, Epic Games, the maker of "Fortnite", protested that Apple did not comply with the court-ordered ban on App Store charges, and META, MSFT, X and MTCH companies joined in the condemnation.

3. The US Department of Justice has sued Apple for antitrust violations for preventing competitors from accessing iPhone hardware and software features. Note: The Department of Justice's lawsuit is more serious.

Therefore, Apple needs to find a way to save itself, and there are rumors that it will integrate Google's artificial intelligence model Gemini into iPhone, and it will be a non-networked embedded one, and will be launched in iOS 18 at the end of the year.

The relationship between Apple and Google cannot be said to be very good. Google pays Apple $18 billion a year to maintain its default search engine status on iPhone, but Google is willing to negotiate on this matter, also because its Gemini robot is temporarily lagging behind OpenAI's ChatGPT (about half a year gap), and AI robots to a certain extent replace browser search, bringing uncertainty to the advertising business.

If the two cooperate,

1. Will bring billions of potential users to Gemini

2. Bring traffic to Google's search engine, soothing advertisers' worries

3. Directly improve iPhone performance, stop the decline in hardware sales.

But recently Apple has also had talks with OpenAI considering adopting its AI model, so it is not possible to confirm how to choose in the short term. AI companies will also think about their own products cooperating with Apple, which has billions of users.

Looking from a medium to long-term perspective, the current pullback period also provides an opportunity for investors without positions to start building positions. Fluctuations within the year are inevitable, and hardware that incorporates AI will also see a qualitative improvement. Even if sales do not increase significantly, investors' anxiety can also be well appeased. After all, stock prices always lead the way.

Big-Tech Weekly Options Watch

The subtle changes in chip stocks - seemingly strong, but confidence is slipping.

With the dovish decision of the Federal Reserve, tech stocks, especially growth tech stocks, have once again received inflows of risk funds. Nvidia hitting $1,000 has probably become the current market consensus "obsession".

Looking at the options market, NVDA is the leader, stronger than AMD, and more stable and stronger than the more speculative SMCI and SOUN, but the option IV for the next month (expiring on April 19) is also steadily declining, and the skewness is constantly shifting from right skew to left skew, meaning that Put has more advantages than Call.

The high-position increase of SMCI almost crashed IV this week, and the IV of SOUN, which represents speculative sentiment, fell a lot. It is INTC and TSM that have a sentiment reversal, especially INTC, which hasn't risen much, and the sentiment for the next month is slightly optimistic.

Big-Tech Portfolio

The Magnificent Seven form an investment portfolio ("TANMAMG" portfolio), equal weight, rebalanced quarterly. Backtesting results show that since 2015, the performance has far exceeded the S&P 500, with a total return of 1661.28%, while the SPY returned 194.69% over the same period, continuing to hit new highs.

So far this year, the return is 13.96%, surpassing the SPY's 10.21%. There was a certain pullback this week, but it still outperformed the market.

The Sharpe ratio of the portfolio over the past year is 3, while the SPY is 2.43, and the information ratio of the portfolio is 2.