TMTB Weekly
Happy Sunday. QQQs -3.3% this week as Semis -5% and ARKK -6% led the way down. Only a couple weeks in and 2025 already feels decidedly different than the investing environment we had in 2024, especially the frothy momentum driven market of November and December — non-profitable tech was down 7% this week.
Our market/macro view since late summer has generally been that we thought the “market would be upward trending but somewhat choppy.” That generally has played out and we haven’t had to spend too much time on the macro in our weekly’s. However, on Tuesday we wrote we were shifting to a more neutral view…here’s what we wrote:
Readers who have been a here a while know that I like to look at individual price action in names as tea leaves for where the broader market is going. One question we like to ask is: Are stocks going up/down on good/bad news? Are moves outsized in one direction? We view morning news items as mini-earnings and reactions to those items are important as a barometer for where the market wants to head near-term. Other things we look at: are stocks holding onto earnings gaps or following through; are stocks hitting new highs then falling below those highs, etc. We also like to look at market leaders for potential shifts in momentum.
With that being said, there are an increasing amount of worrisome tea leaves for us that are influencing our near-term view on the market. A few I have seen in recent days:
The leaders of the mo rally post Trump election are now rolling over. Take a look at TSLA, APP, PLTR — 3 of the most impt mo leaders - which are now below ST moving averages. TSLA broke above all time highs and now is decidedly below that. Whereas we saw outsized moves in the positive direction in late 2024, now we are seeing things like APP -7% on BAML’s call out this morning. And PLTR now down 10%+ following MS neg note yesterday. These stocks were like teflon from Nov through late Dec and that shine has worn off, which is likely a sign animal spirits are cooling
SW price action is horrendous. CRM has failed to hold the earnings gap. TEAM and SNOW were down 3% on upgrades this morning. MDB and ADBE are following through to the downside afer misses. Leaders like NOW are failing at ST moving average resistance. No bueno
NFLX has failed to rally on several pieces of good news starting in late dec: positive 3p data; good xmas/squid game numbers and a great golden globe showing.
NVDA is one important one I’m watching and one could argue px action today was outsized to the downside on sell the news. In terms of short-term for the market, I really want to see it hold the 10d at $140, which was also the previous high in June. If it does, would get me more comfortable things will stabilize
AAPL is another stock that had been like Teflon but now is finally going down on neg checks/neg news.
BTC - a good measure of risk appetite - has now failed at $100k twice and is sitting right at 10d/20d. COIN and MSTR - both leaders in the crypto rally - are exhibiting worrisome px action. COIN is now below previous highs in march after breaking above in Nov. MSTR is dn 35% from highs.
AVGO price action to start the year…
AMZN lower highs; GOOGL/META double tops with RSI neg divergence…travel names rolling over to start year
Since then, a few things to add:
1) Quantum blowing up on Wednesday is another sign that the momentum trade might be over
2) NVDA broke below the $140 level we were watching. Despite all the good news coming out of CES and Jensen doing his best to inspire long-term bulls talking up Agentic AI, FSD, and Robotics as the next huge levers driving demand and CFO sounding relatively positive (although she sounded a bit hedged on the near-term), the stock sold off hard after hitting 52wk highs. Consensus has shifted to the Jan/Apr q’s being more transitional in nature before BW revs and beats really start to ramp in 2H so there is less impetus from people to get in front of the q. Then the Biden restrictions announced on Friday took further winds out of the sail. We think NVDA putting out an aggressive PR blasting the rules shows they think the impact of these restrictions would not be insignificant. AMD not immune as well and that chart looking a lot worse after this week:
3) Analog semi companies hit more lows after ON at CES sounded pessimistic about both NT and CY25 recovery prospects, pointing to limited visibility beyond next q and continuing neg demand in auto/industrials.
4) ORCL -5% on Tiktok ban likelihood increasing following Supreme courts arguments: the fact this was down 5% vs META 1% / SNAP +3.5% shows the reactions to news are skewed to the downside in this market
5) NFLX -4%+ on Friday on JPM fx #s cuts and rolling over tells us a few things in addition to what I mentioned above on the stock: 1) the move tells me the market is currently not giving a pass to fx headwinds. The dollar bottomed on the first day of Q4 and is up 10% since then. This puts a big damper large caps’ top line guidance and px action Friday on NFLX tells me investors haven’t fully priced that into other stocks ahead of earnings season (sidenote re NFLX: in past q’s investors might not have cared so much about fx on NFLX given main KPI is the net add guide, but NFLX is no longer giving net add guidance beginning this q so focus is more on the top line guide, which is impacted by fx….bad timing); 2) As one of the most expensive large-caps in Tech, and particularly internet, the main gripe in NFLX’s narrative is that it had been trading at too rich a valuation 30x bulls ‘26 $30. The stock now underperforming confirms to me what higher yields usually mean: valuation is and will become more important going forward and near-term earnings beats/misses will be a bigger source of alpha.
The last two months of 2024 were a great backdrop for secularly themed/scarcity plays without regard for valuation. But that backdrop has clearly changed now…
What’s the big driving change for this shift over the last couple weeks? Rising yields and the Fed.
Long-term charts are showing a potential regime change in yields. Here’s the 30 year:
A trifecta of bottoming inflation momentum, soft landing rate cuts driving higher for longer views and concerns over fiscal restraint has caused bonds to sell off. It’s not just in the U.S., but rates are going up elsewhere as well. While 5% on the 10year has usually been a spot where Yellen has come in to save the day, this move is all happening during a transition as the Bessent Treasury confirmation hearings begin on Thursday.
The 10 year was already up 80bps since oct going in the Fed meeting, but the Fed meeting and subsequent hotter eco data (including hotter jobs and Mich Inflation expects on Friday) have added fuel to the fire. The market was pricing in more than 50bps worth of cuts for 2025 as recently as Mid-Dec and 40bps going into Friday. Now, market is pricing just 25bps worth of easing for all of 2025.
In tech, we like to focus on rate of change as one of the main drivers of stock performance. For the market, we like to focus on the rate of change of Fed expectations. We are now in the midst of shifting from a big easing cycle to potentially no easing at all. We could say that’s the equivalent of a stock going from beating to no longer beating; or from accelerating revs to non-accelerating revs. In tech, those setups are always a good starting point to look for a potentially good shorting opportunity, depending on the valuation, sentiment, and narrative.
In terms of valuation, we know SP500 is stretched and we know bulls have become complacent over the last 2 years in terms of very little in terms of pullbacks. In terms of narrative, we still think bulls have a good case: growth backdrop is healthy, inflation relatively tame, FOMC easing expects have already reset aggressively, job report on Fri showed muted wage/earnings growth, potential de-regulation, and AI supercycle which is still intact. Also, sentiment has reset significantly and several technical indicators are getting close to the spot where we would expect a bounce:
However, the Fed rate of change/yields usually the most important things we look at for market direction and bears have both of those on their side, as well as price action in tech showing us it might want lower. Oil isn’t a problem yet, but it’s up 10% in the last couple of weeks. Ee’d note during the last Fed expectation re-rating to more hawkish in early 2022, Oil went from 65 to $120.
Putting the mosaic together, the current px action and backdrop has on us our toes and preferring to run low gross until we get a more clear set up or until the market further digests recent cross currents. Corrections are never easy to trade and we think this could be especially choppy.
We think macro releases are now back to taking a front seat and think CPI on Wednesday will be particularly important. Our gut tells us we might see some further de-risking ahead of the print early in the week (or any pop will likely be faded)
We are as open-minded to different paths as we have been in a long time:
Could a softer CPI shift / reversal in yields shift us back into a goldilocks macro narrative as growth is still fine? Very possible.
Could a hot CPI on Wednesday take us lower quicker, reset fed easing expects further (or potentially into hiking territory), and cause a further de-rating in high multiple stocks? Possibly. This would mean a correction more in the 15-20% range.
Could an inline CPI cause a tactical bounce and reversal in bonds? Wouldn’t surprise us. Could that bounce and reversal be relatively short-lived trapping even more bulls? Wouldn’t surprise us either and would jive with charts Macrocharts has been putting out:
The path is very much up in the air. Whichever scenario that seems to be playing out will impact how we approach earnings season and potential reactions. Part of the fun of being an investor for us is listening to the ebb and flow of the market and not forcing things when the market is saying otherwise. Some years like ‘24 everything seems easy and straight forward - it makes for a fun and easy money-making backdrop. And we find it’s generally more fun to pick longs in Tech. 2025 - at least so far - seems to be setting up as much less clear environment, but with the backdrop of a rapidly changing Tech landscape, we still think there will be plenty of opportunities for idiosyncratic alpha, even if it means shifting to a more tactical playbook. Right now: we’re in wait and see mode and expect to get more clarity after this week as we head into earnings season…
Some things we’re watching in Tech this week:
Supreme court arguments went pretty poorly for Tiktok on Friday, with Supreme court likely to uphold the ban. Post-ban, calculus for Tiktok likely changes and it will be interesting to see if they start to open up to the possibility of a sale of US assets. It made sense for TikTok to be completely against a sale in front of a final decision of a ban. But it has never made complete sense to us why China would block a sale of US assets, assuming the sale could be done without the algorithm. It’s not like the algorithm is some great state secret or black box that can’t be replicated in some form by the new buyers. If Trump wants Tik-Tok to continue, wouldn’t he be willing to facilitate some back-room deal with China? Zuck’s new shift to the right and dinner with Trump at Mar-A-Lago on Friday might mean that Trump less likely to do that if he’s more friendly with Zuck now. We’ll get some answers over the next couple of weeks. While SNAP has the potential to benefit largest from TikTok revs shifting to them (just 5% of tiktok us revs would be 20% rev accretive), META seems like the cleaner and easier way as we know they will likely capture most dollars.
RBLX: We have written about the ongoing narrative shift at RBLX and this week we got some positive 3p data from M-sci, who raised their bookings #s and said bookings and ads have started out strong in Jan. The stock has held up amazingly well at sits near 52wk highs. An announcement from NVDA who announced ACE autonomous video game characters at CES makes it clear that AI is rapidly helping advance video game content creation. As RBLX is the largest platform for developer-created games, we think AI will help quicken the content- engagement flywheel of RBLX.
Rogan / Zuck 3 hour episode uploaded on Friday - link here and a summary here…Key quote on AAPL:. “I did a back of the envelope calculation, with all the random rules Apple pus out, if they didn’t apply, I think we’d make twice as much profit… Apple’s just sitting on the success of the iPhone from 20 years ago and they haven't invented anything great in a while.” NYT has an article out on Zuck’s “sprint to remake META for the Trump Era”
What’s ailing software? Simply put: Higher yields, fx fears, worries about ‘25 guide as AI agents won’t dramatically impact revs until ‘26, and fears over AI cannibalization popping up again. JPM had a good snippet in discussions with CRM partners:
It is observed that Salesforce is pitching Agentforce as a watershed technology and a “game changer” for customers, and that customers are starting to buy into this idea. As a consequence of considering that Agentforce could fundamentally alter how businesses operate, customers are becoming more contemplative of their strategic IT roadmaps, including whether some existing application software could become obsolete, and negatively impacting software spending in the near term. Explicitly reflecting this emerging dynamic, the partner states that implementation work has decreased while advisory work has increased.
We’ve written about our view of the 6 month “golden window” of sw where sentiment and initial launches of AI agents likely to keep AI cannibalization fears at bay. We still think this is the case for stocks like CRM, HUBS, TEAM, NOW which have credible AI Agentic stories, but AI cannibalization fears likely will stay loud for those application sw stocks that don’t (or even smaller co’s without large amounts of data). We’re still positive on select areas on software - including DDOG, and warming up to SNOW - but have to be more mindful of expensive stocks like these and NOW as we’re in a macro backdrop that is punishing fx and high valuations as yields have risen (a turn lower in yields would help alleviate this). This is why we continue to prefer CRM as the stock is the AI agent play with the most digestible valuation and potential for re-rating higher while at the same time Agentforce having synergies with other parts of the biz which could drive bigger deals alongside data and service cloud earlier.
ORCL: We have written how we still like the bull narrative here but r/r has kept us from getting too excited to get long the stock again. Stock is now down 20% from the peak We still think co can do $8 in EPS in CY26 and think 22-23x is the right multiple, which is at the very high end of where stock traded at before OCI took hold and would mean $175-$185. A more bullish 25x multiple is $200+ and possible but would require ORCL begin to show OCI upside/acceleration instead of just talking about it. Our dnside is $130 which is 20-21x CY25 street EPS of $6.60. So base case, our r/r is $20-$30 up and $25 down, which still doesn’t seem all that exciting unless we were to gain more comfort ORCL could really accel OCI/RPO next q. If stock got down to $145, then r/r begins to get more juicy at $15 down (10% downside), $30-$40 up (25% upside). That’s also good resistance from previous breakout back in Sept.
CHWY: Another stock that has showed outsized strength in this pullback despite another 7M slug from BC being sold. Wolfe and Mizuho upgraded early in the year and got another one from MM at ISI over the weekend with a $47 PT calling out better industry data and channel checks on pet industry, sustained net add growth, and gross margin expansion driven by private label products and advertising revenue - 25x for 25% FCF CAGR gets them to $47…We continue to like this safe “sleep at night” long.
That’s all for today. This week should be exciting - see you tomorrow
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