Parallels between tech in the ‘90s and today … what Luke believes will trigger a melt up … a low-valuation AI play from Eric … Neuralink’s futuristic tech …
The S&P is up about 14% year-to-date and hitting all-time highs.
So, is it time to push more chips into this market? Or should we be taking profits off the table to sidestep the risk of a looming pullback?
You’ve likely read some comparisons between today’s AI mania and the Dot Com craziness of the late 2000s.
Is that a fair comparison? And even if there are parallels and a correction is in our future, to what extent might the biggest gains of today’s market remain between now and then?
After all a painful drawdown “tomorrow” is very different than a painful drawdown, say, “18 months and 250% gains” down the road from now.
Let’s go to our hypergrowth expert, Luke Lango of Innovation Investor:
Back in early ‘98, internet euphoria made tech stocks red-hot. New internet technologies were emerging everywhere and proving their significant value.
Investors were excited by these new technologies and started bidding up tech stocks to valuations north of 30X forward earnings. (Before this time, they had never traded above 30X forward earnings.)
Lots of investors were calling it an internet bubble.
But then… in late summer 1998… the Fed cut interest rates, unlocking a flood of pent-up investor money that rushed into tech stocks. And from late 1998 to early 2000, tech stocks proceeded to soar more than 250% in what was one of their best runs ever!
And now we’re seeing ample parallels between the tech-stock surge of ‘98 and our present-day setup.
Why Luke sees enormous upside potential
Today, investors have bid up tech stocks to valuations north of 30X forward earnings for the first time since – you guessed it – 1998.
Given this, it would be fair to be cautious about the risk of a bubble pop.
But Luke urges his readers to recognize that the same catalyst that goosed stocks from a 30X valuation in ’98 is about to repeat here in 2024…
The Fed.
Here’s Luke:
Lots of investors are calling this an AI bubble.
But… after [last week’s] super-soft inflation report… it seems the Fed is primed to cut interest rates later this summer.
The market is now pricing in about 60% odds of a rate cut by September and 100% odds of a cut by November. In other words, the market now sees the Fed cutting rates twice by the end of the year.
And just like they did in 1998 with internet euphoria, we believe these incoming rate cuts will couple with AI euphoria to unlock a flood of pent-up investor money that will rush into tech stocks throughout 2025 and ‘26.
After all, there is a record $6 trillion in cash sitting on the sidelines in money market funds.
Here in June, Luke recommended his Innovation Investors move some of their cash off the sidelines, highlighting five new stock picks. To learn more about them as a subscriber, click here.
But for investors nervous about putting money into richly valued stocks, is there a tech/AI play with a value-stock price tag?
Our macro expert Eric Fry has a suggestion – Intel.
This might raise a few eyebrows. After all, as you can see below, after enjoying a 2X surge in 2023, Intel investors have watched the chip giant suffer a 40% haircut this year.
So, what does this pullback represent? Is it a fantastic entry point on a visionary tech leader of tomorrow? Or is it a red flag that’s warning of a “has been” company that’s in decline?
To help us with the answer, let’s look at Intel’s growth potential looking forward.
Here’s Eric highlighting the coming PC upgrade cycle:
The difference between a traditional PC and an AI PC is somewhat like the difference between a toolbox and a handyman. A traditional PC contains a toolbox of applications that you can use to accomplish a variety of tasks.
For example, you can compose and edit a letter in Word, or build and operate a spreadsheet in Excel. But whenever you use a tool like Word of Excel, you are the one who hammers every nail.
The AI PC is different. It hammers the nail for you. Like a handyman, it accomplishes the entire task, so you don’t have to, from start to finish.
As AI PC sales gain momentum, and Intel’s pricey foundry projects pivot from burning cash to generating it, the company’s earnings could skyrocket.
Eric points out that based on current long-term earnings estimates, Intel expects to book profits of about $1 a share this year, followed by $1.90 next year, $2.50 in 2026, and $3.35 in 2027.
Here’s Eric’s bottom line:
If Intel comes anywhere close to producing that earnings trajectory, its share price could double easily… or deliver even larger gains.
Success is not guaranteed, of course, but I expect the stock to reward patient investors.
While we’re highlighting Eric’s research on AI investing, let’s check in on Neuralink
Last month in the Digest, we highlighted PRIME, which stands for “Precise Robotically Implanted Brain-Computer Interface.” It comes from Elon Musk’s company Neuralink.
To put it simply, PRIME is Musk’s attempt at merging the human brain with artificial intelligence.
Eric had recently profiled PRIME for his subscribers, which we shared in the Digest. Here’s the quick recap:
Musk and his team at Neuralink built a unique kind of brain surgeon…
It’s a robot, called the “R1,” that can precisely implant a special device in a region of the brain that controls the intention to move.
Neuralink’s medical device, called the “N1,” has more than 1,000 electrodes attached to 64 threads, which amplifies its brain-reading potential.
Because the N1 threads are thinner than human hairs, they can’t be inserted by hand. But Neuralink’s R1 robot can do the job. It can target specific parts of the brain and insert all 64 threads in only about 15 minutes.
That procedure, hence, is known as PRIME.
Once implanted, these N1 threads interpret a person’s neural activity and make it available for computers. Then, the person can control external devices with nothing but their mind. This is called “electrophysiological recording.”
This is truly bleeding-edge technology that’s the stuff of sci-fi movies – only it’s real and happening right now.
About two weeks ago, Wired interviewed the first Neuralink patient, Noland Arbaugh. He’s a quadriplegic who was paralyzed after a spinal cord injury suffered while swimming in a lake. This past January, he received Neuralink’s first brain-computer interface.
To give you a better sense for this futuristic technology, below are snippets from the interview between Wired and Arbaugh:
Wired: [So] you would think about moving your hand or your finger in a certain way and Neuralink would correlate that with a certain neural signal? … You’re not actually moving your finger then, just thinking about it?
Arbaugh: Exactly. Even though I can’t move it, I can still try to move it, and it feels like it should be moving. The signal is still happening in my brain.
Wired: What does it feel like to be using the device? Do you have to concentrate really hard?
Arbaugh: No, it’s very easy. I’m constantly multitasking when I’m in sessions or when I’m playing around. I’ll throw on an audiobook or throw something on my TV and then play a game at the same time. It takes very little brain power. What I’m thinking the whole time is just where I want the cursor to go.
Wired: How has your life changed since getting the implant?
Arbaugh: It’s just made me more independent, and that helps not only me but everyone around me. It makes me feel less helpless and like less of a burden. I love the fact that the people around me don’t have to wait on me so much. Outside of being completely healed, I believe what most quadriplegics want is independence.
Amazing stuff.
If you’re interested in how to invest in this type of AI technology, you’re thinking like Eric.
While Neuralink is a private company (making a direct investment impossible for most investors today), Eric has found one well-known tech play that offers exposure to Neuralink’s growth. He put the details inside a special report called How to Profit From Elon Musk’s Neuralink. You can access it by clicking here.
Wrapping up, yes, tech stock valuations are on the lofty side today…
But if Luke is right, this is precisely the time to bet on tech, not shrink away.
However, if tech valuations make you nervous, give Intel a look. Coming off its recent 40% drawdown, its price tag today appears to be a bargain entry point on an AI leader of tomorrow.
Have a good evening,
Jeff Remsburg
