Stock Market Bubble Ahead (11/17)

The Semiconductor 3x ETF (SOXL) has now delivered a 25x return over five years, including a gain of 268% over the past 12 months. Given the current market trends, there may be an “artificial intelligence mega bubble ahead,” and it could be much larger than all prior market bubbles.

Over the past 18 months, ETF PM has posted a dozen blogs recommending Nvidia (NVDA) and/or SOXL. Nvidia is one of the largest components in SOXL.

Extraordinary Productivity & Innovation

There are many reasons why an AI mega bubble may be ahead. The productivity and innovation enhancements from AI are widely expected to dwarf all of humanity’s prior advancements by a wide margin.

SoftBank CEO, Masayoshi Son, said he expects “machines will reach IQs of 10,000 (U.S. Mensa accepts IQ scores around 130),” and Elon Musk’s Neuralink is building “brain-computer interfaces (BCIs)” which are “chips that can increase human storage and processing power.”

Andrew Ng, Baidu’s former chief scientist, said “artificial intelligence is the new electricity,” and Musk believes “robots will do everything better than us.”

World’s Largest Private Equity Fund

The competitive advantage for governments, businesses, and individuals may all depend on their respective AI strategy and risk management. Early this year, 60 Minutes reported that AI is set to revolutionize the military, and SoftBank announced plans to control 90% of the chip market through a $93 billion Vision Fund, the world’s largest private equity fund.

In fact, China plans to outspend the world on artificial intelligence, and Saudi Arabia is allocating $500 billion to build “Neom,” a fully automated city spanning three countries.

While there are countless risks to consider, investors may become somewhat euphoric when they see extraordinary new innovations, such as autonomous cars, hoverboards, and even flying cars. Overall, the combination of AI driven innovation, semiconductor merger mania, and leveraged ETFs, may help to fuel the next market bubble.

Risk Control

Given our experience managing the past two market crashes, volatility is always expected, especially in technology. While we believe this AI mega bubble may not peak until 2021 or 2022, we strongly recommend that investors employ strict overriding risk controls, and/or trend following trading discipline, in order to invest in semiconductors, with or without leverage.

ETF PM has long positions in SOXL, SMH and NVDA.

Contact us to learn more.

 

 

 

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