Tech Stocks Are Poised To Get Hammered
I know, the chip companies are selling GPUs and the hyperscalers are over-investing in AI. Meanwhile, companies like META are cutting heads to right-size for CapEx spend on AI. Tech companies over-hired in 2021 and got fat, especially in the Bay Area. The Bay Area has always been fat and lazy and has lacked operating discipline. It’s just that the Bay Area found new levels of bloat in 2021 and now needs to diet. Headcount bloat needs to make room for CapEx bloat - the new trend of the day.
Meanwhile, we have an active war in Iran. The oil supply is strangled and the “ceasefire” is a lie. Israel continues to fire on Lebanon and the U.S. has fired on Iran during the “ceasefire”. Not sure what the U.S. hopes to achieve in Iran. Iran has produced oil for 100 years. They know what they are doing. They know the industry and their economy far better than the U.S. knows the state of play on the ground in Iran. If I was Iran I would not come to an agreement to end the war before July. I would choke off oil supply well into July during peak summer season. Allow prices at the pump to hit $9-10 in the U.S. If the U.S. gets aggressive and heavily bombs Iran, the price of oil and gas at the pump will only go higher. We will be looking at $200 per barrel if Trump goes off the rails. My guess is that oil will have a $100 per barrel floor for the remainder of 2026.
Private credit is a train wreck waiting to happen. I know, why should I worry? High yield spreads are low. If a bunch of high yield lenders get in trouble, they will be bailed out, right? Sure, but every time the Fed prints a new Dollar, it devalues currency in circulation. Every bailed out Treasury auction, every QE action, every BTFP, every new Fed asset purchase, every Dollar of credit extended to a PE firm that uses that Dollar to pay itself a dividend while it cuts heads is new currency without a commensurate productivity increase and is therefore inflationary. That’s why the U.S. Dollar is shit paper. Look at how expensive everything is. That’s shitty monetary and fiscal policy at work. It will only get worse. I bet my life on it. The U.S. Government does not know how to live within its means and it does not know how not to intervene. Intervention is very expensive. It requires printing money out of thin air. That’s all one needs to know to know with 100% certainty that the U.S. Dollar’s purchasing power will continue to erode as each month and year passes.
With that as backdrop, here is some data:
NASDAQ 100 Price to Sales = 7x.
NASDAQ 100 Price to Earnings = 38x. This is right there with 2021 levels when the Fed was buying $80 billion of Treasuries and $40 billion of mortgages every month while Fed Funds was at zero and the Reserve requirement was at zero (it remains at zero). The 10 year at 4.4% is so low it defies logic, especially with M1 growing 4.7% year-over-year.
S&P 500 P/E for Info Tech = 42x. Are earnings growing 42% for the sector? No. Other than AI CapEx, what’s growing in the U.S. economy?
