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Is Winter coming for NVIDIA?

June 8, 2024

This is not financial advice and can you can lose a lot of money implementing this hedge strategy. This is what we are doing at Creatix. We hold long positions on exchange traded funds (ETFs) that mimic the performance of the S&P 500, the S&P Completion Index, the MSCI All Country World Investable Market Index, and cash. 80% of our investment portfolio is equally divided on those ETFs and cash in equal parts. On the remaining 20% of our portfolio, we are mostly short on NVIDIA; long on about 150 ETFs across all imaginable sectors, and long on the Japanese Yen, the Euro, the British Pound, the Australian Dollar, and the Swiss Franc.  

Although we hold long positions on the S&P 500, the concern is that only six companies account for 30% of the value of the S&P 500. These six companies can be remembered using the acronym MANAMA standing for Microsoft, Apple. NVIDIA, Alphabet, Meta, and Amazon (MANAMA). As you can see, all these companies are technology companies. In addition, with the exception perhaps of Apple, the valuation of the MANAMA companies is heavily influenced by the AI boom or "bubble". It is a heresy to call the AI boom a bubble. Yet, every day that NVIDIA, the poster child of the AI "boom" continues to rise exuberantly, the "bubble" concerns increases. 

Human history tends to repeat itself because humans have not changed that much intrinsically in millennia. Technologies (tools and methods) have changed significantly. Humans themselves have not changed much. Humans have learned many new tricks, but are fundamentally the same emotional primates of always. 

Humans are emotional creatures first and rational beings later. Emotions come first; rationalizations follow. The main two emotions controlling human behavior are fear and greed. These two emotions are driving in part the AI "boom", which may be turning into a "bubble". Investors are greedy of the prospective financial rewards of owning AI related stocks like NVIDIA, and are fearful of missing out. These two emotions will most likely keep fueling a boom that may quickly turn into a bubble susceptible of burst at any moment. An overall market correction of 20% before the November elections is not implausible. NVIDIA could temporarily shed almost 50% of its current value in a few days. 

What do you think?

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