The S&P 500 index is at an all-time high. A tiny handful of tech companies are running the table. Are prices just too high, or is there anything left still at a realistic price? Is it all just AI? Here are a few things I'm optimistic about right now.
If you're reading even a fraction of the financial news I do, you know what they're talking about today. Everything is interest rates and inflation, tariffs in China and Russia, Big Tech and artificial intelligence, the soaring stock indexes. Lots of talk about Nvidia, "Apple Intelligence" and of course, Elon Musk. It's repetitive and exhausting— and it makes you want to just turn off and take the dog to the beach.
The real issue is, with the staggering recent growth of Big Tech (generally though of as Microsoft, Apple, Amazon, Alphabet/Google, Meta/Facebook, Nvidia), the average investor who owns even a simple S&P 500 index fund has seen stellar gains. Because the S&P 500 is a 'weighted' index, companies with larger market caps (market value of all outstanding shares) carry more of the burden. So a single share of that index is made up not of equal percentages of 500 different stocks but of unequal percentages; Big Tech is so outsize that it now makes up around 20% of the total index. All of which is to say that even if you only own index shares, 20% of your holdings are in roughly 6 companies. You're not as diversified as you probably thought.
(Note: for those unwilling to dedicate significant time to reading up on individual companies, I actually do recommend just routinely buying shares of a broad index ETF or two, such as for the S&P 500 or the Nasdaq 100. You'll have a smoother ride over the long haul and reduce both work and stress! More on that here and in an upcoming post.)
Does that mean you shouldn't buy shares of those businesses individually? That's a personal decision based on your risk tolerance and the growth rate you're targeting for your portfolio I own shares in most of Big Tech, but I also own some S&P 500 index shares in spite of that redundancy. I'm generally ok with that particular investment risk. We each play a slightly different game.
Whatever you decide, I've said here and elsewhere, you should always be buying shares to bolster your holdings and diversify your portfolio. But if everything is doing so well, are there still fairly priced businesses to be had? Here's what I'm watching.
Found Capital
Last week I started getting nervous about my Nvidia holdings. Astonishingly successful and competent company with a virtual monopoly on super-high performance computer chips needed by businesses all over the world who are trying to capitalize on consumer data they've collected and to build and run AI on the large language models (LLMs) made of the world's internet content. Nvidia is one of my best all-time performers and hands-down the fastest growth business I've ever seen: I'm up 2800% (a 28-bagger) in 5 years' time. So the run up has been crazy exciting but it's now occupying too large a portion of my portfolio, = risk. Also the company is beginning to look a little too comfortable at the top of the heap; real competition is coming.
So I sold down 10% of my NVDA shares (at this year's growth rates that's less than two weeks of appreciation!). Likely I'll have to do it again soon but for now I've reduced my single-business exposure and I have cash to diversify with.
Shopping Trip
What to buy, what to buy ...?
First up, the very definition of Big Tech, Apple. Well I say that, but really I should have bought it last week. As of this week the tremendous value represented by Apple shares has diminished a little. Before Tuesday June 11, Apple was the only company in the Big Tech club which had not seen massive share price appreciation in 2024. For a number of reasons, Apple had not been fully on the AI bandwagon since that technology started barreling across the landscape two or three years ago. Many investors and analysts have been frustrated and wondered if Apple had been left behind for once. But on Monday the company about-faced with substantial new, AI-centric features for Macs, iPads, and especially iPhones. They'll be teaming up with undisputed AI leader OpenAI, maker of ChatGPT, to integrate features and abilities usable to even the least tech-y among us, and suddenly the future for Apple looks much brighter. (Apple has an long history of coming late to certain parties and still walking away with the title: music players, app stores, tablets, phones .. The lesson is to never count them out). Over two days this past week, Apple shares popped more than 10%. But there is still plenty of room for it to run, and it still is a phenomenal business.
Next I looked at Salesforce, the massive customer-relationship software maker and tech trendsetter. The company had a huge 2023 with share price gains of around 60% in the calendar year. 2024 started well too, but at their recent Q1 earnings call they disappointed analysts. Not with lower revenues or reduced profits, not lawsuits or scandals, not employee revolts or product problems. They merely said Q2 wouldn't show quite the same growth rate as Q1, just off a bit. The stock sold down 20% in one day. So because we aren't growing quite as remarkably fast next quarter, feel free to tell everyone that our excellent business is worth much, much less... ? Put me down to buy shares at this tremendous opportunity price before the market wakes to its mistake.
Moderna, maker of the world-saving coronavirus vaccine, is currently being valued by the revenues they brought in 2023/2024, far below sales in 2021/2022— representing a severe miscalculation by the markets. Of course they aren't selling millions of injections a month right now as they did then, the pandemic is largely behind us and few are re-upping their vaccinations today. But Moderna has far more in the pipeline and is currently running long term testing and seeking FDA approvals on scores of other drugs, all made with their revolutionary RNA technology. There are even rumors of a huge stride in the fight against certain cancers. Don't count them out: Moderna offers an incredibly lean and profitable model to make life-altering medicines years into the future.
Then there's Google. Like Apple, it's never really a bargain per se. But Google (Alphabet, technically, but everyone still calls it Google) has been hard at work on its AI, Gemini, so they're definitely in the game on that level. And Apple has discussed making Gemini available to iPhone users as a user option later this year to swap out ChatGPT as a Siri AI, so that would be great. But most importantly, Google is still the one to beat in search and owns a staggering 80%+ of the global search market; meaning Google is effectively an unregulated monopoly for a service used by oh, everyone. Those tend to make very strong investments.
PayPal, once the standard bearer for internet banking and online payments, has recently fallen on harder times with the rise of competition, the resulting reduction in profitability, and executive leadership churn. But PayPal still commands the greatest payments app of them all, Venmo. Even your grandmother uses Venmo to cover the gardener or to send you $50 on your birthday. Venmo is increasingly a part of the financial fabric we run on, and I think it's only a matter of time before that popularity combines with some good marketing and operational efficiencies to even more deeply ingrain itself and start making real profits again. This goes in the 'long hold' basket.
I've recommended Shopify here before. Shopify provides online storefronts and back-office order processing, then outsources shipping, for hundreds of thousands of online businesses. The company has become the default storefront/payment/logistics outfit for many mom-and-pop retailers and startups. If you've bought something online from a direct-to-consumer business that was not Amazon, then you've used their services. Allbirds, RedBull, SKKN by Kim, Taylor Swift, Kylie Cosmetics, Deliveroo, Herschel, The New York Times and Tesla all run on Shopify. The business surged during the pandemic shutdown when non-grocery shopping went so fully online, and the stock valuation got ahead of itself. Now back down to earth, I expect to see substantial growth here over the next few years.
Finally, we come to Disney, another perpetual recommendation on these pages. I've said here in 2020 and again here in 2023 that Disney would soon see a stock price pop; I'm still saying it. Disney finally ended an activist shareholder fight a couple of months ago and managed to keep the invaders from their board, where they would have wreaked havoc. Disney theme parks and cruises, both damaged by the pandemic shutdown, have recovered beautifully. The company just hit reset to focus on fewer, better feature films in light of a few underwhelming openings from the past couple of years. And they've invested a ton of money into their streaming service, Disney+, which should be profitable by the end of this year. No one owns the characters and developable intellectual property that Disney owns. No one has an entertainment lock on American childhood like Disney has. This is a company with no single major competitor. I've been wrong on this one (thought it would happen sooner) but that's about to change. I'm doubling down.
If you have thoughts or questions, ping me here.