To The Moon

Big-Tech’s Performance

Magnificent 7 hit a new high this week, and the excess returns over $S&P 500(.SPX)$ also hit a new high.

Despite this week's CPI exceeding expectations, the market's expectations for rate cuts this year have greatly declined, with only one rate cut expected in September.

Whether hedging or convergency, the seven giants with strong cash flows and high tech attributes have also received inflows. According to Bloomberg's consensus, Q1 profits of the M7 are expected to grow by 38%.

As of the close on April 11, all big tech companies have risen over the past week. The best performers were $Alphabet(GOOGL)$ $Alphabet(GOOG)$ +5.9%, $NVIDIA Corp(NVDA)$ +5.48%, $Amazon.com(AMZN)$ +5.03%, $Apple(AAPL)$ +3.68%, $Microsoft(MSFT)$ -2.4%, $Meta Platforms, Inc.(META)$ +2.4%, $Tesla Motors(TSLA)$ +2.04%.

Big-Tech’s Key Strategy

Chip war, will NVIDIA divert?

The performance of the big tech combination over the past two weeks has far exceeded the market, mainly due to the rebound of TSLA and AAPL, the two "laggards" of Q1. The former recently announced that Robotaxi will be launched in August, providing a model for FSD monetization, while the latter is brewing to equip Mac computers with a new generation of M4 chips with prominent AI features.

Coincidentally, META also announced the MTIA v2, which can increase the performance of AI models by up to 3 times, to help rank and recommend content on Facebook and Instagram. This chip's architecture fundamentally focuses on providing an appropriate balance of computation, memory bandwidth, and memory capacity for ranking and recommendation models. In some functions, such as INT8 inference, its performance is better than NVIDIA's H100.

The market's response to this has been mostly positive:

1. All tech giants realize the importance of chips. Apple, Meta, Amazon (AWS), Microsoft, Google, Tesla, are all trying to shake off their dependence on high-cost AI chips. But in the short term, NVIDIA is unlikely to be replaced;

2. AAPL, which was previously undervalued due to investors' concerns about slow AI progress, may see the most direct improvement in its hardware products from AI, improving investor sentiment;

3. NVDA is not a threat in the short term. In the long run, it depends on NVDA's technological progress. After all, at the technology singularity, great progress is made every day;

4. As long as the macro trend does not change, it is always a positive for $ASML Holding NV(ASML)$ and $Taiwan Semiconductor Manufacturing(TSM)$ .

Big-Tech Weekly Options Watcher

TSLA and AAPL's trading activity has picked up since entering April, a major reason being their poor Q1 performance. Therefore, as their prices stabilize and rise, their option activity is also picking up. On the other hand, the chip stock fever led by NVDA has cooled down, and the option IV has fallen.

Currently, the IV of at-the-money options for TSLA and NVDA has returned to the same level, changing the trend since the beginning of the year.

Big-Tech Portfolio

The seven giants (Magnificent Seven) form an investment portfolio (the "TANMAMG" portfolio), equal weight, and rebalance the weight every quarter. Backtesting results show that it has outperformed the S&P 500 since 2015, with a total return of 1754%, continuing to hit new highs with a return of 197% for $SPDR S&P 500 ETF Trust(SPY)$ over the same period.

So far this year, the return is 17.21%, surpassing SPY's 9.32%. The excess return hits a new high.

Over the past year, the Sharpe ratio of the portfolio was 3.13, while SPY's was 2.57. The portfolio's information ratio was 2.05.