BIG TECH WEEKLY | No one but Nvidia? How's semiconductor cycle?

Big-Tech’s Performance

There was no more macro guidance for the market this week, with two major events influencing market action: 1. BTC made new highs and hit the $100,000 high, and 2. NVIDIA earnings.Risk sentiment was relatively high, but at the same time, U.S. stocks continued to trade in a divergent manner as the U.S. dollar continued to strengthen and concerns about Trump's policies persisted.

Through the close of trading on November 21, Big Tech was mixed over the past week with $Apple(AAPL)$ +0.13%, $NVIDIA Corp(NVDA)$ -0.06%, $Microsoft(MSFT)$ -3.28%, $Amazon.com(AMZN)$ -6.19%, $Alphabet(GOOG)$ $Alphabet(GOOGL)$ -4.52%, $Meta Platforms, Inc.(META)$ -2.43%, and $Tesla Motors(TSLA)$ +9.14%.

Big-Tech’s Key Strategy

With NVIDIA, who is dragging AI down?

November 20 after-hours, affecting the whole market, NVIDIA earnings announcement, Q3 current results not surprisingly again exceeded expectations (revenue of more than 2 billion, profit margins flat), although the Q4 performance guidelines, Jensen appeared to be "not so freewheeling", only slightly more than the seller's expectations, may be slightly below the buyers of the"More than 2 billion" is expected, so the market's first reaction is "expected to fulfill", did not appear to jump up, slightly some profit-taking.

But after all, NVIDIA and how to pull back can only be said to be "rising relay", and relative to other semiconductor counterparts, may be more of a "safe haven".Because:

1. $Philadelphia Semiconductor Index(SOX)$ is up just 13% since the beginning of the year, far short of the S&P 500's 24%;

2. The main contributing components to see, in addition to NVDA riding high, $Taiwan Semiconductor Manufacturing(TSM)$ / $Marvell Technology(MRVL)$ / $Broadcom(AVGO)$ outperformed the $.SPX(.SPX)$ , the rest are dragging their feet, and even more $Intel(INTC)$ / $STMicroelectronics NV(STM)$ fell more than 50%;

   

   

This has to do with the industry chain pattern, where downstream tech companies, despite being big on capex, are not unpicky:

1. Many of the SOX index constituents are in fact competitive, so even a six-month technology lead can be polarizing;

2. Investors' mu strong abandoned weak aggravated the divergence of the constituents, excellent performance instead willing to give a higher valuation;

3. Semiconductor is one of the most cyclical industries, and its cycle has entered a new round of highs, causing many funds to seek risk aversion, choosing the head rather than "diversification".

   

4. Considering that downstream tech companies are "unlikely to expand their capital expenditures unchecked," limited future growth will be more concentrated in a limited number of headline companies.

From the perspective of tech companies' capital expenditures

• Free cash flow is a very good indicator to look at, it's operating cash flow minus capital expenditures, and several of the big tech companies were in the $5-15 billion range in Q3;

• Currently, except for AMZN, which has almost no dividends or buybacks, all of them have large buybacks, and the remaining free cash flow in a single quarter may be below $5 billion, and Google, which has more buybacks, has already spent more than its free cash flow in Q3;

• If the amortization of capital expenditures begins to increase from the next quarter, that future free cash flow pressure is even greater and will affect the company's overall free cash flow;

• When the scale of capital expenditures swelled to the extent that it is possible to squeeze the scale of dividend repurchase, U.S. stock investors on the "Mag6" will reach a critical point of patience.A case in point is Intel, which took a double hit to its market capitalization when it suspended its dividend buybacks because of declining earnings.

Big-Tech Weekly Options Watcher

THIS WEEK WE WATCH: TSLA (Hitting 400 by the end of the year?)

Tesla rallied sharply this week after pulling back to nearly 300, and is now around 340, a position that is certainly unsatisfactory for some investors who are counting on their TSLA positions to turn the tide.Since there was no "big jump" expected after NVDA's earnings report, TSLA is a quality option if you want to play the year-end market.From the open positions of Call in the next few weeks, its largest Call pivots are at 355 (11.29), 360 (12.6), 370 (12.13), 400 (12.20), so it seems that many investors expect it to hit 400 before the end of the year.

Big-Tech Portfolio

The Magnificent Seven form a portfolio (the "TANMAMG" portfolio) that is equally weighted and reweighted quarterly.The backtest results are far outperforming the S&P 500 since 2015, with a total return of 2,318.2%, while the $SPDR S&P 500 ETF Trust(SPY)$ has returned 242.95% over the same period, once again pulling ahead with an excess return of 2,075.24%.

Big tech stocks underperformed this week, but year-to-date returns are still there to 52.87%, outperforming the SPY's 26.08%, with excess returns still at to 26.79%.

The portfolio's Sharpe Ratio over the past year has rebounded to 2.9 with the SPY at 2.75 and the portfolio's Information Ratio at 1.52.