Semiconductors, momentum, and nothing else (NOTW#91)
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Both indices were up considerably this week (shocker!). Another thing that didnât change was that the rally was driven by (you guessed it) semiconductors and momentum. I share what I think about this and also share plenty of company specific news (it was a hectic earnings week).
Without further ado, letâs get on with it.
A new in-depth report coming out next week (hopefully)
After a lot of looking I have finally found something I am willing to include in my portfolio. I will most likely release the in-depth report Thursday/Friday next week and start a position soon after.
Here you have a small teaser:
After successes and (above all) mistakes, I have become increasingly comfortable with my current (and now more polished) investing philosophy: searching for good businesses (they donât necessarily have to be great) that are run by an outsider and that are trading at reasonable valuations. Easier said than done.
The definition of an âoutsiderâ is likely to be subjective, but I understand an outsider as someone who is able to go against the current that prevails in Wall Street and that simply putâŚgets it. Capital allocation is a simple enough topic to understand (just invest in value generating projects), but yet very few executives of publicly traded corporations are able to consistently apply a rigorous and counter-cyclical capital allocation policy. What should be the norm becomes the rarity.
When an investor finds (1) an outsider who gets it, (2) while being meaningfully aligned with shareholders, (3) that is willing to unlock shareholder value (typically a result of (1) and (2)), and (4) who runs a company that is trading at a cheap valuation, that investor is unlikely to do poorly over the long-term. I firmly believe the company profiled in todayâs report satisfies each and every one of these characteristics and that itâs posed to offer a 15%+ CAGR over the coming years.
The report will be reserved for paid subscribers. Becoming a paid subscriber also gives you access to all the historical content and in-depth reports.
Join now:
Articles of the week
I published three articles this week, all earnings digests. The first one was an update on Topicus.
The company reported again very solid earnings and, soon after, announced a rather significant acquisition in the US (which is âunchartedâ territory for them).
The second article of the week was Stevanatoâs earnings digest.
Earnings were very solid but I donât think they were up to the standards of the market after a 40% 1-month run (they were indeed up to my standards). I still believe the company is significantly undervalued.
The third and final article of the week was Shift4âs earnings digest.
The company reported considerably better earnings than feared and the stock rose significantlyâŚonly to lose it all after Toast (its main competitor in the restaurant vertical) reported weaker than expected earnings. This is kind of funny but at the same time is a reality and hurts:
Without further ado, letâs see what the markets did this week.
Market Overview
Surprise, surprise, both indices were up considerably this week. The S&P rose 2.7% whereas the Nasdaq rose a whopping 5.7%:
Iâm not going to make this a long market commentary because there are plenty of company specific news, but I do believe we had the first hints of market euphoria this week. The SPMO (S&P 500 momentum) also allows us to see that this rally is being driven purely by momentum:
And this momentum is currently concentrated in everything that has to do with data centers. The SOXX (the semiconductor ETF) is up 40% in just one month and 67% YTD. Does this mean that everything in the SOXX or in the data center theme is overvalued? No, but I mean, I donât think vertical moves in many companies that still donât have earnings and are trading based on future promises is a healthy sign. Only time will tell, but the feed on social media is sounding a lot like: âyou are absolutely retarded if you are not long semis (especially memory) with leverage.â
We can also get a glimpse of euphoria in upcoming IPOs. Cerebrasâ (a semiconductor company that plans to use single wafers to make full chips) IPO is coming soon. They not only raised the IPO range, but some rumours point out to the offer being 20x oversubscribed. Whatâs the reading here? Everyone wants to have exposure to the next shiny thing. Now, I do have exposure to the data center theme, but I think this is getting a bit out of hand and that we will see a âbreatherâ soon (I might be wrong though). Trimming against momentum makes you look stupid for a while, but there comes a time when fundamentals must end up delivering for stocks to hold, and I donât know if this is going to be the case for a long of things that have gone parabolic. Oh, another sign of market euphoria is that people are being âhumbleâ and pretty much saying âsorryâ while they are up 50%+ YTD. Things like âI couldâve done betterâ or the sort. While I canât say I donât envy these people, I surely know that I would not be saying sorry for being up 50% YTD, which sort of tells you where returns expectations have gone.
What does seems increasingly clear (and is also interesting), is that semiconductors and software can sort of go up at the same time. The IGV (+5%) and the SOXX (+11%) were both up this week! Maybe people have forgotten that only one of the two can live? (I am being ironic here, of course). Looks good, but again, we are only one Anthropic release away from software being totally dead again!
The industry map was pretty much green this week for tech, and red elsewhere:
The fear and greed index remained at the same level as last week, but Iâd say certain pockets of the market are in extreme greed territory:
Company-specific news
This week, we had news from a wide variety of businesses, some of these earnings digests.