Pre-Market Plan [10/15]: Will Biden's new NVDA Chip Restriction derail the AI Bullish Trade?
Good Morning to the Public-
The highlight of this week is definitely ASML earnings on Wednesday October 16th and TSM earnings on Thursday October 17th.
To a certain extent, the strong rally that we’ve seen in Semiconductors in the last 2 weeks has been in anticipation of earnings season being robust/firm. For this reason, I do think that any potentially upside earnings surprise has been partially priced in.
More upside still, but part of it has already happened.
ASML still trades at under fair value according to our DCF model but it’s mostly because the company is under crosshairs from the U.S. looking to constantly find restrictions around chip sales/exports from the Netherlands to China. At some point, I expect do shares to trade/touch 900 again. I would just be on the lookout for any Look above & Fail if there is a post-earnings bump. Shares are now 860 or so.
TSM has now reached new all-time highs ahead of earnings and its outlook is exceptionally strong. We think long-term the stock heads over 200+ with high probability, but in the short-term the recent run-up has partially priced in what could have been a post-earnings surge.
For the public, we last gave a Sell Put idea on Tesla as an intention to own the stock at 160-170 if gets there or to let the Put value evaporate slowly if it doesn’t.
When we sell puts, we want to get assigned the stock. The biggest return comes from direct share ownership, not put selling. However, at 220 TSLA, it’s in neutral territory so the most logical way to express a bullish view is through a more thoughtful vehicle.
If there are conservative ideas that I think are suitable for the public, I’ll share more in the future. For public readers, I have to give the most conservative, the safest, the most defensive ideas possible. As far as probability & statistics would allow.
Capital preservation is a top priority.
The latest news is that the Biden Administration is looking at limiting AI Chip sales from AMD and NVDA to other countries.
I don’t expect this news to completely break the strong uptrend that we’re in. But this news suggests that more hurdles are re-emerging.
With enough hurdles, a change of character in markets may begin to take place.
For now, we look towards ASML/TSM to see if they can clear these hurdles to keep bearishness contained.
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Disclaimer on H-Shares:
A note of caution for H-Shares (or China ADRs). They are extremely, extremely volatile during macro policy changes, and as a sector, exhibit the highest forms of volatility compared to other sectors I’ve studied. Holding H-Shares or China ADRs is only one notch below holding Crypto/AltCoins in terms of volatility. Only folks with the highest risk tolerance and highest ability to manage volatility should look at H-Shares. H-Shares can swing 20-30% in the span of days on the upside or downside. It can make Nasdaq-100 stocks (my core coverage) look slow.
As an example, Meituan which was a left for dead stock was trading at $60HKD just a few months ago. Shares have nearly tripled to around $180HKD, with the bulk of the advance coming from the past few weeks.
My DCF Model approach, which members know have powerful degree of forecasting power in my core coverage because of my familiarity with the companies, is NOT going to work as well on H-Shares. Any commentary that I give on H-Shares relies much more on macro observation and technical analysis, which may or may not be a full picture of a company’s fair value. For this reason, there is a speculative type of element when it comes to H-Shares. Investing in H-Shares is completely different from investing in U.S. stocks.