Colin’s Note: The past four weeks have been among the most critical for investors this year.
It all came to a head this week with some of the biggest names in tech announcing company earnings.
I’ve spent the week poring over these companies’ financial reports and reading between the lines of executives’ statements. And something became clear to me…
Over the next several years, there will be investments you should have in your portfolio… and then there are investments you need in your portfolio.
We’ll talk about both today. But what matters most is that you don’t miss out on critical opportunities because you think, for whatever reason, that the best gains and profit opportunities in the artificial intelligence boom are behind us.
There’s still much more to come.
It’s all in today’s Bleeding Edge. You can watch today’s video by clicking below or read on for the transcript if you prefer. And let us know your thoughts at [email protected].
Bleeding Edge subscribers, Colin Tedards here.
Four weeks ago I came to you with a forecast that April would be the most critical month of 2024. And it all culminated this week with some of the largest companies – including Meta, Microsoft, and Google – announcing their company earnings.
After going through each company’s financial statements and listening to the executives discuss the business climate and the outlook, two things became clear that I want to share with you today.
Over the next several years, there are going to be investments that you have to be invested in… and then there are investments that you need to be invested in.
So let’s start with the obvious. You have to be exposed to mega-cap technology stocks. That might be the understatement of the day.
You’ve either bought stocks like Google, Microsoft, Amazon, and Nvidia individually in your broker account or have exposure to them through index funds. Many of you have already done this.
And no matter what happens with the Federal Reserve’s fight on inflation and interest rates, these companies can weather the storm better than most.
And in an inflationary environment, any dollar that isn’t invested is losing purchasing power even faster than before. So in many ways, investing is even more important today than ever before. But you know this already. You have to be invested and you have to be invested in mega-cap technology stocks now.
But I want to talk about what you need to be invested in.
This might be slightly less obvious… But it was confirmed when we heard from the large technology companies this week.
If you recall, I’ve been a big advocate of the hardware, software, everywhere progression that technology often takes. Rewind time a little bit to the 1990s when the internet was being popularized. This progression of hardware, software, everywhere played out.
It first started with the hardware infrastructure of modems, fiber optic cables, and servers. The backbone of the internet.
Once enough homes had personal computers and internet connections, the software phase of websites and other services began to grow.
And while the internet rapidly penetrated homes through personal computers, it wasn’t until 2007 when the Apple iPhone was released that the internet went everywhere we went.
The exciting part is a new hardware, software, everywhere phase is playing out once again.
If you didn’t get rich during the dot-com boom, you have a second chance of it today with artificial intelligence (AI).
When Google, Microsoft, and Meta announced earnings this week, it came with a massive increase in spending on the data center. In fact, when Meta announced its increased spending on AI projects, the stock fell because it was enough to impact profits for the remainder of the year.
But what do we already know about this spending?
And we’re not talking about millions of dollars or even a few billion dollars. Combined, just these three companies – Meta, Google, and Microsoft – have committed more than $100 billion to the data center buildout just over the next 12 months.
And each company seemed committed to spending even more as we head into 2025.
Then when you start to include Apple, Amazon, Oracle, IBM, and dozens of other companies that will be spending billions of dollars on AI hardware, the amount of money being spent starts to approach the trillion-dollar mark.
And as investors, we need to take advantage of that spending. And good news is, there’s an easy way – and maybe a slightly more challenging way – to get this done.
First, the easy way. Broadly diversified, semiconductor ETFs that hold a basket of stocks within the sector will continue to expand revenue and profits during this investment phase by the large technology stocks.
Now, I know when you pull up the charts of the two most popular semiconductor ETFs – the SMH and the SOXX – you might think you’ve missed a massive opportunity because they’re already up big.
But the truth is, the investment cycle is going to expand from a few hundred billion dollars to nearly a trillion dollars just over the next several years.
That’s enough to keep these ETFs at the top of the performance category, especially when we start to compare these to non-tech sectors. So at the very least, you should have some additional exposure to this sector in the coming years.
Now, the more exciting but slightly more challenging way to play this mega-spending trend. Many smaller, lesser-known semiconductor stocks have been riding the investment wave higher… but are nowhere near done going up.
That’s because as we look at the hardware buildout, the amount of testing equipment, cooling technology, advanced packaging, and cabling that’s going to be required is highly underestimated right now.
The massive spending tsunami on data centers only began about six months ago. We still have hundreds of billions of dollars about to flood the industry just over the next six to 12 months. And if you look a few years out, we could easily see a trillion dollars spent.
Nvidia, AMD, Broadcom, Taiwan Semiconductor, ASML… these companies have thousands of suppliers. And data centers have millions of cables, switches, and connections that will need to be made.
The billions being spent by the mega-cap technology companies… it’s staggering. We’ve never seen anything like this before. But believe it or not, it’s just beginning.
So as you research and look at stocks in the semiconductor space that are already up 50%, 60%, or even 100% over the past year… you have to realize, first of all, that it’s for good reason.
Billions of dollars will flow from the coffers of the mega-cap tech companies into the semiconductor industry.
Now, out of respect for the customers and the subscribers who pay for our research services, I can’t reveal specific names, especially on the smaller side. But although we’ve recommended several stocks just over the past couple of months that have seen huge gains for our subscribers, I still believe it’s not too late to benefit from this investment wave.
Guys, that was The Bleeding Edge for today. I’ll see you again next week.