To The Moon

Big-Tech’s Performance

Recent market volatility stems from two main factors:

1. Tightening macro eviroment. inflationary pressures that have reduced expectations and pricing for interest rate cuts;

2. Earnings season where U.S. companies are being scrutinized for their performance. Big tech stocks have also experienced significant volatility this week,

Market consensus often swings to the extreme, META, GOOGL, and TSLA are all typical examples of sentiment-driven valuation returns.

As of the close on April 25, influenced by the earnings season, the best and worst performers of the past week were,

$Tesla Motors(TSLA)$ with a sentiment reversal of +13.51%, followed by $Apple(AAPL)$ , which was unaffected by earnings, at +1.71%. Although $Alphabet(GOOG)$ $Alphabet(GOOGL)$ closed with only a +0.01% increase, it saw a post-earnings surge of +12%. $Microsoft(MSFT)$ , despite a -1.29% drop, also gained a post-earnings increase of 4%. In addition, $NVIDIA Corp(NVDA)$ fell by -2.41%, $Amazon.com(AMZN)$ -3.10%, and $Meta Platforms, Inc.(META)$ , despite a good earnings report, still saw a -12.04% decline.

Big-Tech’s Key Strategy

How should we view the mixed blessings brought by increased AI spending?

Entering the GPT era, major tech companies have ramped up their R&D investments in AI. Among companies that have already released their Q1 financial reports,

• Meta has increased its full-year capital expenditure budget for 2024 by nearly $10 billion, reaching $35 to $40 billion, with a commitment to continued growth next year, vowing to become a "global leader in artificial intelligence."

• Google's Q1 capital expenditure reached a record high of $12 billion, with more expected in the subsequent quarters of 2024, mainly for the construction of new data centers.

• Microsoft's Q1 capital expenditure was $14 billion, also expected to continue to "increase significantly."

However, the secondary market's feedback was slightly different, with a more positive response to Google and Microsoft, while the sentiment towards META was more negative. This may be because META had already raised its full-year capital expenditure guidance two months ago, and another increase could potentially impact the company's short-term profit margins. Investors with lower risk appetites may choose to exit.

Additionally, other venture capitalists have also flocked to this field, with startups raising hundreds of millions of dollars in funding just by building their own AI tools. Musk's AI startup X.AI is also set to finalize a $6 billion fundraising round, valuing the company at $18 billion.

This reflects investors' "cautious yet eager" attitude towards AI investments.

Everyone knows this is a trend, wanting to seize the dividends of the times. Therefore, when some Closed-End Funds that had invested in private companies like OpenAI and SpaceX went public, they surprisingly received a hundredfold premium.

On the other hand, investors are also demanding more tangible returns, with increasingly higher requirements for profit margins and cash flow, essentially unwilling to give up on either.

Next week, Apple may also face a more practical test of investment demand for AI.

Big-Tech Weekly Options Watcher

This week, TSLA, GOOGL, and META's earnings reports have all resulted in a one-sided, single-direction market trend, so even with very high implied volatility (IV) for end-of-day options, either calls or puts can be profitable.

Overall, this week's squeeze in TSLA has pinned a large number of open call positions at the 160-165 level, with next week's focus around 180; whereas, almost all calls above 450 for META have been wiped out.

Expectations for AAPL next week are more realistic; currently, there is a significant number of open positions at the 180 strike price for options expiring on May 3rd. If a squeeze occurs, a 10% price increase is expected; of course, if investor sentiment collapses, the 155 level is also an important threshold indicated by puts.

Big-Tech Portfolio

The Magnificent Seven (comprising the "TANMAMG" portfolio) form an equally weighted investment portfolio that is rebalanced quarterly. The back-tested results since 2015 have significantly outperformed the S&P 500, with a total return of 1634% compared to SPY's 189%.

Due to this week's pullback, the year-to-date return has decreased to 9.65%, which is still ahead of SPY's 6.26%.

The portfolio's Sharpe ratio over the past year was 2.9, compared to SPY's 1.8, and the information ratio was 2.3.