Okay, Computer: Tech Is Still A Minefield with Dan Niles
Aug 16, 2023
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Financial expert Dan Niles predicts a 10% decline in the stock market and discusses high-valuation tech, China's impact on commodities, interest rates, Apple/Microsoft, Nvidia, and Tesla.
Apple and Microsoft, two major components of the S&P 500, are facing challenges in growth and declining margins, potentially leading to multiple compression and downside risk.
Tesla is confronted with numerous risks including a potential slowdown in the Chinese market, rising competition, declining margins, and geopolitical risks, which could result in a significant correction in its stock price.
Nvidia, despite its trillion-dollar market cap, is exposed to risks such as a potential slowdown in the AI sector, global semiconductor shortage, and high PE ratio, which may lead to downward pressure on the stock if growth expectations are not met.
Deep dives
Apple and Microsoft face slowdown and declining margins
Apple and Microsoft, which make up 15% of the S&P 500, are experiencing a slowdown in growth and declining margins. Apple has reported three consecutive quarters of declining revenues and has guided for a fourth quarter with expected declines in year-over-year revenues. Microsoft's cloud business, while benefiting from AI growth, has seen revenue growth slow down and is guiding below street expectations for the next quarter. These companies are trading at high multiples and are facing headwinds such as increasing financing costs for their products, geopolitical risks, and possible market saturation. The market may no longer turn a blind eye to these challenges, leading to potential multiple compression and downside risk.
Risks and challenges facing Tesla's stock
Tesla, led by Elon Musk, faces a number of risks and challenges that could impact its stock price. These include a potential slowdown in the Chinese market, increased competition, declining gross margins, and rising financing costs for customers. The company's heavy reliance on China for growth makes it vulnerable to geopolitical risks. Moreover, concerns about Musk's behavior and corporate governance practices could impact investor sentiment. The cult-like status of the stock and the potential for a market correction in EV stocks also pose risks. These factors could lead to a significant correction in Tesla's stock price, which is already down 22% from its recent highs.
Nvidia's market cap and potential risks
Nvidia, with a trillion-dollar market cap, faces potential risks and challenges. The company is highly dependent on AI-related growth, making it vulnerable to any slowdown in the sector. The global semiconductor shortage and potential supply chain disruptions could impact Nvidia's ability to meet demand. Furthermore, the valuation of the stock is trading at a high PE ratio, which could put pressure on the stock if growth expectations are not met. While Nvidia has a strong track record, there is a possibility that the market may not continue to overlook these risks, leading to potential downside.
The bearish case for Tesla
Tesla faces numerous challenges, including a potential slowdown in the Chinese market, increasing competition, declining margins, geopolitical risks, and rising financing costs. The behavior of CEO Elon Musk and concerns regarding corporate governance practices add further uncertainty. Tesla's stock price is highly reliant on future growth prospects, and if any of these challenges materialize, the stock could face significant downside. While Musk has been successful in pioneering various industries, the market may not continue to support the stock at its current high valuation if growth expectations are not met.
The potential impact of Elon Musk's absence on Tesla's stock
Elon Musk plays a pivotal role at Tesla, and his absence as CEO could have a significant impact on the stock. Musk has been instrumental in promoting the company's vision and generating enthusiasm among investors. Losing his leadership and vision could lead to a loss of investor confidence, negatively affecting the stock price. However, it is important to distinguish between admiration for Musk as an innovator and investing in the company based on its fundamentals. While Musk's vision and innovations are commendable, investors should carefully consider the potential risks and challenges facing Tesla's growth prospects.
On this episode, Dan is joined by Dan Niles of the Satori Fund to discuss his call for a 10% decline in the stock market (2:00), high-valuation & mega-cap tech (8:30), China’s impact on commodities (13:00), interest rates (20:30), Apple/Microsoft (24:30), Nvidia (35:00), and Tesla (41:30).