Written by 8:58 am AI, Stock

This fund is shorting Apple — and just bet against another popular AI stock

Bireme Capital say they are shorting Apple, which reports results after the close on Thursday.

It’s looking like an upbeat start to fearful February as investors look past a hawkish Fed and put their faith in the last of Big Tech results coming after the close.

“An immaculate landing is fully priced in, and only downside risks remain,” warns our call of the day from wealth managers Bireme Capital, who discuss sticky inflation and “unsustainable” fiscal policy, in a just-published December investor letter.

But Bireme, founded in 2016 by two MIT classmates Ryan Ballentine and Evan Tindell, stands out even more for the axe it has taken to its Big Tech holdings.

In late 2020, the managers recall how they hailed Apple, Amazon, Microsoft, Facebook and Alphabet as “transcenders,” gobsmacked by lower earnings multiples for many of those versus the Nasdaq-100 and often lower valuations. In 2023, they jumped at the chance to buy Meta META, +1.50% at $110/share as well as Netflix NFLX, +0.28%, as many transcenders got shredded, alongside more speculative businesses.

But the “massive gap between intrinsic value and market price has been mostly realized,” they say, rattling off their fresh changes.

“We have sold our Netflix NFLX, +0.28% position, and significantly pared our Meta position. We remain short Tesla TSLA, -1.26% – a car company with car company margins, having an increasingly difficult time masquerading as a tech company with tech company margins – and have added a short position in Apple AAPL, +0.64% – a low-growth company trading at a high-growth valuation,” says Bireme.

They explain that the “Magnificent 7 and their ilk still have transcendent businesses,” but valuations are no longer that reasonable.

“Given today’s unprecedented concentration, the fortunes of the major equity indexes – and the fortunes of hundreds millions of Americans via their retirement savings and pensions – are increasingly tied to the performance of a few increasingly overextended stocks.”

The Apple short came about in the third quarter of last year, meaning Bireme missed a year-end bounce for many tech stocks. Apple rose 48% in 2023 and is down 4% so far this year. They also bet against Arm Holdings ARM, -1.39% in the second half of last year, saying valuations were too rich and its aims to raise chip prices could backfire.

The team also took a short position on C3 ai AI, -2.30%, slamming the provider of AI enterprise software for cash burning and changing its names to suit “whatever hot new trend they were supposedly capitalizing on.” Better bets are Snowflake SNOW, +1.00%, GitLab GTLB, +0.23% or Datadog DDOG, +0.86%, they say. C3.ai soared 156% in 2023, but has lost 13% so far this year.

Apart from tech, Bireme weighed in on consumer staples, noting a new position in British American Tobacco BTI, +0.57% BATS, -0.17%, which they say is cheap, with much to offer when it comes to next-generation products. They shorted Clorox CLX, +0.47%, citing long-term headwinds and price rises that came as fewer products were sold, alongside “overpriced” Tootsie Roll Industries TR, +2.03%.

“Consumer trends do not bode well for sugary treats that are terrible for your teeth,” they say. “With staples stocks still less than 10% from all-time highs, we expect the sector to continue to underperform.”

The markets

Stocks

SPX COMP are higher as trading kicks off, while Treasury yields BX:TMUBMUSD10Y

BX:TMUBMUSD02Y push lower. Gold GC00, +0.48% continues to fall and the pound GBPUSD, +0.15% recouped losses after the Bank of England kept interest rates unchanged, but indicated it was not going to rush into rate cuts.

Key asset performance Last 5d 1m YTD 1y
S&P 500 4,845.65 -0.99% 3.35% 1.59% 15.93%
Nasdaq Composite 15,164.01 -2.23% 4.51% 1.02% 24.29%
10 year Treasury 3.946 -17.51 -5.26 6.53 54.80
Gold 2,060.10 1.93% 0.44% -0.56% 6.90%
Oil 75.96 -1.48% 4.92% 6.49% -0.05%
Data: MarketWatch. Treasury yields change expressed in basis points

The buzz

After the close, Amazon AMZN, +1.13% may deliver eye-popping growth, while hopes are high for Meta META, +1.50% and Apple AAPL, +0.64%.

Merck & Co. MRK, +2.88% beat earnings estimates, as Shell SHEL, +2.30% set the table for Exxon earnings on Friday with a fresh buyback and beat. Royal Caribbean RCL, -2.92% stock is climbing on forecast-beating results and an upbeat outlook. Solid guidance is also sending Canada Goose shares GOOS, +2.59% higher.

Plus: Big Tech got a grilling on Capitol Hill over kids’ online safety

Following New York Community Bancorp’s NYCB, -13.14% profit warning, tied in part to U.S. office-loan woes, Japan’s Aozora Bank 8304, -21.49% sunk as it cut the value of some of its loans in that sector. NYCB shares are attempting to rebound after additional guidance on net interest income.

Weekly jobless claims came in 224,000, higher than expected, while final fourth-quarter productivity rose 3.2%, also above expectations. The Institute of Supply Management’s manufacturing survey and construction spending at are coming at 10 a.m., with auto sales also ahead.

Tesla TSLA, -1.26% is cutting prices on several Model Y EVs in China, following up recent price cuts there. Separately, CEO Elon Musk says Tesla will hold a shareholder vote on whether to incorporate in Texas, after a Delaware court ordered him to give up a $55 billion compensation package.

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The chart

Retail investors to the rescue?

As of 30 Jan. ’24; Source VandaTrack, Vanda Research

Vanda Research analysts used machine learning algorithms and several years of data to forecast future retail flows. They say their above chart that indicates retail flows in coming weeks will likely stay robust. “Thus, while downside flow risks from systematic institutional investors are currently a concern given the elevated starting point, equities should be able to rely on retail demand in the near term if trading gets choppy.”

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

Ticker Security name
TSLA,
-1.26%
Tesla
NVDA,
+0.83%
Nvidia
PLUG,
+1.80%
Plug Power
AMD,
-0.28%
Advanced Micro Devices
NIO,
-0.62%
NIO
AMZN,
+1.13%
Amazon
MSFT,
+1.54%
Microsoft
AAPL,
+0.64%
Apple
GME,
-1.05%
GameStop
META,
+1.50%
Meta Platforms

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Tags: , Last modified: April 20, 2024
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