Long gone are the days when Elon Musk was merely ‘the Tesla guy.’
The billionaire entrepreneur has brought electric cars to the mainstream and reimagined rocket launches and space travel. He’s working to develop brain implant technology that allows humans to control devices with their thoughts. He aims to reinvent social media with X and introduce fully autonomous humanoid robots via Tesla’s (TSLA) Optimus.
And now Musk is taking on his boldest mission yet—tackling government waste as President Trump’s head of Department of Government Efficiency (DOGE).
As if he wasn’t already powerful enough, the world’s richest man has become infinitely more influential since Donald Trump won the White House.
A lot of investors are saying that’s a good thing for Tesla stock. And it could be. But we think investors focused on TSLA are considering the wrong Musk company for 2025.
Of all of his ventures, Tesla is not the one positioned for the most success this year.
Founded about two years ago, xAI was created to develop foundational AI models to rival that of OpenAI’s ChatGPT and Google’s Gemini. In that time, xAI has launched several models, the latest of which – Grok-3 – just debuted in late February. And from the looks of it, the AI is quite capable.
It was developed using over 10 times the computing resources of its predecessor, Grok-2, leveraging a massive data center equipped with approximately 200,000 GPUs. The model introduces sophisticated reasoning features, which allow it to deconstruct problems into manageable components and perform self-fact-checking to ensure accuracy before providing solutions. And it also includes a new Deep Search feature – an integrated AI-powered search engine designed to reduce the time users spend hunting for information by providing detailed explanations for its responses.
According to xAI, Grok-3 outperforms other incumbent AI models like ChatGPT, Gemini, and DeepSeek in areas such as mathematics, science, and coding.
It seems to be a new landmark model.
And thanks to this rapid success, xAI is currently in talks to raise up to $10 billion from multiple investors at a $75 billion valuation…
Meaning that, less than two years after it was launched, xAI is already worth more than 70% of the companies in the S&P 500.
Of course, the thing about world-changing businesses is that they start with world-changing people. Those folks have revolutionary ideas. And when funded with billions of dollars, they turn those ideas into world-changing businesses.
After all, Apple (AAPL) only became what it is today thanks to Steve Jobs, who came up with the idea of the iPhone. Jobs then leveraged the enormous amount of money Apple was making off its computers to create the iPhone. And voila… Apple became a trillion-dollar company.
Similarly, Microsoft (MSFT) grew into a tech titan because of Bill Gates, who came up with the idea of Windows. Gates used the money Microsoft was making off its PCs to further develop Windows. And that allowed Microsoft to become a trillion-dollar company.
World-changing people with ample resourcescreate world-changing businesses.
So… if you want to invest in world-changing businesses… start with the world-changing people gathering the resources necessary to bring their visions to life.
That is exactly the situation we have with Musk and xAI today.
Invest in a World-Changer Like Elon Musk
We certainly believe that Elon Musk is a world-changer.
He co-founded PayPal (PYPL), the world’s largest digital payment platform, now worth more than $70 billion…
And SpaceX, the world’s largest private space rocket firm, valued at $180 billion.
He pioneered one of the world’s largest automakers in Tesla… worth more than the next 10 biggest automakers combined.
And he’s also the man behind Neuralink, The Boring Company, and X.
Musk has influenced how we pay for things, what cars we drive, how we communicate online, how we see space…
I’d venture to say that he is one of the most influential business figures of the past 20 years.
A great example of world-changing.
And not only has he turned his focus to a new business venture at the heart of possibly the most transformative technology the world has ever seen… but he’s also reportedly on the verge of acquiring $10 billion in funding to turn his AI vision into a reality… all while having the ear and trust of the president of the United States.
Would you bet against him here?
I don’t think I would.
The Final Word on Elon Musk
As we mentioned, xAI has already launched an impressive AI chatbot, which many experts claim stacks up pound-for-pound with ChatGPT. And the firm achieved this with minimal outside funding.
Just imagine what Musk and company will be able to cook up with an extra $10 billion.
The possibilities are endless.
When all is said and done, xAI could be Musk’s biggest venture yet. And 2025 could be the startup’s breakout year.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.
That’s a question we should be asking both of our portfolios and of ourselves.
And it’s all because of AI.
The risks that artificial intelligence imposes requires us to not only future-proof our portfolios – more on that below – but also future-proof our individual career paths, to whatever extent we can.
For example, which jobs are more future proof: Accountant or bartender? Software coder or yoga instructor? Graphic designer or river raft guide?
I am not certain I know the answer, but if I had to place a bet, I’d place it on the bartenders, yoga instructors, and river guides.
This is an aspect of AI that I call the “Revenge of the Bartender” – an honest job that I performed in my youth, and one that will probably last for as long as alcohol is legal.
By contrast, what will become of the high-paying “thinking” jobs – the kind that typically require college degrees? We already know the answer: They are going away… or at least not keeping pace with overall employment trends in the U.S.
The chart below shows the employment growth of four different industry groups during the last three years, relative to the overall employment growth of the U.S. Admittedly, three years is a brief sample from which to draw iron-clad conclusions, but that happens to be the span of time when AI has been infiltrating the world economy.
As you can see, “Leisure and Hospitality” (think: bartender) is the fastest-growing employment category in the chart – up 5% more than overall employment growth. “Construction” is the second strongest category – up 4% more than overall employment growth.
By contrast, the “thinking” industries that typically require a college degree are faring less well. “Information Technology” employment has grown 7% less than overall employment during the last three years, while “Professional Business Services” has grown 4% less.
These trends are not outliers. Employment in most professions that require human interaction, like bartending and construction, is growing at above-average rates, while most “thinking” professions are growing at below-average rates.
As I said, AI deserves part of the blame.
We already know that AI is trimming jobs from many industries, even the very industries that are creating AI. In 2023, Alphabet Inc. (GOOGL) and Microsoft Corp. (MSFT) both laid off more than 10,000 employees. Following those high-profile reductions, U.S. tech companies laid off more than 150,000 employees last year.
AI is taking a bite out of employment in many other industries as well. Two weeks ago, Chevron Corp. (CVX) announced it would be trimming 15% to 20% of its workforce – or roughly 6,000 to 8,000 employees.
Chevron, like most of the other major oil companies, has developed increasingly sophisticated technologies that are incorporating AI to analyze hydrocarbon deposits, guide drilling decisions, and optimize recovery from each wellhead.
At every step of the way, these technologies replace human workers.
That’s why it’s so important to prepare for the shift to come. Because as much destruction as AI has and will continue to cause in the workforce, artificial general intelligence (AGI) could eliminate an unprecedented number of jobs.
AGI refers to AI technology that has reached human-like intelligence. It has yet to be achieved, but I believe the breakthrough is fast approaching. That is why I began my 1,000-Day Countdown to AGI back in September, which you can learn more about from my free, special broadcast.
And when AGI arrives, this time both blue-collar and white-collar workers are set to experience massive job losses and plummeting wages.
So, the need to future-proof your finances starts now. The good news is that there’s still time to take advantage of today’s “pre-AGI” stock market.
I’ve identified several stocks that are set to benefit from AGI as it radically changes the landscape. They can be found in my special reports: My 3 Top AGI Stocks for 1,000%Gains and The AI Dominators.
Elon Musk and Sam Altman lead “AI Creator” companies that develop the LLMs powering tools like Grok and ChatGPT, driving the AI Revolution forward. While these deserve investment consideration, many overlook another critical AI category that could “future-proof” your portfolio.Let’s explore this under-the-radar opportunity beyond the headline-grabbing AI Creators.
Beyond the havoc that AI is wreaking, an ultra-rare pattern is forming in the markets right now, one that hasn’t been seen for 30 years.
It’s a strange category of market melt-up that creates hyper-exaggerated gains – and losses – compared to even normal market melt-ups.
That is why this Thursday, February 27, at 8 p.m. Eastern time, during hisThe Last Melt-Up special briefing, TradeSmith CEO Keith Kaplan will introduce a new tech breakthrough that is designed to mathematically detect and model market melt-ups. He will also reveal what the technology is saying about the market we’re in right now.
In addition, Keith will demonstrate his technology to show you 10 of the best stocks for riding this market event… and 10 “timebomb” stocks to avoid. You canclick here to sign up for the event.
I will share more information from Keith later this week. Stay tuned.
Regards,
Eric Fry
Frequently Asked Questions (FAQs)
1. Why are white-collar jobs at risk from AI?
AI is automating tasks in high-paying, degree-requiring jobs faster than in hands-on industries.
2. What types of jobs are more “future-proof” against AI?
Jobs requiring human interaction, like bartenders and construction workers, are less likely to be replaced.
3. What is AGI, and why does it matter?
AGI (artificial general intelligence) would match human-like intelligence and could eliminate millions of jobs.
4. How can investors prepare for AI’s impact?
Investing in AI-dominant stocks and companies that benefit from automation can help future-proof portfolios.
5. What is the next big investment opportunity in AI?
Beyond major AI creators, emerging tech stocks tied to AI adoption could offer major upside potential.
Has Nvidia Corp.’s (NVDA) unbeatable, dazzling market performance created an Emerald City-like allure?
On Wednesday, Nvidia released its fourth-quarter earnings report. This came after a volatile start of the year, with the release of Chinese AI DeepSeek-R1 about a month ago causing Nvidia’s shares to decline nearly 17%.
The company’s shares have continued to struggle since then, with the stock dropping 9% over five trading sessions ending Tuesday this week.
Nevertheless, Nvidia reported earnings that topped Wall Street expectations… again. The company’s revenue for the fourth quarter came in at $39.33 billion, up 3.08% from estimates, while earnings per share reached $0.89 adjusted, beating Wall Street’s prediction by 5.22%.
But despite delivering earnings beat as well as strong first-quarter guidance, Nvidia’s shares fell 8% the next day.
Even so, Nvidia is undoubtedly today’s AI darling, but as Dorothy learned in Oz, even the most powerful wizards eventually step from behind the curtain. While the company’s recent numbers still have them on top, investors should start considering companies that will eventually inherit Nvidia’s momentum – the AI Appliers.
AI Appliers take foundational tech breakthroughs – like Nvidia AI chips – and profit off utilizing them. Some companies use AI to enhance businesses, while others provide the energy AI needs to run.
These are the companies now set to produce strong investment gains in the coming years.
In today’s Smart Money, I’ll show you a few under-the-radar AI Appliers on my list with near-future upside potential. That said, with the markets in distress this week, I suggest putting them on your watch list for consideration after this current bout of volatility calms. After all, the AI Revolution isn’t going anywhere.
Then, I’ll explain how investing in these companies is crucial for positioning yourself in this ever-evolving landscape…
The data centers that power AI technologies require such prodigious – and reliable – volumes of electricity that tech giants like Alphabet Inc. (GOOGL), Amazon.com Inc. (AMZN), and Microsoft Corp. (MSFT) have “rediscovered” nuclear power as an ideal energy source.
In October 2024, Amazon announced that Amazon Web Services (AWS) – its cloud computing platform – is set to invest more than $500 million in nuclear power.
AWS has signed an agreement with Dominion Energy Inc. (D), Virginia’s top utility company, to explore the development of a small modular reactor near Dominion’s North Anna Nuclear Generating Station (located about halfway between Washington and Richmond).
Around the same time, Google announced it will purchase power from Kairos Power, a small modular reactors developer. And in September, Microsoft made a deal with Constellation Energy Corp. (CEG) to restart a reactor at the infamous Three Mile Island nuclear facility near Harrisburg, Pennsylvania.
This unlikely marriage between Big Tech and nuclear power is the newest reason why the young bull market in uranium may last several more years.
To capitalize on that potential, I recommend putting the Global X Uranium ETF (URA) on your watchlist. This $3.3 billion ETF holds a broad portfolio of uranium companies – both those that are currently producing, and those that hope to begin producing in the future.
Coupangmay not be a household name here in the United States, but the company is well known in every South Korean household. Coupang is South Korea’s go-to provider of Amazon-like services.
And they are investigating and testing ways to enhance its businesses with AI technologies.
As the company’s founder, Bom Suk Kim, explained on the company’s first quarter 2024 earnings call…
Machine-learning and AI continues to be – have been a core part of our strategy. We’ve deployed them in many facets of our business from supply chain management to same-day logistics.
We’re also seeing tremendous potential with large language models in a number of areas from search and ads to catalogue and operations among others. There is exciting potential for AI that we see and we see opportunities for it to contribute even more significantly to our business. But like any investment we make, we’ll test and iterate and then invest further only in the cases where we see the greatest potential for return.
Kim’s focus on AI and other cutting-edge technologies is not new. Coupang’s e-commerce platform already utilizes AI and advanced robotics. The company’s other patent-protected AI-related tech can predict future order volumes, alert product managers when prices fluctuate significantly, optimize Coupang Eats delivery, and enhance search accuracy.
Today, Coupang has more than 2,100 global patent registrations, and it serves customers in 190+ countries and territories.
As Coupang expands its empire, and its earnings continue ramping higher, I expect its share price to post solid market-beating gains for many years.
Despite being one of the oldest “new” healthcare stocks in the market, GE HealthCare is also leader in the field of AI-enabled medical devices. As of May 2024, of the more than 850 AI-enabled devices authorized by the U.S. Food and Drug Administration, 72 are from GE HealthCare.
From an investment perspective, GE HealthCare is a two-part story. It is a solid, steadily growing medical imaging company that also includes considerable fast-growth potential from its AI product line and investments.
According to Grand View Research, artificial intelligence will become a key driver of medical device innovation over the coming decade. The research firm predicts the AI component of the healthcare market will skyrocket from $15.4 billion in annual sales in 2023 to more than $200 billion in 2030. That’s a compound annual growth rate of 37.5%.
Importantly, GEHC’s AI solutions do not replace medical professionals; they assist them. The company’s AI-enabled devices and services operate alongside traditional medical practitioners to support and optimize their efforts.
GE HealthCare is embracing this new paradigm with gusto.
Arming Your Portfolio
While AI Appliers are sure to give your portfolio strength, a good portfolio has a mix of companies that fall into the three AI categories I’ve laid out before:
AI Creators: Companies like Nvidia that develop the foundational hardware and software powering the AI Revolution.
AI Appliers: Companies that either implement AI technologies to transform their business or provide the essential resources that power AI.
AI Survivors: Traditional sectors like agriculture and metals that are difficult for AI to disrupt.
This dynamic landscape is transforming rapidly, and strategically it is crucial to invest across these categories in order to not get left behind.
As we’re seeing right now, even dominant companies like Nvidia can see their shares struggle despite beating earnings estimates, proving that no one AI play is immune to volatility.
We have all our AI bases covered at Fry’s Investment Report. Our portfolio includes holdings across several sectors – from tech innovators to energy powerhouses, and healthcare companies to metals and mining operations.
So, no matter which way the market turns, our balanced approach has us prepared.
Or so you might believe based on the sentiment indicators.
The latest AAII Sentiment Survey showed only 19.4% of respondents are bullish. This was the sixth time in eight weeks the reading came in below the historical average of 37.5%.
Here are the results from the last four weeks:
Meanwhile, the Conference Board Consumer Confidence Index showed a rise in consumer pessimism. The Expectations Index (based on consumers’ short-term outlook for income, business, and labor market conditions) dropped 9.3 points to 72.9. From their press release:
For the first time since June 2024, the Expectations Index was below the threshold of 80 that usually signals a recession ahead.
The survey also showed that 27% of consumers expect business conditions to worsen over the next six to 12 months, the highest since June 2022.
Looking at this data could spook any investor, leading to a classic investing mistake.
However, investors who can keep their heads can profit no matter what the crowd is doing, and I’m going to share an opportunity today.
Profiting by Separating Feelings from Data
Last week I wrote about the Iron Law of the Stock Market: If a company massively grows its sales and earnings, its stock price will grow, too.
Today, investor sentiment is low, but the earnings data tells a different story.
According to FactSet:
77% of S&P 500 companies exceeded earnings per share (EPS) estimates – equal to the five-year average of 77%.
The S&P 500 reported growth in earnings of 17.8% – the highest growth since Q4 of 2021.
No wonder the market hit an all-time high just a week ago.
And amid all the concern about inflation reigniting, yesterday, we learned the Personal Consumer Expenditures Index is 2.5%, down from 2.6% in December.
Regardless of the numbers, herd mentality takes over when sentiment turns negative, causing investors to react without thinking.
Here is what legendary investor Louis Navellier, editor of Growth Investor, has written about this classic investing mistake.
A lot of you are probably fans of momentum investing. The truth is, I am, too. You always want to capitalize on a trend, and trends are made up of people.
But while following the crowd CAN result in great momentum plays… you don’t want to do so blindly.
The crowd-seeking I’m talking about – follow the herd, think later – is responsible for a lot of failed investments. It means you won’t pick up on a shift in the trend. Thus, you’ll get your timing all wrong. You’ll often end up buying near the highs and selling near the lows.
Taking our natural biases out of the equation is at the heart of Louis’ quantitative stock picking system.
A Quality Stock on Sale
When market fear is high, savvy investors start to look for superior stocks that are on sale. That doesn’t necessarily mean cheap stocks. It means great companies selling at reasonable prices, resulting in good value.
Warren Buffett once encapsulated this idea in his usual folksy way, saying:
It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
In Louis’ system, that means stocks growing sales, operating margins, and especially earnings. When a stock like that experiences a sell-off… then that’s a great opportunity.
This week, one of Louis’ Growth Investor stocks, Vistra Corp. (VST), reported outstanding earnings…and still took a hit from the market.
Here is Louis’ summary of its earnings report.
Vistra Corp. (VST) noted that 2024 was not only a “record year but a transformational one” for the company. Full-year earnings soared 88.5% year-over-year to $2.81 billion, compared to $1.5 billion in fiscal year 2023. Revenue rose 16.5% year-over-year to $17.22 billion, topping estimates for $17.15 billion.
For the fourth quarter, Vistra reported earnings of $490.0 million, up from a loss of $184.0 million in the same quarter a year ago.
Below is a screenshot of how the stock rates in Louis’ system. Despite outstanding earnings, the stock took a hit at the end of the week.
But you can also see that the stock is still an “A” in Louis’ Stock Grader system.
As I write Friday morning, Vistra is up more than 140% since Louis recommended exactly one year ago.
And it’s still below his “buy below” price, and that means Louis believes there is a lot more room left for growth!
Keith Kaplan, the CEO of our corporate partner TradeSmith also is a big fan of using data to invest wisely.
His own experience of allowing emotions to drive his investment decisions led him to develop computer systems that can pinpoint the right time to buy and sell any stock, and a set of indicators that can tell him when the market is headed for a rally or a plunge.
Despite widespread investor pessimism, Keith’s data suggests it could be a great time to grab stocks poised for profits. Here he is describing what he sees.
They say you should never try to catch a falling knife.
That’s certainly true… if you’re doing it without a plan.
But if you do it with the right stocks, buying into a downtrend and banking on a reversal can be quite lucrative.
A couple months back, we got the idea of designing a system that’s like catching a falling knife with Kevlar gloves on… where we minimize the risk and trade only the rarest setups with a strong track record of working.
We tested tons of different variables, and eventually we found one combination that produces a rare but quite reliable trading signal.
Keith and his team designed a system that helps investors take advantage of rare but reliable setups with a strong track record of success.
Here is one example from Keith’s back-testing.
One of the cleanest examples I’ve found – a case from 2022, in Caesars Entertainment (CZR).
The signal triggered at $32.36 on Sept. 30… and would’ve led to a 35.5% gain if you’d sold it 21 trading days later (on Oct. 31) for $43.73:
To be clear, there are losers too. No system is 100%.
But in Keith’s study, only one-fifth of the signals lost money, which makes for pretty good odds.
Our data shows that we’re in a rare kind of market that we previously only saw in 1996… and then 70 years earlier, in 1926.
If your market history is sharp, you know those were the early stages of massive investment manias that went far further and lasted much longer than anyone expected.
Both were powered by technological breakthroughs… financial institutions lowering the barrier for smaller investors to participate… and a consumer credit revolution that spurred the economy higher.
These are all things we’re seeing the beginnings of today. And what we’ve found is that these specific conditions signal the start of a “mega melt-up.”
Keith prepared a free demo where he shows how to find 10 “melt-up stocks” for the historic market conditions TradeSmith is picking up now.
We all work hard for the money we invest, so it’s difficult to watch the market plunge. But staying with the data and not acting emotionally is going to lead to greater profits over time.
Editor’s Note: This week has been volatile to say the least…
But if anything, that has me and my friends at TradeSmith even more fired up about the market ahead.
The fact is, we’re in a Mega Melt-Up. All the signs are there.
And if you make the right moves today, you’ll be set for a bull market that rivals the internet boom… while avoiding the inevitable bust.
TradeSmith CEO Keith Kaplan has some thoughts below on this week’s volatility… including how it’s convincing us even more that the Mega Melt-Up is on.
Read it below. And be sure to watch his biggest forecast in 20 years, in this brand-new special research presentation. He’ll also share 20 recommendations just for checking it out.
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The market has taken us on a wild ride in 2025.
Between Chinese AI breakthroughs, radical shifts in trade policy, the Federal Reserve’s rate-cutting cycle, and now a surge in inflation expectations, the headlines have been all over the place.
Stocks are acting as you’d expect – soaring one week, shaking out weak hands the next.
All this wild price action has ultimately not taken us far. As I write, the Nasdaq 100 is basically flat from the start of the year…
And that’s especially painful, considering the 5.7% year-to-date gain we were looking at just a week ago.
All this chaos can’t help but make you wonder, “Are we heading for a crash?”
If you google that question, you’ll probably find a bunch of mainstream media headlines urging you to stay scared.
But I’m here to tell you something quite different:
This isn’t the beginning of a bear market.
On the contrary, it’s the setup for one of the biggest opportunities of your lifetime.
We’re smack in the middle of what my team has taken to calling a Mega Melt-Up.
We’ve gone through history and quantified the price action of the past few years. And what we found, shocking as it was, tells us that there’s only been two previous market environments like this one: the 1990s and the 1920s. And both were periods where individual companies rose thousands of percent in very short order.
If our research is correct, and I’m confident it is, the volatility we’ve seen this year isn’t a warning sign.
Instead, it’s even more evidence that we’re in a Mega Melt-Up… the kind that only comes around once or twice in a lifetime.
Three Bear Markets to a 1,000% Gain
Yes, the volatility we’re seeing right now actually supports the case for a Mega Melt-Up.
Let’s take a quick trip back in time.
Like what we’ve seen so far in the 2020s, the 1990s were a boom decade.
From 1995 to 2000, the Nasdaq 100 went up 1,000%.
But it wasn’t a straight shot up. In fact, there were more than two dozen major pullbacks in those five years…
Several of which you could consider an “official” bear market…
And each of which would prove a buying opportunity.
Let’s look at 1995-1996.
Starting in 1995, the Nasdaq 100 started to become a lot more volatile. From July 1995 to August 1996, the Nasdaq 100 posted drawdowns of 9.1%… 10.5%… 14%… 8.2%… and 14.4%. All in the span of one year:
What else happened back then? Well, in 1995 the Nasdaq 100 rose almost 40%. And the next year, it rose 22.7%.
Let’s skip ahead a bit to 1997-1998. We see the exact same thing.
Not only did the Nasdaq 100 retreat 20% in late 1997, creating a short-lived bear market… it saw two separate drawdowns of -22.2% and -19.1% within six months in 1998:
Yet once again, the index went up 21.6% in 1997 and 39.6% in 1998.
Finally, let’s look at 1999. Four major pullbacks in the double-digit range, and one final flush of nearly 9% before stocks took off into the end of the year:
What was the Nasdaq 100’s return in 1999? 101.95%… the highest ever.
The big takeaway from this is simple. You can’t have a Mega Melt-Up without massive price swings along the way.
This is exactly what we found in our research. Both the ‘90s Mega Melt-Up and the 1920s Mega Melt-Up were marked by a ton of volatility.
It’s the price you pay for the kind of extraordinary gains markets deliver in these times.
And, when you zoom out, it’s clear that it’s a small price to pay.
Now, by comparison, what we’re seeing in stocks right now isn’t anything like what I just showed you. The S&P 500 is 3% off its highs and the Nasdaq 100 is nearly 7% off its highs.
They can absolutely go lower from here, and that would not change my thinking onthis Mega Melt-Up one bit.
In fact, there’s an argument that the Melt-Up we’re about to see could be even bigger than the one in the ‘90s.
Why This Melt-Up Could Be Bigger Than the 1990s
The 1990s had three powerful forces fueling stocks:
The birth of the internet (what we’ve been calling a General Purpose Technology) and the associated new companies taking advantage of the trend.
The rise of online trading, making stocks more accessible than ever.
Easier monetary policy, where the Fed’s interest-rate cuts fueled a consumer credit boom.
These three forces are what we call Melt-Up Multipliers. For a Melt-Up to be truly powerful, it must have these specific three factors.
The 1920s saw the same thing, with electrification being the major technological breakthrough… margin lending making it possible for investors to own more stocks than they could buy… and a consumer credit boom powering the economy.
Today, we have these same three melt-up multipliers… and one more.
Artificial Intelligence: AI is today’s Internet moment – a technology that’s changing everything, from medicine to finance.
Zero-Commission Trading & Apps Like Robinhood: More retail money is flooding into the markets than ever before.
The Fed’s Rate Cuts: The Federal Reserve is slashing rates again, just like it did in the mid-90s.
Oh, and there’s a “wild card” fourth factor… President Donald Trump. Like him or not, his policies are market-friendly… And the last time he took office in 2017, the Nasdaq 100 surged 31.5%.
This is the perfect storm for a Mega Melt-Up.
But there’s a tricky thing to understand about melt-ups… and especially Mega Melt-Ups…
All melt-ups end the same way – in a meltdown.
Ride the Melt-Up and Avoid the Meltdown
The 1990s Melt-Up ended with the 2000 crash. The Roaring ’20s Melt-Up ended in the 1929 crash… and, even worse, the Great Depression.
And yes, this melt-up will end in a crash, too.
But that doesn’t mean you should sit on the sidelines. It means you need the right tools to capture the upside – and know exactly when to get out.
That’s why we built Trade360, our all-in-one software suite that’s designed to help you make the most out of every market environment.
And we recently made two big upgrades specifically to make it the perfect trading tool for a Mega Melt-Up period like we’re seeing now.
One is a tool that clearly identifies whether markets are in Melt-Up mode or not… and alerts you when that condition changes.
With this, you don’t have to second-guess whether or not we’ve seen a major top. You’ll get an alert that tells you when it’s time to get out before stocks crash.
The other is an advanced trading strategy that’s perfectly suited to melt-up environments.
Remember all those drawdowns in the Nasdaq 100 I showed you earlier?
If we’re seeing all that selling in the benchmark, you better believe we’re seeing it in individual stocks, too.
So, we designed a strategy that takes advantage of these short-term, extreme pullbacks in otherwise quality stocks.
When prices fall by a certain amount and at a certain pace, the strategy buys in… and sells the stock 21 trading days later.
This simple strategy has a near 80% win rate and average gains of around 16% – counting winners and losers.
And it works whether stocks are in a bull market, or a bear market… as it targets those rare occurrences where prices reach irrational extremes.
Markets fell after weak sentiment data—here’s what’s next for stocks.
Thanks to a very disappointing University of Michigan consumer sentiment report last Friday, the markets ended the week on a sour note.
To review, the report showed a reading of 64.7, down from 71.7 in January – a 10% decline. The stock market sold off sharply in response, with the S&P 500 and Dow falling 1.7% and the NASDAQ sinking 2.2%.
So, in Sunday’s Market Buzz YouTube video, my friend and colleague Jason Bodner joins me to discuss the numbers and this week’s key economic reports. But first, we begin by previewing a few stocks’ upcoming earnings – including NVIDIA Corporation (NVDA), which will serve as the grand finale for earnings season. We take a closer look at the factors behind Palantir Technologies, Inc. (PLTR) 19% plunge and review Walmart, Inc.’s (WMT) cautious earnings guidance.
Plus, we share our thoughts on President Trump’s bold words on Ukraine and how they could impact peace talks with Russia, as well as the German election and what the outcome could mean for the global economic reports.
You can click the play button below to watch now!
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To learn more about Jason and his Quantum Edge system, click here. His system has beat the S&P 500 7-to-1 over the last 30 years in independent testing and backtesting. I’m such a big fan of Jason that I included a few of his stories in my new book, The Sacred Truths of Investing.
And for my latest take on the stock market and big headlines, join me at Growth Investor. I released a Special Market Podcast this afternoon that covered today’s broader market pullback, the results of the German election and more.
Once you sign up, you’ll have full access to all my Special Market Podcasts, Weekly Updates and Monthly issues, as well as exclusive Growth Investor Buy Lists special reports (including three brand-new ones I published last week).
P.S. My friend Keith Kaplan recently called a “mission critical” meeting over at TradeSmith. Why? It all has to do with an ultra-rare pattern has emerged in the markets that has only appeared three times going back 125 years…
As CEO of TradeSmith, he’s pounding the table to get everyone to pay attention. Because one of their time-tested algorithms just flashed “green” on 10 off-the-radar tech stocks that could deliver generational wealth. So, on Thursday, February 27th, he’s holding a special briefing – and you’ll be blown away by what he reveals. Click here to grab your seat for Thursday’s big event.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
NVIDIA Corporation (NVDA), Palantir Technologies, Inc. (PLTR) and Walmart, Inc. (WMT)
Revisiting the LA fires … the national housing situation is a mess … are these conditions bullish for homebuilding stocks? … what TradeSmith’s quant tool tells us
On Tuesday, January 7, I stepped outside my apartment in Venice Beach, Calif., and noticed smoke coming from the Santa Monica mountains.
I texted a friend who lives in Santa Monica, closer to the smoke. She snapped this photo from her roof.
We were watching the early hours of the “Palisades Fire.”
Along with the Eaton Fire and additional area blazes, the flames would go on to destroy more than 11,500 homes across 60 square miles. The total real estate losses are expected to top $30 billion.
The housing situation in Los Angeles: from “bad” to “worse”
Prior to the fires, the more popular Los Angeles neighborhoods already suffered a massive shortage of homes/apartments relative to the people who wanted to live there.
And as Econ 101 teaches us, when “too much demand” runs into “too little supply,” the result is sky high prices.
Now, throw in an overnight loss of 11,500 homes.
Though price gouging is prohibited by state and local laws, it’s happening. It’s the byproduct of landlords who are being bombarded with rental requests, and deep-pocketed prospective renters who are willing to pay substantially above-market rent (the people who lived in the Palisades neighborhood were generally affluent, with the average home price coming in just under $4M).
Here’s The Los Angeles Times:
People are desperate, local agents said.
Their homes are in ashes, and they’re looking for stability — somewhere for their family to go that’s not a shelter, a friend’s house or a hotel room.
Some landlords are now sharply raising rent, even beyond what temporary price gouging protections allow.
And some would-be renters are offering a year’s rent upfront in cash and engaging in bidding wars.
This won’t end well…or soon.
The same dynamic is playing out nationally but for different reasons
The root issue remains a supply/demand imbalance. But this time, it wasn’t a fire burning up housing supply, but rather an inflationary fire burning up the purchasing power of homebuyers’ dollars, driving home prices higher.
Below we look at Federal Reserve data showing us the average price of houses sold in the U.S. dating to 1960. I’ve circled the pandemic-related vertical price explosion.
Source: Federal Reserve data
Coupled with a 30-year mortgage rate hovering near 7%, and you get today’s frozen housing market.
Last Friday, we received the latest data on the problem.
From CNBC:
The U.S. housing market continues to weaken, as potential buyers face stubbornly high mortgage rates, high prices and limited supply of listings.
Sales of previously-owned homes fell 4.9% in January from the prior month to 4.08 million units on a seasonally-adjusted, annualized basis, according to the National Association of Realtors. Analysts were expecting a 2.6% decline.
Sales…are still running at a roughly 15-year low.
Now, this would seem to be great news for homebuilding stocks. And, until recently, it has been…
Long-time Digest readers know that we got into an unofficial homebuilding stocks trade in 2022
In our April 20, 2022, Digest, we suggested that aggressive investors could initiate a trade on the iShares Home Construction ETF, ITB. It holds homebuilding heavyweights including DR Horton, Lennar, NVR, Pulte, and Toll Brothers.
Between that date and ITB’s high in October, the trade climbed 119%, quadrupling the S&P.
Source: TradingView
But since then, ITB has fallen about 25%.
Regular Digest readers know that I’m a big believer in using stop-losses to protect gains. So, is it time to sell?
If your knee-jerk answer is “yes,” what about our nation’s housing situation?
Aren’t today’s macro dynamics incredibly bullish for homebuilders? And if so, wouldn’t ITB trading 25% lower be a fantastic buying opportunity?
The complexity of buying homebuilders today
Homebuilder companies face a complicated market environment.
Yes, sky-high prices of existing homes would appear to be fantastic for new home construction demand.
The logic would seem to suggest that builders should just flood the market with new home construction to meet the overwhelming demand. Builders can undercut sky-high market prices and rake in the profits.
It’s not that easy.
Remember, lumber, concrete, and other key materials surged in price during the pandemic and remain elevated, though some have come down from their peaks. That’s bad for margins.
Meanwhile, skilled construction labor shortages mean wages have increased, pressuring margins further.
And don’t forget that acquiring and developing land is more expensive today because of higher interest rates increasing the cost of financing land purchases. Once again, tough on the bottom line.
Altogether, homebuilders can’t undercut prevailing market prices too much if they want to protect their profit margins. So, this market isn’t quite the moneymaker we might assume for builders.
(And we haven’t even talked about how these builders can’t do anything about the near-7% mortgage rates that are having a massive impact on housing unaffordability.)
But still – what if the Fed lowers interest rates later this year? What about aging Boomers having to downsize, being forced to sell their homes which will take pressure off the supply/demand imbalance?
Do those influences not make this ITB selloff a buying opportunity?
We could speculate…or we could let historical market data from TradeSmith guide our decision.
Taking the guesswork out of investing
For newer Digest readers, TradeSmith is our corporate partner.
They’re an investment research company rooted in quantitative analysis. They also happen to be in constant state of R&D (research and development) to make their products better.
They’ve spent over $19 million and over 11,000 man-hours developing their market analysis algorithms with dozens of staff working solely on developing and maintaining their software and data systems.
One of these software/data systems relates to market entry/exit timing.
As we noted in the Digest last week, TradeSmith’s CEO Keith Kaplan is holding a live event this Thursday that provides a walk-through of how it works.
Let’s use it on ITB today.
But before we dive into those details, let’s begin theoretically…
ITB is down about 25% from its high. Broadly speaking, is this a good time to sell…or double-down?
Here’s Keith, not speaking specifically about ITB, but about the decision at large:
[Investors are] “risk-seeking when we’re losing.”
And I bet you’ve had this happen plenty of times. I call it “rationalizing your decision after you make it.” When a stock is falling, you say to yourself:
I’m going to buy this on the dip.
This stock will come back, and my break-even price will be lower.
It’s just a paper loss.
Really, what you’re doing is adding more risk to your position. You are “seeking out more risk” by buying more OR holding on to a falling stock.
Keith explains that momentum is the single most important factor in investing.
When a stock has a confirmed uptrend, it is more likely to rise in the short term. When a stock has a confirmed downtrend, it is more likely to fall in the short term.
Now, this sounds simple…
Buy when a stock is rising and sell when it’s falling! Easy!
But as you know, in the real world, there’s a big problem for investors…
How do you know whether a stock that’s pulling back is in a “confirmed downtrend,” or just briefly regrouping before it makes a new run higher?
TradeSmith has an answer.
Understand a stock’s “VQ”
Volatility is not the same thing as risk, and volatility isn’t uniform across all stocks.
Below, we compare two stocks: perennial blue-chip Coca-Cola (KO) and Matador Resources (MTDR), an oil and gas exploration company.
From October of 2021 through mid-April of 2022, both stocks climbed about 17% But the paths they took to get there were wildly different.
See for yourself. Matador is in red. Coke is in blue.
Source: TradingView
Coke’s path is far smoother than Matador’s comparatively “violent” series of ups and downs.
Given this, using the same trailing stop-loss percentage for both stocks would ignore the reality that Matador’s normal volatility is far greater than that of Coke’s.
But that doesn’t mean Matador is a “riskier” stock. It just means traders need to factor this greater volatility into their position sizing, trade expectations, and stop-loss levels.
TradeSmith has created a tool that factors in these unique volatility thumbprints, generating a proprietary “Volatility Quotient” (VQ) reading that helps investors know how much volatility is normal and to be expected.
Here’s more from Keith:
[The VQ number] solves so many problems that individual investors face today. Certainly, people like me, and likely you as well.
It’s a measure of historical and recent volatility – or risk – in a stock, fund, or crypto. And that measurement is really focused on the moves a stock, fund, or crypto makes.
Here’s what it tells you (I’ll just refer to stocks, but it covers everything we track):
When to buy a stock.
How much of a stock to buy.
When to sell a stock.
And how risky that stock is – how much movement you should expect.
Let’s use ITB’s VQ to get a sense for where the ETF is today
Below is how ITB looked as of last Friday on one of TradeSmith’s data pages…
I’ll walk you through some of the details in a moment. But here’s the page first.
Source: TradeSmith
The red “H” is ITB’s high from back in October. This is the price to which we apply ITB’s VQ reading.
In this case, given that high and ITB’s proprietary VQ, the stock’s unique stop-loss level came in at $98.95, which was about 23% lower.
Now, notice the green band at the bottom.
This extended until about mid-December. It was showing us that during this period, ITB was still performing well and reasonably safe to hold.
But as ITB’s price began to slip, green turned to yellow on December 18. This didn’t mean “sell,” but it did signify “caution.” ITB’s upward trend was losing steam.
Fast-forward to last Friday when ITB closed at $98.11…below its stop-loss level of $98.95. Here in the Digest, this means we’re closing our unofficial trade for a gain of 69%.
But what about all the macroeconomics at play that could be bullish for ITB as 2025 rolls on?
That’s possible. ITB may begin soaring tomorrow. No one has a crystal ball.
But what we know, based on the data, is that ITB appears weak today…which suggests further weakness tomorrow.
Back to Keith:
The trend is your friend.
If the confirmed trend is up, stay in your stock. Ride the winner! If the trend is a confirmed downtrend, cut your losses.
The good news for anyone who wants to continue playing the housing market is that Keith’s market timing tool works the other way too.
If/when conditions change and ITB begins a new, sustained uptrend, TradeSmith’s timing tool will notify us (you can set that alert). We can evaluate the trade’s overall attractiveness at that point and perhaps re-buy.
Sure, I could take a guess at how inflation, interest rates, and housing demand will play out from here, and trade ITB based on my analysis – but far smarter analysts than me get such calls wrong all the time.
I believe my portfolio results would be better served if I based my market choices on historical data rather than my own hunches.
If you feel similarly, Keith is doing a run-through of this quant tool with far more details this Thursday at 8:00 PM ET
During the event, Keith will introduce a new tech breakthrough and demo it for the first time ever. It’s called the MQ algorithm. And it’s designed to do one thing: detect and model market melt-ups mathematically.
His team crunched 5.2 billion data points to create this breakthrough. They examined more than 125 years of stock market data for the S&P 500, Nasdaq and Dow. And they ran months’ worth of back-testing to come up with this breakthrough.
PCE inflation comes in as expected … volatility is the new normal … Jeff Clark’s bullish indicator … a flashing recession warning … context for this market weakness
The good news is that today’s inflation report – the Personal Consumption Expenditures (PCE) Price Index – met market expectations.
This prevents bears from having a new reason to push stock prices lower.
The bad news is that the report showed inflation remaining well above the Fed’s target of 2%.
Translation – don’t expect rate cuts soon…
Diving into the details, the PCE index climbed 0.3% in January, notching a 2.5% year-over-year rate. Core PCE, which excludes food and energy prices, also rose 0.3% for the month and came in at 2.6% annually.
All these figures were in line with consensus estimates.
The more interesting part of the report had to do with incomes and consumer spending. Here’s CNBC:
Personal income posted a much sharper increase than expected, up 0.9% on the month against expectations for a 0.4% increase.
However, the higher incomes did not translate into spending, which decreased 0.2%, versus the forecast for a 0.1% gain.
The personal savings rate also spiked higher, rising to 4.6%.
This reflects what we’re seeing in the markets today: fear stemming from uncertainty.
From interest rates, to tariffs, to inflation, to public policy – you name it – there are abundant “what will happen?” question marks overhanging stocks today.
And that means one thing…
Volatility.
Get used to stock market volatility
That’s the recommendation of our hypergrowth expert, Luke Lango, editor of Innovation Investor.
From Luke:
Stocks have swung violently higher and lower many times over the past several months.
In that time, we’ve seen just 5% gains in the S&P 500 and a negative return from the small-cap Russell 2000.
Is this intense volatility Wall Street’s ‘new normal’?
It may be.
I still think stocks are going higher in 2025. However, I don’t think it’ll be a smooth ride higher – largely because of U.S. President Donald Trump.
To be clear, it’s not Trump himself. Rather, Luke notes that it’s the uncertainty Trump brings to the market.
Wall Street hates uncertainty. Market fog makes it challenging for analysts to run their earnings projections and for money managers to position their clients.
This results in market whipsaws (quick, violent moves up and down) as Wall Street reacts to shifting headlines and new data.
But as Luke noted, this might be our new normal:
We think this will be the pattern for the stock market for the foreseeable future: two steps forward, one step back. Lather, rinse, repeat.
That means a lot of volatility on Wall Street…
Now, volatility isn’t necessarily bad.
For traders, it’s the fuel that drives profits. And for long-term investors, while frustrating, it can also present great buying opportunities.
For a detailed roadmap of how Luke plans to play this Trump-based volatility, check out the free presentation he just put together. It covers:
Luke’s five-point game plan for how Trump’s policies could shape the economic landscape
How these policy changes might influence your money over the next four years, including when the boom becomes a bust
The sectors best positioned for exponential growth under the Trump
In the meantime, keep your Dramamine nearby. This volatility looks to be sticky.
But if one of Jeff Clark’s trading indicators is right, we’re getting closer to the good “upward” kind of volatility
For newer Digest readers, Jeff is a market veteran with more than four decades of experience. In his service, Jeff Clark Trader, he profitably trades the markets regardless of direction – up, down, or sideways.
He uses a suite of momentum indicators and moving averages to provide clues about where stocks are going next. And one of them suggests we’re getting closer to a bullish breakout.
Here’s Jeff from his Wednesday update:
The Volatility Index (VIX) is about to generate its first “buy” signal of 2025.
The VIX gave us eight buy signals in 2024. All of them came within a day or two of at least a short-term low in the stock market. And all of them were good for a rally of at least 100 points in the S&P 500.
This “VIX Indicator” triggers when the index closes above its upper Bollinger Band and then closes back inside the bands.
To make sure we’re all on the same page, Bollinger Bands help gauge a stock’s volatility to determine if it’s over- or undervalued. This can inform entry and exit timing in a trade.
Back to Jeff for how to read Bollinger bands in the context of the VIX:
Whenever a chart moves outside of its Bollinger Bands, it signals an “extreme” condition – which is vulnerable to a reversal in the other direction.
In the case of the VIX, these extreme conditions trigger buy and sell signals for the broad stock market.
The last time this indicator triggered was mid-December. The S&P 500 was trading near 5880. One week after the trigger, the index was above 6000.
On Monday, the VIX closed above its upper Bollinger Band for the first time this year. Below is a chart showing how that looked, from Jeff’s update.
You’ll also see the trigger from mid-December.
Source: StockCharts.com
Jeff writes that when the VIX closes back inside the bands, we’ll have another VIX buy signal.
Below is how things look as I write Friday morning. I’m using a 6-month timeframe so we can see the details clearer. If you can’t see it, the VIX reading is slipping just underneath the upper Bollinger Band.
Source: StockCharts.com
Per Jeff, we’ll need the VIX to close today back inside the band for an official trigger. But so far, so good. And at a minimum, we can say that the VIX Indicator appears very close to turning to bullish.
We’ll report back.
Continuing with “triggers,” on the macro front, the Fed’s favorite recession indicator triggered on Wednesday
Now, I’ll immediately clarify that we’re not calling for a recession.
That said, it’s important for investors to be aware of what’s happening.
Two days ago, the 10-year Treasury yield fell below the yield on the 3-month note in what’s called an “inverted yield curve.”
Regular Digest readers are familiar with this phenomenon as we’ve covered it extensively over the years. But while we usually focus on the 10-year/2-year relationship, the Fed prefers this 10-year/3-month relationship because the 3-month is more sensitive to movements in the fed funds rate.
In fact, the New York Fed uses it to assess the probability of a recession over the ensuing 12-months. As of last month, that recession probability clocked in at 23%…
Source: Federal Reserve data
This is likely to move.
Here’s CNBC:
[The 23% recession probability] is almost certain to change as the relationship has shifted dramatically in February.
The reason the move is considered a recession indicator is the expectation that the Fed will cut short-term rates in response to an economic retreat in the future.
As we covered earlier this week in the Digest, legendary investor Louis Navellier believes the Fed will enact four quarter-point cuts this year.
If that happens, our inversion might steepen or normalize based on whether Wall Street interprets those cuts as bullish or bearish (which will affect the long end of the yield curve).
After all, cuts can either restore confidence that the Fed has things under control…or inflame anxieties that the Fed is behind the curve and reacting to bad economic data.
For now, what we can say definitively is that the inversion does not mean an impending recession. Remember, this part of the yield curve was inverted for virtually all 2023 and 2024 (turning positive in mid-December 2024). So, while it’s something we should consider, let’s not assume the sky is falling.
We’ll continue monitoring and will report back.
Finally, let’s end today with some good news
If the recent market weakness has you on edge, remember…
We’re in a bad part of the year for market returns.
Below, we look at the S&P’s Seasonality chart, which visually represents the average returns of the S&P 500 over the average year.
The short takeaway?
On average, it’s always bad right now. So, don’t rush to bail on stocks.
Source: Stock Pattern Pros/Tim @StockPatternPro on X / Charles-Henry Monchau
The good news is that if average seasonality repeats, we’re in for another week or so of softness, then we’ll kick off a solid bull run into May.
Sounds about right with Luke’s volatility prediction and Jeff’s VIX Indicator.
Speaking of seasonality, back in January we profiled a new Seasonality Tool from our corporate partner, TradeSmith. It searches for historical, repeatable price patterns, specific to any given stock.
Well, yesterday, Keith & Co. released their latest suite of quant tools, while also flagging a rare market pattern that’s suggesting we’re on the verge of a bullish melt-up – despite the market’s wobbles in recent weeks.
It was a great evening with thousands of investors joining Keith. If you missed it, you can catch a free replay here. It covers:
What’s behind the algorithm that’s flashing a bull signal today
10 stocks positioned to ride a melt-up higher
10 “big name” stocks to sell immediately
The perfect way to unleash TradeSmith’s cutting-edge technology on these markets for maximum profit potential
We’ll keep you updated on all these stories here in the Digest.
This is a bold claim to make on national television in front of millions of people.
But this is how Andrew Left, CEO of Citron Research (a notorious short seller), described a technology company on CNBC in September 2017.
Fraud is a serious offense, and usually this sort of accusation does not get thrown around lightly. So, when folks hear that kind of serious claim on TV, they often believe it.
This is what Ubiquiti Inc. (UI) was up against when Andrew Left pointed his guns in its direction.
The high-growth networking technology company designs and sells wireless communications and enterprise networking solutions for service providers and businesses worldwide.
Left called Ubiquiti a fraud because he believed there were several “red flags,” including exaggerating the size of its user community, accounting irregularities and high executive leadership turnover. In the immediate aftermath of the news, Ubiquiti fell 8%.
And then, as the rumors spread, the stock tumbled.
This is exactly what Left wanted. You see, short-selling is a trading strategy where you borrow shares of a stock and sell them at the current market price. The idea is to buy them back later at a lower price to return to the lender, profiting from the decline in the stock’s value.
Simply put, short sellers want the stock to go down.
Firms like Citron, Hindenburg, Muddy Waters and others take short positions in companies and issue research reports that are critical of them. Now, sometimes there are merits to the claims, but a lot of times they simply exaggerate or throw around wild accusations, hoping to drive down the price.
Here’s how Ubiquiti’s CEO, Robert Para, initially responded:
Now, the question is: Did those claims have any merit?
Despite the short-seller attack, Ubiquiti continued to post strong earnings. In the first quarter following the Citron report, the company reported revenues of $245.9 million, a 20.1% year-over-year increase. It achieved a gross profit of $111.7 million, representing 45.4% of revenues net income of $74.9 million. Earnings per share came in at $0.92.
And in the quarters following the Citron report, the company beat analyst expectations multiple times, demonstrating resilience in both revenue growth and profitability. Ubiquiti’s robust fundamentals, including expanding margins and strong cash flow, ultimately proved that the accusations lacked substance.
I’ll put it this way. I felt comfortable enough to add the stock to my Growth Investor service back in May 2021. We ended up walking away with a 90% gain in December 2021.
More importantly, Ubiquiti is still around today.
If we look back, the Citron report in 2017 was simply a blip in the grand scheme of things.
In the chart below, the red arrow indicates the sharp drop it took when the report was released. But the stock has since recovered the losses and posted some impressive gains…
The point is the claims ultimately subsided, and the company’s fundamentals ultimately spoke for themselves.
In the end, Para had the last laugh.
But here’s the thing…
The sharp drop caused by Citron damaged the portfolios of a lot of hardworking people. I’m willing to bet that many people were scared away from this stock completely, causing them to miss out on the long-term 500%-plus gain that followed.
I have a problem with that.
These are people who were planning to retire someday. Maybe take a nice vacation with their spouse. Or pay for their daughter’s wedding.
And Left? He is currently facing both civil charges from the Securities and Exchange Commission (SEC) as well as criminal charges from the Department of Justice (DOJ).
In short, I think short sellers are scum, folks.
And I bring this up because the case with Ubiquiti shares some striking similarities to what happened to Super Micro Computer, Inc. (SMCI) last August. If you haven’t followed along, let me break it down for you in today’s Market 360. Then, I’ll review the latest developments and why I continue to believe it’s worth holding today. Plus, I’ll share where you can find strong stocks with superior fundamentals that are great buys right now.
What Happened with Super Micro
Now, Super Micro is a leading high-performance server provider, specializing in energy-efficient, liquid-cooled hardware that’s ideal for data centers working on artificial intelligence. This made it a key player in the AI Boom since its products were best-in-class. In fact, demand for Super Micro’s products was insatiable – making it one of the hottest stocks on the market.
On August 26 last year, Super Micro fell victim to a report from another notorious short-seller, Hindenburg Research. A former employee also claimed that Super Micro was committing accounting violations and filed a whistleblower report.
The DOJ took Hindenburg Research’s allegations seriously and issued a probe to investigate. Super Micro had to delay the filing of its annual 10-K report to the SEC as a result.
Then on October 30, Super Micro dropped more than 30% after its auditor, Ernst & Young, resigned, citing concerns over the company’s controls. The stock fell another 12% the following day after CNBC’s Jim Cramer said that Super Micro might get delisted from the NASDAQ. The company did get a deficiency letter, and it had until November 16 to comply.
After hiring a new auditor, Super Micro was ultimately granted another extension to file its 10-K and 10-Q reports to the SEC. There was a three-month investigation conducted by an independent Special Committee. They found no evidence of fraud or misconduct from management or the board of directors.
Now, the new deadline was Tuesday, February 25. Now, the new deadline was Tuesday, February 25. Shares of SMCI surged by roughly 49% in anticipation of meeting the filing requirements – which it did meet this week.
But the damage was done. You can see the carnage investors experienced in the chart below.
That’s quite the wild ride, folks.
Why Fundamentals Matter
When the news of this fiasco first broke and the stock began to fall, Super Micro was downgraded to a D-rating in Stock Grader (subscription required). Normally, that means it’s an automatic sell. But I advised my Growth Investor subscribers to hold it. Many of them thought I was crazy for doing that, and I don’t blame them. Super Micro was becoming volatile, and no one likes too much volatility when their hard-earned money is on the line.
But the only thing I hate worse than volatility is a scummy short seller jerking people around, manipulating them to make a buck.
The fact is Super Micro has superior fundamentals. The numbers speak for themselves.
Its most recent update showed second-quarter fiscal 2025 sales between $5.6 billion and $5.7 billion, translating to 54% year-over-year growth. Analysts were expecting sales between $5.0 billion and $6.0 billion.
Looking to the third quarter, it expects total sales between $5.0 billion and $6.0 billion. That’s just a hair below analyst expectations for $6.09 billion. I should also add that Super Micro revised its full-year fiscal 2025 revenue forecast to a range of $23.5 billion to $25 billion, down from the previous estimate of $26 billion to $30 billion. But that still translates to nearly 60% growth on the low end.
It’s important to keep in mind that Super Micro has an extensive order backlog – as much as four to five years. I used to work in accounting, so I know that falsifying an order backlog is nearly impossible to do.
The bottom line is that fundamentals matter. Short sellers are scum and they’re just looking for ways to ruin the party.
You do not want to get me in a room with these people. In fact, I said in a CNBC International interview in February 2024 that I would fight them after they alleged that NVIDIA Corporation (NVDA) was round-tipping. Its phenomenal fourth-quarter 2024 earnings results showed that its growth was quite real, and the stock rallied about 16% in the wake of its strong numbers. There was absolutely no truth to the rumors.
I should also mention that Hindenburg Research is now out of business. On January 15, 2025, founder Nate Anderson announced that Hindenburg would be closing its doors in a personal note to his employees.
I find this very interesting.
With all of that being said, Super Micro is still not out of the woods. They have a lot of ground to make up. The stock surged as much as 23.4% on Wednesday after the company filed 10-K and 10-Q reports, but then gave up those gains after NVIDIA’s earnings triggered a tech selloff.
In the end, I think this is simply a blip in Super Micro’s history. Just like it was with Ubiquiti.
What to Invest in Next
So now, you’re probably wondering where else you can find stocks with superior fundamentals like Super Micro.
Well, look no further than my Growth Investor service. My recommendations are characterized by 26% average sales growth and 556.1% annual earnings growth. Plus, the average earnings surprise during this earnings season is 43.3%.
And you couldn’t join at a better time. I just released my March Monthly Issue to my Growth Investor subscribers this afternoon with four brand-new recommendations. All four of them have positive analyst revisions, which typically precede future earnings surprises and earnings surprises mean that they’ll jump up higher, putting more money in your pocket.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
NVIDIA Corporation (NVDA) and Super Micro Computer, Inc. (SMCI)
Editor’s note: “An Expert Method to Overcome a Turbulent Stock Market” was previously published in January 2025 with the title, “How to Find Success Despite Wild Stock Market Volatility.” It has since been updated to include the most relevant information available.
When it comes to the stock market, it can be a bit like a hurricane at sea: powerful, unpredictable, and capable of turning calm waters into chaos in an instant.
We’ve been enduring our fair share of market chaos lately, with the S&P 500 seemingly up one week and down the next. Investors are practically begging for monotony. But wilder price action like this may be our new normal…
You see; historically speaking, the stock market averages about one bear market every five or six years. But in the past six years, we’ve had not one… not two… but three different bear markets.
There was the flash crash of late 2018, which saw stocks briefly fall into a bear market right before the holidays. There was also the COVID crash of 2020, wherein stocks plunged in the fastest market crash in history. And then there was the inflation crash of 2022, when tech stocks were obliterated by sky-high interest rates.
Three unforeseen bear markets in the past six years – that is wild.
But, of course, on the other hand, we’ve also seen some huge stock market successes, too.
Navigating Both Flash Crashes & Fast Recoveries
On average, the stock market rises about 10% per year. But in 2024, stocks climbed 23%. They rose around 27% in 2021. And in 2019, stocks rallied about 29%.
In other words, over the past six years, the S&P 500 has achieved three different years with nearly 30% returns. As a matter of fact, of the stock market’s 10 best years since 1950, three have occurred since 2018.
Three different bear markets and three of the best years ever for stocks – all within the past six years.
So, if the stock market has felt wild to you lately, that’s because it has been.
But this wildness could be the new norm for Wall Street going forward.
We can thank technology for that – at least, that’s my opinion.
Why? Because algorithms run the market now.
These days, algorithmic trading accounts for approximately 60- to 75% of total trading volume in the U.S. stock market. That means most trades are automatic, executed by bots adhering to pre-set parameters.
And, unlike humans, robots don’t really ask why. They just do what they are programmed to.
So, when something bad happens, all the algorithmic-driven systems rush toward an exit. And when something good happens, they race to get involved. That’s why, in my view, algorithmic trading creates crowding.
As a result, we get wild swings in the market – both up and down. The algorithms drive momentum one way or the other, and the market follows.
We get flash crashes and fast recoveries; big bear markets and massive bull runs; major meltdowns and momentous melt-ups.
We get stock market volatility.
The Final Word on Stock Market Volatility
Such unpredictability can be scary. But since that turbulence drives stocks both ways, you can’t really afford to be crippled by fear, sitting on the sidelines. You need to be in the game.
But to play well, you also need to craft an investment strategy that can handle the volatility – one that can mitigate the downside while also maximizing the upside.
That is, we’ve developed a stock screening system – dubbed Auspex – that leverages fundamental, technical, and sentimental data to find the strongest stocks in the market at any given time.
The strategy therein? Use this tool to find the best stocks in a given month. Buy and hold those stocks, then cash out at month’s end. Lather, rinse, repeat.
We’ve been executing this strategy internally, with great success, for the past several months.
Back in July, Auspex helped us score a nearly 40% gain in AnaptysBio (ANAB) and ~30% gains in Zeta Global (ZETA) in just about 30 days. In August, we locked in a ~25% paper profit on Cellebrite (CLBT) in the same timeframe.
Similarly, in September, we were able to nab ~25% returns on SiTime (SITM). Then in October, Auspex helped us put together a portfolio of five stocks – and four went on to rise that month, even while the broader market dropped.
That is the very real power Auspex can provide. And in just a few days, we’ll be running a new scan to find the best stocks to buy for March.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.
