Artificial Intelligence (AI). Bubble or Beginning?

Summary

The bull market continues with the S&P 500 up 7.2% year-to-date. There have only been minor pullbacks so far, with the market remaining above its 20 EMA, indicating a strong upward trend. AI and tech stocks like Nvidia, Microsoft, and Google are driving gains, justified by blowout earnings. We're likely only at the beginning of the AI revolution's impact, which could drive 10-15%+ annualized returns over the next 10-20 years. While a 5-10% pullback is still expected, the market has shown resilience, with investors piling back in on dips. Quality names like Google and Amazon still look reasonably valued for long-term investors.

Takeaways

• 😀 The S&P 500 and NASDAQ 100 continue to have a strong bull run in 2024, with only minor pullbacks so far
• 📈 High quality AI and tech stocks like Nvidia, Microsoft and Google are seeing huge earnings growth, justifying their share price gains
• 🔎 Nvidia's valuation shows it is not as overpriced as Cisco was during the dot-com bubble peak
• 💰 There is over $6 trillion in cash sitting on the sidelines, likely to flow back into the equity market
• 🤖 We are in a new AI-driven technological revolution (the 6th wave) which will transform lives and economies over the next 10-20 years
• 👆 This bull run is more sustainable than the dot-com bubble because companies have real earnings/cash flow growth now
• ⏳ Investing is a marathon, not a sprint - we are only at the 5-6 km mark of this long innovation runway
• 🔦 Some quality names like Google remain relatively cheap and can be bought on dips
• 😖 Don't chase stocks out of FOMO - wait patiently for 5-10% market corrections to buy
• 📉 Have cash ready to deploy when the inevitable pullbacks happen, as individual stocks can easily drop 10-20%

Q & A

What indexes and percentages show the bull market continues to be resilient so far in 2024?

The S&P 500 is up 7.2% year-to-date. It has not had any major pullbacks or corrections, only three small pullbacks less than 2%.

How is the NASDAQ 100 performing compared to the S&P 500?

The NASDAQ 100 is up 8% year-to-date, slightly more than the S&P 500. It has also only had minor pullbacks so far.

Which AI and tech related stocks are driving the market higher?

Nvidia, Amazon, Meta, Broadcom, ASML, and AMD are some of the main AI and tech stocks driving the market higher.

Despite great gains over the past year, why does the author think many of these stocks are not overly expensive?

Because their earnings growth is very high, often surpassing their share price increases, justifying higher valuations.

Why does the author think the stock market has become resilient to rising interest rates?

Because rates don't affect the large tech companies as much since they have little debt, lots of cash, and don't need to raise capital.

Why does the author think there is still over $6 trillion in cash waiting to enter the stock market?

Many investors missed the bull market and want to get invested. Also, money market rates may start dropping, sending investors to equities.

How does the author differentiate between hype and fundamental change when evaluating stocks?

By looking at the earnings growth. If earnings are growing as fast or faster than the stock price, the gains are likely justified.

How does the author think the potential impact of AI compares to past innovations?

He believes AI's impact will be 99/100, much bigger than the internet (50/100) or mobile phones (25/100).

Does the author think we are at the top of an AI bubble based on current valuations?

No. He shows how valuations and performance today are much lower than during the dot-com bubble peak.

What approach does the author recommend for investing during this AI-driven revolution?

Take a long-term, marathon mentality. Add stocks during pullbacks. And don't chase extended runs based on FOMO.

Outlines

00:00

😊 Bull market continues with minor pullbacks

The S&P 500 is up 7.2% year-to-date. There have been 3 minor pullbacks of less than 2%. The uptrend continues strongly as long as the market stays above the 20 EMA. The NASDAQ 100 is up 8% year-to-date with very minor pullbacks. AI stocks like Nvidia are delivering great earnings to justify price gains.

05:01

😃 Market immune to higher interest rates

Recently, 10-year yields going up did not significantly impact the market. High quality large cap AI stocks are immune to higher rates because: 1) Little debt, 2) Don't need to raise capital, 3) Huge cash reserves earning interest income. Market no longer expects Fed rate cuts until June.

10:02

😲 AI revolution bigger than internet

Market is resilient because many investors missed the bull market and rush to buy dips. Also, realization that we are in an AI revolution, the 6th great innovation wave, even bigger than the mobile and internet revolutions. Supported by rapidly growing earnings, this revolution will last 10-20 years.

15:03

🤔 Nowhere near dotcom bubble peak

We are not at the top of an AI bubble. At the 2000 dotcom peak, NASDAQ PE was 181x. Currently NASDAQ 100 PE is 45x, halfway to dotcom bubble peak. High growth justifies higher PE. AI earnings growing much faster than 2000.

20:03

🧐 Nvidia overvalued but long runway

Nvidia is overvalued on a standalone basis but has long growth runway. Unlike Cisco in 2000, Nvidia is up only 124% from breakout and PE is 65x (27x forward) versus 200x for Cisco's bubble peak. I own Nvidia but am waiting for a pullback to add more.

Keywords

💡Bull market

A bull market refers to a period of generally rising prices in the stock market. As mentioned in the video, the bull market has been resilient so far in 2024, with the S&P 500 up over 7% year-to-date. This indicates investor optimism and confidence that stock prices will continue rising overall despite minor pullbacks.

💡Pullback

A pullback refers to a slight short-term price decline in an asset or index amidst an ongoing uptrend. The video mentions several minor S&P 500 pullbacks of less than 2% so far in 2024, which are viewed as normal and have not disrupted the bull market.

💡Exponential Moving Average (EMA)

An exponential moving average (EMA) is a type of moving average that gives greater weight to more recent price data. The video says the S&P 500 remaining above its 20 EMA indicates the uptrend is strong.

💡NASDAQ

The NASDAQ refers to the Nasdaq Stock Market which has a heavy focus on technology companies. The video examines the NASDAQ's performance, noting it is up 8% year-to-date, slightly outpacing the S&P 500.

💡AI stocks

AI stocks refer to public companies developing artificial intelligence technology or leveraging AI in innovative ways. The video singles out AI stocks as top performers, with strong gains justified by impressive earnings.

💡Earnings

A company's earnings refer to its net income or profit over a period of time. The video emphasizes that unlike the dot-com bubble, today's share price increases are backed by actual earnings growth from AI leaders.

💡Overvalued

A stock is considered overvalued when its current market price exceeds its intrinsic or fundamental value. While noting high valuations, the video argues AI stocks have further room to run based on huge earnings growth.

💡10-year Treasury yield

The 10-year Treasury yield refers to the interest rate on 10-year US government bonds, used as a benchmark for interest rates. Historically, rises in the 10-year yield would prompt stock market drops, but the video says this correlation has weakened recently.

💡Cash on sidelines

Cash on sidelines refers to investor money parked in safe assets like money markets instead of riskier investments like stocks. With over $6 trillion in cash awaiting deployment, the video forecasts a flood back into equities later in 2024.

💡AI revolution

The AI revolution refers to the mass adoption of artificial intelligence transforming the global economy. The video situates current stock gains within this revolution just getting started, with a decades-long runway still ahead.

Highlights

The S&P 500 is up 7.2% year-to-date and has not had any major pullback or correction

AI stocks like Nvidia are announcing blowout earnings, so the stock price increases are justified

Google is one of the cheapest quality AI stocks right now and is temporarily unloved

We are in a new AI and automation revolution wave that will transform lives and last 10-20 years

AI will have a bigger impact than fire, electricity and the entire internet

Look at earnings growth to know if a stock's price increase is hype or undergoing fundamental change

We are only halfway to the valuation levels of the dotcom bubble peak

Nvidia is nowhere near as expensive as Cisco was at its peak

Don't jump into stocks right now, be patient and wait for pullbacks to add positions

Amazon is still undervalued with an intrinsic value around $182

I'm waiting for a 5-10% correction which could happen anytime

Individual stocks may drop 10-20% quickly, use that to add positions

Don't chase stocks, the market marathon is just beginning

Do your homework and find quality companies selling at good valuations

Have a plan ready to take advantage when the inevitable correction happens

Transcripts

we are almost two months into the new

year and the bull market continues to be

very resilient so the S&P 500 it's up

7.2% year to- date and so far it has not

had any major pullback or correction

there have been three small pullbacks we

had one pullback over there another one

over there and recently another one over

there another one over there and they

were all less than a 2% pullback and the

market continues to be above the 20

exponential moving average so as long as

it's above this 20 EMA you can see that

this trend continues to be very very

strong so that's the S&P 500 and let's

take a look at the NASDAQ how's the

NASDAQ doing NASDAQ 100 and that is

up not too much more 8% year to date

slightly more than the S&P 500 and again

year to date it's only had um very minor

pullbacks along the way right so we have

one pullback over there one over there

and a slightly bigger pullback in the

last uh couple of weeks and how big was

this pullback let's see from the top all

the way to the bottom or that's just

about a less than a 4% pullback now

individual stocks especially AI related

stocks continue to do really well and

Justified because they're announcing

blowout earnings especially envidia just

announced insane earnings so the stock

price going up is well Justified and in

fact I just just updated my intrinsic

value of Nvidia to now if I'm not wrong

it's about

$6 90 thereabouts the new intrinsic

value so it is still overvalued but only

slightly overvalued not crazy overvalued

so the share price gains is justified by

very very strong earning so looking at

individual companies let's take a look

these are the stocks that make up the

NASDAQ 100 and you can see again the

high quality AI stocks are the ones that

is really delivering so Nvidia up 59%

year to date Amazon okay up 15% year to

date not too bad meta uh up 38% year to

date broadcom up 19% year to date asml

up 30% year year to date AMD up 26% year

to date um so these are the main guys

driving the AI place and Microsoft up

10% under performing uh is still Google

um and Google's a great company so I

think Google has uh is temporarily

unloved right now because of some recent

missteps and I think it's one of the

cheapest AI related plays that are high

quality right now now Adobe also

underperforming but only recently the

share price dropped a lot nothing wrong

with the company nothing wrong with the

financials it was just an emotional

reaction because open AI just released a

new text to video product that kind of

like freak people out oh my God are they

going to affect adobe's business I don't

think so in the long run maybe if Adobe

can't continue to innovate and catch up

but in a short term I don't think Adobe

is going to be very much affected so

Adobe uh underperforming but it's still

overpriced Adobe is slightly overvalued

because it went up so much above

valuation that even if this drop Adobe

is still not cheap but I think Google is

cheap and Amazon is still cheap although

based on the charts is a bit

overextended I'll wait for a pullback to

add more Amazon shares Nvidia slightly

overvalued as well I'll love to add when

I see a pullback Microsoft slightly

overvalued as well

meta um if I'm not wrong meta is

slightly overpriced as well so what's

interesting is that even though these

stocks have gone up so much these high

quality AI plays in fact over the last

one year let's look at the onee

performance uh is this one year yeah

this is one year right meta up 184%

Nvidia

2 79% Amazon up 83% Google up

57% Microsoft up 62% so despite these

great gains they are not really that

expensive if you factor in the earnings

that they are delivering now in my last

few videos I did mention that I expect a

bigger pullback or correction to happen

sometime soon in the late February to

March period of at least 5 to 10%

pullback or correction but it has not

happened yet reason there's no Catalyst

we need a catalyst for the market to

have a reason to sell off uh there was a

catalyst but the catalyst recently was

that the economy has been doing better

than expected job numbers better than

expected and of course inflation coming

in slightly stronger than I expected so

that caused a bit of a selloff in the

markets but it was nothing much it was

less than a 2% selloff and I'm pretty

surprised actually because um as you

guys recall in the

last year or so the market uh used to be

very affected by the 10year treasury

yield right right so every time there's

a fear of inflation every time there's

hotter than expected economic growth or

employment numbers the 10year yield

every time the 10 year yield goes up the

market will drop a lot the 10 year yield

goes up the market will drop a lot but

this time the 10 year yeld going up back

above its 200 day moving average the

market doesn't really go down Market

just went down a bit and went up again

so what's the reason here so I think one

of the reasons is because the market has

begun to realize that with the 10year

yield going up again with high interest

rates yes it will affect your rats it

will affect your bond prices it will

affect smaller companies that need lower

interest rates to raise Capital that

need lower interest rates because

they've got more debt on their balance

sheets but the markets come to realize

that if you're looking at the high

quality large cap companies especially

those related to AI Nvidia Microsoft and

Google and so and so forth they are

immune to higher interest rates so it

doesn't really matter that even if

interest rates go up again these

companies will continue to do well why

because number one they've got very

little debt so they don't have much

interest to pay on the debt number one

number two they don't they don't need to

raise capital and number three they have

got so much cash on the balance sheet

that their cash is earning them more

interest income that's adding to their

bottom line so the bottom line is that

right now the market seems to be IM

immune to these uh High interest rates

but of course if it gets back too high

then yeah we may get more of an effect

the other thing is that the FED uh now

you know everyone was expecting last

year that the FED would cut rates seven

times they will start cutting rates in

March and then the bear said that but

they don't cut rates in March then the

market is going to crash right they

didn't happen in fact right now the

market no longer expects the FED to cut

rates anymore until June take a look at

this fat watch tool you can see that for

the next fomc meeting coming up on the

20th of March the probability of a cut

or in ease is only 2.5% chance so

there's a 97% probability that the

market is expecting no cut stay right

and the only probability where we see a

cut is in the June meeting where the

market is factoring in a uh

62% chance of a cut 37% chance of them

holding rates so again the market

doesn't seem to give a anymore the

market is like okay don't cut I don't

care I'm still going up so it doesn't

really matter anymore which is pretty

interesting because the last two years

it matter it so much but the market

doesn't care about this anymore so why

why is the market so resilient why

doesn't the market care about the fat

not cutting rates of that long rates are

going up well there are two reasons

right number one reason is because a a

lot of people a lot of fund managers

especially professional investors and

even retail investors they miss this boo

market so this is one of the most hated

boo markets in recent history and many

bears there out there are very angry

right because they've got all these cash

sitting on the sidelines and the market

is going up without them so every time

the market goes down a bit the bears go

ah oh sorry the the previous Bears now

they start to put their money into the

market and the market goes up again so

they keep buying it up right because

they missed out they need to get back in

and currently we have got over 6

trillion in cash on the sidelines parked

in Mark money market funds and this cash

is looking to come back into the equity

Market especially once the FED Cuts

rates in June and they find that they

can't get as much interest rates on

their money market accounts they start

to rush back into the stock market and

that's when the market would really I

think really have a even bigger gain in

the the second half of this year

again that's just my guess I could be

wrong of course but that's just my guess

now the second reason why the market is

so resilient is because the market is

now beginning to realize something I

talked about last June which is we are

in a revolution we're in a new

technological six wve Revolution driven

by

Ai and if you think that AI is a height

I'm sorry you're going to be left behind

not just in terms as an investor you're

going to be left behind in terms of your

career and your business because this

thing is going to transform the entire

economy is going to transform businesses

it's going to transform all our lives

and for those of you who have started

using AI in your jobs you can see the

difference it

makes so if you recall last June I had

my midye event was it June or uh maybe

July August right I can't remember

anyway was it was my event last year

year the six wve event if you if you

guys recall and I showed you this chart

I said that you know uh every few

decades there's a wave of innovation

that transforms Our Lives transforms the

stock market and in the last 250 years

we had six of these uh Innovation waves

so we had the first wave the second wave

the third wave the fourth wave the fifth

wave and now we're in the sixth wave the

sixth wave is driven by AI now how

powerful is this AI um deep water Asset

Management one of these guys I think

Gene Master one of the uh uh top Traders

right he mentioned something which I

agree with he said

that uh if you take it out of 100 AI is

99 out of 100 the way it's going to

impact everything now compared to the

invention of electricity the invention

of electricity change our lives that's

100 over 100 but AI is close AI will be

99 out of 100 if you look at the

internet Revolution that uh spark the

fifth wave the fifth wave was the

internet Revolution that was only 50 out

of 100 the mobile Revolution when we

started to go on our mobile phones that

was only 25 out of 100 so if you think

that mobile phones change our life if

you think that the internet change our

life my God AI is going to change our

life more than double or triple what we

saw in the Internet and mobile so in

fact sundai picai who the CEO of

alphabet he said that AI will eventually

have a bigger impact than fire

electricity and the entire internet so

AI is not just another hype it is

changing our lives right now and will

continue to change our lives drastically

our businesses our economy our stock

markets now how do you know the

difference between a stock that's hyped

up and a stock that's really undergoing

a fun Al change very simple look at the

earnings if you see that the earnings

are growing as much or even more than a

share price then you know that the share

price increase is sustainable at least

for now as long as the growth continues

but if the stock price goes up and

there's no real earnings it's all like a

pie in the sky then that's Hy now I live

through the dotom bubble although I was

younger at the time I was in my 20s so I

remember the Doom bubble which people

like to compare today's market with was

totally different because in the dotom

bubble most of the dotom stocks were

unprofitable they weren't making any

money so the share price was not backed

up by earnings or cash

flow but in today's case the companies

that are driving up the market like

again your Nvidia and your Amazon and

your meta and your your Adobe and your

Salesforce your service now they are

actually making money and not only are

they making money the earnings are

growing at huge double digigit growth so

in my opinion it is sustainable all

right but of course there will come a

time when the growth will slow down and

of course markets will go through

corrections as well of course that will

happen it doesn't go up in one straight

line but um by and large we are in this

new six um wave of innovation that only

started mind you in 2020 so we're only

in the fourth year of this Ai and

automation Revolution that will last at

least the next 10 15 20 years so we

we're just at the beginning that's what

I'm saying what kind of returns can we

expect as an investor well no one can

see the future but if you look at the

past you get a bit of uh idea so in the

fifth wave that was driven by the

Internet by Mobile by software you can

see that the S&P 500 gained

1,950 over that 30-year wave so if you

annualize it that was a

10.26% annualized

return and I believe that this sixth

wave that we're in for the next 10 15 20

years is going to be even bigger than

the fifth wave so I think there's a very

strong possibility we we're going to get

an even higher return than

10.26% annual return on the S&P 500 on

average now again if you buy individual

companies that outperform the S&P or buy

the NASDAQ then you're looking at

doubling this now when I go on social

media I see some people saying that we

are already at the top of the AI bubble

really well let's take a look at some

numbers and let's judge well let me ask

you to judge for yourself so if you go

back to the Doom bubble which at the

time I was in my early 20s so uh still

remember it pretty well uh this was the

NASDAQ 100 during theom bubble which

peaked in March of

2000 at that Peak the PE Ratio which is

the price to earnings ratio was 8 81.7

times so where are we right now as of

now the PE ratio of the NASDAQ 100 is 45

times so we

are just about halfway to the valuation

level of the Doom bubble but bear in

mind that PE ratio does not take into

account the growth of the earnings

remember when the earnings growth is

high then the market or the stock

justifies a higher PE ratio and can tell

you that from experience or from memory

the earnings growth today of companies

like Nvidia and Microsoft which are you

know you know 40 50 200% earnings growth

it justifies the PE Ratio today and

compared to back then when many of the

companies were either not profitable and

even the profitable companies like Cisco

at the time their earnings were growing

at much less than today's uh AI related

company so there's no comparison so to

me we are nowhere near that kind of

bubble

top if we take a look at um Nvidia as a

as an example because a lot of people

have compared Nvidia to

Cisco cuz Cisco at a time was the most

hyped up company right Cisco went all

the way up and then it burst and it took

many many years to get back to the top

in fact I don't think it's even reached

back to the top even now okay and so if

you look at Cisco you can see that Cisco

uh it started its run right

there back in uh

1998 so it made a high over here you can

see it made a high and then it broke

above the high here in 1998 so this was

so-called the start of the internet

Revolution where people like oh my God

there's this thing called the internet

you will change your lives right so that

was then and Cisco went up

370% from the start of that breakout of

the previous high and it peaked at a PE

ratio of 200 times earnings so some

people are comparing and say oh Nvidia

is is very close well really well let's

take a look at Nvidia right here so

Nvidia today it made a high in uh 2021

so this was before cck GPT was released

before people even thought about AI all

right and then AI check GPT was released

somewhere there and then the whole uh

Revolution started okay and then Nvidia

broke a bir

the 2021 high right here so I'm kind of

like comparing it to Cisco so since then

Nvidia is up

124% from that breakout so if you

compare to Cisco Cisco went up

370% Nvidia is only up up 124% right and

while Cisco peaked at 200 times earnings

right now nvidia's PE ratio is 65 times

earnings now this is based on the last

12 months of earnings but you know that

nvidia's earnings are growing at 200%

right so if you take next 12 months

forward earnings forward PE then

nvidia's PE ratio is now only 27 times

earnings so actually Nvidia is nowhere

near where uh Cisco was in terms of how

expensive it was back then now before

you get all four more and say oh I'm

going to buy Nvidia right now before it

starts running higher wait cool down

relax I keep telling my students that

investing is a marathon it's not a

Sprint so like I said we're in this new

technological Revolution we're just at

the beginning so you know think of it as

a marathon 42 km we are only at the five

or 6 kilomet Mark so there's a lot more

to go there's a long Runway and I

wouldn't jumping right now to Nvidia now

I still own Nvidia shares now some of

you may say but didn't you sell your

Nvidia shares yeah I did I bought it

back at about 400 okay I sold it at

about 390 something and I bought it back

at 400 okay so I'm I'm I'm writing it up

as well um so right now I own Nvidia and

um I'm not buying more right now even

though uh I think that it can still run

way above $1,000 by the end of the year

but I'm not jumping it right now because

remember the wave pattern right wave up

wave down wave up wave down wave up I

never like to buy after wave up because

after wave up there will always be a

wave down so I'm patiently waiting for

the next wave down next retracement so

um I just did a quick revaluation of the

intrinsic value based on their latest

free cash flow and latest growth

projections so right now for NVIDIA my

valuation is about

$679 I think did I say $690 earlier on

my bad is $679 so based on the current

share price of

785 uh and I think today is going to go

up a bit more then it is overvalued it

is slightly overvalued so I'm not

selling obviously

because the valuation will keep growing

but neither am I buying right now so I'm

just going to wait and hold and I'll see

uh if it retraces down I'll add right so

that's NV video for you uh but there are

some again there are some high

quality um tech companies that I think

are still not too expensive like I

mentioned Google right so Google has

been very un loved uh and right now the

intrinsic value that I calculated is 172

so right now 144 it's still very very

cheap and it's because Google had some

recent PR disasters and they have not um

had much love from the market and so it

remains uh pretty undervalued right now

Google right and I think that is one of

those that are still uh interesting um P

Alo Networks

as well as uh foret they in the cyber

security game which is going to be a

huge player in the whole AI Tech

Revolution it had a big gap down

yesterday sorry two days ago right uh

and it dropped uh right at the intrinsic

value so for those of you who are my

students who are subscribed to my uip

service you got my alert yep I started

buying that day when it dropped down I

built a position started with a position

and I also sold some cash secured puts

um on Palo AO as well by the way I Al I

also sold puts on Nvidia just before the

earning was released so Nvidia went up

and my puts are worthless which is great

I got free money in one day so I'm

waiting for NVIDIA to drop back down

again buy more sell more puts and I'll

just keep doing that as we go

along um what else well if you look at

Amazon for example which I think is

going to be one of the biggest players

in this whole game Amazon is still under

Val I mentioned this before it's

$182 intrinsic value and right now it's

still cheap right but again would I add

right here no because you know I always

like to wait for a bit of a retracement

uh retracement to at least a 50 moving

average okay so do your homework look

around there are still some good quality

buys right

now uh but again don't ever have this

for more the fear of missing out and you

jump in no just relax because like I

said it's only the first two months of

the year and I do expect we will we

should have a pullback or correction

it's just that no one knows when's going

to happen it'll happen when we least

expect it but we should have a

correction of between 5 to 10% which

means individual stocks May draw 10 to

20% like you saw how fast Pao AO dropped

25% in one day it can happen all right

so when it happens that's when you want

to take advantage and grab shares okay

and and don't chase it you don't have to

chase Chase it the market will always be

there we we are in this Marathon we're

only in the very very early stages so

hope you enjoyed this video and stay

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