To The Moon

Big-Tech’s Performance

“Long bull short bear” has been consistant for the first two months, Nvidia's outstanding performance push the market risk appetite. It could be the first "Too Big To Fail" tech-stock in this age.

As of the close on February 22, the best performing major tech companies in the past week were $NVIDIA Corp(NVDA)$ +6.28%, followed by $Tesla Motors(TSLA)$ +4.61%, $Meta Platforms, Inc.(META)$ +2.72%, $Amazon.com(AMZN)$ +2.11%, $Microsoft(MSFT)$ +0.53%, $Apple(AAPL)$ +0.12%, and $Alphabet(GOOG)$ -1.27%.

Big-Tech’s Key Strategy

Several key indicators of financial reports, such as EPS, absolute and relative changes in revenue, are the fundamental aspects that investors pay most attention to. In a stable macro environment, most companies are able to release "surprise" performance. According to FactSet's statistics, the proportion of EPS surprise in each quarter over the past two years has mainly been between 70-80%, so surprise is not a difficult task.

What is an "effective surprise"?

Taking the two best performing companies in this financial report season—Nvidia and Meta as examples, their actual performance surprise does not fully reflect in the magnitude of the surprise. For example, Nvidia's Pearson correlation coefficient between the magnitude of revenue and EPS surprise over the past 10 years and its performance on the day after the financial report is only 0.26 and 0.30, showing a weak correlation.

More importantly, there is unexpectedness. A very obvious feature is that in the month before the financial report, analysts have been revising their models and raising their forecasts.

Even NVDA has encountered the situation of "target lowered before earnings report" during the 2022 cycle, and the stock price did not perform well during that period.

On the contrary, before the financial reports of Apple and Google, analysts not only did not raise their expectations, but also slightly lowered them, indicating that "the market has already lowered its expectations."

Analysts give their own forecasts based on company guidance and their own models. Three-party data institutions will collect these professional and authoritative data to calculate the average and median, which becomes the market consensus expectation.

Different analysts have different update frequencies. If an analyst who has not modified the expected value by default "maintains their viewpoint," statistical errors are likely to occur. However, even so, the market consensus expectation is still a dynamic value, but it changes relatively little after being averaged.

More and more companies are starting to engage in "expectation management," allowing the market to "not panic too much" during times of panic, and "anticipating surprises in advance," reflecting in stock prices the hope for less decline and more rise (linking executive compensation with stock prices of large US companies).

After all, minimizing losses and maximizing gains is also the goal of investors.

Big-Tech Weekly Options Watch

Before Nvidia's financial report, bullish sentiment was very optimistic, with large positions (even hundreds of millions of dollars) betting on the rise in option prices, and the CALL/PUT ratio also reaching an extremely greedy position.

As for open interest, there are still a large number of positions at the integer levels of 900 and 1000 after the financial report is released, indicating a significant amount of bullish momentum for the next week.

Big-Tech Portfolio

The "Magnificent Seven" forms an investment portfolio ("TANMAMG" portfolio) with equal weights and quarterly rebalancing. The backtesting results since 2015 have far outperformed the S&P 500, with a total return of 1678.1%, compared to 190.43% for SPY during the same period, both reaching new highs.

The year-to-date return is 12.41%, surpassing SPY's 6.77%.

The portfolio's Sharpe ratio this week is 4.8, while SPY's is 4.2, and the portfolio's information ratio is 2.7.