why stocks are falling

well the AI crash is upon us it was just

5 days ago that I posted Beware of the

huge coming AI stock crash and it has

officially begun and most of the last 5

days have actually been the weekend and

now we're looking at uh well Nvidia is

down 5.6% on the day you've got most AI

plays Down super micro computer down

133% after being down 20% on Friday

shorted that a 3.7x that was pretty good

on some zero days uh but you've got most

of the market selling off here a lot of

it being tech-based why is this

happening why is the market going riskof

well the market always goes riskof after

being at extreme greed in fact on Friday

we were at a level of extreme greed on

the greed and fear Index this is

generally a perfect contrarian indicator

and I guess I shouldn't say that there's

anything that is a perfect indicator

because that's not true but then again

when we had smci add an RSI of take a

look at this

95 at one point 96 a level we had not

seen in a stock since GameStop of

January of 2021 it was only a matter of

time for the stock to essentially

correct and that's exactly what's

happened so why is this happening well

it's very simple so if you're wondering

why is the stock market crashing here's

the very simple answer first to tomorrow

we are going to get the Federal Reserves

fomc minutes this is where the Federal

Reserve gives their curated summary of

what was said in January at the fed's

meeting now they have the privilege of

updating that summary for about 3 weeks

after their meeting so they get to sort

of tell the world what they think and if

they want to start indicating hey you

know maybe there's a chance we're going

to have to raise rates again treasury

markets are going to sell off yields

will go up and generally risk assets

will go down so given that today is the

day before the fomc minutes release

which comes at 11:00 a.m. Pacific time

on uh Wednesday it's no surprise the

market is a little skittish but it's not

just a Fed because remember with the FED

we've got as we've written over at

ec.com by the way we've got some real

good updates getting in on to ec.com

what do we have

37.8% chance of a cut in May

61.9% chance of four Cuts in December

mind you this was almost guaranteed at

the beginning of the year in fact we

were pricing in 6 to7 rate cuts at the

beginning of the year now we're barely

pricing in four in fact we're not even

completely pricing in three cuts by

December why because we just had a hot

CPI number in January Canada doesn't

seem to agree Canada's CPI uh came in

low lower than expected in January uh

and a lot of folks look at Canada and

say hm well Canada and the US they're

inflation rates they tend to align both

on year-over-year

non core uh and core the numbers tend to

align you tend to have this decline in

this chart for example we have Canada's

year-over-year in Blue uh the US uh in

uh I'm sorry the US in blue and Canada

in white right here and so you see this

alignment so it does give some optimism

that maybe January in the United States

was just an abnormality some form of

crazy weird seasonal adjustment but it's

still creating fear fear that the

Federal Reserve tomorrow is going to be

forced to tell us I don't know maybe

things aren't as good as we thought they

were and we might have to price in

another rate hike so that's the first

thing the market is doing right now so

you're going from a place of extreme

greed to less greed and a bit of a sell

off because there's fear that oh no

those January jobs numbers were strong

PPI numbers strong CPI numbers strong H

maybe if everything's reanimating and

consumers are spending more money than

we expected partly because credit

standards are actually falling in other

words more credit is opening up and

becoming available rather than less both

true for industrial and credit cards

which basically mean maybe people can

continue to spend which is unsustainable

in the long run eventually that blows up

but in the short term it's kind of like

huh the economy's hotter then maybe we

need to push that greed thing back a bit

and actually tighten more which means

we're not actually at Peak rates yet I

personally don't think that's likely but

that's what the market at least to some

percentage Chan is pricing in it is a

nonzero chance that the FED has to raise

rights again uh now again I don't think

that's likely but I do think it's likely

that we might be waiting until June for

rate cuts which isn't fantastic for risk

assets though the stock market is really

good at trying to pre- price in what the

FED will do in fact I argue that the

Nike Swoosh that we've seen over the

past well quite frankly year and

three-ish months here that we've been

talking about coming this Nike Swoosh

that has arrived which has been

correct is is likely pre pricing in

eventual rate cuts and so that's why

even as we're sort of teetering on oh

are the cuts going to come in March or

no it's not March it's May oh no it's

June that doesn't matter so much we know

they're coming or at least we expect

that and so that's why in the last 24

hours here's some concerns over what if

we're not at PE is leading to some form

of a risk sell off uh or riskof selloff

another way to phrase that so that's one

right so the Federal Reserve and concern

about the FED are they done it's not so

much about when it's just uh that is

when the cut comes it's more oh my gosh

what if we have to go even higher keep

in mind treasury markets right now

you're sitting at 4.24 on the 10 you

know a month uh six weeks ago so right

at the beginning of the year we're

sitting at 3.8 okay so we're up 45 basis

points on the 10 year that's a lot

that's a lot of extra cost uh especially

hurts interest rate sensitive plays it's

one of the reasons you've seen a lot of

the interest rate sensitive plays just

get left behind even though there's no

recession the interest ratees sensitive

ones are acting as if we're in a

recession in fact quite frankly a

recession would almost be better for the

interest rate sensitive stocks because

then rates would

plummet kind of ironic but what's the

second thing that's happening well it's

Nvidia of course Nvidia earnings are

tomorrow which is a big deal and markets

like to say all right look Nvidia stock

uh you continuously get rejected at the

the 7:30 you tried to break out three or

four times you couldn't do it you just

couldn't pull it off this is the weak

chart mind you look at this it's almost

perfect you could not get a single

Candlestick to close uh uh uh fully

above uh the 731 level and so now the

classic FIB retracement levels are

working again we saw this coming we

talked about it uh and and and this is

why I made my video last week uh not

only because of the resistance that

we're facing here but also so well

frankly because what is NVIDIA going to

tell us tomorrow see something that I

posted about on ec.com and I want you to

think about the ludicrousness of this uh

and it's just my opinion okay I know a

lot of people like smci but I see smci

as a server rack company they do server

racks switches water cooling for

switches or or for the server racks for

the h100s they do the sort of the

infrastructure for chips that's great

but much like lithium when somebody

makes a lot of money in one place you

invite a whole lot of competition you

just had uh one of the softbank's sons

say they want to start a 100 billion

dollar chip manufacturing and designing

Venture you've got Sam Alman from open

AI suggesting oh yeah we're going to uh

raise trillions of dollars to

manufacture chips it's the same thing

you saw in lithium lithium lithium

prices Skyrocket what happens after

lithium price is Skyrocket you get

people like Elon Musk on earnings calls

that say oh you want to you want to

basically print money go start a lithium

mine and so what happens people are like

oh I want to print money I'm going to go

start a lithium mine and so it's a

commodity so what happens when prices go

absolutely ridiculous for something

everybody gets in at the same time as

the growth rate slows and then the price

collapses this is very normal it always

happens as price goes up Supply

eventually catches up and prices

collapse it's very very normal so the

thing that I found ludicrous this

weekend was that barlay wrote a piece

that suggested oh super micro computer

oh yeah baby we have a

$961 price Target on this sucker we're

pricing this at 32 times 2025 EPs and

I'm like bro I literally wrote this I go

yikes I wrote this this weekend I'm like

it's a server rack company and you

literally have Wall Street analysts

Barclays arguing yes yes let's give this

server rack company uh a 32 times

multiplier not on today's PE Ratio or or

on today's earnings but rather on future

earnings 18 months out so we're going to

go 18 months out and then we're going to

give them a 32 times multiplier like no

they they're not going to have that

long-term growth it all comes down to

the growth rate right if if this

company's going to have a 30% growth

rate for the like 18 years out and then

the next four years that's okay then

actually that would be a great deal

that's the way you have to think about

this when it comes to PE ratios always

as a factor of growth always always

always do not take PE ratios in

isolation so the way I like to do it is

I like to take uh you know maybe like

the six Monon out uh the six-month out

is usually like the end of the year

right so you look at a company like

let's say we look at I don't know uh

pick Apple okay so we take apple and

then what we're going to do is we're

going to go uh you know maybe six months

out so you go to like grab the Q3 annual

EPS figure uh and then what we'll do is

from that period 6 months out we're

going to look at about the next four

years and we're going to try to

understand what is the average growth

rate over those next four years and

let's say it's 10% okay so uh then let's

say earnings are oh I don't know $20

okay so earnings are $20 for the year

ending Q3 2020 24 let's just say we're

making this up uh and we're going to

sell for 10 times okay we sell for a 10

times that gives us a $200 stock and a

PEG ratio of one in this example these

are not the real numbers for Apple just

saying that's because you're dividing by

the average growth rate of 10 well in my

opinion anything under a PEG ratio of

about

1.67 reasonable two starts getting a

little pricey so the problem in the case

of this server R company is they only

bring about 8% to the bottom line in

that income so you go 32 times but wait

a minute you've already gone you've

already borrowed so much from the future

so 18 months down the road how much

growth is left after 18 months well what

if it's only 5% growth after that it it

maybe the growth will keep going forever

maybe but what if it's only 5% growth

well then it's a six Peg right and if

it's a six Peg and it's got to get down

to say a two then the valuation has to

Collapse by three-fold so that's just an

example okay so always when you hear PE

ratio think EPS growth rates uh you know

you look at uh just to be you know to

play devil's advocate here Tesla has a

very high PE ratio uh when you look

forward because of the anticipated

growth is it as bad as uh SMC no why

because you look at a company like Tesla

it's trading for

$191 so go 191 divided by its uh end of

thee price Target so that's about eight

it's closer to 10 months ahead so that

puts you at about

62.6 not going two years out not going

18 months out but you are going a year

out in this yeah 10 months out in this

case so uh $3

62.6 times what's the growth rate

projected on earnings per share

thereafter about 30% puts you at about a

2.1 is Peg right shows you where the

relative valuations are the question

though is what about a company like

Nvidia well nvidia's got fantastic

growth when you look at 23 when you look

at probably what's going to happen in 24

their growth is going to double if not

even 3x entirely possible fantastic

adjustment this is what we talked about

in the ai's about to crash video yes the

growth is real everything's going to

reset up but what happens after

everything's reset up well then the

growth rates substantially slows so for

example we look at uh earnings per share

today we won't even go forward we'll

just look at earnings per share for what

we're expecting to be reported tomorrow

$12.40 let's say they beat and we get

$13 of earnings okay great $13 of

earnings what's the PE Ratio at $13 of

earnings well now that the price has

come down a little bit 686 divided 13

puts you about 15 52.7 on a PE ratio

okay what what's our forward growth

trajectory for this company at a PE

ratio of

5276 well 116 divid 4 29 52 divided 29

put about 1.8 it's actually slightly

better than Tesla keep that in mind the

question is will growth be 29% over the

next 4 years see if growth is half that

over the next four years and this is

really where as an investor I want you

to know this is what makes an investor

an investor okay this is the difference

I want you to consider exactly this okay

so

smci people seem to be projecting 15 to

30% growth for this company okay then

you look at Nvidia and we'll call this

uh we'll call this one year

out so uh call it uh from uh we we'll

call it from end of 24 okay so from the

end of this year it's okay it's okay to

go to the end of the year it's just it

gets a little funky when you start going

in my opinion 18 months 2 years 3 years

out it's where things start getting a

little funky but anyway so go from the

end of the year smci 15 to 30% growth

projected Nvidia 29% growth projected

and then you look at a company like

Tesla this is on EPS this is not on

Topline it's on earnings per share

you're sitting at about 39% these are

all the Wall Street

projections well in my opinion and and

this is just this is how I'm positioning

at least uh and I have exposure to

Nvidia as well though it makes sense to

do a little bit of trimming probably

before earnings you know maybe that made

sense to do Friday afternoon but you

know hindsight's 2020 who knows point

is

smci in my opinion after you start

getting competition for Server racks and

you start getting a normalization you're

not a 15 to 30% growth maybe you're at

5% growth that's because again my

opinion is that you go from AI like no

AI server to having AI server so this

was no AI right you do not have somebody

left a comment on this you do not have

to transition no AI servers to AI

servers that is wrong you don't do that

just because you have storage doesn't

mean you need AI on all your storage all

of a sudden all you're doing is you're

going from no AI to you're adding the AI

server rack well now introduce

competition and the fact that people

have their racks I change out the boards

without changing out the racks so in my

opinion your growth goes down to say 5%

Nvidia after the explosive growth

honestly even if it's still growing at

10% after the reset of this explosive

growth that's a

win whereas then you have such low

earnings for a company like Tesla you're

looking at earnings uh a next year of

$4 okay that's an assumption that gross

margin will be

19.5% and as interest rates come down

you wonder what if that growth rate is

actually substantially higher I'll leave

that as a question marker for a Tesla

video but that is the way to think about

this you don't have to invest like this

I'm not here to shill I don't I don't

really care how you invest the point is

do we think that the server rack company

is going to keep growing at these levels

or are those Wall Street estimates way

too optimistic and based on what I'm

seeing from Barclays which goes into

some of these average consensus

estimates way too optimistic again I'm

not anti the AI Revolution the AI

Revolution is absolutely here I'm just

anti the Euphoria that's going into some

of these plays and I'm seeing the exact

opposite sort of f Euphoria in interest

rate sensitives which makes sense

because rates could stay higher for

longer as we've seen uh but I'm also

seeing the anti- Euphoria in real estate

I think there's such huge insane

opportunities in real estate

specifically multif family make a

separate video on that but if you want

to know why why not advertise these

things that you told us here I feel like

nobody else knows about this we we'll

try a little advertising and see how it

Go congratulations man you have done so

much people love you people look up to

you Kevin PA there financial analyst and

YouTuber meet Kevin always great to get

your

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