To The Moon

Big-Tech’s Performance

Weekly macro storyline:

1. U.S. stocks are relatively flat: Trump continues to point fingers on the "Russia-Ukraine" issue while further utilizing tariffs to scare the world, but the market is not surprised; the U.S. dollar continues to fall, U.S. stocks are hovering at new highs, and U.S. bonds are instead ushering in incremental volume due to the Fed's minutes message.

2. Changes in non-U.S. regions gradually become the main line: China's AI main line caused by stock trading congestion; Japan's CPI exceeded expectations caused by the yen appreciation; and Europe will usher in the German election, the market is confusing; gold continues to new highs, Goldman Sachs target price raised to 3100

U.S. stocks big technology, in addition to Apple's painless remedy for Greater China sales of the new iPhone SE, Microsoft's release of the quantum chip Majorana attracted attention, which may help to shorten the application of quantum chip technology popularization time, for MSFT is expected to give rise to new applications, help the company to enhance more of its own AI scenarios .Last December, Google made a similar announcement that hyperscale cloud service providers may have an advantage over other tech companies in this space.

By the close of trading on February 20, the big tech companies remained divergent over the past week. $Apple(AAPL)$ +3.78%, $NVIDIA(NVDA)$ +6.84%, $Microsoft(MSFT)$ +1.73%, $Amazon.com(AMZN)$ -2.64%, $Alphabet(GOOG)$ $Alphabet(GOOGL)$ -0.38%, $Meta Platforms, Inc.(META)$ -4.21% and $Tesla Motors(TSLA)$ +5.31%.

Big-Tech’s Key Strategy

Alibaba: The 2018 Amazon of Today?

$Alibaba(BABA)$ reported its latest quarterly earnings after three weeks of FOMO funding

• One of the highlights this time around was the bright card of increased capex.As we mentioned last week, Byte doubled its capex in 2025 from last year, mostly for AI arithmetic purchases, with Ali and Tencent normally following suit in tandem.

• The return on investment is also expected to be high, Ali cloud growth rebounded to more than 10%, and the return of double-digit growth in the promised results, but also marks the Chinese technology giants from the previous "defensive cost reduction" to "offensive investment";

• With AGI as the anchor point of the hundreds of billions of Capex investment, short-term consolidation of the arithmetic base, the long-term position of the global AI industry commanding heights.If the cloud business continues to grow beyond expectations, it is expected to replicate the positive cycle of "investment-revenue-profit" of North American cloud vendors.

  

The growth of AWS is the most important factor in the company's progress towards a market capitalization of two trillion dollars.

1. In 2018, a year in which AWS growth and profits ran wild at the same time, AMZN rode that incremental growth to become the only company in the Mag 7 with a positive total return (SPX total return of -6.7% for the year);

2. In 2019, investment banks valued AWS alone at $425.6 billion, close to the $486.5 billion valuation of the e-commerce business (AMZN had a market capitalization of $795 billion at the end of 2018);

And Ali may be facing a better situation at the moment

1. In terms of e-commerce business, Alibaba's margins are higher because AMZN has a higher percentage of self-operated business (including offline stores) relative to BABA, but both being the largest e-commerce companies in China/overseas regions, both also have complete logistics systems, are have strong moats (although both are facing the impact of PDDs), and most of all can bring a constant stream of cash flow to the company's other businesses;

2. Other entertaining businesses, such as BABA's Greater Entertainment and Local Life, and AMZN's Prime, are optional consumer industries that are icing on the cake and more closely related to the macro economy;

3. It is the growth and massive ongoing margin expansion of the cloud business unit that is at the core of its rising valuation.When the cloud business scales, it complements the lower-margin but stable core e-commerce business, boosting cash flow and underpinning their generous share buyback program, while also boosting and valuation outlook;

   1. AWS margins have risen to 38% in recent years, augmented by scale effects, and account for 50% of total operating profit (24Q4).And with Aliyun's adjusted EBITA currently close to 10%, there is still plenty of upside;

   2. This year by DeepSeek to promote AI growth is the main highlight, enterprises in the Ali cloud deployment of DeepSeek, the key to the arithmetic match, the solution is to build their own or rent cloud arithmetic, and market share up to the Ali cloud market is also one of the preferred choice of enterprises;

   3. Apple's AI launch in China will be in partnership with BABA, something AMZN may not yet be able to do;

   4. Therefore, these Capex certainties are higher for investment.Judging from the market reaction after the call, investors are rather more optimistic about BABA's ability to monetize its Capex than Mag6 such as AMZN;

AI is evolving faster and faster as inference models become more capable.For BABA, AI monetization portals including Nail (enterprise), Taobao (e-commerce transactions, consumer interactions), Quark (search ) and so on have a much larger base of incremental growth, which is partly similar to AMZN's current situation, but with a much better user base on domestic internet platforms.

Big Tech Options Strategy

NVIDIA Pre-Earnings Volatility

Next week is NVIDIA's earnings week, although it is the first full delivery season of Blackwell, but the market attention is not as big as before.On the one hand, the main line of investment this year gradually shifted from the chip to application software, on the other hand, the market is expected to H1 after the growth rate may fall back.

DeepSeek brings the efficiency improvement, so that the chip stock investors "brainless Buy the dip" trading logic, gradually shifted to "volatility trading".For NVDA options, the number of organizations that started Roll positions also decreased, but the volume of short IV increased.

While up 6 points from the lows this week, the odds are that it won't break out below 135-140 either at this point.There is a large bullish call and put (double sell) this week on 140 expiring Feb 28th (earnings week), creating a classic Short Straddle strategy that isn't even too bullish on earnings volatility.

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 $S&P 500 (.SPX)$ since 2015, with a total return of 2505%, while the $S&P 500 ETF (SPY)$ has returned 253% over the same period, for an excess return of 2,252%.

Big tech stocks have pulled back so far this year, returning 0.4%, less than the SPY's 2.57%;

The portfolio's Sharpe ratio over the past year has rebounded to 2.13, the SPY is 1.62 and the portfolio's information ratio is 1.67.

$Invesco QQQ(QQQ)$ $NASDAQ(.IXIC)$