This article was originally published on Forbes on Jun 18, 2021,12:43am EDToriginally published on Forbes on Jun 18, 2021,12:43am EDT
There is an outsized risk with Snowflake, AirBnB, DoorDash and Roblox’s IPOs showing an extreme increase in valuation since the last private funding round that will be hard for the public markets to absorb. I dug up some comparative research between 2019 IPOs and 2020 IPOs and describe this outsized risk, which is 10-fold from the IPO class of 2019.
More times than not, IPOs lead to losses for retail investors and there are specific reasons as to why. These reasons have only gotten worse with loosened IPO regulations. We also look at why raising capital at the same time as a Direct Listing shifts too much risk to the general public.
The IPOs of 2020: Snowflake, AirBnB, DoorDash and Roblox (2021)
Despite the hype that flashy IPOs draw, more than 60 percent of the 7,000 IPOs from 1975 to 2011 had negative absolute returns five years later. However, the 40% odds for success through 2011 are better odds than what investors face today.
IPOs in Review: 2019
Before we talk about the serious red flags in the IPO scene of 2020, I want to visit what 2019 looked like as a reference point.
In 2019, Zoom Video and Crowdstrike went public with the fastest growth levels the tech industry has ever seen. We will use these two as a baseline because their top line financials at time of IPO continue to exceed any tech IPO we have seen since.
In the case of Crowdstrike, the company’s last private valuation prior to going public was in May of 2018 for $3 billion. The initial price that institutions paid was $7 billion and the shares began trading at a $11 billion valuation. When we average out the premium paid between the last private valuation and the opening price of $8 billion on a per month basis for the time it took to go public, retailers paid a premium of $615 million per month across 13 months.
Crowdstrike went on to have a volatile trading history in the first year with a peak to trough drop of roughly 50% within six months.
YCHARTS
Zoom Video’s last private valuation prior to going public was $1 billion in April of 2017. The initial price institutions paid was $9.2 billion in April of 2019 with shares opening at a $20 billion valuation. When the $19 billion is averaged out across the 27 months between Zoom’s last private round, the premium retailers paid on valuation is $703 million per month. This is about $90 million more per month than Crowdstrike.
Notably, I covered Zoom Video as the “Best Silicon Valley IPO” at the time of its listing but the I/O Fund waited until the following January 2020 to enter the stock at $62. Despite perfect earnings beats, it took Zoom Video an entire year before it consistently traded above its opening price
The point of this is to illustrate that tech’s top growth companies had their valuations increase an average of $600 to $700 million per month range since the last private valuation. These opening prices, which ranged from an increase in valuation of $5 to $10 billion required a year to absorb.
IPOs of 2020 and 2021:
The opening valuation for Zoom Video caused Barron’s to call Zoom Video’s IPO a Crazy Bubble. If that’s a crazy bubble, then I’m not sure what the words are for 2020. The word “glut” comes to mind as Snowflake, AirBnB, DoorDash and Roblox increased their valuations from the last private by an order of magnitude compared to the IPO class of 2019.
Let me explain:
Snowflake’s last private funding round was at a valuation of $12.4 billion in February 2020 with an initial price of $33 billion and an opening price of $68 billion in September of 2020. That means Snowflake opened trading at a premium of $8 billion per month since the last private valuation compared to Zoom’s $700 million and Crowdstrike’s $600 million. Snowflake essentially 5X’d it’s valuation in 7 months while revenue declined.
This also means the market must absorb a $35 billion premium on top of the initial price. How long do you think that will take considering it took Zoom Video a year to recoup a $10 billion premium? It’s impossible for a valuation to spike that much in one day without it taking a substantial amount of time for the valuation to catch up to financials.
This is a tough pill to swallow as we’ve published favorably on Snowflake as a company and a product. Yet, there is no real valuation here if the last private valuation was $12 billion within the last year; it’s simply pie-in-the-sky pricing that insiders hope will last. The company did not change and there were no catalysts.
Consumer favorites AirBnB and DoorDash came public recently and the difference in private valuation versus public valuation is even more absurd as these companies carry a higher risk in terms of performance post Covid. AirBnB’s last private valuation was on April of 2020 for $18 billion. Eight months later the initial pricing was at $42 billion and the opening price at $90 billion.
2020 IPOs Increased $7 to $9 Billion Per Month in Valuation Compared to $600M-$700M in 2019 – I/O FUND
AirBnB’s opening price equates to $9 billion in valuation per month in premium that retailers are paying on a company that was worth $18 billion earlier in the year with the same growth numbers and revenue. In fact, AirBnB only grew revenue by $1 billion in 2019 before declining by $1 billion in annual revenue in 2020 due to Covid. The forward revenue for this year is $300 million more than the revenue in 2019. Most certainly, growth did not drive the opening valuation.
DoorDash carries the most risk of the four names we are analyzing as the economy opening up will translate to fewer food deliveries. This company had a $16 billion valuation in its last private round in June of 2020. The initial price was at a $34 billion valuation and the opening price at a $72 billion valuation.
Technically, DoorDash should be valued below its Covid valuation as there’s more risk with the economy opening up as to how the company will perform. All Covid winners have taken a hit to their valuations: Zoom, Crowdstrike, Peloton, etcetera.
Roblox is another blatant example of how IPO valuations are overpriced for retailers. The company raised a private round at $29 billion in February of 2021 before going public at a $39 billion valuation one month later. This means retailers were charged at $10 billion per month premium. We will have to check back this time next year to see how long it took for Roblox’s stock price to permanently absorb the $10 billion it charged retailers. Notably, all of these examples do well in bull markets while the real impact comes out during downturns.
I/O FUND
Often times, retailers will cheer on 15% or 30% gains in one day when a stock really pops. Yet, most IPOs are seeing 80% to 100% gains for an average of $30 billion generated in one day between the initial price and the opening price. What retailers must understand is that valuations have a ceiling and this means the company must earn this $30 billion pop in valuation over time.
How Much Made in a Day from Initial to Opening – I/O FUND
SEC IPO Regulations that Have Changed:
Here are a few of the new regulations being leveraged:
· Direct listings can now raise capital, which means retailers are exposed to more companies that have no lockup expiration. The company can list at a high valuation and insiders can liquidate as soon as it’s listed. You’ll see below examples of failed direct listings, such as Spotify and Slack. Prior to the recent change, direct listings could not raise capital.
· According to Forbes, SPACs made up 50% of the IPO market last year. The volume is high because SPACs allow companies to go public faster. Although there are some gems that have come from reverse mergers, SPACs often have a complicated business history and some proxy statements have become the subject of litigation.
· SPACs also come with fees known as “the promote” which allows 20% of the shares to go to the SPAC manager. The 20% of shares is effectively taken from investors plus 5% in other fees.
· The SEC may start to treat warrants as liabilities which could slow the pace of SPACs; this comes after nearly 250 SPACs went public last year and 340 have already gone public this year. The percentage of IPOs that were SPACs is at 72% this year, up from 55% this year. The speed in which SPACs go public has created byzantine filings.
· Traditionally, lockup periods lasted 180 days yet we are seeing many creative ways of approaching lockup periods, such as partial lockup expirations that come sooner or opportunities for employees to sell before investors. “Blue Sky Laws” were put into place to help protect investors by ensuring full lockup period yet this has become looser over the last few years. If a company has a partial lockup period expire, they often bury this in the S-1 filing.
A Note on Direct Listings
Retailers have no voice on Wall Street, and this is evident by the way that venture capitalists openly criticize the IPO process because they’d like to see the fat surplus between the initial price and the opening price go to the company and other insiders rather than institutions.
Translation – it’s okay to keep charging high prices to retail, but instead, make sure the cash is funneled to the right people. Direct listings accomplish nothing when it comes to the outsized risk that IPOs have presented in the last year; which is raise money, continue to charge the $7 to $9 billion per month in valuation to retailers, and have no lockup expiration (rarely, does a private company increase $7 to $9 billion in one year let alone one month)
Direct listings propagate high valuations because the stock does not need to perform for six months; it can immediately fail and still provide an exit. In this case, 100% of the risk is transferred to retail at the open trade and there are crumbs left in terms of reward.
I was critical of Slack’s DPO two years ago and also Spotify’s DPO. Notably, Slack is a stock my company ended up owning after it plummeted more than 50% from its DPO opening price. From experience, the I/O Fund has concluded there is too much downward pressure from DPOs and the immediate exit for insiders is a flag as a serious company will look for long-term investors.
Slack is not looking to raise money, and has chosen a direct listing as opposed to a traditional initial public offering. This means insiders will initially sell their stock and there will be no lock-up period. Eliminating the lock-up period creates even more risk than usual compared to traditional IPOs that have six-month lock-up periods.
Around the time of Slack’s DPO, we discussed why we did not like this process. We cited Spotify as an example as Spotify took twenty-four months to reach its opening price again, and Slack – arguably one of the best products to come out of Silicon Valley – only touched its opening price again 12 months later after Salesforce announced they were acquiring the company.
That’s a very long time to park your money with no return not to mention the scary roller coaster ride on the way down.
Know Who Your Advocates Are:
Retailers need representation and better information on IPOs and valuations. As advocates for retailers, we often hold off from buying IPOs until after the lock-up period, and we always disclose every entry and exit we make with real-time notifications. If we do participate, it’s with an active stance and the understanding we may exit before the lock-up period expires if the chart looks weak. We will then re-enter when the stock stabilizes – usually a year or so after the IPO.
In the case of the new class of IPOs, there’s a chance the companies don’t stabilize for many years as the true valuation is likely the initial price that institutions paid (i.e., there’s a reason they paid that price and not a penny more – both sides have teams of professionals to fairly price the transaction for a funding round).
Confirmation bias is also commonly used against public investors. In this case, because DoorDash and Airbnb are well-known and well-loved consumer brands, the opening price was especially lavish. I had gone to great lengths to warn retailers about Uber while many talking heads said the stock could reach $100 or higher. That analysis is worth a read as it became one of my best calls in terms of protecting losses for my readers.
Conclusion:
There is undeniable evidence that something odd happened in 2021 in terms of the run-up in valuation on IPOs as we saw the premium retailers pay grow from $600-$700 million to $8-10 billion per month since the last private valuation. The glut in the IPO process will eventually catch up to market as this run-up is not sustainable without a meaningful change in story or re-acceleration in growth (the opposite happened; there was as deceleration in growth in all four companies).
The loosening of IPO regulations leading to outsized risk is reminiscent of loose lending laws during the financial crisis. If history is any indication, the banks will be bailed out and the individual will suffer. Therefore, we do our best to avoid participating in frenzies as there is no magical market where valuations don’t have a ceiling, rather they can hit a ceiling very quickly and take time (years) to be absorbed.
Note: If we do keep our Snowflake position, we will plan to exit on any weakness. This is distinct from the list of stocks we hold with no plans to exit.
The thrill of making money in the stock market is short-lived if an investor doesn’t have a plan to protect their gains. All too often, investors cheer their paper returns, only to find out later, the money they made evaporates on the next drawdown.
Considering the advancements we are seeing within the tech sector, discussions around how to maximize exposure in tech while better managing the downside are more necessary than ever. Our mission is to solve this dilemma, which we consider to be the billion-dollar question – how to safely participate in tech. We feel strongly that this question has not been answered and is widely ignored within the retail world.
The below methods are how we manage risk in an all-tech portfolio. We are not financial advisors, rather we transparently disclose our buys/sells in various positions and provide the risk management tools that we use in our own portfolio. Please refer to our Terms and Conditions here.
The I/O Fund works hard to provide retail investors with tools to manage risk. Five years ago, our site pioneered offering real-time trade alerts, an actively managed portfolio including broad market webinars, and more recently, we released a hedging plan in 2022. Below are three tools that allow our Members to become acquainted with how we reduce risk, which has led to proven outperformance since our inception.
Risk Management Tool #1: Real-time trade alerts
All of our buys, sells, trims and adds are disclosed in real-time via text messages and through email alerts. This multi-dimensional approach is unparalleled among research sites, yet is extremely effective. For example, we sent real-time trade alerts when we were buying Nvidia in October of 2022 at $10.85 for gains that greatly outperformed a buy-and-hold strategy. We also sent trade alerts when we were selling Bitcoin in the $58K range, and then subsequently sent buy alerts when we bought back in the $16K to $18K range.
To put it simply:
When you see sell or trim alerts, it’s because we are deeming the risk too high to enter or add to the position.
When you see buy or add alerts, we believe it is good timing to create a bigger position.
Tech is especially sensitive to the broad market, thus, often times when we buy or sell, it has very little to do with the stock itself. Many of our readers simply use our trade alerts as additional information to understand if the market is risk-on or risk-off, in addition to being offered valuable (and rare) information on whether we are currently building a position or waiting for a better opportunity.
Portfolio Management and How to Read Our Trade Alerts
On Cash – We are an all-tech portfolio that leans into hedging to manage risk. We also will raise cash when we believe the market and economic environment support this. For example, we had between 0 – 10% cash in late 2020 – 2021 and have held between 5% to as high as 45% cash from 2023 through the end of 2024.
While we will, at times, mention in our weekly webinars where we are in terms of cash and margin, we do not list our cash position as part of our posted portfolio. The reason for this is because we are not financial advisors and so cannot and do not want to take on the role of managing others’ money indirectly. How one holds cash is based on their personal risk profile, which is based on a host of factors unique to that individual. What may be appropriate for us may not be appropriate for someone in their early 20s or in retirement. Instead, we provide our broad risk analysis and hedging, which is derived from technical analysis and quant signals. We also provide weekly broad market webinars to discuss risk in the markets. It is up to every individual investor on how to best use this information, or not.
How to read SMS alerts – We invest with our own capital. All the trade notifications that we send out are first discussed well in advance in our weekly webinars. We provide the buy zones and sell zones, which readers can use for their own investment strategies. Once we hit a buy zone, and we have determined that we want to own that stock, we execute a position and send that information out to our readers.
When a trade alert says “Bought XYZ at $30.36 – 3% Added” we are saying that we bought XYZ at the price listed and the amount we added is based on 3% of our total portfolio’s value.
For example, if we have a portfolio $1000, and $200 (20% cash) is in cash while $800 is invested (80% invested), the above example will buy $30 of XYZ (3% of the total, including cash). All buy alerts and sell alerts include cash, so we are basing the percentages on the total value of our portfolio.
How to Read the Pie Chart – As stated above, each trade alert is what we are doing with our own money. The I/O Fund is a live portfolio with the portfolio going live in May of 2020 and gets audited annually (our research site went live in July of 2019). Considering that we do not provide cash holdings, what the pie chart is showing is the percentage allocation of our invested portfolio. The positions with the highest percentage allocation constitute our highest convictions at the time.
For our newest Members, our allocations quickly and easily reveal which positions we have the most money in today; and subsequently, which stocks have our highest convictions. Our newest Members should look into our current allocations on the pie chart in order of highest percentage, and then search for the research and read the deep dives that correspond to those stocks for faster onboarding.
The I/O Fund does not believe in buy and hold approach for tech investing. The difference between an actively managed portfolio and a buy-and-hold strategy is quite visible in our cumulative returns, which have a 157% spread between our approach and popular tech ETFs, as of the start of 2024. Our next audited results will be out in March of 2025, and we foresee those results supporting our consistent trend of outperformance.
The reason that we approach investing from an active stance is due to the nature of losses. Investment losses are geometric. For example:
If a portfolio or position goes down 50%, it has to go up 100% to breakeven.
If a portfolio or position goes down 80%, it has to go up 400% to breakeven.
Tech is highly susciptible to large drawdowns – consider that popular stocks, such as Tesla, was down 60% in 2023 and Nvidia was down 60% in 2022.
Active management means you have a plan for your stock positions. The I/O Fund favors technicals analysis for our active management as the tech industry responds well to sentiment.
Knox Ridley, Portfolio Manager, discuss the I/O Fund’s plans for actively managing the portfolio weekly on Thursdays at 1:30 PST (4:30 pm EST).
Here are a few things you can expect to hear in the weekly webinars:
1) Technical Analysis – For those new to this field, please reference our “Resources.” Here you’ll see an entire section dedicated to basic concepts in technical analysis, plus an overview of Elliott Wave analysis.
The study of technical analysis is the study of the herd (or large group) sentiment. It has been well documented that people retain their individuality and rational thought process in small groups. However, when the group grows, at some point, a new consciousness takes over, which has been deamed the herd mentality. Individual I.Q.s drop, as this new herd mentality becomes the driving force of individuals.
While the specifics always change, human emotions and herd mentality does not. Because of this, we tend to see repeatable and predictable price patterns show up time and time again. Understanding what potential pattern is in play can help you get ahead of the herd’s next move. We use the below techniques to identify good risk/reward entries and stops for our hedges.
Critical Support and Resistance – While markets move in patterns, being able to identify the pattern not only allows you to project with accuracy where the market is going, but it also allows you to establish moving support or resistance levels that confirms the pattern in play or negates it.
For example, the stock below appeared to be in a 5 wave uptrend off the April 2020 low. Knowing that 4th waves tend to correct to the 23.6% – 38.2% retrace of the 3rd wave, this stock should have held $266. When it did not, this was a warning that the final 5th wave is not likely to happen, and that a pivot is needed.
With the broad market, just like all markets and stocks, the pattern that the trend is taking allows for corrections that have to hold certain levels. If those levels break, then you will see us begin to hedge our positions.
Do We Have a Downside Setup? All corrections, whether they are multi-year bear markets or quick moves in a day, are 3 wave patterns. There is the A wave down, the B wave up, which tends to make a lower high, followed by the most devastating part of the correction, which is the C wave down. The C wave is always a 5 wave pattern.
These patterns are fractal, so a small 5 wave pattern turns into a larger one, until you reach your target. So, if we know C waves are 5 wave patterns, this is crucial information for missing the worst part of a correction.
For example, if we see a 3 wave drop followed by a 3 wave lower high, we have an A and B wave in place. Let’s say the next minor drop is a 5 wave pattern followed by another small lower high. The most ideal place to hedge here is on the smaller high, placing a stop just above the start of minor drop. The image below shows this setup, and the gray box is where you would take protective hedges with minimal risk.
2) Stops – All investors have a buy plan, but many fail to have a sell plan. The idea of a stop is a price that tells you when you are wrong. For example, if I buy a stock at $10, and place a stop at $9 (closing price). Then, if at any point my position closes the day below $9, the next day, I sell at the market with no questions asked.
We believe it is better to stop out of a position early and miss a few percentage points on the rally when it resumes (if we were to miss the new momentum by a couple of days). This is a better alternative to being stuck in a stock wishing we could get out. We use this technique, at times, on opening positions because we want to manage our potential losses, just in case we are wrong.
We do not post our stop prices because we are a popular research site. We will let our readers know that a position has a stop when we open it, but we will not post the exact price, as this information can be used against our position.
We also follow fundamental stops. There is a specific criterion that all of our positions have to adhere to. If we see a critical metric reverse and begin decelerating, or if we get evidence that a specific tech trend is getting saturated, we will exit the stock. This can be jarring to retail investors, specifically if a stock has been rewarding.
However, more times than not, we have seen tech investors fall in love with a stock and believe that their future will be bright. They’ll hold this belief despite the fundamentals (and technical) not agreeing with them. Ignoring these technical and fundamental stops can lead to substantial losses. We do not believe hope is sound investment strategy in tech and therefore adhere to our stops.
Risk Management Tool #3: Hedging
While using technical analysis to gauge market risk, we do believe a rules base, automated risk signal is key to side stepping periods of volatility in the market. We outsource this automated risk signal to the company WealthUmbrella. Led by CEO and lead developer, Vincent Duchaine, WealthUmbrella is a team of machine learning and robotics engineers that have developed a purely quantitative and automated risk signal to warn of deteriorating market conditions.
WealthUmbrella Quant Signals –We utilize two indicators from the WealthUmbrella team to help govern our hedging:
The Risk Index – derived from 3 indicators that monitor the options market, it is an early warning in and out of periods of weakness. It is more sensitive, and tends to have an average of 4 triggers/year.
The NASDAQ-100 (QQQ) Hedge Signal – This is the primary risk signal, which incorporates a multitude of metrics – such as, breadth, the options market, price momentum, and dark pool volume. It triggers, on average, once a year.
For those members interested in a quantitative approach to risk management, like us, please visit WealthUmbrella’s offerings.
You can gain access to real-time market updates, access to the above indicators and signals into TradingView, as well as a similar hedge signal for Bitcoin.
How to use the hedge signals? We are not licensed advisors so cannot and will not provide personalized advice. Hedging is advanced and can lead to losses. This practice may not be suitable for some investors, so we encourage all members interested to discuss with a licensed financial advisor first.
The below information is designed to educate members on what we are trying to do when hedging our portfolio.
The quant-based signals along with our technical analysis are simply ways to measure periods of elevated risk in the markets. While all periods of volatility tend to be accompanied with a measurable deterioration in market health, not all periods of market weakness result in large drawdowns.
While in a bull market, most hedges will be closed for a minor loss, which can drag on returns. However, the point of the hedge is to protect us from periods of extreme volatility, which are hard to predict. We see it as insurance, and necessary for playing the highly cyclical and emotional tech sector.
With that being said, we believe it is important to separate the hedge signal from how we hedge. Our hedge is designed for our portfolio. Our goal is to be as close to market neutral as possible with a simple ETF or combination of ETFs.
How this is achieved is by measuring the beta of our portfolio and then finding an ETF or combo of ETFs that replicate our portfolio’s beta. The measurement of beta is a measurement of how a portfolio or stock performs in relation to a benchmark. Our benchmark is the NASDAQ-100, so if our portfolio beta of 1.5 means that for every 1% up move in the NASDAQ-100, our portfolio would go up 1.5%. This is also the case on downside moves – for every -1% move in the NASDAQ-100, or portfolio would be -1.5%.
Why this is important is that everyone’s portfolio beta is different. If someone has a more diversified portfolio, say, a mix of blue-chip stocks, some bonds and commodities, and then a sliver of their portfolio is dedicated to high beta tech, then that portfolio would have a significantly lower beta than the I/O Fund. So, if that portfolio copied our specific hedge, instead of going market neutral they would be be going net short in a way that could harm long-term returns. For this reason, separating the risk signals that WealthUmbrella provides from how one decides to use those signals is very important to understand.
Do we rebalance our hedge to account for weekly fluctuations? The short answer is no. For example, if we say that we are hedging 100% of our our portfolio, on that day, we calculate the total amount invested (not cash), and then short the ETF or combination of ETFs that will get us 100% hedged.
If the following week we add some of our cash to into beaten down stocks, our invested amount will be more than our hedge, making us not 100%. Also, let’s say or our stock portfolio goes down, say, 3% while our hedge goes up 5%, based on the relative performance of our hedge, we would also not be be 100% hedged anymore. In virtue of us adding cash to our investments and the relative performance of the hedge to our invested portfolio, we will need to rebalance our hedge to account for these fluctuations if we want to remain 100% hedged.
We do not do this. Our goal is to keep it simple by having a counter weight on our all tech portfolio in periods of volatility. We are trying to reduce our portfolio’s drawdown. So, we simply calculate the % we are hedging on the day we issue the alert, and leave that hedge alone until we decide to take it off.
How to read Hedge Trade Alerts:
When we say “Hedge QLD at $111.39 – 10% Hedged” we are saying that we have shorted the ETF QLD at the price listed. Most importantly, we only hedge the invested portion of our portfolio. So, the above example is shorting 10% of the invested amount of our portfolio.
For example, if we have a $1000 portfolio, and $200 is in cash, the above example would short $80 worth of QLD. This would be 10% of the $800 invested.
Conclusion:
Unlike many retail services, we are not hiding behind a stock report that we wrote about years ago. Like these services, we could easily say that we recommended NVDA based on our 2018 article; however, the real questions that need to be answered for real investors are – do you own it now? Have you always owned it? Did you ever take gains? If so, how much and when? Is it worth owning now? If so, at what price?
Not providing an answer to these questions is the difference between analysis and investing. Great analysts are not always great investors, and how one executes analysis over the long-haul is what real investors are seaking.
As real investors that have survived, and even thrived, through the tech-focused volatility from 2019 – 2024, we have done so through an arduous approach that includes risk management. It’s rare to see this many risk management tools offered at the retail level, but these are the actual investing tools that successful investors use.
Wall Street is not so generous as to share their every trade, and the Street certainly does not discuss their plans in advance. Retail sites rarely have enough consistent performance to be confident enough in disclosing their daily actions, as too many sites claim that solid research is enough evidence of being a great investor (it is not). This combination leaves investors in the dark on how to truly approach stock investing.
The I/O Fund has built a loyal base of Members as we were one of the first to provide high quality risk management tools alongside in-depth and original research. We feel this combination is hard to replicate. Our team is dedicated to continuing to serve our customers with the highest level of integrity as we seek to answer the billion-dollar question: how to safely safely participate in the world’s most rewarding industry — tech.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
On October 13th, 2022, the S&P 500 bottomed, after selling off approximately 25% in just under 8 months. Since this low, the market is up around 95% in a new bull market, as investors continue to wonder how much further this new bull cycle can go. Using technical analysis, we can analyze the pattern in play for the current uptrend. Furthermore, we can fit this pattern within the larger pattern in play so that we can get a favorable perspective on how to better manage risk.
As discussed in my upcoming free analysis, the most likely pattern the bull cycle is taking off the 2022 low is what’s called a diagonal. A diagonal is a 5-wave pattern where each of the sub-waves is a series of 3-wave patterns. The primary characteristic of this pattern is that the explosive 3rd wave fails to take off, and the 4th wave tends to be very deep, retracing close to, or into 1st wave territory.
This is a very distinct and common pattern that we see in capital markets. What is unique about the current diagonal pattern is its size. It is rare to see a multi-year diagonal pattern in play, which is exactly what the market is tracing in real-time.
As you can see above, the S&P 500 is clearly in the final stages of a multi-year diagonal pattern. Note the overlapping swings in both directions, as well as the very deep 4th wave drop in March of 2025. This puts us squarely in the 5th wave of this pattern. Based on the current price action, the below counts best project where this diagonal can go:
Green Count – This is the primary scenario I am tracking. The move off the April low of this year is the A wave within the final 5th wave. We should see some type of B wave correction in the coming weeks to months, followed by a final, multi-month blow off swing into 2026. This will complete the diagonal pattern, setting the market up for a period of volatility.
Blue Count – We are in the final swings of the 5th wave. As long as 6345 and then 6205 holds on any further weakness, we should see a continued push higher into Q4 with target between 6820 – 7280.
The green count is further supported by the NASDAQ-100. It too appears to be tracing a diagonal pattern.
While we do have a full 5 waves in place, which is enough to complete the pattern in full, note the symmetry of this final 5th wave compared to the 1st wave. In order to fill out the pattern completely, the NASDAQ-100 suggests a correction and continuation into 2026
What Happens When a Diagonal Ends?
Another key element of diagonal patterns is their placement within a trend. They can only show up in two places: (1) a leading diagonal is the 1st move higher within a larger trend that is starting. In other words, it is wave 1 in a newly developing 5 wave-pattern; (2) an ending diagonal is the final move within a completing 5 wave pattern. In other words, it is wave 5 within a larger 5 wave pattern that is close to completion.
This begs the question on if the current bull cycle we are in is the start of a much larger 5 wave pattern, or the end move within a larger 5 wave pattern? If we zoom out on the larger pattern in play, it appears to be an ending diagonal within the secular bull market that started in 2009.
The above monthly chart of the S&P 500 shows a very clear and distinct secular bull market that took the shape of a 5-wave uptrend. Note how the bull market in 2017 was marked with peak momentum, followed by the vertical move after the COVID low. We have continued to see the market make new highs on weaker momentum, which is characteristic of 5th waves.
Most importantly, though the bear market in 2022 was difficult, as you can see on the chart above, it was merely a bump in the road of the larger bull trend. In short, it was not deep enough, nor long enough to constitute a reasonable consolidation of the secular bull market that started in 2009.
This leads me to believe that the diagonal pattern we are in is an ending diagonal, which once completes, will lead to a period of volatility and consolidation that most investors have not experienced.
What this suggests is that after the secular bull market completes, we will enter a very normal period of consolidation, known as a secular bear market. Though this may seem impossible, as we have been trained since 2010 to stay long and buy every dip, it is very normal part of investing. Since 1900, the market has spent 56% of the time in a consolidation period.
Furthermore, the average secular bull market since 1900 has lasted for 11.3 years and returns 774%. The current secular bull market has lasted for 16.6 years and returned just over 918%, well over the average, and the 2nd most profitable secular bull market in the last 125 years.
If we do enter a period of extended volatility and choppy markets, this does not mean that investors should avoid the stock market. What it does mean is that the easy period of mindless buy and hold and buy ever dip will not be the winning strategy going forward. Instead, and active approaching that favors focused stock picking will likely be the strategy that profits.
This becomes evident when we analyze the last secular bear market from 2000 – 2009. The S&P 500 topped in dot.com bubble in March of 2000. It traded sideways until April of 2013, at which point it reclaimed the March 2000 high and never looked back. For 13 years, the market went nowhere and gave investors 2 greater than 50% drawdowns.
The poster child of the dot.com bust is Cisco (CSCO). This is a story everyone is familiar with, which is incessantly used as a dire warning about chasing bubbles – CSCO was the leader of the dot.com bull run, returning nearly 700% from the 1998 low to the 200 tops. It then fell 90% and took more than 22 years to reclaim its 2000 top.
However, no one talks about Apple during the same time, another beneficiary to the dot.com run, returning nearly 1100% from during the same period, and then dropping 83%. Interestingly, after putting in a low April of 2003, in less than 2 years, Apple reclaimed its March 2000 top in January of 2005.
Even more interesting, from January of 2005 to April of 2013, the moment when the S&P 500 reclaimed its March 2000 top, Apple was up over 1000%.
The vital lesson Apple teaches us about normal and extended periods of volatility that occur in the markets is that not all stocks participate. The difference between Apple and Cisco is simple. Apple was one of the primary beneficiaries of the personal computer microtrend and then became the primary beneficiary of the most powerful microtrend in our lifetime – the smart phone. We went from no one having a smart phone in 2007 to nearly everyone in the world having a smart phone today.
Technology and innovation do not pause because the stock market is in a secular bear market. These microtrends are multi-decade periods that push forward regardless of the stocks market, minting new leaders along the way.
If we do see a period of heightened volatility, if the broad market does enter a multi-year consolidation period, like Apple in 2000, the AI microtrend will push forward. This will likely create similar winners, which we would view as cyclical drawdowns within secular uptrends.
This is not only anecdotal, but can be seen in various AI charts, like Nvidia, for example. While the most likely interpretation of the S&P 500, shown above, is that we do enter a secular bear market in the coming years, Nvidia, which is the primary beneficiary of the AI microtrend, appears to be in a secular uptrend for many years to come. Like Apple from 2007 through 2018, any major drop in price due to macro events will likely be a cyclical drawdown within a secular uptrend.
I/O Fund Portfolio
Starting in September, we began the process of raising cash while also rotating further into the AI energy theme – a theme that we first authored as far back as 2024. During this time we were able to log some meaningful gains:
Closed TSM for a 41% gain.
Closed DELL for a 35% gain.
Closed CORZ for a 194% gain
Trimmed AMD for a 34% gain.
Trimmed INOD for a +80% gain.
Trimmed APP for a +60% gain.
Trimmed ALAB for a 335% gain.
Trimmed BE for a +320% gain.
Closed OKLO for a 54% gain.
Trimmed APLD for a 89% gain.
Trimmed WULF for a 23% gain.
We were fortunate enough to take gains in APP at $626, just before selling off 27% from its high. We did the same in ALAB clocking gains as high as $232 before it saw a 43% drop from its highs. These moves put us back into a sizable cash position, which we have been deploying on nearly a daily basis since the volatility began just a few weeks ago.
Furthermore, we decided to close the above positions because they no longer fit our investing criteria or hit a stop – e.g., DELL’s thin margins, TSM’s obvious 5th wave push, and OKLO breaking below our stop. Instead, we have shifted to positions that we believe should do better in the current environment. This should not be confused with the I/O Fund asserting if a stock will continue to go up or not, rather we are asserting that other stocks fit our criteria better at this time. This is about probabilities, not about finalities.
For a more detailed look into the themes that we are investing in today, please read Beth’s most recent Top 15 AI Stocks Q4 2025 Report.
The below pie chart is our current portfolio, We are still holding about 1/3 of the cash position we built up and will continue to target the names within the trends we identified in Beth’s Top 15 AI Stocks Q4 2025 Report. As long as critical supports hold within the broad market, expect more buys over the coming weeks.
Hedge Update
As many are aware, we are pivoting our current hedge strategy into more of a trend following system. Unlike many trend following systems, our goal is to actively manage how we layer into and out of our hedge based on critical levels breaking within a trend. As of now, the critical levels are 6345 SPX and 6205 SPX. These levels could move higher if we continue to trend higher; however, until these levels are broken, we will remain unhedged and long this market.
Furthermore, we ran an updated correlation screen recently against our portfolio through 2025. Our goal is finding an ETF or combination of ETFs that will closely mimic the beta of our portfolio, which we can use to short against our portfolio so that we can approach being market neutral during times of volatility. As of this week, the closest match to our portfolio is no longer a mix between QLD+USD; it is the VanEck Semiconductor ETF (SMH).
This is visible in the chart above. We are looking for an ETF that tracks as close to the 1 line as possible, which is SMH. So, moving forward, our new hedge will be for every $1 invested, we will short $0.9 of SMH.
Stock Setups
Astera Labs (ALAB)
Blue – We are tracing a very large diagonal pattern that started on the 2024 low. The first signal that this count is in play will be a sustained break below $161. The 2nd signal will be any bounce that follows testing this level will be a clear 3-wave pattern. We would make a lower high, and then push toward $132 – $103, which would complete the 4th wave in this on-going, and large diagonal pattern.
Green – We are in a standard 5 wave pattern, not a diagonal. The $161 level should hold, and the next bounce will be a more direct 5-wave pattern that makes a fresh all time high. We will then press toward the $460 region, which will complete the 3rd wave in this very large 5 wave pattern.
Nvidia (NVDA)
Blue – We are completing wave 3 and should see a in the 4th wave consolidation. We should see another leg lower that potentially tests the $155 region but holds. This will set the stage for the final 5th wave toward $214 – $262, and will complete the uptrend pattern off the April low.
Red – We are in an ending diagonal pattern. The current drop is the 4th wave in this pattern. We will hold $173, then turn higher toward $200 in the coming weeks. The key for this pattern will be making a new high directly on weakening momentum and volume. Whether this will be the end of the uptrend pattern off the April low, or a 4th wave correction is yet to be determined and will likely come down to their earnings report.
Green – I’m adding this count to the mix due to the unique situation NVDA currently is in. This has predominantly been a fundamental story, which has consistently provided us with shallow 2nd waves and extended 3rd waves. This count is a continuation of this theme and suggests that NVDA has a very shallow 2nd wave and is currently completing wave 2 of 3. This will lead to another vertical gap on heavy volume as the trend pushes well above the $243 blue target. From a technical perspective, what must hold for this count to be valid is: 1) We must hold $164; 2) There must be a large surprise that forces a buyer’s gap in price. If their earnings report fails to provide this gap, this count gets invalidated.
Credo (CRDO)
Green – I am not very confident in CRDO’s chart. It is an overlapping mess from the 2023 low, which implies a diagonal. However, the diagonal could be interpreted in several ways.
That being said, this count suggests that we are approaching the end of the 3rd wave, which could have already topped at the recent high or could push as high as $285. Once completed, the 4th wave should be rather deep, considering the pattern best fits a diagonal.
Blue – This count suggests the full diagonal has already completed. This would complete a very large 1st wave and set us up for a multi-month 2nd wave retrace. Though this count would be challenging over an intermediate time frame, it would be setting us up for a large 3rd wave.
CoreWeave (CRWV)
Green – There is not a lot of price data with CRWV. However, the price information we have is intriguing. For one, off the IPO low, we have an aggressive uptrend that resembles a 5-wave pattern. We then have a 3-wave retrace from the all-time-high. This implies that we have a very large 1st and now 2nd wave in place. If this is playing out, any further weakness needs to hold $99.75 and then break above $188.
Red – This count would become the most probable if CRWV breaks below $99.75. This would imply that we are in the C wave of an extended 2nd wave. The drop should be a 5-wave pattern and target between $78 – $64. For any of the long-term bullish counts to play out, we must hold $50.50 at all cost.
Bloom Energy (BE)
Blue – Thirds waves are characterized with relentless price action and small dips as we progress. This perfectly characterizes BE since the April lows, as it has quickly become a 6 bagger from our March – April entries. The trend has been so aggressive that it makes it difficult to decipher where this trend might meaningfully pause. What we do know is that volume and momentum are both fading the higher we go. This is typically a sign that buyers are drying up, which precedes some type of reversal.
As long as BE holds below its recent high of $125.75, I’m expecting a 4th wave decline to take us back into the $92 – $75 range. If we do see a continuation of this drop, we need to hold $$68.50. We should then continue higher toward $165 – $200. IF we do drop below $68.50, we could be in a much larger B wave decline, which would set up another great buying opportunity.
Green – This count has us in a very large 3rd wave. This count should break over $125.75 directly, and push toward our $165 – $200 price range. We would then get a 4th wave consolidation into Q1, which would set up the final 5th wave into 2026.
Bitcoin (BTCUSD)
Green – We are in the final 5th wave of the large bull cycle that started on the 2022 lows. Note how price keeps making new highs on decelerating volume and momentum. This fact, coupled with a very filled out 5-wave pattern, has us taking gains and tightly managing risk. The path to $200,000 in a final blow off move will require the $103,604 level to first hold. At most, I can give this count a move to $83,775. If these levels hold, and we then breakout over $133,000 with force, this count will be confirmed.
Blue – We will see one final push to $133,000 into December. If this happens, the volume and momentum patterns will be the tell – if it remains weak the higher we go, the bigger the warning.
Furthermore, the below Gann chart has been extremely accurate, keeping us on the right side of this uptrend. Note the 45-degree angle in red, which bottled up the last two pushes higher. Furthermore, note how accurate the time factors have been at identifying turning points. The next major cluster is in December, which coincides with the 45-degree angle intersecting the $133,000 level.
Reddit (RDDT)
Blue – We are completing wave 4 in a 5-wave pattern that started on the April low of this year. We need to hold $185 and then see a direct 5 wave bounce off the recent low to confirm this is in play. We should see a 5th wave push to $322 – $500 region. This will complete a very large 3 wave pattern off RDDT’s IPO low, which can allow for a multitude of outcomes once complete. So, from a technical perspective, if this scenario is in play, we will have to wait and see what unfolds when the uptrend pattern completes.
Green – We are in the middle of a 3rd wave within a larger diagonal pattern. This count should see a corrective bounce, followed by one more drop to the $173 – $140 region. This final drop does not need to happen, but if it does, these will be the targets that we will use to add to our position. The 3rd wave should target $765 – $999.
Applied Optoelectronics (AAOI)
Blue – We are completing wave 1 of 3. Note the messy push higher on lower volume and momentum. This is likely an ending diagonal for wave 1 and should see a 2nd wave retrace back toward $26 – $16. As long as $13.25 holds, we should see a large breakout follow.
Green – We already completed wave 2 of 3 and setting up for a large breakout. If we see a vertical move over $44.40, this will signal that we are in the early stages of a very large 3rd wave move.
Oracle (ORCL)
Blue – ORCL gapped higher in 3rd wave. We are in a 4th wave which should hold over $250 – $241. We will then push higher on less volume and momentum in the 5th wave, which would target $383 – $488.
Green – The earnings gap was the final exhaustion move of the A wave. We are in a B wave retrace that will break below $241. I do not want to see this B wave break below $179, or something more bearish could be in play. Once the B wave ends, we should see a C wave well into the $600s into 2026.
Advanced Micro Devices (AMD)
Blue – AMD is clearly in a termination wedge after its recent gap. Note the tight trading pattern that is trending higher on lower volume and momentum. We typically do not see 5th wave on max volume and momentum, which is why I am viewing this termination wedge as wave 5 of 3. The 4th wave should see a corrective drop back into the gap before staring at wave 5 toward the $288 – $391 region. Any drop must hold $158, or something more bearish could be playing out.
Green – When the termination wedge ends, we will only see a slight drop that holds $203. I have this as wave 2 of a larger 3rd wave. It implies that a larger gap is on the horizon, as we push toward the $500 – $600 region.
Applovin (APP)
Blue – We are in a very large ending diagonal pattern. We completed wave 3 and are in the middle of wave 4. It is currently targeting $483 – $416. As long as this 4th wave holds over $331, we should find a low and start wave 5 toward $1000.
Green – We are still in the 3rd wave and completing the B wave. We already struck a low, will hold over $534, and then continue higher toward $1000 in a larger 3rd wave diagonal pattern.
Ethereum (ETHUSD)
Blue – We just completed wave 4 of 3. The next move must be a 5-wave push over $4,762. We’ll then target around $6,700 for wave 3. The larger 5-wave pattern is targeting around $9,000 – $10,000. Any further weakness must hold $3,350 or this count gets invalidated.
Green – We will break $3,350 in a large 3 wave move. This will be a B wave of a larger 5th wave. The targets will be around $3,033 – $2,243. We must hold $1,862 for any bullish resolution into 2026 to manifest.
Broadcom (AVGO)
Green – AVGO is in a B wave that should fail to make new highs and then turn lower toward $314 – $292. This will set up a large C wave uptrend into 2026 with targets around $559, at minimum. Once we get the B wave low, and a new uptrend has started, we can get more accurate targets. Below $221 will be a problem for continued upside.
Blue – AVGO is in a standard 5 wave uptrend. We will breakout to new highs on decelerating volume and momentum, which will confirm this is a 5th wave. We will target $402 – $425 in the coming weeks to months, which will complete 5-wave uptrend off the April 2025 low.
Applied Digital (APLD)
Blue – We are in a 4th wave within a larger diagonal. We should drop to the $24 – $19 region to complete this 4th wave. Any sustained break below $19.75 will be concerning and put this count at risk. If we can hold $19.75, we should turn higher toward the $30 region to complete the 5th wave within this diagonal pattern.
Green – We are not in a diagonal. Instead, we are in a standard 5 wave pattern, and only in wave 4 of 3. We should bottom above $26.50 and then continue higher.
Innodata (INOD)
Blue – We are in the middle of a 3rd wave. We can see weakness test $64, but this level must hold. We will then continue this 3rd wave toward the $122 – $137 region. The larger 5 wave pattern should target $163, as long as supports hold.
Red – The bounce off the April low is a clear 3 wave pattern, so far. We will see a large drop that takes the shape of a 5-wave pattern. This drop will break through $64, which will be the first warning that the blue count is failing. If this happens, the odds increase that we will retest the April low.
Core Scientific (CORZ)
Green – CORZ appears to be tracing a very large cup and handle pattern. This is typical before 3rd wave breakouts. If this is in play, we should see a vertical push higher toward $44 – $70 on expanding volume and momentum.
Red – The next move is not a breakout, but instead a breakdown. It will be in the form of an aggressive 5-wave pattern, signaling that we are heading below the April low in an extended 2nd wave.
Galaxy Digital (GLXY)
Green – GLXY is setting up for a large 3rd wave breakout. We have a series of back-and-forth pushes higher that is holding over major support $37. As long as we hold over $28, the setup will remain valid. The pattern is signaling $134 as the 3rd wave target, if triggered.
Blue – We are in the final 5th wave in a very large diagonal pattern. The setup is pointing toward $67, if any further weakness holds over $24.
Riot Blockchain (RIOT)
Green – We are in the 5th wave of a diagonal pattern. This drop should hold $17.25 and then turn higher toward $26 – $38.
Blue – We are in wave 4 of 5. This drop will hold over $16.55 and then turn higher on lower volume and momentum towards the $26 region. This will complete the 5-wave uptrend that started in April of 2025, which would be followed by a period of volatility.
Iren Limited (IREN)
Blue – We are in a 4th wave within a larger 3rd wave. This drop is deep enough to satisfy this 4th wave. If we do see further weakness, it must hold over $36. We should then turn higher in an aggressive breakout over $74.15 as we move toward $149.
Green – We will break below $36 in a 3 wave move. This will be the B wave of a much larger swing higher. This drop can go as low as $18 and still maintain a long-term bullish posture but cannot break below.
TeraWulf (WULF)
Blue – We are starting wave 4 of C. This 4th wave should target around $10.50 – $7.65, then turn higher for wave 5, which would be targeting $23 – $31. Below $7.65 will invalidate this count.
Green – We are starting a B wave that would take us to $7.65 – $4.25. Once completed, we should see a 5-wave uptrend take us toward the $30 region.
Chainlink (LINKUSD)
Green – Chainlink’s price pattern has devolved into, at best, a diagonal pointing higher. This drop is too deep, which limits the path higher. If this count is in place, any further weakness must hold $12.80 and then turn higher in an aggressive 5-wave move. It will be a choppy move higher, which will have large swings in both directions.
Red – We are in a very large 2nd wave. Once we break below $12.80, the odds of this happening become elevated. The final target for this count will be around $3.
Conclusion:
The I/O Fund has been delivering top notch information with the Top 15 AI Stocks report for Q4 2025, the Top 10 New Ideas list for the Discovery tier and my Positions Report for the Advanced tier. Combined, we delivered 100 pages of research in the brief time frame of two weeks, all of actionable ideas within the AI space.
Regarding market risks, in a recent interview on Thoughtful Money, famed economist David Rosenberg stated that the percentage of the U.S. economy currently expanding—when weighted by population—is only 18%. In other words, 82% of the U.S. economy is flat or in contraction. To make this statistic even more startling, he noted that just six weeks ago, over 40% of the economy was expanding, signaling a rapid deterioration in growth.
The last two times we saw less than one-fifth of the U.S. economy expanding was the summer of 2020 and the winter of 2009—two of the most difficult periods for the American economy in decades. Yet today, the S&P 500, NASDAQ, Dow Jones Industrial Average are at all-time highs, while credit spreads remain near historic lows.
The reason lies in the remarkable fact that the small portion of the economy that is still expanding is tied to artificial intelligence, which continues to show no signs of slowing down. Though it may seem overly simplistic, the reality is that as long as hyperscaler’s capex continues to grow, it is unlikely that the U.S. economy will fall into a recession—even with more than 82% of its sectors already contracting.
As long as the AI economy continues to expand, and the broad market holds critical support levels, we will maintain a bullish posture.
The Discovery tier offers fast-paced research on new stock ideas the I/O Fund is interested in, with technical setups and comprehensive deep-dive analysis. Be the first to know what exciting new tech, AI and energy stocks the I/O Fund is tracking.
To subscribe to Discovery with 30% off, please click here to email usclick here to email us or email premium@io-fund.com and mention code DISCOVERY30.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
Going into this year, we advocated for a defensive posture due to various risks in the broad market, as well as within valuations. We outlined these risks each week on our webinars going back as far as October of 2024. As a result, we maintained a very high cash allocation and quickly jumped into our hedge at the first sign of support breaking in January and February.
As a result, we remained largely unscathed in the April drop and deployed nearly all our cash into the lows. In fact, we issued 22 buy alerts between March 3rd and April 7, with 12 of those buy alerts happening between April 4th – 7th. We do not know many out there that were buying these lows as aggressively as we were.
Since the April lows, we have maintained our game plan – reposition defensively into the bounce and let the market tell us what the next move will be. While we did not expect this bounce to go this high, and began positioning defensively too early, we are still adhering to the same gameplan – if the next pullback is a messy/3-wave drop, we will position aggressively for the next trend higher. If instead we see an aggressive/5-wave drop, we will patiently wait for lower levels to position.
This game plan is best expressed by the two counts presented in the chart below:
Green – We are completing the first leg in a large degree 5th wave. The 2nd leg should take the shape of a 3-wave decline that first breaks below 6200 and then 6105. It will then find support on 5900 – 5500 and must hold 5345. We will then turn higher in a more aggressive 5-wave uptrend to new all-time highs.
Red – The final 5th wave completed in February of 2025. The bounce off the April low is a large corrective rally within a larger uptrend. The next drop will be an aggressive/5-wave drop that ultimately breaks through 5345.
Note how the current rally is pushing higher with a strong deceleration in momentum and volume. This is a common occurrence when we are close to a trend change. Furthermore, the RSI is still hovering below bear market resistance for the S&P 500, signaling that a return to the level of momentum that we tend to see in strong and lasting bull trends is not yet present.
One additional point is noting how many key markets are currently not participating in the S&P 500’s recent rally to new highs. Key markets that have either led the bull market or are more sensitive to the economy did not confirm the S&P 500’s push to new highs last week.
While divergences can correct, and the trend continue, nearly every turning point – tops and bottoms – shows divergences like the ones shown above. It implies that the higher we go, the less key markets are participating.
While the odds are quite high that we should see some type of reversal soon, we still favor the green count based on the strength of the A.I. market, which appears to be ramping, as expected. The stock market is one of the greatest predictors and leading indicators. For this reason, we will remain open, and risk focused, as we wait for the market to signal the “all-clear.”
Current I/O Fund Portfolio
Our current portfolio is back into a defensive posture. Our game plan is to rebalance our portfolio for the second half of 2025. We are first raising cash around the highs and will issue our buys on the next drop.
As of now, we are heavily tilted toward A.I. hardware, which we plan to maintain. However, we intend to increase our exposure to A.I. software, as well as energy in the coming rebalance.
Regarding crypto, the easy gains are over. We are on the lookout for the top to the current bull cycle in the coming weeks or positioning for one more high into the $200,000 region. Our exposure to crypto will depend on how the next drawdown shapes up. We go into much greater detail in the individual positions below.
Astera Labs (ALAB)
ALAB has been the stock with the most bullish potential since we began investing in it in 2024. This lines up with the fundamental outlook as we discussed in The I/O Fund’s Top 15 Stocks for Q3 2025, which is why it is such a large position. There are two general interpretations of the price data that we are tracking:
Green – The 2024 uptrend off the low is a large 5-wave pattern. This was followed by a deep 3-wave retrace that made a higher low. We now completed another 5-wave uptrend off the 2025 low, followed by a sideways consolidation for wave 2.
We called out the importance of the $100 – $85 region, as many institutions were active in this region. The breakout move suggests this was accumulation. So, the next drop needs to be 3-waves down, and hold above the $85–$100 region to suggest an imminent breakout.
Blue – The recent push higher was a 5th wave – aka, bull trap. The coming pullback will break through $85, finding support in the $60s–$70s. We must hold $59 if we see this deeper pullback. This will end wave 2, as we set up for the larger 3rd wave breakout.
Bitcoin (BTCUSD)
The weekly chart on Bitcoin has us definitively in the final 5th wave of the bull cycle that started in 2022. Note that price went vertical in 2024 on max volume and momentum. This is the 3rd wave, which is almost always the most exciting part of a trend.
The primary question is when did the 3rd wave end? If it was in mid-2024, which is represented by the red count, then we should see a final push into the $125,000 – $135,000 region. If the 3rd wave ended in late 2024, which is represented by the green count, then we can see the 5th wave take us well over $200,000 before ending.
The internals on the weekly chart of Bitcoin are also at a key inflection point. Note that the RSI and the Detrend Oscillator are at the same levels that have marked meaningful reversals in Bitcoin’s trend. This is also happening on decelerating volume. In other words, the higher price goes, the less interest we are seeing from buyers.
If the more bullish green count is in play, all of these internal signals will have to be broken to the upside while momentum and volume will need to expand from here.
Another concern worth mentioning is the current cycle in play with Bitcoin. The below chart shows Bitcoin trending higher into a cluster of large cycles. What matters with cycles is how we trend into them – more times than not, they indicate a reversal of the trend heading into their window.
While the cycle work that I do is secondary to what price does, this chart further supports the precarious spot Bitcoin is in. Ideally, we would see these cycles pointing to a relative low, or period of consolidation before a bigger break out. However, until the above concerns resolve, we will maintain a defensive posture.
On a smaller time frame, the below chart outlines the potential paths that the price action can take. As mentioned above, we will need to see the internals on the weekly chart improve, as well as supports hold into the current cluster of cycles.
Green – The swing higher is incomplete and should get into the mid $120K to lower $130K range. Once completed, we should see a 3-wave pullback that holds over $105,000. If this breaks, the risk will increase.
The final support for the bullish count will be $93,200 – $86,000. Though the risk will be elevated below $105,000, if we can hold these above support regions, the setup to +$200K will remain intact.
Red – This scenario was stated above. We are in the final 5th wave of the multi-year bull cycle, which is targeting $125,000 – $135,000. We will then see a larger pullback that will break through $105,000, $93,200, and finally $86,000. If these supports break, it will increase the odds that a renewed bear cycle is underway, with general targets in the $70,000 – $40,000 region.
Nvidia (NVDA)
Nvidia has been a difficult stock to map since the June high in 2024. The reason for this can be seen below. Since, we have seen a series of three wave patterns in all directions, while price is only moderately higher than the June 2024 peak.
There are two counts that I’m tracking with NVDA:
Green – It is obvious that the bounce off the April low is taking the shape of a 3-wave pattern. So, this would be the end of wave 1 of a large degree ending diagonal pattern. We would see a 3-wave retrace soon, which holds $116 – $111. We will then turn higher toward the $300 – $350 range in the following months.
Blue – This count also has us in an ending diagonal, but on a smaller degree. In other words, we are already in the 3rd wave, which should be ending soon. The 4th wave drop should hold over $155 – $140 and then turn higher toward $192 – $216. This would complete the final 5th wave in the NVDA uptrend that started in 2022, and we should see a multi-month draw down that follows. If this does happen, it will likely set up a generational buying opportunity.
Bloom Energy (BE)
BE quickly became one of our largest positions on the recent breakout to new highs. There are currently two scenarios that best describe the current price action:
Green – We have completed a leading diagonal for wave 1. This was followed by a rare and shallow 2nd wave. Today’s breakout was the start of wave 3, which should continue into next week. Any weakness has to hold $26.80–$28.50 or this count will be invalidated. The targets for this move are $66 – $108.
Blue – This breakout will fail under $26.80, setting up a drawdown to the $24 – $20 region for a larger 2nd wave. We have to hold $18 for any further bullish pattern to continue.
Coinbase (COIN)
We started a position in COIN in late 2024 around the lows. Since then, we have been tracing what appears to be the last large swing in a very large diagonal pattern. This is a 5-wave pattern that has large moves in both directions, causing significant overlaps within the pattern. We are in the 5th wave of this large pattern, and there are two scenarios that best define the price actions:
Green – I think COIN is going to put in a top before Bitcoin. It needs to hold $370 and then turn higher toward $445 – $476. This will complete a multi-year leading diagonal for wave 1. Wave 2 will take months to a year to play out and will target $149 – $82. This is where the generational buying opportunity lies. It was a good run. We are sitting on sizable gains, and we don’t need to be greedy.
Red – Either we break below $370, or we make another high, as suggested above. We’ll then drop back into the $324 – $290 region, preferably. However, this drop can go as low as $222 and still be valid. As long as $222 holds, we can turn higher in 5-waves toward the $500 – $800 range.
Chainlink (LINKUSD)
We have been holding off on adding to LINKUSD until we get more clarity in the pattern. Since the December 2024 top, Chainlink went from one of the clearer charts that we track to one of the more confusing.
What cannot be ignored is the very large and clear 5-wave pattern that started off the 2023 low that pushed into the late 2023 high. This large degree pattern strongly suggests a higher resolution, which is why we are hanging onto our sizable LINKUSD allocation.
Based on the price action, the below counts represent the most likely outcomes:
Green – The April low was the end of a large corrective bounce. Off this low, we got a nice 5-wave pattern, which further confirms a new uptrend is starting. We have also broken through the downtrend angle as we pushed toward the key $18 region. For this count to be in play, I want to see a continuation higher, while holding over $18. The lowest I can give this count is the $16 region. As long as these levels hold, and we keep pushing higher, then we are targeting the $35 – $54 region.
Red – We are still in the large 4th wave. We will break down below $18, $16, then $11.75, which will setup a final swing lower toward the $8 – $7 region.
Ethereum (ETHUSD)
It’s hard to believe but Ethereum still has not broken above its 2021 high, even though it has risen quite a lot from the 2022 low. The pattern has taken the form of a messy and overlapping bounce, which means that there are two possible scenarios in play:
Green – We are in a small 4th wave that should hold $3036. If held, we will turn higher toward 4120 – $4675. This will complete a large A-wave, which will be followed by a corrective B-wave. The likely targets for this correction will be $2795 – $2137. However, it must hold $1850. We’ll then turn higher toward $8000 – $10,000 in a final blow off.
Red – After this next swing higher (or break of $3036), we will start a new bear cycle. We don’t want to own ETH during this.
Taiwan Semiconductor (TSM)
TSM is following a similar path as Nvidia:
Blue – We are completing the 3rd wave of a small ending diagonal. This would mean that we are due for a pullback that holds over $187. This will be followed by one more swing into the $264 – $315 region.
Green – We are tracing out a large ending diagonal pattern. Instead of completing the 3rd wave, we are completing the 1st wave. This will be followed by a larger correction that can break $187 but must hold $153.
Super Micro (SMCI)
Green – SMCI is tracing a very large 5-wave pattern from the 2008 lows. The -85% drop in 2024 completed the 4th wave correction, as we are now setting up for the 5th wave swing.
For this to be in play, any weakness from where we are should see a drop into $42 – $35 region and hold over $31.50. This will set us up for a larger breakout that is targeting $107 – $181.
Red – We are still in the larger 4th wave correction. The bounce since the November 2024 low has been a corrective bounce, making a lower high, and we are setting up for the final drop to $13 – $9. If we break below $31.50, this count will become the most likely outcome.
Credo (CRDO)
Credo is in the middle of the current Blackwell supply chain, while also having a relatively attractive valuation. It was also a primary target for our buys in March and April. We decided to step aside due to its elevated China exposure, which the market is rightfully looking past. Expect this to be a bigger position, as we strategically layer back into it at key levels.
Green – We are in the final 5th wave of a leading diagonal pattern. The bounce off the April low was the first swing, which should be followed by a 3 wave retrace. This retrace will break below $93 to signal it is underway and should ideally hold $75 – $67; however, it can go as low as $46 and remain valid. Once this correction is over, we should see an aggressive push to new highs, with tentative targets in the $119 – $173 region.
It's also worth noting that there is evidence that institutions are very active in this stock between $88 – $93. If this level holds, and we see a strong break to the upside, it will negate the expected drop. It is rare to see a stock move as far as CRDO has in such a short amount of time with minimal pullbacks. However, its positioning within the Blackwell supply chain should be considered.
Red – We already completed the diagonal pattern in the current swing higher. The coming correction will break $46, to confirm this scenario, and could take months to play out.
Advanced Micro Device (AMD)
Since the 2021 top, AMD has been in a messy consolidation to a very large degree. I think that we are in a very large B wave, which will either end this year or into next year. The below counts represent these scenarios:
Blue – We are completing the final swing in a 3-wave bounce off the April low. Note how we are pushing up into a very heavy supply zone between $160 – $175, and we are doing so on weakening volume and momentum. We should see a 3-wave drop That holds over $101 – $96 before setting up for the next larger swing higher.
Green – We had a tiny correction and setting up for a continuation of the vertical bounce off the April lows. If we can breakout over $160 and then $175, we should see a push into the target zone, which starts at $205.
Solana (SOLUSD)
We continue to get confirmation that Solana could be setting up for a large swing to the $400 – $600 region. For one, we have what can be counted as a 5-wave move off the April low. This was followed by a 3-wave correction that has made a higher low. We are now establishing a momentum position into the constructive price action. Below represents the general counts we are tracking:
Green – We are in a minor dip wave that should target $176 – $152. It has to hold $152. We will then turn higher toward $242, which is where we start taking gains (sell half). We will then need to see either another pullback that makes a higher low, or a vertical breakout through $242 on heavy volume, for confirmation.
Blue – This count has the push off the late June low as a corrective bounce within a larger correction. We will break through $152 in a more aggressive, and direct fashion, then head toward $125 – $111. We must hold $111 if this count plays out, or it opens the door to $60.
Oklo (OKLO)
Oklo is the first stock that we have included from our Discovery Tier. It is positioned within the A.I. energy space, which we believe, and have been saying, is a more immediate need for A.I. stocks.
Green – We have a very large 5-wave pattern off the 2024 low. After a 3-wave pullback that made a higher low, we now have another 5 waves higher. The bullish breakout scenario says that we need to see another dip before an explosion higher. This count suggests that we got an unusually small dip and are setting up for an imminent breakout over $77, preferably on expanding volume and momentum. Any weakness before a breakout would have to be a 3-wave pattern that holds over $55.50, or this count will get invalidated.
Blue – This count has us making a double top. We should see a 5-wave drop from here that breaks through $55.50. The targets for this drop would be between $45 – $30 and must hold $25.
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Meta (META)
META is competing a clear 5-wave push off the April low. Note how we are making new highs on weakening volume and momentum. There are two paths that the price action supports, as of now.
Green – We will see a 3-wave correction that holds over $582 – $534. We will then need to see a more direct push off this low, which will setup a large breakout.
Red – We are still in a large degree correction. The current bounce will give way to a 5-wave drop that break below $534. This will setup a target below the April low.
Applovin (APP)
Red – APP is in a large degree uptrend. The drop in February was a correction within this larger uptrend, which completed into the April lows of 2025. We then saw the start of the next swing higher into the June high, which is being followed by another minor correction that is ultimately targeting the $270 region. Once price moves below $324, it will confirm this scenario. We must hold $240 if this scenario plays out, or we will be targeting the $150s in a continuation of the larger correction that started in February. If the $240s hold on any further weakness, we should see a setup for a breakout move that is targeting the $1000s for the next leg higher.
Green – APP will hold $324 and instead see a breakout over $393 – $429. This will set us up for a larger breakout toward the overhead target.
Coherent (COHR)
Blue – Coherent appears to be tracing out a large degree ending diagonal pattern. The April low completed wave 4, which would put us in the final 5th wave swing to new highs. Note how the current bounce has not made a new high. This will simplify COHR, as the next drop has to be a 3-wave pattern, and it must hold over $54. If this happens, the next swing will be a more direct and aggressive pattern that is targeting $136 – $196.
Green – We had a very shallow B wave and are setting up for a 3rd wave move to new highs. This move should be vertical, ideally occurring on a gap and accompanied by expanding volume. The overhead targets are the same at the blue count.
Mara Holdings (MARA)
Green – We are completing a minor correction within a larger uptrend. We must hold $15 on any further weakness. If we do, the next move higher will be around $23. We will then break through $23 and trend toward $29 – $42.
Red – This bounce off the April low is a correction within a larger downtrend. We will either break through $15 imminently or fail on the next bounce under $23.
Dell (DELL)
Based on the obvious 3-wave drop from the 2024 high, there are only two scenarios that fit the current price action:
Green – We are completing the first leg higher in a very large 5th wave. Note the current uptrend is pushing higher on decelerating volume and momentum. This implies that we are setting up for some type of pullback. We should see a 3-wave drop soon that ideally holds $106. However, this drop can go as low at $81 and still maintain this count. The 5th wave target would be around $180 – $200, and potentially higher depending on how shallow the coming retrace is.
Red – We are in a large degree and complex correction from the 2024 top. The current bounce is a corrective bounce within this larger uptrend and should see one more drop below the April low. The next drop will be a 5-wave pattern that breaks through $77 for confirmation.
Potential New Stocks
We have been reducing risk on the current push higher, raising cash and locking in real gains. When we see a correction, the below names will be considered for inclusion into our portfolio.
Oracle (ORCL)
Green – I believe that we are setting up for a decent pullback. The signals are plentiful, and once we move below $228, we will be in that correction. It must be a 3-wave pullback that holds: $210, $187, $172, $165. Then we will turn higher toward $350 -$475.
Blue – We are at all-time highs after a vertical move off the lows. We already had the 3rd wave breakout and are in an ending diagonal. So, we will correct, but hold $228, then head toward $290 – $305 in a 5th wave.
Vertiv (VRT)
Green – VRT is in a large degree 5-wave uptrend. The recent drop was a correction within this larger uptrend, as we are now setting up for the final swing higher. Note that price is flashing multiple sell signals – the detrend oscillator is at the same amplitude where previous corrections started, momentum continues to fade with volume as price pushes higher. We should see a drop back to $93 – $75, and it has to be a 3-wave drop. If any further weakness holds $65, we should be setting up for the larger breakout to new highs.
Red – We are still in the large degree correction. The current bounce off the April lows is a corrective bounce within this larger drawdown. The next drop will be an aggressive 5-wave drop and break through $65. The final targets will be between $53 – $42.
Broadcom (AVGO)
Green – Broadcom has been tracing a very large diagonal pattern since the COVID low in 2020. This count has us completing the first leg higher in the 5th wave. Note how momentum and volume continue to fade the higher we go. We should see a pullback to the $240 region, at minimum. The ideal targets for this correction are between $218 – $180. Once this pullback is over, we should continue to new highs with general targets between $335 – $482.
Red – The bounce off the April low is a large bounce within a larger correction. We will break through $180, which will shift the odds in favor of this count. The targets for this drop will be $139 – $127, and it will complete a large correction within an even larger uptrend.
Palantir (PLTR)
Green – We are in an ending diagonal, which should lead to a swift move back to the $121 – $107 region. This will hold and then turn higher toward the $180 – $215 region. This will complete the 5th wave in a very large 33rd wave.
Red – This move off the April low resembles a 3-wave pattern. It is a B wave and should lead to a 5-wave drop that breaks through $107, and then $96 – $80. The final support will be $66 – $48, and it will complete a very large 4th wave correction within a larger uptrend.
Cloudflare (NET)
NET is a stock that we owned in the past and sold for nice gains. Now that the inference market is heating up, we believe it is worth revisiting. However, the current valuation and stock pattern suggest waiting for better prices.
Green – We have completed a very large 1st wave in a new bullish uptrend. The drop into the April low was wave 2, and we are now in the early stages of the 3rd wave. We need to see a minor pullback into the $148 – $130 region, and it has to hold $119.
Red – We are still in the larger 2nd wave. The bounce off the April lows is a correction within the drawdown, and we should see a 5-wave drop that breaks $119. This will set up a final target in the $98 – $67 region.
There are two more stocks that we intend to add in the coming pullback that are in our Discovery Tier. Join us on Monday, August 18th at 4:30 pm, for our first ever Discovery Webinar! We will go over the technical setups in each stock within this tier, including the two that we intend to add.
To subscribe to Discovery with 30% off, please click here to email usclick here to email us or email premium@io-fund.com and mention code DISCOVERY30.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
It is easy to draw on one’s emotional bias and therefore build a believable case for what the market will do next. We think this is a mistake for investors positioning for the remainder of 2025. Instead, we will continue to let the markets tell us what is to come.
“The next move will be a corrective rally that makes a lower high. The targets for this bounce are between 5600 – 6050.”
We further stated that once we see our first larger correction from this region, how the market corrects from there will likely determine the remainder of the year.
Having an unbiased game plan still applies and continues to act as a balance beam in an emotionally charged market. We are seeing mounting evidence that this bounce may be the start of a new push to all-time highs, such as improved breadth, better than expected earnings plus the size of this bounce. However, one can’t ignore the unprecedented levels of uncertainty shown in key indexes, coupled with a growing problem in the U.S. bond market.
In this report, we’ll lay out the unbiased case for each scenario for our 2025 stock market outlook. We do this so that we can be aligned with the developing trend once it is revealed.
Why the S&P 500 Could Reach New All-Time Highs This Year
Fibonacci Retracements
There are several factors that suggest the current rally is not a bear market bounce. One of the most interesting facts is that we’ve never seen a bear market bounce retrace this much (and this quickly) without turning into a new uptrend.
The simplest method for measuring a bounce is to use Fibonacci Retracement levels. For those not familiar with this simple technique, when a market starts to bounce after a period of volatility, you simply divide the drop into key Fibonacci numbers. So, 38.2%, 50%, 61.8%, and 76.4% retracements of the drop are areas of interest.
Using this technique, we can get an idea of the size of the current bounce relative to what history says about bear market bounces. Going back to 1929 there have been 19 bear markets, as defined by a decline of 20% or more in the markets. Once a market dropped into bear market territory, we would usually see a bounce back to the 50% retracement level before starting to trend lower.
For example, the 2000 peak entered an official bear market by declining 20% in February of 2001. In late March, the market staged a 22% rally that just barely made it over the 50% retracement of the entire drop. It then turned lower and resumed the downtrend.
March 2001 saw a bear market rally of 22% that briefly surpassed the 50% retracement level before turning lower. Source: I/O Fund
The above scenario has been the most likely outcome for prior bear market bounces. However, of the 19 bear markets since 1929, there have only been four bear market bounces that made it to the 61.8% retracement – 1938, 1947, 2008, and the most recent bear market in 2022, which is shown below.
August 2022’s bear market rally was one of the rare bear market bounces that touched the 61.8% retracement level and turned lower. Source: I/O Fund
There is no instance, so far, where a bear market rally moved beyond the 61.8% retracement of the entire drop and was not the start of a new uptrend. The current bounce not only exceeded the 61.8% retracement level, but it also went above the 76.4% retracement level.
The rally so far in April and May 2025 has surpassed the 61.8% and 76.4% retracement levels. If it is a bear market rally, it will be the 1st ever to bounce this high. Source: I/O Fund
This shifts the probability that we are in a bear market bounce to being low, based on historic standards. It would not only be the first bear market bounce that exceeded the 61.8% retracement level, but it would be the first bear market to exceed the 76.4% retracement level.
Advance/Decline Line
The Advance-Decline Line (A/D Line) is a widely used indicator that tracks market breadth by showing how many stocks are rising versus falling on a given trading day. How it works is that each trading day, analysts tally the number of stocks that closed higher than the previous day (advancing) and subtract the number of stocks that closed lower (decline). This value is then added to the prior day’s cumulative A/D Line, creating a running total that reveals whether participation in the market is expanding or narrowing over time.
What is particularly interesting about the A/D line is how it tends to lead price coming out of periods of volatility. The chart below shows this phenomenon leading equities to new highs in 2016, 2018, and 2022.
Note how both the S&P 500 and the A/D line topped around the same periods in all four tops. However, the A/D Line has a history of breaking out to new highs months before the S&P 500 – in the case of the 2023 recovery, the Advance Decline line broke to new highs almost a year before the S&P 500.
The Advance Decline Line tends to lead the S&P 500 coming out of periods of volatility. It has been a reliable signal that new highs will follow. Source: I/O Fund
The reason this is important is because every instance the market has had a meaningful correction since the 2008 top, the Advance Decline line would breakout to new highs months before price, signaling that a new high is the broad market is likely to follow.
Today, we are seeing the same phenomenon. The A/D line broke to new highs on April 29th, while the S&P 500 remains below its February 19th high.
The Advance Decline line topped alongside the S&P 500 in February of 2025 but has since broke out to new highs. Will the S&P 500 follow? Source: I/O Fund
If history is a guide, seeing breadth, as measured by the Advance Decline line, break to new highs, suggests price will follow.
Earnings Growth Much Better than Expected in Q1
We usually do not see large and prolonged declines while earnings are growing. We tend to see a consistent pattern of misses in earnings that is accompanied with a clear deceleration. Based on current reports, earnings are coming in better than expected, with earnings growth for the S&P 500 rising as more companies report. The index is also on track to report its second consecutive quarter of double-digit earnings growth and seventh consecutive quarter of growth.
Data from LSEG I/B/E/S as of May 16 placed the S&P 500’s Q1 2025 blended EPS growth rate at 14.3% YoY with 92% of companies reporting. Earnings growth is up more than 4 points since April 25’s 10.1% blended growth rate and up more than 6 points since April 1’s 8.0% blended growth rate.
Q1’s blended earnings growth for the S&P 500 is expected to be 14.3%, up more than 6 points since April 1. Source: I/O Fund, data from LSEG I/B/E/S
Blended earnings growth estimates for the remainder of 2025 have come down rather sharply as the market digested April’s tariff announcement, with growth now expected to be in the mid-single digit range down from the strong double-digit range.
2026 earnings growth is estimated to be rather robust, accelerating to nearly 16% YoY by Q2 before moderating to the 14% range by Q4, per LSEG I/B/E/S data. Though we are not seeing a pattern of earnings misses this quarter, these growth rates could change quickly, as Q1 26’s growth estimate has already come down nearly 8 points in six weeks. There has also been a considerable number of discussions around tariff pull forwards, to where indecisive buyers rush to make purchases before tariffs take effect.
Risks That Cannot Be Ignored: The 30-Year Stock-Bond Correlation is Breaking Amid Record Market Uncertainty
Even though we are seeing some signals that historically precede higher stock prices, one can’t underestimate the backdrop of the unique risks associated with the current stock market. For one, markets do not like uncertainty. When uncertainty is introduced into equity valuations, we tend to see aggressive repricing of perceived risk within the markets. In other words, sell first and ask questions later. This is what happened during COVID, as well as Liberation Day.
Though fear has subsided due to the size of this bounce in the markets, it’s worth noting that we are seeing a record high in the indexes that measure geo-political and economic uncertainty. The Economic Policy Uncertainty Index (EPU), which provides a quantifiable measurement of global uncertainty based on news headlines, global conflicts, tariffs, and changing tax codes, is signaling the highest level of uncertainty seen in more than two decades.
The Economic Policy Uncertainty Index (EPU) is showing the highest level of uncertainty in over a century. Source: Economic Policy UncertaintyEconomic Policy Uncertainty
This is further backed up by the Bloomberg Trade Policy Index, which is also at record levels of uncertainty.
Trade policy uncertainty shot up to a record high in 2025. Source: Bloomberg EconomicsBloomberg Economics
To make matters more unsettling, when the markets enter a period of uncertainty, which increases market volatility, we tend to see a flight into long-duration government bonds – the tried-and-true haven. For over 30 years, when stocks go down, bonds go up, and this has been the pattern investors can count on, making a diversified portfolio of stocks and bonds the ideal instrument for weathering periods of volatility with ease.
Considering that we are seeing historic levels of uncertainty, coupled with heightened volatility, this correlation states that we should have seen a notable increase in government bonds, as investors turn toward safety. However, since the market peaked on February 19th, the ETF that tracks long dated government bonds, TLT, is down nearly 7%.
Some might suggest that the market is forward looking, and that bonds did not go higher because the market may be pricing in a full recovery. Once again, no one knows for sure, but if this is the case, then the same logic should also apply to prior periods of quick volatility – like 2010, 2011, 2015, and 2020. These were periods of uncertainty and heightened volatility that were short lived, yet while uncertainty was high during these periods, we saw investors flee into bonds, quickly pushing TLT up 25% to 53%, as shown in the chart below.
Bonds historically have moved inversely to the stock market during periods of uncertainty, though 2022 and 2025’s market saw bonds falling while stocks fall. Source: I/O Fund
Now, compare this to today’s market. We saw the S&P 500 drop into bear market territory in just over one month, with some of the highest recorded geo-political uncertainty on record. Fear and uncertainty were so elevated during this time that we saw the volatility index (VIX) post a closing price of 45. Since 1990, there have been only three periods where we saw the VIX close over this level – 2008, 2009, and 2020.
This suggests that we are potentially seeing a 30-year correlation between stocks and bonds shift in real-time. And, if this correlation-break persists, it will pose a much bigger risk to financial markets than tariffs or political uncertainty.
Dollar Weakness and Debt Maturity Crisis Could Force U.S. Rates Even Higher
Bonds appear to be setting up for a breakdown, not a breakout. In other words, investors should expect rates to go higher while the U.S. has to refinance $7 trillion (due now) of its $9.2 trillion in maturing debt this year, with another $5 trillion due next year. The $9.2 trillion alone from 2025 is around one-third of the market value of marketable Treasury debt, and nearly 30% of US GDP.
While higher rates loom over the economy and threaten to weigh on growth, as the 10-year and 30-year rise past 4.5% and 5%, there’s also broader implications to consumers and government spending. Higher rates will put upward pressure on borrowing costs, making mortgages, car loans, or variable-rate-based loans including credit cards more expensive.
Net interest payments on debt are surging, with 2025’s estimated payments at $952 billion, up 8% YoY, and more than 175% higher since 2020. Interest payments are expected to surpass $1 trillion as soon as 2026. From 2025 to 2035, net interest payments are currently forecast to total $13.8 trillion cumulatively.
The US’ net interest payments on its $36T in debt are estimated to be $952 billion in 2025, up more than 175% in 5 years. Source: I/O Fund
The massive wall of debt that needs to be refinanced will likely be done now at much higher rates, adding even more to interest costs. For example, say that the $7 trillion in debt is refinanced at an average rate 1.5% to 2% higher, this would add an additional $105 to $140 billion annually in interest expenses simply from the higher rate structure.
Canadian mortgage lender First National says that “analysts reckon that every 30-basis point rise in the ten-year adds roughly $1.8 trillion to ten-year interest costs, sharpening the Treasury’s incentive to fund smoothly.” First National adds that 2025’s gross debt issuance will likely climb above $10 trillion based on the projected deficit and maturities, a volume that a modern market has not absorbed before.
Additionally, the U.S. dollar looks like it is heading lower, as measured by the dollar index (DXY). When this index is moving higher, money is flowing into U.S. markets, and when it is trending lower, there is a flight from U.S. markets. DXY still has, at least, one more drop in order to complete the downtrend pattern in play. This would target around $95 – $93, which is another 4% – 7% drop from current prices.
The US Dollar Index looks to have one more drop to $93-95 to complete its downtrend. Source: I/O Fund
This is a problem because the US needs foreign money flowing into its markets to finance our debt this year. For the first time since 2008, our total debt has meaningfully exceeded total domestic liquidity.
For the first time since 2008, the US’ total debt meaningfully exceeds total liquidity.
The U.S. alone simply does not have the needed liquidity to fund its debt, meaning that we must rely on foreign liquidity flows. Yet, as shown in DXY, foreign investments are fleeing the U.S. markets at the worst possible time.
Without foreign flows, rates have to rise until bonds find buyers – yet the predicament is that the US cannot afford rates to go higher as net interest payments then compound quicker.
A weaker dollar could also have numerous ramifications for the broader market. First, a weaker dollar could provide a tailwind to inflation as imports become more expensive, which in turn could force the Fed to keep rates higher for longer and prolong a rate cut cycle.
Second, approximately 25% of the outstanding debt, or around $9 trillion worth, is held by foreign investors – Japan with the largest holdings of more than $1.1 trillion, followed by the UK at ~$780 billion and China at $765 billion. Whereas higher rates tend to cause the dollar to strengthen by offering attractive returns for dollar-denominated investments, that’s not what we’re seeing after April’s trade policy announcements. From Morningstar:
“Conventional wisdom says new tariffs should have strengthened the dollar, since the import taxes were expected to reduce spending on goods produced overseas and shrink the trade deficit. A smaller trade deficit would mean the US would need to attract less foreign capital to keep the dollar from depreciating.”
Since the dollar is instead weakening, lower foreign appetite for debt could add more upward pressure to yields, and this fear resurfaced on Wednesday, as the weak 20-year auction pushed yields above expectations and sent equities sharply lower.
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It is easy to draw on one’s emotional bias and therefore build a believable case for what the market will do next. We think this is a mistake for investors positioning for the remainder of 2025.
Below the Advanced Tier Paywall is the Following information:
The specific game plan for how the I/O Fund plans to navigate the remainder of 2025 including the must-watch levels
The signals we are watching to gauge when the broad market tops and the exact levels where we will resume buying stocks.
Dial-in instructions for a 1-hour webinar on Thursday where I/O Fund Portfolio Manager, Knox Ridley, will discuss live the I/O Fund’s game plan for 2025. If you went into this sell-off fully invested without any risk management plan, we encourage you to attend our upcoming weekly webinar for premium members held this Thursday, May 29th at 4:30 ET.
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Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
For our Premium Advanced Members, we discuss the following:
The specific game plan for how the I/O Fund plans to navigate the remainder of 2025 including the must-watch levels
The signals we are watching to gauge when the broad market tops and the exact levels where we will resume buying stocks.
Please keep an eye out for dial-in instructions for a 1-hour webinar on Thursday where I/O Fund Portfolio Manager, Knox Ridley, will discuss live the I/O Fund’s game plan for 2025. If you went into this sell-off fully invested without any risk management plan, we encourage our Advanced Members to attend our upcoming weekly webinar for premium members held this Thursday, May 29th at 4:30 ET.
Broad Market Analysis:
It is easy to draw on one’s emotional bias and therefore build a believable case for what the market will do next. We think this is a mistake for investors positioning for the remainder of 2025. Instead, we will continue to let the markets tell us what is to come.
While there is mounting evidence that the current bounce off the April lows could continue to new all-time highs, the unique risks being revealed in this market warrant caution. Furthermore, the larger pattern that has developed from the 2022 low is telling us that even if we do see a move to new highs, it will likely not be a prolonged trend higher before volatility picks back up.
“The next move will be a corrective rally that makes a lower high. The targets for this bounce are between 5600 – 6050.”
We further stated that once we see our first larger correction from this region, how the market corrects from there will likely determine the remainder of the year.
The below analysis outlines our specific game plan for how we plan to navigate the remainder of 2025…
As of now, the market has topped at 5968 and has the potential for one more small push higher. Regardless, we are in a topping pattern for the expected correction into the summer.
The I/O Fund’s S&P 500 outlook and game plan depending on how the next correction pans out. Source: I/O Fund
Red: In this scenario, we have are completing a rally that should make a lower high. This will set us up for a drop to new lows. The initial drop from the February 19th high was the A-wave. We are completing the lower high, B-wave, which will set us up for a 5-wave drop to new lows in the C wave. C-waves are always 5-wave patterns, so how we drop will be crucial for determining if this count is in play.
Green: This count would have us completing a larger correction within a bigger uptrend. If the coming drop is a messy and overlapping move that resembles a 3-wave pattern, it will likely make a higher low in an on-going bull market to new highs. This correction will target the 5600 region, first. As long as it holds 5100, we can maintain a setup to new highs around 6300 – 6500 in the coming months.
If we see a more direct drop that takes the shape of a 5-wave pattern, then the market is telling us the risks described in this report are likely greater than the market believes, as we set up for a drop below the April lows.
If on the other hand, we see a messy/overlapping 3-wave retrace that finds support in the 5600 – 5100 region, then it is the market telling us to look past these risks for now. This would be the set up for new all-time highs in the coming months.
I do want to state that even if we do see the scenario where we push to new all-time highs later in the year, the larger pattern in play suggests this will be the final 5th wave in the bull market that started at the 2022 lows. It should be accompanied by numerous key markets and stocks making higher lows. In other words, this would be a rally that we would likely sell into, as we set up for a more prolonged period of volatility.
Conclusion
The market breadth, Q1 earnings beats, and the size of this rally suggest that new all-time highs are likely to follow; however, one cannot underestimate the unique risks within the backdrop of markets. We have never seen more uncertainty in geo-political dynamics, which is forcing companies to withhold guidance as many of the Q1 beats are due to tariff pull forwards.
Furthermore, with nearly half of the U.S. government debt needing to be refinanced this year and next, the bond market continues to move lower in the face of market volatility and uncertainty. This is a trend we have not seen in over 30 years and could be signaling a sea change in how global markets interact moving forward.
If we see an aggressive 5 wave drop, we will position defensively for a move below the April low. If we see an overlapping, 3-wave move that holds over 5100, we will position for the 2nd best buying opportunity of 2025.
Join me Thursday, May 29th at 4:30 pm EST as I discuss this in further detail in a live webinar. The recorded version will be released later in the evening on the 29th.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
Heightened volatility and extreme news-driven sentiment in the markets are leading to quick whipsaws of 3% or more in either direction daily. These swings of quick drops to quick pops are getting traders addicted to the idea that tariff-related macro uncertainties will resolve smoothly in the end.
Despite the markets approaching bear market territory in March, the market is rallying on the hope that geopolitical tensions will ease. Meanwhile, analysts are revising estimates under the hood with cautious notes that these issues will not disappear overnight. The reality of what it will take to move supply chains will eventually settle in.
Below, we dig into early commentary from executive teams and analyst observations in early March and April pointing to growing uncertainty on customer behavior and demand, supply chain challenges, and how this sets the stage for Q1’s earnings season and beyond.
Consumer Electronics in Focus as Analysts Estimate Apple’s Impacts
Apple will be a central player in the potential tariff impacts, being nearly a pureplay in the consumer electronics sector with heavy reliance on China.
Apple’s diverse global supply chain exposes it to multiple tariffs of different rates depending on production location, with iPhone production concentrated in China but also located in India and Brazil. Apple is said to have quickly shipped 600 tons of iPhones, or ~1.5 million worth nearly $2 billion, from India before tariffs were implemented, while also increasing production of the iPhone 16e in Brazil to avoid higher Chinese tariffs,
As to how tariffs could impact Apple and its prices, analysts broadly see higher prices on the horizon, regardless of whether Apple passes tariffs on or works to bring manufacturing to the US to avoid paying tariffs.
Wedbush analysts estimate that onshoring iPhone production to the US could increase iPhone prices to $3,500, assuming it would cost $30 billion over 3 years to bring just 10% of its supply chain onshore.
BofA estimated that based on higher labor costs alone, iPhone 16 Pro prices could rise at least 25%, from $1,199 to $1,500 — this does not even account for higher chip prices or higher component prices.
In a report from earlier this week, Citi estimated that iPhone prices would rise 7% globally “if China/India total tariffs are 45%/10%, assuming another 25% tariff on Apple products exported from China to the US through Section 232, and Apple (passing) all tariff costs to end customers.”
However, on Wednesday morning, the administration floated the idea of China tariffs to a baseline 50%-65%, above Citi’s estimates and likely to further inflate prices.
Other analysts see much higher prices even if Apple passes on the entirety of the tariff burden to consumers — Rosenblatt estimates that iPhones could be up to 43% more expensive, while Counterpoint Research estimates prices could be up to 30% more depending on manufacturing location.
Evercore estimates Apple could face a $9-10 billion impact to COGS at an effective tariff rate of 16%, which they expect would impact full-year EPS by (7%), or $0.51.
Price hikes to this degree could negatively shock demand, with the smartphone market already on thin footing this year. Global smartphone shipments rose 1.5% YoY in Q1, per IDC, though the group said this was due to a supply-side surge in shipments ahead of tariffs.
IDC said this dynamic “effectively inflated Q1 shipment figures beyond levels anticipated based on underlying consumer demand trends alone,” adding that heightened geopolitical tensions between the US and China and growing tariff uncertainties were a “strong reason for concern” for 2025 growth.
TrendForce estimated that the “best case scenario will see the smartphone market flat at best” in 2025, while the “worst case scenario is a production decline by as much as 5% YoY.”
The PC market is in a similar situation as smartphones, with shipments rising in the high single-digits in Q1, again with the increase driven by vendors stockpiling rather than strong consumer demand.
IDC recently cut its PC forecast for the year, seeing 3.7% growth in global shipments and just 0.2% growth in consumer shipments, as tariff-driven price hikes “combined with subdued demand are leading to a negative impact within the largest market for PCs.” Canalys expects that “subsequent quarters this year are likely to see a slowdown as inventory levels normalize and customers face higher prices,” even as the Windows 10 end-of-life and upgrade cycle looms.
Auto Facing Rapidly Shifting Tariff Policy, Uncertainty
Auto executives united this week to lobby against the 25% tariff the sector faces, saying the tariffs will upend the global supply chain and cause a domino effect of higher prices for consumers, lower vehicle sales and higher repair costs. On April 23, the administration noted that Trump was considering exempting auto parts from tariffs on China imports, though the separate 25% tariff would remain and go into effect on May 3.
Ford already warned dealers that it anticipates increasing prices for May production, after halting shipments of US-made vehicles to China due to the high tariffs. Notably, Tesla walked back on its growth guidance for 2025 this week, while auto-exposed semi Aehr warned of uncertain customer behavior and demand.
Aehr, Tesla Pull Guidance on Tariff Uncertainty
Reporting shortly after tariffs were announced at the start of April, semi small-cap Aehr provided some insight into the auto market, an important first look considering its high customer concentration with Onsemi.
Aehr’s management believes the company will not face significant impacts from tariffs, though the main concern they echoed was that the real challenge “is not being able to control near-term secondary effects on our current and potential new customers, such as possible near-term delays in customer orders or requested delivery dates.” Because of the broader impacts to the customer ordering behavior, supply chain and shipment delays, and tariff implementation, Aehr pulled its guidance and stated they would re-evaluate as they get more clarity.
On Tuesday, Tesla also pulled its guidance in similar fashion, stating that it is “difficult to measure the impacts of shifting global trade policy on the automotive and energy supply chains, our cost structure and demand for durable goods and related services.” Tesla also shifted its tone on vehicle growth for 2025, first saying in Q4 that it expects to return to growth in 2025, but now saying the growth outlook would be revisited in Q2. A company statement added that the rapidly changing policy “could have a meaningful impact on demand for our products in the near term.”
Significant Downward Revisions Hit Tesla After Q1
Tesla sits at the crossroads of consumer demand and China tensions. The company’s Q1 report revealed margin weakness once again, along with a large revenue and EPS miss. Tesla’s estimates for 2025 have already faced substantial pressure over the last four months, and that’s before additional industry-wide growth concerns rose with tariffs.
Automotive gross margin (excluding regulatory credits) declined more than 1 point QoQ to 12.5%, while operating margin dropped to just 2.1%. As a result of the nearly $2 billion revenue miss and contracting margins, adjusted EPS declined (40%) YoY to just $0.27, missing the $0.42 consensus by a wide margin. This weighed heavily on growth expectations for 2025, as EPS generation was expected to improve significantly through the rest of the year.
In just the first day after Q1’s report, Tesla already witnessed a major haircut to growth expectations for both revenue and EPS. 2025 revenue was revised $10 billion lower to $96.8 billion, for a (1%) YoY decline, while EPS was revised more than $0.50 lower to $1.98, for a (20%) YoY decline.
Tesla’s 2025 revenue and EPS estimates were already under pressure, but the stock saw additional negative revisions after Q1’s double miss. Source: YChartsYCharts
Consider that at the start of 2025, Tesla was expected to see nearly 20% YoY revenue growth and 30% YoY EPS growth. After just the first quarter, Tesla’s revenue has been revised a total of $20 billion lower and EPS more than $1.20 lower, marking a significant erosion of growth even before tariff impacts on costs and demand are felt.
The I/O Fund specializes in covering lesser-known AI stocks on our research site with trade alerts and weekly webinars. Learn more here.The I/O Fund specializes in covering lesser-known AI stocks on our research site with trade alerts and weekly webinars. Learn more here.
Indirect Tariff Impacts Arise for Big Tech
From Big Tech, we’re seeing some indirect tariff impacts arise, notably from major Chinese retailers pulling ad spending on Meta and Google.
PDD’s Temu and Shein both are drastically reducing ad spending in the US, after the end of the ‘de minimis’ exemption on packages from China valued at less than $800 earlier this month. Temu reportedly “axed all spending on Google’s Shopping platform since April 9,” while data showed that its daily ads run on Google plunged 99.9% to just 14, down from 30,000 to 60,000 at the beginning of April.
Across popular social media platforms including X, YouTube, and Meta’s platforms, Temu reduced spending “by an average of 31% in the two weeks leading to April 13 compared with the previous month,” per SensorTower. Shein’s daily ad spending “across Meta, TikTok, YouTube and Pinterest fell 19%” over the same period. However, SensorTower noted that Temu’s ad spend had risen so quickly, that even after the reductions, it was still above 2024’s level.
For Meta, China accounted for ~11% of revenue in 2024 at $18.4 billion, while for Google, YouTube accounted for more than 10% of revenue at $36.1 billion. Lost spending from two popular retailers could potentially lead to billion-dollar revenue impacts that then weigh on EPS.
Over the past month, Meta has seen 2025 revenue estimates move more than $2 billion lower to $186.4 billion, and EPS estimates (2%) lower to $24.90, now pointing to growth of just 4.4% YoY. Google’s impacts are more limited at this time, with revenue and EPS each revisions under (1%).
Since tariffs were implemented in early April, Meta and Alphabet stocks have seen negative revenue and EPS revisions.Source: YChartsYCharts
AI Semis, Hardware
Recent reports from across the AI hardware industry, from semis to servers, point to an uncertain environment stemming from tariffs …
TSMC Sticks to Mid-20% Sales Growth Guide on Strong AI Demand
TSMC stuck to its 2025 forecast for mid-20% sales growth, as it guided Q2 revenue growth ahead of consensus at 38% YoY after beating on the top and bottom line in Q1. Management addressed tariff impacts and acknowledged uncertainties, noting that there might be more clarity in a few months’ time. However, there are signs that tariff-related effects and higher costs will flow downstream to TSMC’s leading customers such as Apple.
CEO C.C. Wei seemed to brush off broader growth concerns, stating that the chipmaker has not “seen any change in our customers behavior so far” with AI demand remaining robust throughout 2025. Wei acknowledged that TSMC “might get a better picture in the next few months” on tariff impacts to end market demand.
Despite management’s confidence in riding strong AI demand to mid-20% growth this year, analysts are growing more concerned about the full-year guide given the risks key customers are facing. JPMorgan analysts say TSMC “could pare [its forecast] slightly to target low- to mid-20%” sales growth, while Deutsche Bank analysts raised the concern that the chipmaker “may also withdraw its guidance as customers adjust to tariffs.”
Estimates have yet to reflect some of these concerns, with 2025 revenue forecast at $113.7 billion, up from $111.2 billion at the end of March, likely due to Q2’s guidance beat. EPS estimates are also up 2% over the past month to $9.46, or 31.5% growth.
On a quarterly basis, Q4 is expected to be the weakest, with revenue growth decelerating to 11.5%. Q4’s revenue has been revised nearly (6%) lower over the past three months and (4%) lower over the past month to $29.4 billion. EPS mirrored this, revised (6%) lower over the past three months and (5%) lower over the past month to $2.57, for growth of just 5.5%. This raises some initial red flags about holiday demand for consumer electronics and other devices.
TSMC’s Q4 earnings have been revised nearly (6%) lower over the past three months in stark contrast to revisions in Q2 and Q3. Source: Seeking Alpha
TSMC’s US production push could also impact customers alongside tariffs. Recently, TSMC boosted its US investments to a total of $165 billion in its Arizona complex, now aiming to construct six fabs and an AI research facility. The first fab is in volume production for the 4nm node, while the second fab for 3nm chips completed construction with TSMC aiming to accelerate volume production to meet demand – Nvidia and AMD both announced last week intentions to ramp production with TSMC in the US as tariffs loom.
While ramping US production theoretically would eliminate tariff risks, it still could have downstream effects on end market customers and consumers that mimic higher prices that tariffs bring. Reports suggest that TSMC is considering hiking 4nm prices by up to 30% in the US, as primary customers Apple, AMD and Nvidia are said to be rushing in orders. Other reports suggest that all of TSMC’s US chips could see prices hikes of at least 15% due to higher labor costs and depreciation. It’s unlikely TSMC’s top customers will be willing to simply absorb a 30% increase in US-made wafer prices without passing some or all of these costs on, which could add more price pressure on top of tariffs for electronics products such as smartphones, PCs, gaming chips, and more.
ASML Says Tariff Impacts Uncertain, Stands by 2025 Guidance
ASML also stood by its 2025 sales guidance despite missing rather widely on bookings, and its management team was much more cautious than TSMC on the broader macro impact from tariffs, stating bluntly that “it is clear that uncertainty is increasing in the macro environment.”
ASML’s management explained that while tariff discussions were just starting, the “end state will be unknown for a while and until then, the potential impact” will remain unclear, and gross margin impacts would be “absolutely impossible” to quantify. CEO Christophe Fouquet added that uncertainty at some customers could push 2025 sales towards the lower end of its €30 billion and 35 billion range, though strong AI demand could push it towards the upper end, hesitating to commit to either side.
Although ASML did not quantify potential impacts, a Reuters report outlined impacts to US-based WFE makers. Reuters noted that according to industry calculations shared with lawmakers, tariffs could cost the US WFE industry $1 billion annually, with Applied Materials, Lam Research and KLA all facing impacts of up to $350 million each.
Expectations for ASML have strengthened over the past three months, even with bookings missing estimates by nearly €1 billion and Q2’s guide coming in soft. Revenue estimates through Q4 have been revised 7% to 14% higher over the past three months, while EPS estimates have risen 1.7% to 4.4%. For the full year, both revenue and EPS have been revised 11.5% to 12.5% higher.
ASML’s revenue and EPS have both been revised more than 10% higher since the start of 2025 despite Q1 bookings missing estimates by nearly 1 billion. Source: YChartsYCharts
Management signaled an intent to pass tariff costs on and not bear any of the burden themselves, while questioning how tariffs would “ultimately be absorbed in the entire value chain.” ASML said that they are working to “minimize the total exposure of the ecosystem to tariffs,” but once it has been minimized, they will pass the tariff burden on to the “next element in the value chain.” While ASML is exempt from tariffs at the moment, parts and inputs such as steel and aluminum are not. With ASML shipping parts, inputs and tools up to “multiple times” between the US and Europe, tariff impacts could quickly add up.
Thus, it’s likely that TSMC, Intel and Samsung, could face rising costs for ASML’s machines, especially considering that the blended ASP for ASML’s low-NA EUV machines sits at 227 million euros, or ~$258.8 million. For TSMC’s case, analysts estimate that ~65% of its $100 billion US investment announced in March could go to WFE, and if it faces 15% higher costs from tariff impacts, that could mean an additional $6 billion more it would have to spend for the same equipment, and an additional $6 billion to pass on to customers to maintain margins.
Micron Not Including Tariffs in Guidance, Estimates Dropping
On the memory side, Micron has flagged two key factors: it intends to pass along any tariff costs to customers, and that it has not included impacts from “potential new tariffs” in its guidance offered in March due to a lack of clarity on tariff timing and implementation. Micron noted that it “serves as the U.S. importer of record for a very limited volume of products that would be subject to newly announced tariffs on Canada, Mexico and China.”
For its fiscal Q3, Micron had guided for record revenue of $8.8 billion, +/- $300 million, ahead of estimates, though it projected gross margin to decline 130 bp sequentially to 35.5%, in part due to higher product mix and weaker pricing in consumer-oriented products. Guidance also included $1.13 billion in operating expenses, and growth in DRAM and NAND bit shipments. However, recent industry forecasts suggest that memory chip demand is disrupting typical seasonal trends and has been “largely frontloaded into the first half of 2025” as US-based firms work to beat tariffs.
Being more heavily exposed to the dynamic consumer markets opens Micron up to more risk than say a company like ASML, as not only does Micron have to contend with some tariffs on its products, but also more directly with end market demand, which could struggle if smartphone or PC prices rise and dent demand.
Management previously expected PC growth to be weighted toward the second half of 2025, and smartphone growth in the mid-single digits. As noted previously, industry estimates are pointing to a much more challenged growth picture for the two markets. With Micron seeing 30% revenue exposure to PC, graphics, and mobile end markets, slower end market growth than management currently expects can weigh on Micron’s 2H revenue growth.
Should tariff related price and demand impacts pressure margins, Micron could see further downside to EPS, which has already come down more than (20%) over the last five months. In early December 2024, Micron was estimated to generate almost $9 in EPS in fiscal 2025, but after its weak Q2 guide, that has now come down to $6.9. A (10%) impact from tariffs could take Micron from the $7 level to the low-$6 range.
Micron’s fiscal 2025 EPS has already been revised nearly $2 lower after its weak Q2 guide, before tariff impacts are felt. Source: YChartsYCharts
On a quarterly view, revenue estimates through Q1 2026 (Nov 2025 quarter) have been largely unchanged over the last three months, though EPS revisions range from (2%) to over (6%) lower likely on margin risks.
The I/O Fund specializes in covering lesser-known AI stocks on our research site with trade alerts and weekly webinars. Learn more here.The I/O Fund specializes in covering lesser-known AI stocks on our research site with trade alerts and weekly webinars. Learn more here.
HPE To Mitigate Tariff Impacts, Sees ~4% Impact to EPS
HPE was one of the only AI-exposed firms so far to quantify potential EPS impacts from tariffs in early March, though it is facing broader pressures on margins and EPS from higher AI server inventories.
For Q2, HPE guided well below estimates for adjusted EPS, seeing $0.28 to $0.34 versus consensus at $0.50. HPE also cut its forecast for the full year, seeing adjusted EPS between $1.70 to $1.90, compared to consensus at $2.13.
This was driven by issues in HPE’s Server segment — management said that Server margins were adversely impacted by higher discounts, aggressive pricing competition, and “higher-than-normal AI inventory caused by the rapid transition of demand to next-generation GPUs and related components.” Though HPE took action to mitigate these impacts, it noted that these headwinds will apply continued margin pressure over the next one to two quarters.
Additionally, HPE placed a number on tariff impacts, adding that the majority of it would hit in Q2:
“What we've got in the guide is actually $0.07 for the year and that gets you to the midpoint of the $1.80 on the guide. I would add though the way to think about tariffs is, we've worked obviously on mitigation effects, but it does take time to see those mitigation effects take place. So as a result, literally $0.04 of that $0.07 is actually going to be in Q2, and it's also in the Server business which is where we see the greatest extent of that [tariff] impact.”
This would be just nearly (4%) impact to EPS, though management shared broader concerns over how tariffs would impact end market demand in the second half of the year. If tariffs indeed lead to lower demand, higher costs and more prolonged margin headwinds, it could result in a much larger EPS impact given 60% of the $1.80 guide is weighted in 2H. For example, if tariffs have closer to an 8% to 12% adverse impact to EPS, to the high $1.60 range, HPE could be looking at a YoY decline of (14%) to (17%) versus the (10%) currently expected.
HPE’s fiscal 2025 earnings growth estimate has dropped from 10.5% YoY to (6.8%) YoY as a result of its cut guide, with tariff impacts yet to be felt.Source: YChartsYCharts
What This Means for Q1 and 2025
It’s no doubt that April has been quite a rocky month for stocks as earnings season ramps up, with the Dow headed for its worst April return since 1932, the VIX reaching levels higher than in all of 2022, and bearish sentiment reaching extremes, as we outlined in our analysis The Fed Can’t Save This One: Why Bonds May Break the Stock Market in 2025.
Initial commentary from Q1’s first reports and broader macro developments in early March and April raises a few major issues for the Q1 season and for 2025:
Increased macro uncertainty weighing on customer behavior and impacting ability to forecast growth, with numerous companies pulling guidance
Supply chain challenges and higher prices as tariffs rise
Earnings and revenue expectations being revised lower, though full tariff impacts are yet to be felt
Tariffs could quickly complicate the global supply chain and have trickle-down effects to consumers, as it’s impossible to onshore complex supply chains to the US overnight, or in short order, without facing major increases in costs. Companies like Apple may also be hesitant to commit to onshoring significant levels of manufacturing given the billions in costs and years it would take. Companies must also consider the fluctuating trade policies could shift in a way that would make domestic production unfavorable in the future.
The auto and consumer electronics industries indicate that rising part and component costs from tariffs can and likely will lead to higher product prices in the coming months/quarters, which may then in turn pressure consumer demand. Should weaker consumer demand lead to production cuts or rising inventories, that could exacerbate margin pressures and lead to further downside to EPS.
As of now, there’s been limited commentary about the potential impact of tariffs on growth and earnings, with most tech companies simply saying the environment is too uncertain to forecast or indicating an intent to pass costs along the chain to customers and thus landing with consumers.
This begs the question — what if tariffs cause much larger negative impacts to EPS this year, and in turn, what do growth expectations then look like? HPE was one of the few so far to put an EPS impact from tariffs at approximately (4%), but if the impact is closer to (10%) or even (15%) from higher costs and weaker demand, corporate earnings growth expectations would need to be revised much lower.
Similar to what we discussed last week in our analysis Tesla Stock Faces Recalibration of Growth Expectations, downward revisions could easily snowball and take growth from high double-digits to single-digits, from up single-digits to down single-digits, or from down single-digits to down double-digits.
What this Means for Tech Valuations
What’s most important for investors is what all this uncertainty means for tech valuations. Social media would have you believe the world is ending one day, and that a China deal would make all these issues simply disappear with no lasting impact to be felt.
On the semi and AI hardware side, valuations are reaching multi-year lows, with TSM trading at its lowest forward P/E since the start of 2023 and ASML trading at its lowest since early 2020.
On a forward P/E basis, TSM and ASML are trading at levels not seen in at least a year. Source: YChartsYCharts
Ahead of ASML’s earnings report last week, there was rising talk and belief that the worst expectations and many risks are being priced in, as its forward P/E had compressed by more than half since its peak above 50x in July 2024.
However, we have yet to fully understand and quantify the impacts of tariffs to revenue, margins, EPS and customer demand over the next few quarters. There’s risk that growth expectations get re-rated lower for leading tech stocks, either via direct tariff impacts or indirect impacts from lowered spending, macro slowdowns and/or weaker consumer demand.
For most of the Mag 7, investors have been accustomed to strong earnings growth since 2023 as the tech giants captured AI tailwinds; for 2025, Meta, Alphabet and Amazon are facing significant decelerations in EPS growth, in part due to tough comps from high growth last year.
Some of the Mag 7 leaders over the past two years are expected to see EPS growth dramatically decelerate in 2025. Source: YCharts YCharts
For Meta and Google, should lower ad spending from major Chinese clients, and weaker economic growth weigh further on ad spending, both could see increased risks from losing multiple-billions in high-margin ad revenue, considering it flows heavily to the bottom line.
Alphabet, Amazon and Meta are trading near the lowest forward P/E multiples since early 2023. Source: YChartsYCharts
Investors are still paying 30x forward earnings for Amazon despite headwinds to retail sales and possible risks to cloud consumption growth and ad spending.
Valuations may be approaching lower levels, but the risks on the horizon have amplified — for the tech sector, macro headwinds are becoming much more pronounced, with risks to customer demand on core growth drivers, whether that be cloud, ads, auto or consumer electronics.
Conclusion
Analysts are beginning to revise earnings and revenue estimates lower as uncertainties rise, and this will likely continue throughout Q1 and into Q2 due to the effects of tariffs.
Investors have been trained to buy-the-dip, and to expect the dip will always quickly recover in short order; however, as we have cautioned earlier this month, investors need to be prepared for a changing dynamic as bonds are equally as concerning in terms of what could impact the market this year.
If you want to identify which Mag 7 stock is the strongest, and which stocks are the weakest in this new tariff-driven economy, then we encourage you to attend our upcoming weekly webinar for premium members. Join us Thursdays at 4:30 p.m. EST to hear our game plan regarding the remainder of 2025 including our strategy to raise cash and further hedge. Our cumulative returns of 210% and annualized returns of 27.6% place us as one of the top performing tech portfolios, beating Wall Street’s very best. Learn more here.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
Last February the S&P 500 was nearing all-time highs and exuberance could be felt throughout the market with crypto leading the way. Going against popular opinion, we stuck our neck out in the analysis: “AI Stocks Signal a Correction Before a Buying Opportunity Emerges” to state:
“While the market continues to push higher, it has been doing so without the support of key stocks and important sectors. As we’ve seen in times past, while this divergence can go on for a while, unless it invalidates with all sectors and stocks breaking to new highs, it tends to act as a warning. With money managers and retail investors all-in on stocks, it appears that the stage is being set for a potential rug pull this year.”
We went on to say that we have set up “aggressive buy targets” in key AI names, and that this period of volatility could set up a great buying opportunity. February wasn’t the first that we discussed this strategy, rather on January 1st – before DeepSeek or tariffs, we stated Nvidia’s next price target was between $102 – $83, causing us to cut more than half pf our position at $140 and $126 in February.
This past month, we have been following our buy plan, using some of the 50% cash we raised in December of 2024, as we expect a sizable bounce. From what we know today that bounce should be used to de-risk, although this ultimately needs to be assessed when we reach key levels.
With all major indexes in a technical bear market, and sentiment readings at historically low levels, most readers want to know if this is a generational buying opportunity, or are we setting up for lower levels in the coming weeks to months? Sentiment suggests that, even in the worst-case scenario, we should see a sizable bounce. However, with the shifting geo-political landscape, and especially the reaction in the bond market, we have shifted our stance to using the coming bounce to de-risk as there is the potential for a much larger bear market than what is currently priced in.
Why Bonds Matter
The trade war is taking center stage, and for good reason. Liberation day shocked the markets in the scope and severity of tariffs imposed on foreign nations, leading to one of the most extreme 3-day drops in market history. The tariffs and what this will mean for earnings and domestic growth is causing a level of uncertainty rarely seen in public markets.
While the masses are focused on the potential resolution and what will happen if we do not see one, there is a more immediate problem – no one is buying government bonds despite growth slowing down in the economy. This is not normal behavior and will become a problem if not resolved. Yields are too high for new bonds being issued, whereas the US government needs lower yields to finance the breathtaking amount of debt coming due this year.
In our October report, we quickly pointed out the unusual reaction bonds had to the FED’s surprise 50 bps cut. Bonds began dropping with rates, which are continuing to play out into today. Historically, bonds tend to go up (yields down) when the FED begins a rate cutting cycle.
The rationale is that the FED is cutting because they see growth and inflation slowing. If demand slows in the economy, prices drop to meet that demand, both in goods and services, as well as stocks. This is the type of environment investors would want to own a fixed yield coupled with the perceived safety found in Treasuries.
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This logic is also why bonds went into a bear market in 2022 with stocks. In a rising inflation environment, where prices are going up, owning a fixed yield is not ideal, as the purchasing power of that fixed yield will diminish each year.
Aside from 2022, the inverse correlation between stocks and bonds has been a market axiom dating as far back as 1998. When growth is expected to slow, stocks tend to peak, and bonds go higher.
2008
Treasuries bonds moved higher as stocks moved lower in 2008. This has been a 25-year pattern, as investors seek a safe, fixed yield in an environment where prices go lower.
2010
Treasuries bonds moved higher as stocks moved lower in 2010. This has been a 25-year pattern, as investors seek a safe, fixed yield in an environment where prices go lower.
2015
Treasuries bonds moved higher as stocks moved lower in 2015. This has been a 25-year pattern, as investors seek a safe fixed yield in an environment where prices go lower.
2018
Treasuries bonds moved higher as stocks moved lower in 2018. This has been a 25-year pattern, as investors seek a safe, fixed yield in an environment where prices go lower.
2020
Treasuries bonds moved higher as stocks moved lower in 2020. This has been a 25-year pattern, as investors seek a safe, fixed yield in an environment where prices go lower.
Regarding today’s environment, we are seeing all major indexes in bear market territory, while GDP projections are trending deeper into negative territory. The Atlanta GDP Now forecast went from +2% forecasted for Q1 of 2025 to -3% in just under 2 months.
Furthermore, Goldman Sachs raised their odds of a recession in 2025 to 45%, while the odds on most major betting platforms have a recession at 60%. These odds have backed off somewhat due to the erratic news surrounding the Trade War, yet they remain uncomfortably elevated by historic standards.
This is being confirmed with the Oil markets breaking down from a 3-year range, which has moved sharply lower and appears to be confirming a new downtrend. As the global demand for oil is fading, this is signaling the likelihood of a notable slowdown in global growth, not just in the U.S.
Oil is breaking down from a 3 year consolidation, signaling the rising risk of a global recession.
By all accounts, we are in a slowing growth environment, with stocks and oil moving vertically lower into a bear market. If there is any environment in which you’d expect bonds to catch a bid, this would be it. However, since the February high in stocks, TLT is -1%, meaning that the historically safe have of Treasury Bonds are not in demand. This may change, but based on history, we tend to see Treasury Bonds up a meaningful amount this late into a growth slowdown cycle.
For those paying attention, something is different in this cycle. A 25-year correlation between stocks and bonds appears to be breaking. While many are getting caught up in trying to explain why this is happening, the why is simply not important right now. What is important is understanding what the ramifications of this broken correlation will mean in 2025, and if this persists, we could see a more immediate problem in equities than the trade war.
The 25-year correlation between stocks and bonds is not holding up in 2025. Considering the rising recession risk, and a technical bear market is stocks, the safe, fixed yield offered by treasuries is not in demand.
The Government and FED Needs Lower Bond Prices
As of December 2024, The United States debt is currently 124% of it’s GDP. This was before GDP was forecasted to shrink in Q1, while Debt is forecasted to continue to rise, even with the efforts of DOGE. This will certainly bring the U.S. into the dreaded 130% Debt/GDP region. Since 1981, 98% of all countries that have reached the 130% Debt/GDP ratio have defaulted on their bonds.
Bloomberg
The problem the US now faces is a runaway bond market, much like we saw in England in 2022. In other words, as new debt is issued with higher yields to pay, more debt will have to be issued to service this debt – i.e., pay the yields. As more debt is used to service the existing and new debt, this puts more money into the economy, which is ultimately inflationary.
As we already know, bonds don’t like inflation, so they go lower, pushing yields higher. This causes a spiral effect. The bond market demands a higher risk premium (higher yield) to hold bonds to maturity, which causes the government to issue more bonds to service this rising risk premium.
I believe the market is signaling to the investors that this process has begun. To put this into perspective, the budget deficit for the fiscal year 2024 came in around $1.9 Trillion, or 6.7% of GDP. There is no other year in US history where the budget deficient was this large outside of a major war, like WW I & WW II, or dealing with a major recession, like 2008. It is unheard of to have fiscal spending this high, in an expanding economy, with historically low unemployment.
From this excessive level, what will deficit spending be if we enter a recession? The biggest misstep the FED and government can make at this juncture would be pivoting while bonds are going down. Until we see Treasury bonds (TLT) breakout and move higher, the FED and government run the risk of losing control of the bond market in a disorderly manner, which would also further tank equities.
This is what’s concerning right now. While we have been trained to hang on until the FED can swoop in and save us, we are being held hostage by the bond market, which is only reacting to decades of reckless spending finally coming to a head.
If a 20% drop in equities, vertical drop in oil prices and growing certainty of a global recession is not enough to get bonds off the floor, what will it take? The bureaucrats that created this mess run the risk of losing control of the bond market if they act too soon. They have no choice but to sacrifice the stock market until bonds catch a meaningful bid.
You might be wondering, why does this matter? Why can’t the FED and Government allow Treasury Bonds (TLT) to go lower? Simply put, the U.S. has to refinance $9.2 Trillion in US debt in 2025 with an estimated $28 Trillion in debt needing to be refinanced over the next 4 years. The cost to refinance this debt will depend on the yield the market is demanding to hold a US government bond until maturity. The lower ETFs like TLT go, the more of a problem the US will have to refinance this debt, further exacerbating the runaway bond market scenario.
For reference, as of February 2025, it currently costs $478 Billion annually to maintain the US debt. This is roughly 16% of the total Federal Spending. Also, for the first time in history, it now costs us more to service the debt than we spend on defense annually.
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The FED does not control the bond market, though they would like you to think they do. The closer you get to the front end of the yield curve – i.e., 1-month yields of T-Bills to 2-year yields on T-Bills, the more of an influence the FED has on these bonds. However, when you start getting into the 10-year yields and farther out on the yield curve, the more of an influence growth and inflation outcomes have on yields. The bond market is saying, we don’t believe you’ll pay this back, and the consequence of this spending will only lead to inflation. Therefore, we want a higher risk premium (yield) to hold these bonds until maturity. The only problem with this is that the U.S. can’t afford higher yields and must refinance 24.5% of its national debt this year alone.
Sentiment
Currently, the stock market is reacting to the uncertainty in the global economy. What could cause this uncertainty to move lower is how bonds are not moving higher. This could lead to further selling; however, sentiment readings are suggesting that a sizable bounce should happen before we are going to move meaningfully lower.
Investing is a zero-sum game. In other words, for you to win, others must lose. For this reason, measuring what the masses are doing can be quite beneficial as a contrarian indicator. For example, in our February report, we discussed in detail how both fund managers and retail investors were all in on stocks. Almost every measurement used to gauge positioning was at or close to new historic extremes. We tend to see these extremes at meaningful turning points, which is exactly what happened.
Now, with all major US markets confirming a bear market in just under 2 months, we are seeing extreme sentiment readings on the bearish side of the equation. For example, the AAII Investor Sentiment Survey asks retail investors where they think the market will be in the coming months. It has been around since the 1970s and has a remarkable history of signaling turning points in the market through sentiment extremes.
Last week marked the 6th consecutive week in a row where the bearish sentiment was in 97th percentile or higher of all weekly surveys going back to the 1970s. There was no period on record that matched this level of extreme consecutive bearishness – not the COVID lows, the 2009 lows or the 1990 lows.
The AAII investor sentiment survey is showing the most bearish 6 week reading in its history. This is the 1st time since the 1970s that we have seen bearish reading in the 97th percentile or higher for 6 consecutive weeks. This data is typically used as a contrarian indicator.
With investors feeling this bad about the markets, history suggests that we should see a sizable bounce, at minimum, soon. Just like everyone piling into stocks at the top, we tend to see capitulation to match extreme bearish sentiment. With the Volatility Index (VIX) hitting 52, which is higher than any point in 2022, as well as the S&P 500 losing 15% in three days, it appears that we are getting capitulation or are close to capitulation.
The VIX is has spiked of the highest readings since the COVID crash, coupled with a 15% drop in equities in only 3 days. Could this be capitulation?
What investors need to see is the VIX settle back below 30, and the recent lows made this week hold for confirmation. If both conditions are not met, we expect another leg lower in this portion of the bear market before a bounce.
Broad Market Analysis
Anyone who has been following along based on our analysis should not be losing sleep over the current bout of volatility. Based on the constant warnings we provided throughout 2024, we were in more than 50% cash in January of 2024, and even moved into a 100% hedge position in February of this year.
While we see the potential for another leg lower in this bear market, we should see a sizable bounce first.
We have consistently stated that the first major shot across the bow for the markets is if the S&P 500 breaks the 5400 region. We found support around the 4835 region. If this level breaks, the next level lower is in the 4600 region. With this information accounted for, below are the two scenarios I see as most likely given the current price action.
Red – We are completing the 1st leg down in a much larger bear market. The next move will be a corrective rally that makes a lower high. The targets for this bounce are between 5600 – 6050. This will be followed by the final move lower in the bear market toward 4200 – 3500 SPX.
Green – This drop holds over 4260, which will complete a 4th wave decline in a very large ending diagonal pattern that started at the 2022 lows. The next move higher will take us to the 6300+ region, which will be the final 5th wave in the bull market that started in 2022.
Two Scenario that this bear market in the S&P 500 can play out. Either we put in a big low, and can see all-time highs by fall of 2025, or we will see a lower high/bounce into June that will lead to another leg lower in this bear market.
Further supporting the red scenario, the S&P 500’s Relative Strength Index (RSI) has broken below standard bull market support.
The RSI tends to find support around the 40 region in bull markets and breaks above the 60 – 70 region. In bear markets, the RSI will break below bull market support and fail under the 60 region in bear market rallies. The fact that we broke the defined bull market support for the S&P 500 is concerning.
The first market to break its RSI bull market support was the Russell 2000 (small caps) in mid-February.
The Russell 2000 small cap index was the 1st index to warn of the coming bear market in 2025.
This was followed by the NASDAQ-100, which broke its bull market trendline along with its RSI bull market support in early March.
The NASDAQ-100 Big Tech Index was the 2nd, and most important, market to warn of the coming bear market in 2025.
The S&P 500 just broke its RSI bull market support last week, as it found support around the 4835 region, which typically signals a meaningful shift in momentum. If the next large bounce fails under the 60 – 70 region, it could be an early warning that the red scenario is underway.
Conclusion:
In conclusion, we have been warning investors, even in the bull market of 2024 that the uptrend is unhealthy. The many divergences and long-term Elliott Wave patterns were not as healthy as the trend suggested. We further warned our readers to expect more volatility in the February report – at the time, a lone voice in the sea of exuberance. The market has now retraced the entirety of 2024’s gains in less than 2 months.
While we have been buying beaten down AI stocks around these lows, we may not hold them too long into 2025 if the coming bounce starts to fail, further signaling the red scenario is in play.
Investors have been trained to buy-the-dip. Every bear market since 2009 has recovered in short order. Even the COVID decline saw one of the quickest bear markets, and quickest recoveries in history. The difference between these periods and what is happening today is twofold: 1) we never saw a real recession, where growth slows for several quarters and stays at depressed levels; 2) The FED was allowed to put a floor under the stock market with excessive liquidity because inflation and bonds allowed this to happen.
Investors need to be prepared for a changing dynamic, which is being signaled by the bond market. As always, we are buying stocks at depressed prices in hopes of the best-case scenario, but we continue to prepare for the potential of a worst-case scenario.
Regardless, AI will continue to innovate, as we are in the 1st inning of this multi-decade tech trend, and stocks will eventually find a floor, setting up generational buying opportunities for those prepared.
If you went into this sell-off fully invested without any risk management plan, or if you are sitting on outsized losses and not sure what to do, we encourage you to attend our upcoming weekly webinar for premium members. Next Thursday, April 17th, at 4:30 ET. In this upcoming webinar, we will discuss our game plan regarding the remainder of 2025. We will list buy targets for great AI names as well as go over how we plan to raise cash and further hedge our portfolio if this bear market continues into 2026.
The I/O Fund is a leading tech portfolio with annualized return of 27.6% — which would rank us as #2 in the United States if we were a hedge fund. Learn more here.Learn more here.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.
The world today was engineered to be ephemeral and noisy, with tens of millions of posts, comments, and messages sent across social media and messaging apps every minute of every day.
For an investor, this noise is a terrible combination, and we believe the antidote to noise is quality stock analysis. Due diligence requires dozens of hours per equity, and it takes hundreds to thousands of hours every year to produce free research and a paid platform with institutional quality analysis.
The I/O Fund strives to offer some of the industry’s best analysis for free alongside our premium content, and we believe the consistency and depth of what we provide for investors is hard to replicate in the most challenging sector for investors — tech.
Below are highlights from our free newsletter and premium research site during a strong year for AI and crypto. Although numerous investor favorites rose more than 100% during the year, many other popular tech stocks declined significantly. We offered our readers clues and insights for the leading stocks in AI semiconductors and software, providing unparalleled depth and quality with full transparency into our own trades in real-time.
While calling out Nvidia’s AI thesis at $3.15 in late 2018 for our free readers with gains of over 4,000%* is one of our most notable calls, the I/O Fund strives to offer unparalleled quality in its analysis each week sent straight to your inbox – sign up here.
1) Nvidia to Surpass Apple’s Valuation
Right out the gate in 2024, the I/O Fund’s free newsletter expanded on Lead Tech Analyst Beth Kindig’s highly regarded 2021 prediction that Nvidia would surpass Apple’s valuation within 5 five years; which at the time, this prediction was inconceivable as it would require not only Nvidia to go up more than 350%, but also for the tech leader Apple to plateau. Ultimately, Nvidia went up more than 500% since that call, and is up 900% between Jan 1st 2023 and Jan 1st 2025 while Apple is up 70% in that two-year time frame.
Kindig explained why she would deliver on this prediction a whole 2 years early in the February 2024 analysis, Nvidia Stock Gained $1.5 Trillion To Surpass The FAANGs – Apple Is Next. In the analysis, she pointed out that it was not just the consistency and magnitude of Nvidia’s multi-billion dollar revenue beats, but the expansion of its margins and earnings as revenue grew >200% for multiple quarters as it approached a $90 billion annualized scale.
From Kindig’s August 2021 prediction to the February 2024 update, Nvidia posted some staggering growth numbers, such as 676% growth in data center revenue, 240% growth in total revenue, 400% growth in quarterly EPS, and a 20% expansion in operating margin.
The I/O Fund provided a handful of reasons that would propel Nvidia to quickly become the world’s most valuable company. This included the long runway for AI accelerators, citing forecasts that the market will reach $400 billion by 2027 – with Nvidia taking the lion’s share. An additional reason Kindig provided was Nvidia’s accelerated product roadmap to a one-year release cadence, which let the stock continue to pry away Big Tech capex spending of $200 billion. She also pointed out the software opportunity beckons to extend Nvidia’s runway, already reaching a $1B+ run rate. These tailwinds combined with a valuation that was “eerily low” at the time given the stock’s rapid ascent through 2023.
The I/O Fund’s ongoing consistency and accuracy on this stock dating back to 2018 for up to 4,000% returns with the first entry at $3.15 has been unparalleled – more recently, premium members received nine real-time buy alerts below $20 in 2021 and 2022; learn more here.
2) Pinpoint Accuracy for Risk Managing Bitcoin to $100K+
In 2024, Portfolio Manager Knox Ridley provided two crucial updates on the I/O Fund’s game plan for Bitcoin. His updates are watched with anticipation from our free readers as he previously nailed Bitcoin’s top at $58,000 and then nailed Bitcoin’s subsequent bottom at $16,500.
His first update last year was in April 2024, where he increased his target zones. At the time, Bitcoin was an overlooked asset compared to the over-hyped Mag 7, yet the asset has delivered superior returns compared to all of the great large-cap tech stocks in this bull cycle, minus Nvidia, while having a low inverse correlation to tech.
Utilizing technical analysis and on-chain data in the analysis We Are Raising Our Bitcoin Targets To $106K – $190K, Ridley explained that the I/O Fund was now raising its target zones for Bitcoin to $106,000 to $190,000, up from the previous zone of $75,000 to $130,000. Bitcoin was trading in the mid-$60,000 range at the time, with Ridley saying that “the $42,750 support region holds on any ongoing volatility, then we have no reason to doubt the uptrend in place.”
Ridley provided another update to the Bitcoin thesis at the end of July 2024 in the analysis, Bitcoin Update: Next Stop $100,000; Bitcoin finally surpassed that historic level as 2024 came to a close. He explained that Bitcoin had “a full corrective pattern in place that ended around $54,000 in early July,” which “suggests we are in the early stages of the next rally.”
The I/O Fund had systematically been accumulating since the start of this cycle while raising our critical supports along the way — below is the history of Bitcoin buy alerts that the I/O Fund issued to our subscribers in real-time since early 2023.
Source: I/O Fund
Notably, our firm assisted our readers in capturing immense upside from the two top-performing large-cap tech positions in 2023 and 2024 with Nvidia and Bitcoin; the fact we also provided ongoing entries and risk management for these mega-winners cannot be understated in terms of the value we have delivered. To refer our newsletter to your friends and family, please click here.
3) Top Crypto Company Allocation Increased Ahead of Election to #1 Position
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Given the I/O Fund’s strong track record with technical analysis to predict Bitcoin’s moves, the team was able to identify a top crypto stock on the public markets to add to the I/O Fund’s portfolio in September. This was partly due to the stock having a high correlation with Bitcoin.
We first added this stock in September as Bitcoin showed signs of playing into the I/O Fund’s analysis where the leading crypto asset would see a move to $100,000, up from the high $50,000 range at the time.
Following the election, The Top Crypto Company stock became the second highest performer in the exuberant-led rally of early November. It was the I/O Fund’s largest allocation at the time with the team locking in gains of 82% and 111% in a brief few months.
The team highlighted the company’s diversification including a Layer 2 offering and opportunities in derivatives as potential catalysts. The company also has a large cash reserve, which is rare for tech stocks with its market cap.
4) Palantir’s Revenue Acceleration
In December 2023, the I/O Fund outlined four cloud stocks set to see revenue accelerate in 2024, with Palantir one of the four. We had said that Palantir was “exhibiting multiple signs of acceleration heading into 2024 with an improved fundamental backdrop driven by increasing AI demand. Palantir’s Artificial Intelligence Platform (AIP) is driving a significant acceleration in its US commercial business, while underlying metrics and the bottom line are rapidly improving: Palantir posted its first GAAP profitable quarter in February and has since reported four consecutive GAAP profitable quarters.”
We explained that “revenue growth is poised to accelerate in Q4 and through 2024, boosted by AI demand, a reacceleration in Palantir’s US government segment, and continued strength in the US commercial segment stemming from [AIP].”
Sign up for I/O Fund's free newsletter with gains of up to 2,250% because of Nvidia's epic run – Click hereSign up for I/O Fund's free newsletter with gains of up to 2,250% because of Nvidia's epic run – Click hereClick here
Palantir continued to blow past expectations through 2024 — Q4 revenue capped off a strong year as Palantir beat its own guidance by nearly $60 million, with revenue growth accelerating 6 points to 36%, coupled with strong margin expansion, cash flow generation, and large net new customer additions in its key US commercial segment.
Palantir’s shares ended 2024 as the S&P 500’s best performer with a 341% return.
5) Meta to Outperform
In the January 2024 analysis, Social Media Stocks: One Metric Shows Meta’s Clear Leadership, the I/O Fund pointed out what separated Meta as a clear social media leader and why other social media apps would struggle with monetization. Since then, Meta shares have risen 82%, while Snapchat has declined -37%.
We explained that Meta was much more efficient with spending, maintaining R&D spending below 40% of gross profit while significantly improving operating margin and driving ad pricing and impressions growth, whereas Snapchat was “spending around 80% of its gross profit dollars on R&D… while failing to increase ARPU and monetization within its user base.”
We pointed out that what makes Meta a clear leader is that “it can maintain a high level of R&D spend … while remaining a cash cow with strong operating cash flow and free cash flow growth,” with OCF margin nearing 60% in Q3 2023 and OCF tracking for 50% YoY growth to $75 billion in 2023.
In a follow-up analysis in March 2024, Top 3 Ad-Tech Stocks For 2024, we said that Meta’s “key metrics [were] supporting a return to >40% operating margin for the full year and a possible >33% net margin, driven by increasing ad pricing, strong engagement trends and impressions growth, aided by the release of numerous AI features.” Meta ended 2024 with a 42.2% operating margin, a 37.9% net margin, and a 55.5% operating cash flow margin.
Stay on the leading edge of AI with I/O Fund’s high-performing tech portfolio, which had 10 positions outperform the Nasdaq-100 in 2024, many held at high allocations, and we are prepping for a strong 2025. Learn more herehere
6) Key Metric Acceleration in AI Software Stock for 96% Gains
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The I/O Fund recorded gains up to 96% on this AI-exposed software stock in 2024, with its February 2024 earnings report showing acceleration in a handful of key metrics, supporting our conviction that this stock would capitalize on the opportunities of bringing AI to the edge.
This company’s management team dropped hints that AI would gradually become a more meaningful driver of revenue as workloads shift from training toward inference, supported by strong growth in key metrics and key platforms.
Key metrics and margins continued to improve in the August 2024 earnings report, with some strong growth metrics for its AI platform. The I/O Fund fully closed the position in December 2024 to lock in gains for the year, as a soft guide and valuation concerns rose to the forefront after its November 2024 earnings report.
7) Amazon’s Cloud Acceleration
In the February 2024 analysis AI Driving Acceleration For Big 3 Cloud Stocks, the I/O Fund discussed how AI was impacting cloud growth at Microsoft, Amazon and Alphabet. For Amazon, the I/O Fund explained that in Q4 2023, “AWS finally accelerated in Q4 for the first time in 2 years, with Amazon reporting 13.2% growth in Q4, up just over 1 point from Q3’s 12%.” However, the more important metric was AWS’ operating leverage improving in the second half of 2023, with operating income growth at 3x the rate of revenue in Q4 2023.
At the time, AWS was generating the majority of Amazon’s company-wide operating income (67% of 2023) due to its higher operating margin (27% in Q4 2023), which we had said was “a trend that can strengthen with AI driving accelerated customer and revenue growth and decreased costs.” This has played out, with AWS reporting a 37.8% operating margin in Q3 2024 and 36.9% in Q4 2024.
What the I/O Fund had seen in February 2024 was a combination of increased customer migrations, larger and longer duration contracts, increased incremental revenue QoQ, and opportunities to better monetize the suite via AI. These factors were the necessary ingredients for AWS to show “a sustained AI-driven acceleration,” even though its quarterly growth rates lagged Azure and Google Cloud. AWS growth has now re-accelerated to 19%.
In a follow-up article in May, Amazon Stock: Nearing $2 Trillion Club From AWS Growth & Ads Catalyst, we provided evidence that AWS was a primary contributor to Amazon’s push to the $2 trillion milestone — growth from AI quickly reached a multi-billion dollar run rate, while improvements in operating leverage at AWS aided Amazon’s bottom line.
8) Best-of-Breed Cybersecurity Stock Closed for 93% Gain
The I/O Fund is no stranger to the cloud sector, having selected some of the sector’s top names in 2021 in Asana and DataDog. This best-of-breed cybersecurity stock greatly piqued our interest in late 2023 as the company became GAAP profitable; a rare feat for cloud.
We noticed a few encouraging signs of growth in key metrics in late 2023, and predicted that by late 2024, this stock would have a positive GAAP operating margin, which would be seen as a breakthrough moment. As a result, this stock entered 2024 as one of our larger allocations.
The March 2024 earnings report showed a continued sequential expansion in GAAP operating margin and a strong acceleration in a major key metric. Despite reporting another quarter with positive operating margin and strong growth metrics in June 2024, the I/O Fund saw trouble ahead with the stock’s high valuation, and closed this position in July 2024, recording approximately a 93% gain. The stock later plummeted over 40% in a month due to a high-profile security hack with the I/O Fund able to side-step these losses and lock-in gains before the sudden reversal.
9) Explosive Growth in “AI Server Maker” for Triple-Digit Gains
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The I/O Fund identified one of the few darlings of the AI trend in 2023, introducing this stock to our premium readers in May 2023 and calling out its growth potential from AI servers. The I/O Fund analyst team was early to identify the tremendous upside in the stock due to a doubling of its AI revenue from about $12B to $25B — and beat the Street to this conclusion.
This stock reported strong sequential and YoY growth in its December 2023 quarter in late January, with the I/O Fund adding for a final time as guidance once again seemed to be conservative. However, some red flags began to appear, and we later closed the position after digging deeper when it became apparent the company would need to continue to raise cash to fund growth. The stock later became the subject of auditing issues, and the team was able to side-step this by risk managing the position.
Starting in February 2024, we issued 7 sell alerts, fully exiting the position by May 2024 to log an average gain of over 275% on this position alone, which we held at a high allocation within our portfolio.
10) I/O Fund Reports 131% Cumulative Returns Through 2023 Due to Leading AI Allocation
In April 2024, the I/O Fund announced returns of 57% in 2023 as seven positions beat the Nasdaq-100, bringing its cumulative returns to 131% since inception. This compares to popular tech ETFs that have cumulative returns of (-10%) in the same time period for an outperformance of 141% in less than four years.
If you had invested $10,000 with the I/O Fund’s picks versus other all-tech portfolios at inception, the difference would be a portfolio value of $23,052 with IOF versus $8,982 with institutional tech-focused portfolio. The difference in value is 157%.
Impeccable timing on Nvidia and other AI stocks led to the I/O Fund having one of the highest allocations to AI on record at 45%, and this high allocation was timely as it allowed us to beat Wall Street to the explosive trend of AI. Previously, our firm was early to cloud in 2019, then rotated into AI in 2022. For more on the I/O Fund’s official 2023 returns announcement, read more here: The I/O Fund Catapults to 131% Cumulative Returns.
For 2025, the I/O Fund has worked to identify key Nvidia suppliers with Blackwell on deck to ramp significantly, sharing our in-depth research on the AI networking stack. Sign up to join our upcoming webinar, held every Thursday at 4:30 pm EST, where we discuss buy zones for the stocks we cover. Learn more here.
*Stock returns are calculated through December 31st, 2024 and are updated annually.
Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in NVDA and Bitcoin at the time of writing and may own stocks pictured in the charts.
The world today was engineered to be ephemeral and noisy. This is a terrible combination for an investor. On Twitter alone, 456,000 messages are sent every minute. On Facebook, 510,000 comments are posted every minute, and 293,000 status updates are made. Outside of social media, 16 million text messages are sent every minute, and 156 million emails are sent.
For an investor, the antidote to noise is quality stock analysis. Due diligence requires dozens of hours per company, and it takes hundreds of hours every year to produce a free newsletter with quality analysis. I/O Fund strives to offer some of the team’s best analysis for free, and we believe the consistency and depth of what we provide for free is hard to replicate.
We offer this in the most challenging sector for investors, which is, hands-down, the tech sector. The tech sector is unusually challenging because it involves many different verticals – artificial intelligence, crypto, consumer, media, fintech, ad-tech, semis, cloud, and more. It’s also the highest risk and highest reward sector in the market. Due to sudden price movements in both directions, the stakes are high. Perhaps we are biased, but quality analysis can be hard, particularly in the tech sector.
Below, we present you with 10 Timeless Articles You Won’t Want to Miss.
1) Nvidia’s Cuda Moat and Early-AI Thesis from 2018, for Gains of Over 4,160% on Premium Site
Our firm's AI coverage on Nvidia began with calling Nvidia an AI leader seven years ago! Yes, really.
In the article published in November 2018 when Nvidia was trading at $4.93; Holding Nvidia Stock Will Pay Off Due to Two Impenetrable Moats,Beth said that “Economic indicators and earnings from tech companies have not exactly warranted this reaction from the market… Nvidia’s outlook is quite the opposite in regards to public-company growth trajectory. The market may continue to have volatility, but Nvidia investors who are patient will be rewarded due to competitive advantages in GPU-powered cloud performance and developer adoption of Nvidia’s platform.” but Nvidia investors who are patient will be rewarded due to competitive advantages in GPU-powered cloud performance and developer adoption of Nvidia’s platform.”
Since the free article was published, the stock is up by over 2,600% and our first entry on our premium site is up by over 4,160%* with an entry at $3.15. The stock has now become the Street’s most-followed AI stock.
Nvidia has firmly established itself as the GPU leader in this AI boom, with CUDA (Compute Unified Device Architecture) serving as its primary moat. The A100 and H100 drove the revenue but CUDA’s software moat is why Nvidia has a near-monopoly in the GPU-driven data center with a 98% market share. Ultimately, CUDA is the primary reason that Nvidia is challenging to disrupt, and Beth pointed this would help the company dominate AI development 7 years ago. She then repeated this thesis 25 times before the Street finally caught on in May of 2023.
CUDA is a moat because developers are trained to program GPUs on this platform specifically. For a competitor to take market share, developers would have to be motivated to install new drivers, compilers, and to learn new libraries and tools to switch from CUDA to a new, competing programming platform.
Beth rightly pointed out that Nvidia has established itself as the dominant development platform for AI, a fact that later became increasingly apparent as AI technology matures. In 2018, the Street grew concerned that custom silicon would replace Nvidia’s GPUs, yet Beth pointed out that developers favor Nvidia's GPUs for their ease of use and flexibility compared to custom silicon.
Here is what she stated in this prescient analysis:
“Nvidia is already the universal platform for development, but this won’t become obvious until innovation in artificial intelligence matures. Developers are programming the future of artificial intelligence applications on Nvidia because GPUs are easier and more flexible than customized TPU chips from Google or FGPA chips used by Microsoft. Meanwhile, Intel’s CPU chips will struggle to compete as artificial intelligence applications and machine learning inferencing move to the cloud.”
*Note: Stock gains listed are through Dec 31, 2024 and are updated annually.
2) Nvidia to Surpass Apple’s Valuation from 2021, to Become World's Most Valuable Company
Beth is known as the Queen of Nvidia, not only for predicting Nvidia would become a dominant AI stock when it was priced below $5, but she clearly set herself apart again in 2021 with a prediction that Nvidia would surpass Apple to become the world’s most valuable company when it was priced at $152.51.
At the time, this prediction was inconceivable as it would require not only Nvidia to go up more than 350%, but also for the tech leader Apple to plateau. Ultimately, Nvidia went up more than 500% since that call, and is up 900% between Jan 1st 2023 and Jan 1st 2025 while Apple is up 70% in that two-year time frame.
The I/O Fund took it a step further and bought on the October 13th, 2022 low with a real-time trade alert sent to premium members to buy at $18.51 (corrected to account for stock split). This single buy alert is up an impressive +700%, if held into today’s price . Overall, premium members received nine real-time buy alerts below $20 in 2021 and 2022; learn more about premium here. Notably, this prediction required holding a high conviction through a 60% selloff in 2022.
The 2021 prediction that Nvidia would surpass Apple’s valuation within 5 five years highlighted Nvidia’s niche in the AI economy and also that Nvidia is not standing still with Ampere Architecture. Beth noted, “Nvidia has a market cap of roughly $550 billion compared to Apple’s nearly $2.5 trillion. We believe Nvidia can surpass Apple by capitalizing on the artificial intelligence economy, which will add an estimated $15 trillion to GDP. This is compared to the mobile economy that brought us the majority of the gains in Apple, Google and Facebook, and contributes $4.4 trillion to GDP. For comparison purposes, AI contributes $2 trillion to GDP as of 2018.”We believe Nvidia can surpass Apple by capitalizing on the artificial intelligence economy, which will add an estimated $15 trillion to GDP. This is compared to the mobile economy that brought us the majority of the gains in Apple, Google and Facebook, and contributes $4.4 trillion to GDP. For comparison purposes, AI contributes $2 trillion to GDP as of 2018.”
3) In 2024, Beth Followed Up on Why Nvidia Was Still a Buy
To date, Beth has updated her Nvidia thesis thirty times with original insights. In February of 2024, she explained why Nvidia was still a strong Buy, and how Nvidia would surpass Apple two years earlier than her original 5-year prediction in 2021.
In the analysis, Nvidia Stock Gained $1.5 Trillion To Surpass The FAANGs – Apple Is Next she pointed out that it was not just the consistency and magnitude of Nvidia’s multi-billion-dollar revenue beats, but the expansion of its margins and earnings as revenue grew >200% for multiple quarters as it approached a $90 billion annualized scale. She also highlighted the accelerated product roadmap, which is another reason for the company's stellar returns and futuristic software opportunities.
4) Prediction: Nvidia Bottomed in Late 2022
When the market dumped Nvidia stock, with the price cratering 60% in 2022, Beth aptly pointed to the big picture, i.e., the H100 chip opportunity for readers in her September 2022 analysis, Nvidia Stock Is Ready To Rumble With RTX 40 Series And H100 GPUs, during a time when the mainstream media was focusing on an irrelevant crypto mining miss.
Here is what she said at the height of the selloff:
“Nvidia had a big week with GTC 2022 and management is clearly ready to rumble against any excess inventory from crypto mining. The negative catalyst from crypto mining and Nvidia's price action is eerily similar to Q4 2018/Q1 2019 —- yet the company is not the same company it was four years ago. This is apparent by Nvidia flexing some major product muscle by timing it's best-ever gaming release and it's best-ever AI chip to hit the market in October.” This is apparent by Nvidia flexing some major product muscle by timing it's best-ever gaming release and it's best-ever AI chip to hit the market in October.”
Beth further highlighted that the Hopper architecture represents a significant performance leap over the Ampere architecture. Some of the improvements include Enhanced Algorithm Processing, increased bandwidth and scalability, memory, and performance boost, which all played a key role in capturing the AI demand. For example:
NVLink allows connecting eight H100s into a single, powerful GPU with immense processing power and memory bandwidth.
50% more memory and interface bandwidth than the A100, with support for 80GB of HBM3 memory.
Approximately 3x overall performance increase over the A100, and up to 6x faster in specific workloads.
“Where the H100 really stands apart is the leap in performance with about 3X more performance than the A100 and the H100 is up to 6X faster. The A100 lacked support for FP8 compute at default whereas the H100 will leverage a transformer engine to switch between FP8 and FP16, depending on the workload.”
5) Early Bitcoin Bulls when Bitcoin was trading at $11,156
I/O Fund published the Bitcoin bull thesis to its readers in July 2019; Will Bitcoin Make a Good Investment? Part 1: Institutional Adoption. Beth rightly said “There are key reasons as to why bitcoin will make a solid long-term asset over the next five years and may reach its peak as a new technology with mass adoption in seven to ten years. This 3-part series explores why strategically entering the bitcoin market at a good entry price will make a solid investment for the future.”
The first being institutional adoption, then economic uncertainty, and mobile payments. Since the article was published the shares have risen by over 730% and our first entry, Bitcoin is up by over 1,100%. Interesting enough, it was institutional adoption that became the major catalyst despite famed investor Warren Buffet stating Bitcoin was “probably rat poison squared” around the same time she wrote smart money would become the major, primary catalyst.
I/O Fund Called the 2021 Top in Bitcoin and the 2022 Bottom
I/O Fund Portfolio Manager, Knox Ridley, accurately called the top in June 2021. The uptrend in Bitcoin that continued through April and May topped at $64,895, which was the lower end of the listed range. Our firm took heavy gains by cutting the position in half, as outlined in the video and article: “Why the I/O Fund Cut Bitcoin in Half.”
Nearly 18 months later, in December 2022, Knox provided another prescient update that Bitcoin was bottoming and would rally again when the price was bottoming in the $17,000 range. In the article “Bitcoin is Going to Rally: What You Need to Know” he stated:
“Yet, there is key evidence that shows how Bitcoin is stronger today than it was during the previous three drawdowns. The reason you don’t want to ignore this is because – despite steep +80% selloffs — Bitcoin has reclaimed new highs within 3.5 years, every time. Therefore, it’s not only the size of gains Bitcoin has provided which places it as the #1 asset of all-time yet it’s the speed in which this is accomplished that is also remarkable.”
A year later when Bitcoin was trading at $43,600 Knox provided yet another update stating that Bitcoin price will reach $100,000 due to institutional adoption.
Every Thursday at 4:30 pm Eastern, the I/O Fund team holds a webinar for premium members to discuss how to navigate the broad market, as well as various stock entries and exits. The I/O Fund team is one of the only audited portfolios available to individual investors. Learn more here.here.
6) Bitcoin to $100K+
Portfolio Manager Knox Ridley provided two crucial updates on the I/O Fund’s game plan for Bitcoin, with his first update from April 2024 increasing the portfolio’s target zones. At the time, Bitcoin was an overlooked asset compared to the over-hyped Mag 7, yet the asset delivered superior returns compared to all of the great large-cap tech stocks in this bull cycle, minus Nvidia, while having a low inverse correlation to tech.
Utilizing technical analysis and on-chain data in the analysis We Are Raising Our Bitcoin Targets To $106K – $190K, Knox explained that the I/O Fund was now raising its target zones for Bitcoin to $106,000 to $190,000, up from the previous zone of $75,000 to $130,000. Bitcoin was trading in the mid-$60,000 range at the time, with Knox saying that “the $42,750 support region holds on any ongoing volatility, then we have no reason to doubt the uptrend in place.”
Knox explains why the I/O has been successful in navigating this volatile asset. “Timing is everything. When it comes to timing, our firm has a proven track record of navigating the life-changing bull case that crypto offers while minimizing the volatility associated with different coins – we achieve this via a unique approach combining technical and on-chain analysis to identify major lows and major tops in each cycle.”
Sign up for I/O Fund's free newsletter with gains of up to 2600% because of Nvidia's epic run – Click hereSign up for I/O Fund's free newsletter with gains of up to 2600% because of Nvidia's epic run – Click hereClick here
Knox provided another update to the Bitcoin thesis in August 2024 in the analysis, Bitcoin Update: Next Stop $100,000; Bitcoin finally surpassed that historic level as 2024 came to a close. He explained that Bitcoin had “a full corrective pattern in place that ended around $54,000 in early July,” which “suggests we are in the early stages of the next rally.”
7) Microsoft Stock Outperformance highlighted in 2018
Our bullish thesis on Microsoft was first developed in 2018. Beth highlighted that Azure would gain market share in Cloud Infrastructure in the article; Here’s Why Microsoft Stock Could Overtake Amazon on Cloud Infrastructure. Microsoft’s market share has increased from 13% to the current 21% and the stock has outperformed both Alphabet and Amazon as seen in the chart below.
Beth highlighted Microsoft’s Fortune 500 client base and also Microsoft’s acquisition of GitHub to attract developers who play a crucial role in the selection of cloud providers. She further highlighted Microsoft’s strength in the adoption of its products by most companies, which would make the transition easy for the IT department.
8) Microsoft Azure vs Google Cloud
We highlighted to our readers in December 2020 that Alphabet will lag Microsoft in the cloud market share in the article; Why It's Too Late for Google Cloud to Overtake Microsoft Azure. Currently, Microsoft has a 21% market share compared to Alphabet’s 12% and Amazon’s 30% at the end of December 2024.
Beth pointed out that “In our latest Forbes report, we discuss why Google (Alphabet) may have missed a critical window this year for the infrastructure piece. We also analyze how Microsoft directed all of its efforts to successfully close the wide lead by AWS. Lastly, we look at how all three companies will bring the battle to the edge in an effort to maintain market share in this secular and fiercely competitive category."
9) Netflix: A Hidden Gem
We published a series of articles in 2022 on Netflix during the market sell-off after the company lost subscribers for the first time since 2011 and said that investors need to be patient. During that time, Bill Ackman sold his stake in Netflix for a loss of $450 million within three months of his purchase. Beth highlighted that Netflix is entering the ad-supported market and in July 2022, in another article; Netflix Stock Stronger Than It Seems Following Q2 Earnings, she highlighted the cash flow transformation.
Beth said, “The most important line item for Netflix is the company’s cash flow. Looking back, this has been troublesome for Netflix as the company lost $3.3 billion in cash in 2019 as it built up its original content pipeline. However, the company is on an entirely new trajectory with $1 billion in free cash flow expected this year and “substantial” free cash flow in 2023, per Netflix management.”
We provided another update in May 2023; This Stock Price For Netflix Is A “Buy” For 2023 by highlighting the opportunities in password sharing, ad-tier, free cash flow, and by providing a buy plan to our readers. We closed Netflix in April 2024 for a total gain of 150%.
10) How the I/O Fund Sets a High Bar for Accountability
Don’t miss the article Verified Returns & Risk Management: A Retail Investor's Imperative.This article discusses the overarching thesis around ways retail investors can get ahead of Wall Street in the complex world of stock investing. For starters, having an actively managed portfolio is where you get the best of both world’s – performance that far exceeds the indexes and ETFs by paying close attention to allocation, (quickly) cutting stocks that do not meet specific criteria, and choosing stocks that have strong, fundamental strength. We strongly believe a more active stance is necessary for long-term tech investing, and this article explains why.
Logging trades in real-time also places immense pressure on the analysts at the I/O Fund, who are not allowed to simply choose a stock but must also determine the allocation for the stock. After recommending a stock, the analysts must help the portfolio manager actively manage the position, which can change at any time. There is a reason most services do not provide this level of transparency and activity — as more granularity is offered; more skill is required.
Another reason the I/O Fund is unique is because it is the only firm that provides audited results to its premium members. We use an auditor from a large firm in San Francisco to mathematically review and verify the performance of our I/O Fund portfolio trading account and crypto account.
That’s Not All ….
Our firm has assisted our readers in capturing immense upside from the two top-performing large-cap tech positions in 2023 and 2024 with Nvidia and Bitcoin; the fact we also provided ongoing entries and risk management for these mega-winners cannot be understated in terms of the value we have delivered.
That’s not all … on our premium side, we have garnered returns of 210% in five years, with analysis you must not miss on stocks not mentioned here. We reserve our best work for premium members.
These wins include*
The I/O Fund has cumulative returns of 210% and a lead over institutional technology portfolios of as much as 219% since inception.
In 2024, the I/O Fund returned 35%, outperforming the S&P 500 by 11% and both the Nasdaq-100 and Invesco QQQ ETF by 10%.
We had 10 positions outperforming the NASDAQ-100 in 2024.
We also closed an altcoin for a 99% quick gain and Netflix for a 164% realized gain in 2024.
Our combined realized returns on Super Micro were 243% while utilizing risk management to sidestep volatility.
We opened CrowdStrike in early 2023 and began taking gains in early 2024. We ended up closing the entire position for a realized gain of 87%, just before the vertical drop took CRWD down 41% from our final closing price.
We posted returns of 57% in 2023. If we were an ETF, mutual fund or hedge fund, our ranking would be #4 in the Wall Street Journal’s Winners’ Circle ranking of 1,191 funds.
In 2023, we had five positions with returns over 100% and seven positions beat the Nasdaq. Many were held at high allocations.
The I/O Fund had a 45% allocation to AI going into 2023, one of the highest on record. Today, the AI allocation is higher with many lesser-known names.
Issued 9 trade alerts for Nvidia under $20. Provided over 25 analyses on Nvidia’s AI thesis before the market caught on.
Nearly impeccable record on Bitcoin, buying between $7K to $10K, trimming at $58K, buying again $15K to $16K for the rally to $100K+. All entries and exits are sent as trade alerts.
We were early to the cloud in 2019, then rotated into AI in 2022 with a 45% allocation in 2023.
Released an automated hedge in 2022 to stave off losses during a historic selloff in the tech sector.
Picked the leading sectors in 2021: semiconductors and blockchain.
Picked the two top-performing cloud stocks in 2021 (DDOG and ASAN)
Picked the best-performing asset with a large market cap in 2021 (ETH)
Picked the best stock in the S&P 500 in 2019 (ROKU)
Has beaten other tech-focused funds in every audit since the portfolio’s inception.
*all percentages quoted of the current portfolio stocks are from first entry through 31 December 2024.
Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in NVDA and AMD at the time of writing and may own stocks pictured in the charts.
