Navigating the Bubble

Why do I say everything in the market is about expectations...

$META announces results 27% higher than Q1 2023… yet it still drops 17%.

What happened?

What made the market not react so well to these excellent results, considering META is a company whose products are used worldwide?

The key lies in two things: first, the dose of reality that Mark Zuckerberg delivered in the report, and second, the guidance for the rest of the year.

What did Mark say?

He mentioned that although they are heavily investing in artificial intelligence, tangible results are not yet visible, and they need to invest even more. Clearly, this comes in the midst of an "AI bubble" in the U.S. market, where NVDA was one of the big winners at the beginning of 2024 due to this AI bubble, which ultimately saw a pullback in March.

Additionally, they announced an increase in capital expenditures from USD 35B to USD 40B... more spending and a dose of reality in the middle of a bubble: selling by the buyers.

Does this mean META is struggling?
Absolutely not... in fact, it presents an interesting buying opportunity. However, it does suggest that the market was overbought on AI expectations.

Is AI a promising business?
It sure is. Is it a game-changer NOW? Not yet, according to Mark... and the market lost its enthusiasm, wiping out USD 240B in market value in a matter of hours (now that's efficiency).

Now, with all this... META surged 137% in one year. Can you make money? Absolutely. Do bubbles create opportunities? Of course... but navigating them is no easy task.

Let’s Look at the Broader Market

If we take a look at the wider market landscape, for the first time since November, less than 30% of stocks are trading above their 50-day moving average. In comparison, this figure was 85% in March and 92% in January. This clearly shows just how high the market had been, primarily driven by the AI bubble.

Remember, past performance does not guarantee future results... And just as we saw Mark's dose of reality, on the other hand, we have TESLA and Elon Musk. Despite reporting less-than-stellar results, the stock surged 12% the day after its earnings report.

So, what happened with TSLA?