Time to Pound the Table?

After nearly six straight months of nothing but stocks going up, investors are facing the first real adversity since April. Many high-flying names have dropped significantly. Investors—and every major financial media outlet—are questioning whether the AI craze is over. The lower end of the consumer market is struggling, and many consumer-oriented names are under pressure. Unemployment is rising, and the Fed remains stuck in limbo on monetary policy. As a result, the market is in correction mode while assessing the risks. Is now the time to pound the table on booming growth, or should investors be cautious and seek safety? I’ll share my thoughts and explain what I’m doing in today’s market.

AI-Related Stocks Pausing

The biggest trade over the last six months has been AI-related stocks. Everything from AI infrastructure, chips, and energy has seen explosive growth recently. Those names are finally taking a breather and appear to be correcting. Some of these stocks are down 30–50% from their highs. Investors are increasingly concerned that we’re experiencing an AI bubble. In other words, valuations may be inflated relative to the actual value created by these companies. Many have compared this period to the early 2000s internet bubble. However, I see things differently this time around.

The major players in this trade are creating incredible value and have strong earnings. Names like Nvidia, Amazon, Google, Apple, Microsoft, and Meta are the bedrock of the U.S. economy and stock market—and for good reason. Have these companies reached lofty valuations? Perhaps. But their fundamentals are equally impressive, which wasn’t true during the internet bubble. While some of these same names were culprits of inflated valuations back then, today they are cash-printing machines.

Undoubtedly, some names in the AI trade became too inflated and turned into highly speculative bets. Nonetheless, I view the current sell-off as a good buying opportunity for companies with strong fundamentals. The buildout of AI isn’t slowing anytime soon, and some businesses still stand to gain significantly from the acceleration in spending. Therefore, I’m using this market correction as an opportunity to pound the table, so to speak, on my favorite AI and technology names.

For example, one area experiencing explosive growth is data centers. One company that has been a major winner for me (up over 100%) is Micron. Micron is growing revenues and earnings by hundreds of percentage points. Today it sold off 10% and is down nearly 20% for the week—for no discernible reason other than fear. Another company I recently initiated a position in is IREN LTD. This company is growing revenues and earnings by several hundred percentage points and is uniquely positioned to benefit from what I call “data centers as a service.” They own land and energy supply rights that cater to new data centers. They are down nearly 40% from all-time highs, yet their fundamentals are improving rapidly.

In my judgment, some stocks were carried away simply for being associated with the AI trade. However, there is a plethora of companies benefiting in meaningful ways from this technological revolution, and they are all being lumped together in this sell-off. I believe that if investors are judicious about buying here, there is still much to gain in the coming months.

Bull Markets Don’t Die, They’re Killed

I can’t recall who said, “Bull markets don’t die, they’re killed,” but it proves true time and again. There are only three ways to enter a secular bear market: declining corporate earnings, restrictive monetary policy, and black swan events. Black swan events can’t be predicted, so there’s no sense in planning for them. The other two can be monitored and predicted with some degree of accuracy.

While corporate earnings aren’t booming in some sectors—namely consumer discretionary and housing—there’s no evidence of a broad decline. This is especially true for large-cap technology, which is the bedrock of the U.S. stock market. While it’s unclear whether the Fed will cut rates in December, it seems unlikely that we’ll experience restrictive monetary policy in the short to medium term. Therefore, I don’t see this bull market being killed anytime soon. That doesn’t mean we can’t have drawdowns or even a correction, but I remain optimistic. Risk-on assets remain the place to be invested, and I suspect technology names will rebound and continue to attract investor dollars.

A Word on Cryptocurrencies

This is the first time I’ve written about cryptocurrencies. For years, I’ve been asked about my thoughts on Bitcoin and other digital assets. Historically, I avoided commenting because I didn’t have an informed position. Unfortunately, that cost me a lot of money. It’s become increasingly clear that cryptocurrencies are a viable asset class and here to stay. Institutions are adopting crypto and crypto-related investment products at a dizzying pace. Bitcoin and Ethereum hit all-time highs this year and have been among the best-performing assets on the market. However, they’ve recently entered bear markets, and investor sentiment is low.

I’ve initiated positions in both Bitcoin and Ethereum. In fact, they are among my biggest bets currently. We can debate the utility of these cryptocurrencies endlessly, but that’s not the main reason I’m betting on their recovery. Cryptocurrencies have become one of the best risk-on asset classes available. Because I expect investors to return to risk-on assets in the near term, I believe crypto is due for a rebound. Time will tell if crypto becomes the future of finance as some proclaim, but I can no longer ignore the utility of having exposure to this asset class. While I’m not ready to bet the farm on crypto, I believe some exposure is a good idea.

A Small Victory Lap and Conclusion

This year has been a record profit year for me. Names like Regeneron and Micron (stocks I’ve written about previously) have helped my portfolio outperform broader indices. Like any prudent investor, I’ve capitalized on these gains and am reinvesting into companies I believe are next in line to benefit from secular tailwinds. I’m bullish on stocks in the short to medium term and plan to use this market correction to position myself for the next leg up.

Of course, I’m not always right, but to have a chance at asymmetrical gains, one must engage in next-level thinking and stay one step ahead. To outperform the market, you must think outside the consensus and take calculated risks. A few weeks ago, everyone called this the opportunity of a lifetime to capitalize on generational growth. Now, fear is spreading through the market like wildfire. Make your own decisions about where this market is heading. I will say this: do your own research and come to your own conclusions. Don’t let market noise and financial pundits scare you out of great companies and investment opportunities.

As always, I am not a financial advisor, and this is not financial advice. I am not recommending any of the securities I discuss, and all information is for educational purposes only. Make your own investment decisions or consult with a financial advisor.

Cheers,
Eric Patterson
Main Street Investor

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