Is The A.I. Story Real Or Are We In A Bubble? Todd Gordon, Founder of Inside Edge Capital
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00:00 Todd Gordon, inside edge capital.
00:03 Todd, are you in a new environment?
00:06 Yeah, I moved the office.
00:09 It's a write-off.
00:10 How about that?
00:11 That's beautiful.
00:12 I love it, Todd.
00:13 Thanks, man.
00:14 Todd, this market relentlessly to the upside.
00:17 You've been bullish for a while, correctly here, Todd.
00:21 Let's just start with-- we're 5,000.
00:24 That's a P5,000.
00:25 Can we go to 6?
00:26 It's a big deal.
00:27 And bid.
00:28 And bid.
00:29 And bid.
00:30 Yeah.
00:32 Yeah, I mean, where do you want me to start?
00:34 It's an unbelievable move.
00:36 I think we have clarity on sort of the macro front.
00:40 I think the last two years have been very Fed and rate policy
00:45 driven.
00:46 I think the focus is a little bit more on consumer.
00:48 And I think this tech innovation we're in is real.
00:53 I hate to be a rah-rah table-pounding bull,
00:55 because I'm not.
00:56 Like you guys, I'm a trader just like you guys,
00:58 running money.
00:59 Like I can close everything in an hour and be short.
01:02 But I don't think that's the play here.
01:05 No, it doesn't feel like the play.
01:06 And people have been trying to call the tops in all these AI
01:09 stocks relentlessly here.
01:11 NVIDIA, I heard it back when it was 500.
01:13 Well, that's it.
01:14 It's going back to 100.
01:15 Then it was 600.
01:16 Then it's going back to 500.
01:18 Now it's 700.
01:19 But it's going back to 600.
01:20 I sense a pattern forming here.
01:22 And I am long NVIDIA.
01:24 And I'm like, usually I'm not participating
01:26 in all these fake people.
01:27 But I've said before, the valuations is not insane here.
01:30 So NVIDIA, SMCI has just been rocket ship mode.
01:33 AI stocks have just gone fire.
01:35 I mean, Arm hasn't--
01:37 Arm isn't even really an AI company,
01:38 but it's got a piece of AI.
01:40 And then they just grab it and run with it.
01:42 This AI-- is this a bubble, or is this real?
01:45 I mean, I don't--
01:48 OK, so let me ask you this.
01:50 When did the uptrend start?
01:53 According to you and Joel, when did we officially
01:56 go into bull market?
01:57 In this AI?
01:59 Let's call it the NASDAQ.
02:00 Like, when did we--
02:01 Oh, the NASDAQ was 2023, early 2023.
02:04 The whole-- you're 14 months into the bull market,
02:08 I would say, 2023.
02:09 It was the calendar turn in 2023.
02:12 Now, the IWM and the other stocks
02:13 really just started picking up in October of 2020.
02:17 So you have the tail of two markets.
02:18 And they really haven't even picked up that much.
02:20 I mean, it's been the tail of two markets.
02:22 The tech, which has just been killing it,
02:23 and then everything else has just kind of been,
02:25 just kind of like, not that great.
02:27 So, OK, so I mean, like, I would take the other side
02:32 and say it's hard to say a bull market started 14 months ago
02:36 when, like, I was on Twitter, like, vehemently
02:39 defending being bullish.
02:40 It's hard to say when so many were convinced
02:42 we're going into recession and sell all stocks that, in fact,
02:45 the bull market was starting.
02:47 I mean, maybe you'd look at it-- and this is a stupid argument,
02:49 because nobody knows the answer.
02:50 It's very subjective.
02:51 But maybe it's when we just broke out.
02:53 So maybe this thing is two, three weeks old.
02:57 So if you look at--
02:59 how do I share screen?
03:00 I mean, can I-- do you guys mind if I--
03:02 Yeah, you can have--
03:03 --shut it down.
03:03 OK.
03:04 I mean, I just like to be just simple with the NASDAQ, right?
03:08 I don't want to get super crazy.
03:10 But I mean, just look at the advances
03:14 that we've seen, post-tech crash.
03:16 Here's the GFC.
03:18 Here's recovery in the GFC.
03:20 And I mean, you don't need to overcomplicate it.
03:22 Like, the first move off of the 2002 low up into the housing
03:27 was 182%.
03:29 The next one was 1,500%.
03:31 Right now, what are we up?
03:32 Probably 60% right now, maybe, from the lows, which, again,
03:38 many were telling us that we're going
03:39 into recession or depression.
03:41 And we're only up 68% from there.
03:45 So I think there's a lot of good things going.
03:48 I mean, I think the valuations that everyone's
03:52 struggling with, traditional valuations,
03:54 are being challenged with the fact
03:56 that we have four-decade high inflation, rates are higher,
04:01 real cost of capital is a little higher, real rates are higher.
04:05 We have incredible efficiency happening in these companies.
04:08 And the technologies they're putting out
04:09 are going to be widespread, applicable across so
04:12 many different industries.
04:14 I think it's really premature to say this thing is long
04:18 in the tooth and even say bubble dentists.
04:20 It's just my humble opinion.
04:22 And again, people want to keep comparing.
04:25 I see it on Twitter all the time.
04:26 This is just like the 1999-2000 tech bubble.
04:29 But the big difference was, I can remember at Microsoft,
04:31 it was trading 85 times earnings, Todd.
04:34 What--
04:35 [INTERPOSING VOICES]
04:36 --32 times.
04:36 You said it earlier.
04:37 And I'm sorry to interrupt.
04:38 I almost interrupted you last time.
04:39 I interrupted you now.
04:40 That's OK.
04:41 What's Ford valuation on Nvidia right now?
04:43 35 times.
04:44 35.
04:45 And what's Eli Lilly for?
04:47 Oh, crazy.
04:48 Lilly will be--
04:49 It's like 50 or 60 maybe?
04:52 Yeah, it'll be 60 probably.
04:54 I haven't looked at it for a while.
04:55 But again, those projections are hard to do on Lilly
04:58 because we just don't know how many people are going to
05:01 actually go out and buy this drug.
05:03 So Lilly's a little harder to project.
05:05 So maybe it's going to be way more.
05:06 Maybe that's what the market's saying.
05:07 It's going to be way more.
05:08 Ford P, Benzinga Pro's got it 58 right now on Lilly.
05:11 Ooh, 58 times.
05:13 OK.
05:14 It's not cheap.
05:15 But again, that's a hard one to project.
05:17 Nvidia's a little bit easier.
05:18 But again, projections-- and people will argue with me,
05:21 Todd, about forward projections.
05:22 You can't look at those.
05:23 You have to look at trailing.
05:24 Because forward projections, those are just--
05:27 the companies are guessing.
05:28 But companies usually pretty much know
05:30 their business pretty well.
05:32 They often hit the forward projections.
05:34 That's what the market's trading on here, Dennis.
05:36 Would you agree with that?
05:37 It's not so much what the current EPS revenues are,
05:40 margins, et cetera.
05:40 It's all about the guidance.
05:42 It's all about guidance.
05:43 And forever, for the last two years, we were all--
05:46 in my opinion, CEOs going out there in an under promise,
05:50 then over-deliver.
05:51 Set the bar super low, beat it, just do it again.
05:54 And I think that jig is kind of up, so to speak.
05:56 I mean, now I think it's all about--
05:58 I think they have to have good, strong guidance going forward.
06:02 And analysts are now--
06:03 the markets are trading based on analyst expectation
06:05 with the CEOs putting on guidance.
06:07 So I think that's starting to improve.
06:09 We have-- on the rate front, maybe
06:12 we can stop all being macro, global macro traders
06:16 and fawning all over the yield curve, which
06:18 was the key driver of growth value rotation
06:21 over the last two years.
06:22 Rates are finally going quiet, thank goodness.
06:25 Like, we can just get a 10-year at 4 and 1/4, 4/2,
06:29 stay in a range, like, OK, good.
06:32 I think that'd be an ideal scenario.
06:34 And I think we can live with 4, 4 and 1/2 percent 10-year
06:38 yields.
06:39 The real yield is, what, 1, 1 and 1/2 percent.
06:43 I saw that inflation revision just came out.
06:45 We're still running 3, 3.3.
06:47 So I think we're in a really good place right now.
06:52 I like where the market's at.
06:53 I think there's a lot of bearish sentiment out there,
06:56 still under-participated.
06:57 I don't know what the short figures are.
06:59 But I feel like there's more money coming in.
07:01 And trust me, I am not a long-owned--
07:04 I love trading, like you, 20, 25, 30 VIX markets.
07:07 Like, those are super fun.
07:09 But I don't know.
07:10 I don't see it here.
07:11 Where do you think we can go?
07:12 We're 5,000 here on the S&P.
07:15 And again, it's hard.
07:15 You're a trader.
07:16 So given making price targets here,
07:18 you're not an analyst here.
07:19 I'm not going to throw you under the bus and say,
07:20 give me your 12-month price.
07:21 No.
07:22 But where can we--
07:24 is there any-- can you use your technical analysis skills here
07:27 and give us any type of projections on where
07:29 this S&P might be going?
07:31 I didn't even bring up my technicals just for this,
07:34 for a reason.
07:35 And I can bring it up in a sec.
07:36 It's so simple right now, it's scary.
07:40 I'm an Elliott Wave guy.
07:41 For better, for worse, I'm thinking
07:43 about just going in the closet, not talking about it,
07:46 just do it.
07:47 I'm sick of defending it because there's so many people giving--
07:49 Right.
07:51 But if you look at Microsoft, you look at S&P,
07:54 you look at NASDAQ, you look at even Bookings.
07:57 I was just listening to you on Bookings, BKNG.
07:59 There's so many simple five-wave moves up
08:03 from either the late 22 or the early 23 low.
08:07 I'm literally up at night thinking about,
08:11 how are we going to escape this?
08:13 And it's such a simple, obvious five-wave move,
08:16 which was given to us by Charles Dow.
08:19 He's the grandfather of technical analysis, markets
08:21 moving three primary advances, accumulation, widespread
08:25 participation, then distribution.
08:27 This is going back to Charles Dow.
08:29 So the model says we're in the distribution phase off
08:33 of that 23 rally.
08:35 I'm really curious to see how the market handles this.
08:38 Guys, I've been saying this for every morning video
08:42 that I do for clients and investors.
08:45 I can't remember a time I've been so short-term bullish,
08:48 but near, beyond short-term medium to longer-term concern
08:53 for a 10% to 15% drop.
08:55 And I'm not going to sit by and give these profits back.
08:57 I'm going to go to work hedging, but I just
08:59 don't want to take it off because if the most
09:02 obvious pattern, which I just described, is wrong,
09:04 this thing's going to freaking ramp.
09:07 I want to talk about rotation here, too.
09:09 Sure, sure, sure.
09:10 And it was asked in the chat.
09:11 And the people waiting for this IWM, you and I
09:15 have had great discussions on this on the At the Close show.
09:18 And you kind of took the attitude of, well,
09:21 does it have to go?
09:23 Do these companies--
09:24 But why is it--
09:26 Why-- listen, I've only been doing this for 20 years.
09:30 Would somebody please tell me why a four-decade high
09:35 environment in terms of interest rates
09:37 requires fundamentally unsound leveraged companies who
09:41 don't have access to funding?
09:43 Why do they need to participate?
09:46 800 of the 2,000--
09:49 Russell's 2,000s are not profitable companies,
09:52 and they have questionable value.
09:54 Tell me why this index needs to participate.
09:56 I really would like to know.
09:58 I mean, you look at Children's Place here today,
10:00 case in point here.
10:01 I mean, smaller company here, their, obviously, interest
10:06 rates have probably been an issue here for a while.
10:09 It's down 55% this morning.
10:10 I mean, how many other companies are--
10:12 the banks, IWM is very heavily the banks.
10:15 They've had some problems with it, too.
10:16 So I mean, I think you're right.
10:18 I mean, there's a reason why these companies and the IWM
10:23 just hasn't participated, and that is rates.
10:25 Right, right.
10:26 But there's two stories to the small cap.
10:27 Take a look at the S&P 600 small cap.
10:30 They put a fundamental filter on there.
10:33 Much different story.
10:34 Look at the CALF, the CAF ETF, the top 100 fee cash flow
10:38 small cap companies at highs.
10:40 So I'm not buying it.
10:43 We've seen this before.
10:45 We've seen this before.
10:46 I love the rotation.
10:47 There's a lot going on here, and I'll just kind of break--
10:50 this is great.
10:51 Julius de Kempenaar came up with a great way
10:54 to visualize rotation.
10:55 What I'm doing is taking the best performing industries
11:00 within technology.
11:02 They are obviously going to be semis in green,
11:05 semi material and equipment, tech hardware, which
11:08 SMCI and Apple actually go in there,
11:11 system software, application software, and tech
11:13 distributors.
11:15 So what I'm doing is I'm going to start the rotation.
11:18 This is November of '23.
11:20 Here's the turn of the year.
11:22 What you'll see, obviously, no surprise,
11:24 semis are going to rip up into the right.
11:26 No surprise.
11:27 Huge move in semis.
11:29 Now, this rotation is happening on a clockwise basis,
11:34 and the benchmark is the S&P 500.
11:37 So as you're moving up, top of the right,
11:38 semis are up for me.
11:39 No surprise.
11:41 Semi materials and equipment are there.
11:43 But the problem is the breadth, even within tech,
11:46 is getting a lot less.
11:47 We're losing system software, application software.
11:51 Forget about hardware.
11:53 I mean, Apple is-- you know where Apple is.
11:55 I don't mind--
11:56 Yeah, it hasn't done much.
11:57 But the software stocks, which were so strong back here
12:00 at the end of '23, here was the rotation.
12:03 I know it's hard to see.
12:04 You've got to kind of get used to it.
12:05 But see the move in system software, application software
12:08 like Cadence, Synopsys, Manhattan, ServiceNow,
12:12 like CRM, Adobe.
12:13 Those things were ripping.
12:14 But now they're taking a pretty good backseat.
12:18 And I'm a little concerned because breadth--
12:21 even though we're getting health care and there's
12:23 different names moving up to new highs,
12:26 breadth is deteriorating.
12:27 And it's increasingly the weight's
12:29 going on the shoulder of semis.
12:30 And that's another reason, thinking back
12:32 to my simple five-wave move off the '23 lows,
12:34 like is health care going to lead it?
12:37 I don't think so.
12:38 So that's my question that I'm really contemplating.
12:42 So what makes you--
12:44 and obviously, you're holding.
12:45 You said you don't want to sell your holding.
12:47 What's the sell signal?
12:48 What are we looking for that would say, hey,
12:51 we just topped out.
12:52 Let's get it to cash.
12:53 What is that signal?
12:55 The magic signal.
12:57 I mean, I'm watching bonds.
12:58 30-year bonds would just bid on that number
13:00 and they just gave it all back.
13:03 So what's the sell signal?
13:06 I think there's still too much bearishness out there.
13:09 I don't think these kind of bull markets die from boredom.
13:12 I think we need some exuberance.
13:14 But it all depends on the time frame.
13:16 I mean, if you're talking a 10% to 50% pullback
13:19 that I'm talking about, if we don't get follow-through,
13:24 if the bearishness persists, we are coming
13:28 into a seasonally weak period.
13:30 The lack of participation on the upside,
13:33 we might just have to take some profits here.
13:36 I don't know.
13:37 I don't know the answer to that question.
13:38 Don't we need some consolidation first?
13:42 Yeah, I mean, at least see some consolidation.
13:45 Right now, you're doing your levels.
13:47 Support keeps moving up.
13:49 You're making higher lows.
13:50 You're making higher lows.
13:51 You're making higher highs.
13:52 You're having higher closes.
13:54 At least, I mean, until you try and call a turn on this,
13:57 at least you got to see some kind of consolidation
14:00 before that and not seeing that today.
14:03 That's a good point, Joel.
14:04 And here's a study I'm looking at, percent distance
14:07 from the moving averages.
14:09 So let me go to the weekly--
14:10 I was asked about that yesterday.
14:12 Yeah.
14:13 OK, but what were you asked?
14:15 I mean, do we have to go-- like, Nvidia is so far away
14:19 from its moving averages.
14:20 Don't we have to go back there?
14:22 And my response is, we don't have to do anything.
14:25 We don't have to do anything.
14:27 So let's look at that.
14:28 So this is a kind of squished in weekly chart.
14:32 I want to look at the weekly NASDAQ.
14:34 So the 50-week is the dotted gray,
14:38 and the 200 is right there.
14:41 So distance from the 200-week currently is 31%.
14:46 And I would say, on first blush, if I just
14:49 looked at this, the optics of price from the 200-week,
14:54 I would say, yeah, it's pretty stretched.
14:56 We probably need to come back.
14:57 But then when you put it on this chart
14:59 and you actually quantify it, we're
15:01 only 31% above the 200-week.
15:03 And there's plenty of precedence to be 60%, 70%.
15:08 Wow.
15:09 We seem to-- from 2012, '14, '15, '18, '19,
15:14 when they first started to hike rates a touch,
15:17 we were hanging at 40% to 50% above the 200-week.
15:19 So I think longer-term, Joel, it's a really good point
15:22 you make.
15:23 We're way from overbought on the 200-week.
15:26 The 50-week near-term, to your point on consolidation,
15:31 I think--
15:32 I'm listening to myself.
15:33 I'm monitoring myself.
15:34 I'm like, oh, huge move higher or lower.
15:36 All right, calm down.
15:38 So maybe it is consolidation, because if you
15:40 look at the 50-week kind of hidden in gray,
15:43 distance from price of the 50-week,
15:46 you look over the right scale, about 28%, 18%, 20%.
15:51 So we're there.
15:53 We're at 17%.
15:54 But we're not-- 2020, we're not at 30%, 25%.
16:00 So maybe it is consolidation.
16:03 If you think about it, if we go sideways for a while,
16:05 because big earnings are mostly out of the way,
16:08 and we don't have a Fed meeting until May,
16:10 and we won't even get any--
16:12 March, I'm already thinking March is a no.
16:14 Nothing's going to happen.
16:15 Like, maybe price consolidates, giving the 50-week moving
16:20 average time to catch up as price goes sideways,
16:23 sort of backing that off.
16:24 And maybe that's the consolidation we need.
16:26 Like, I'm so long NVIDIA.
16:28 I got stock up the wazoo.
16:30 I got options.
16:30 I got options sparring today.
16:32 I've got call spreads up top.
16:34 That's a nice place to be.
16:35 But it makes you nervous when this thing just
16:37 goes parabolic.
16:38 And then you're like, oh, should I ring the register on some?
16:41 Should I just keep holding?
16:42 What's the sell signal on NVIDIA?
16:44 When do you get out of that?
16:45 Well, I've got technical levels at 740,
16:48 and I've been that way for a while.
16:51 I have a lot of my net worth in NVIDIA,
16:55 a lot more than it should be.
16:56 But I'm in from a very good price,
16:59 so it's a ton of cushion.
17:01 So we increased holdings in the wealth management NVIDIA.
17:07 So maybe the greatest pain trade, guys,
17:10 is maybe just sideways.
17:11 As I'm watching NVIDIA screw around the 700 level,
17:14 I mean, I'm having flashbacks in NVIDIA from 500, right?
17:19 I mean, how long--
17:19 Yeah, I am too.
17:20 It did not pause at 600.
17:22 500--
17:23 500 was--
17:24 500 was monthly.
17:25 Yeah, look how many times it like 500, 500, 500, 500.
17:30 And then it wasn't until the fifth attempt.
17:33 Now, 600, if you took that philosophy at 600,
17:37 you got absolutely rolled over.
17:39 700, I mean, it's hard to say that it's
17:42 going to be the 500, at least at this point.
17:45 The other thing I want to add is that with the data
17:49 that we got today, do we have to worry about the CPI and PPI
17:53 next week, right?
17:55 We got that data coming out.
17:56 So there's a lot of things here.
17:58 Todd, we're coming up against the clock.
18:00 Todd Gordon, inside Edge Capital, joining us here.
18:04 You want to give one more play?
18:05 I got so much more to say to you guys.
18:07 Two things.
18:07 I know.
18:08 I'll get off.
18:09 I promise.
18:09 What happens if 24, if the phrase goes from how much is
18:13 the Fed going to cut this year is, well, thankfully,
18:16 they're not going to raise?
18:18 Maybe, right?
18:19 And then the other thing I'll put in front of you,
18:21 I want to put in front of you, consumer discretionary
18:23 is lagging.
18:24 I get it.
18:24 But look at the numbers from Amazon, specifically Prime,
18:28 adding subscribers, advertising numbers strong.
18:30 Look at Spotify, adding huge numbers.
18:33 People are advertising.
18:34 And then the other one I had to note-- oh, my god,
18:37 it was Amazon, it was Spotify, and Netflix.
18:39 The growth there on their ad tiers, ads are big right now.
18:44 And I think companies wouldn't be investing in advertising
18:47 if the consumer was truly on unstable footing.
18:51 So maybe-- I don't think we're going to get as many rate cuts
18:54 as they think this year.
18:55 That's going to be the realization process
18:57 markets are going to have to go through.
18:58 All right.
18:59 Thanks for having me.
19:00 Do what you need to do, Todd Gordon, inside Edge Capital,
19:02 joining us here on Pre-Market Prep.