We recently published a free article that outlines the major risks this market currently faces. We also provided broad market analysis on the two most likely paths this market might take. For those interested, we encourage you to read it herehere.
Regarding the broad market, in our last report, we stated that
“The line in the sand is 5400… If the market decides to break below 5400 in direct fashion without a bounce, I think it is reasonable to expect a more direct drop to 5200 – 4800.”The line in the sand is 5400… If the market decides to break below 5400 in direct fashion without a bounce, I think it is reasonable to expect a more direct drop to 5200 – 4800.”
We found a low, so far, in the 4800 region, as the market is now staging a bounce. With sentiment readings at historic lows, if the market is going to push lower in a bigger way, it will need to reset sentiment and bring investors back into the markets. This further supports a bounce, which we believe has already started. There are two basic paths I’m tracking over the short-term time frame:
Blue – We have started the expected bounce, which should take us to at least 5635 and potentially to the 6050 region. I think we will see some weakness this week that should hold over 4980 SPX. If this level holds, we should see the bounce continue to our targets.
Once we get to the target region overhead, risk will be elevated. How we correct from there will be crucial, which will determine if we are heading below 4000 SPX, or if we are setting up for a move to new all-time highs.
Red – Any further weakness breaks below 4980 SPX and continues lower. In this instance, I will be targeting the 4700 – 4546 to complete this leg of the drop. This should be the last swing lower that will set the stage for a multi-week bounce back into our overhead target zone.
As stated in the last report, we reserve regular broad market updates for our Advanced Members. However, during times of volatility, which could lead to a meaningful inflection point for investors, we want all our members to have the proper context so that they can risk manage their positions.
If you are interested in a day-by-day update on both broad market risk, and how the I/O Fund manages market volatility in real-time, please consider our Advanced Tier. We are offering a 30% discount to all Essentials Members – please contact support@io-fund.com for details.. We are offering a 30% discount to all Essentials Members – please contact support@io-fund.com for detailssupport@io-fund.com for details.
Nvidia (NVDA)
The bounce in NVDA looks a lot like the S&P 500 overhead – weakness into this week that makes a higher low, then a more direct push into the $116 – $127 region. The drop looks incomplete, and there are two scenarios I’m tracking on what could potentially happen after this bounce completes:
Blue – This bounce will fail to make a new high, and the final drop that follows will complete a very long correction in the $70 region. Once the coming bounce completes, the drop that follows needs to be a messy/3 wave move for confirmation. In other words, we do not want to see a direct drop with bounces.
Red – This scenario should look identical to the blue scenario – a bounce into the $116 – $127 region. However, once this bounce completes, we’ll see a more direct drop, signaling that we are setting up for a move to the $60 region.
Taiwan Semiconductor (TSM)
TSM has a similar setup as NVDA and the S&P 500 above, and is setting up for a big bounce, which has either already started or will start after one more slight low. We expect TSM to take us back to the $187 – $215 region on this bounce. Like with all the equity positions we track, once we get into the target zone, risk will be elevated.
We will not know if the coming bounce will be a lower high in an even larger correction, or a pause on our way to new highs. Based on the mounting risks, we may be looking to reduce risk in TSM and many other positions on this bounce.
Bitcoin (BTCUSD)
Bitcoin is moving in a different path than the equity markets. Bitcoin now has all waves in place to suggest this correction is over. However, I do believe that the pattern best fits with one more slight low to the $74,000 – $69,000 region. If this drop lower happens, it should be on less momentum and less volume than prior drops. This will signal the final 5th wave lower is in place, which should then complete the larger correction.
If instead, we can see price break over $88,500, then the odds will favor the correction being over. It will be a series of steps, but the larger swing, which we have been anticipating for many months, should take us into the $120,000, at minimum. If this plays out, we will greatly reduce our Bitcoin exposure and continue to log meaningful gains.
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 I/O Fund uses many tools to manage risk in our all-tech portfolio. One of these methods is monitoring broad markets to gauge the health of a trend. For example, in early January and February, we kept beating the drum with our Advanced members that the S&P 500 is making a higher high without most of the Mag 7, the NASDAQ-100, Small Caps, and Semiconductors. Divergences like this tend to signal weakness ahead.
We used this type of analysis to warn our Advanced members that we were raising high levels of cash, as well as hedging our portfolio at the first sign of volatility. This allowed us to mitigate the drawdown over the last month, while having cash on hand to buy some great AI stocks at beaten down levels.
While we reserve regular broad market updates and webinars for the Advanced tier, we do at times open our broad market analysis to all tiers when we believe that we are at a potential inflection point.
Regarding the broad market, we think that we are due for a bounce over the coming weeks for a few reasons. The primary reason is sentiment. The AAII is a weekly survey that dates to the 1970s. Every week they ask retail investors where they think the market will be in the future. It has a remarkable record of gauging sentiment as a contrarian indicator.
Over the last 5 weeks, we have seen some of the most bearish consecutive readings in the survey’s history. The percentage of bearish readings were 100% or 99% for the first 4 weeks, with a 97% print this week. This level of consecutive, extreme bearish sentiment rivals the COVID lows, the 2022 lows and even the 2009 lows.
Furthermore, short interest on US stocks has risen to the highest level since the COVID panic. Not only is sentiment abysmal right now, but it appears that investors are now loading onto the short side of the market.
We are not making predications, only presenting sentiment extremes, which historically lead to an unwind. The market tends to move in the direction that will hurt the most people, and right now that level is up. This data supports higher level from here; however, we are also prepared in case this bounce does not materialize.
Regarding the S&P 500, the line in the sand is 5400. If any further weakness holds this level, I think it is reasonable to expect 5800 – 6050 in SPX over the coming weeks. If this bounce can break above 6050, then the odds increase that we can see 6300 in the coming weeks.
Our game plan is to continue to raise cash, and layer back into our hedges on any additional strength. Even if we see a push to 6300, we will follow this plan, as this will likely be the final swing before a relatively large bout of volatility is realized, if it hasn’t already started.
If the market decides to break below 5400 in direct fashion without a bounce, I think it is reasonable to expect a more direct drop to 5200 – 4800. So, while contrarian sentiment readings support a short covering rally in coming weeks, this does not mean that this will manifest. Hopefully, the above levels can help you manage risk as the market chooses a direction.
If you are interested in a day-by-day update on both broad market risk, and how the I/O Fund manages market volatility in real-time, please consider our Advanced Tier. We are offering a 30% discount to all Essentials Members – please contact support@io-fund.com for details.. We are offering a 30% discount to all Essentials Members – please contact support@io-fund.com for detailssupport@io-fund.com for details.
Nvidia (NVDA)
The evidence continues to mount that NVDA could see a move to sub-$100 in the coming weeks. While the next move will likely be a bounce to $128 – $135, this appears to be a correction in a larger move lower. My final target for NVDA is $95 – $83, at which we will start accumulating again.
For this to manifest, we need to see any further strength hold under $135 and then turn lower. If we are going to avoid a lower low, any further strength cannot exceed over $135. Over this level will start supporting a push to new highs in the coming months.
Let’s say we do not see a bigger bounce from here. Then a sustained break below $110.90 suggests that we are heading directly to the targets zone from here.
Taiwan Semiconductor (TSM)
TSM ‘s drop has gone lower than I wanted to see. This does not mean that we can’t see a push to new highs from here, but it does increase the risk that the next bounce will be a lower high within a larger correction.
Regarding the next bounce, note how TSM is making a new low with less volume and less momentum. This appears to be the final push in this leg of the correction. The coming bounce should get us into the $189 – $203 region. If we are going to break to new highs, we need to push over the $205 region.
The pattern that has unfolded since the August 2024 low is quite weak and overlapping. Because of this, if we do see a push to new highs, it would likely be the final swing higher before a larger correction unfolds. So, any additional strength from here should be properly risk managed, considering.
Bitcoin (BTCUSD)
We began accumulating Bitcoin in early 2023. Since then, we have offered 12 buy alerts ranging from $26,000 – $62,000. However, since November of last year, we announced that we are going to begin to take gains and sold more than half of our position between $80,500 – $104,000. We recently added some of this back to play the possible next swing higher.
Bitcoin’s pattern appears to be incomplete and suggests that one more swing to the $120,000+ region is the most likely. The current bounce that we are seeing should take us to $96,000 – $101,000. Once we get to this region, we will need to be on guard for a reversal. If we do reverse from this zone, we could see a larger drop into the $60,000 region before finding a low. If we are going to push to new highs, we must take out $101,000 with expanding volume.
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.
Next week, the I/O Fund will be releasing our official 2024 returns, along with our updated cumulative and annualized returns. However, before we release our returns, we think it’s prudent to discuss the importance of verified returns for retail investors.
Retail Investors Take the Brunt of Market Losses
The unfortunate reality is that retail investors disproportionately suffer losses compared to institutional investors. According to a study by Dalbar Inc., the average retail investor underperformed the S&P 500 by 6.1% annually over a 20-year period with a 5.5% gap in 2023, which was higher than the gap in 2022 – showing that bull markets often do not reward retail investors in the way that it’s perceived. According to the report, this is because “investors tend to sell out of investments during downturns and miss out on rebounds." Additionally, Bloomberg found that 80% of day traders quit after the first two years.
A University of Oxford professor explains this disparity: "Retail investors will always lose money because they lack the ‘education,’ whereas financial professionals are well-informed – that’s what they do."
This is especially concerning given that retail investors now make up 25% of the market, a sharp increase from 10-15% before the pandemic, according to Bloomberg Intelligence (Bloomberg, 2023). With more individual investors participating, the need for risk management and verified returns has never been greater.
The I/O Fund will officially release our 2024 returns and cumulative returns next week, with results that prove our firm has handily beat not only the indexes but also Wall Street’s best firms. Stay tuned to your inbox!
The Role of Quant Machines in Extreme Volatility
One of the primary culprits behind today’s extreme market swings is high-frequency trading (HFT) and algorithmic investing. While many newer investors picture a stock trading floor with market makers assisting trades, the reality is far different. Instead, the market is largely controlled by colocation data centers filled with high-speed servers executing trades in milliseconds.
Algorithms thrive on volatility, often triggering rapid selloffs that disproportionately hurt retail investors
Research shows that HFT firms account for 50-60% of U.S. equity trading volume, making them dominant players in the market. These algorithms thrive on volatility, often triggering rapid selloffs that disproportionately hurt retail investors, who don’t have the same tools to react instantly. A study by the CFA Institute found that flash crashes, largely caused by algorithmic trading, wipe out billions in market value within minutes, often before retail investors can even process what’s happening.
For example, during the May 6, 2010, flash crash, the Dow Jones Industrial Average plunged nearly 1,000 points in just 10 minutes, temporarily erasing nearly $1 trillion in market value—a drop largely attributed to high-frequency trading algorithms. Similarly, in December 2018, a wave of algorithm-driven selling caused the S&P 500 to drop nearly 20% in a matter of weeks, triggering widespread panic among retail investors.
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A report from the Bank for International Settlements (BIS) further found that high-frequency trading increases market fragility, as it can amplify both buying and selling pressure, creating price swings that disproportionately impact smaller traders. Per Ox Journal: “Although, all these benefits do come at a cost, derived also from the increase in liquidity that these algorithms provide; the cost is the increase in volatility. To be exact, Zhang finds that high-frequency trading increases short-term intraday volatility by 30%.”
Without access to sophisticated trading tools, retail investors are left vulnerable to these rapid market fluctuations.
Why Risk Management Tools Are Essential
Unlike institutional investors, retail traders rarely have access to advanced risk management tools, leaving them vulnerable to market swings. This is where the I/O Fund bridges the gap. Our firm provides:
Real-time trade alerts – Ensuring transparency and timely decision-making.
Advanced portfolio strategies – Utilizing hedging techniques to mitigate downturns.
A study by Morningstar found that investors who utilized risk-managed portfolios had 30% less volatility in returns over a 10-year period compared to those without structured strategies.
The Importance of Verified Returns
One major factor contributing to retail investor losses is the lack of transparency in the financial space. Institutional investors do not take performance claims at face value—they demand verified proof. Every hedge fund is required to report returns, reducing the chances of misleading data.
Over the past few years, the I/O Fund has invested over $175,000 into accountability and transparency for our members. When we launched in July of 2019, for the first year or so, we used a forum hosted by Tribe for our trade alerts for a cost of about $10,000 per year, but by January of 2021, we had migrated to SMS and email tools that were the least likely to experience an outage for our real-time trade alerts (Twilio and Mailchimp). This costs us $30,000 to $40,000 per year, depending on our trading frequency.
In addition to this, 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. The process is quite extensive and it takes up to four months to complete. This costs $4,500 per audit and we’ve completed six audits for a total of $27,000 spent on this process. Accountability is expensive but we feel it’s worth it.
Raising the Standards for Retail Investors
The I/O Fund was founded on the principle that retail investors deserve the same high standards that institutional investors insist upon. By demanding transparency, utilizing professional risk management strategies, and offering deep dive research, retail investors can position themselves for success rather than becoming caught up in market volatility.
As we finalize our annual audit for 2024, we remain committed to providing the highest level of accountability in the industry. Our 2024 performance results will be published soon and we look forward to continuing to raise the bar for retail investors everywhere.
To further extend our goal of providing exceptional quality research for retail investors, we are pleased to announce the launch of our new Discovery tier after diligently working on this endeavor for nearly a year. The new tier is designed to surface dozens of new ideas each year and give our members a wider range of research into AI hardware, software, crypto and other areas that extend well beyond the I/O Fund’s portfolio.
Here is some coverage we have published over the past month on the Discovery tier:
A high beta stock with 21X growth potential from supplying power quickly to key AI hyperscalers
Power management integrated circuits (PMICs) company with signals for strong growth in H2
Nuclear and natural gas supplier for AI data centers
Coming soon: Biggest incoming IPO in the AI sector
For a limited time, get a 25% discount on Discovery priced at $299 through April 10th using code SAVE100DISC 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
To find out the stock ticker of the “Top Crypto Company,” subscribe to our premium service.To find out the stock ticker of the “Top Crypto Company,” subscribe to our premium service.premium service.
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].”
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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
To find out the stock ticker of the “AI Software Stock,” subscribe to our premium service.To find out the stock ticker of the “AI Software Stock,” subscribe to our premium service.our premium service.
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
To find out the stock ticker of the “AI Server Maker,” subscribe to our premium service.To find out the stock ticker of the “AI Server Maker,” subscribe to our premium service.our premium service.
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.”
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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.
Our Essentials plan offers three stocks that are actively managed. For those who are new to tech investing, this plan offers an introductory level as mastering a few stocks before building a larger portfolio is a productive way to become acquainted with the world's most valuable and rewarding industry. As you know, tech can be volatile, and these stocks help to balance risk/reward in this volatile industry.
What is listed below is the most pertinent analysis for becoming acquainted with these three stocks.
This list will be updated and refreshed when positions are added or removed. Please check back often for updates!
In our last broad market report in mid-October of 2024, we stated that “If the S&P 500 can breakout above 5825, then it can likely push into the 6000 – 6185 region.” This was assuming that we hold support at 5675, which we did. Since then, the market topped at 6147 and is currently trading below where we were in October.
We expressed caution in our October report based on several markets and stocks not participating in the uptrend. We also expressed concerns with the reaction in the bond market regarding the FED’s pivot attempt to aggressively cut rates. These warnings remain today and have only become more concerning.
AI Stocks and Intermarket Analysis: Predicting Market Trends Beyond Economics
In an interview with Barrons in 1988, Stanley Druckenmiller stated, “the only good economist I have found is the stock market. People say it has predicted seven out of the last four recessions. That’s still better than any economist I know.” He further backed this claim up by stating that “One of my strengths over the years was having deep respect for the markets and using the markets to predict the economy and particularly using internal groups within the market to make predictions.”
This same sentiment was also expressed by famed fund manager, Peter Lynch, when he claimed that no one was able to predict the 1982 recession, which, at the time, was the worst recession since the great depression. He then stated, “…if you spend 13 minutes a year on economics, you've wasted 10 minutes.”
Both investors are considered market wizards, and both investors analyzed the markets, not the economy, when trying to get ahead of broad market moves. This type of analysis is known as intermarket analysis and, unlike economics, looks at what is going on right now instead of looking back at what already happened or trying to predict too far into the future what will happen.
This type of analysis is what we used on our October 20th 2022 report, to position for the end of the bear market. In this report, we stated…
“We are seeing multiple key sectors within the U.S. not follow the S&P 500 down to a new low last week. Transportation stocks, High Beta and Small Caps have been leading the markets since 2021, and last week, when the S&P 500 made a new low, these risk-on markets made a new high. These types of patterns tend to signal a trend change is brewing.”
We are now seeing the same patterns; however, instead of marking a bottom, they appear to be marking some sort of top.
When all markets, especially the ones sensitive to the economy are trending higher together, you are in a powerful uptrend that should last for a while. On the other hand, when these same sensitive sectors are not moving higher with the broad market, it tends to signal a warning.
AI Stocks and Semiconductors: Key Signals for Market Trends and Volatility
Semiconductor stocks have a long and reliable history of leading market volatility. Historically, this sector tends to be more economically sensitive, showing strong uptrends during economic expansions, as they make the key building blocks of enterprise and consumer technology. They tend to be more economically sensitive and can provide a long lead time between warning investors, and the broad market finally getting the message. Since the 2007 top, semis have provided advanced warnings of notable market turns, including the 2009 bottom, 2015 top, 2018 top, and 2022 top.
In this cycle, we are a handful of semiconductor stocks are the primary recipients of the AI Capex cycle, which has reach nearly $250 Billion from 2023 – 2024, and expected to be $331.5 Billion by the end of this year. This is being fueled predominantly by the capex budgets of four companies – AMZN, MSFT, GOOGL, META.
Considering the importance of AI within this bull market, this sector holds an outsized level of importance. SMH peaked in July of 2024, which we pointed out in prior reports. Interestingly, it is still -14% below it 2024 top, marking one of the longest divergences on record. Like with the above markets, for a meaningful uptrend to resume, we need to see a push to all-time highs. Until this happens, like other periods of volatility, semis could be warning us of market weakness ahead.
Periods when the S&P 500 made a higher high without the semiconductor sector historically signals market weakness that leads to volatility.
The Mag 7’s AI Stocks Diverging
The Mag 7 have been leading this market higher since 2023. Fueled by large Capex spend from Microsoft, Google, Meta and Amazon; their goal, which has been stated on numerous earnings calls, is to be first to market with AI infrastructure and large language models. These companies have repeatedly stated that the risk of underinvesting in AI outweighs the risks of overinvesting in AI.
The roughly $300 billion in capex this year is pointed at a handful of stocks that design AI accelerators, and also those that supply necessary components for large AI systems to scale out and scale up. Nvidia is clearly the primary beneficiary.
The seven stocks that have benefited from the AI trend are NVDA, MSFT, AAPL, AMZN, GOOGL, META, TSLA, and are the undoubted leaders of the current bull market, retuning an average of 128% vs. the S&P 500’s 62% since the October 2022 low.
However, these market leaders are giving off a rare divergence that we have only seen three other times since 2018. While the S&P 500 made a new high on February 19th, the MAG 7 did not. In fact, the collective Mag 7 topped on December 17th, and have since made a series of lower highs. Every time we have since these stocks collectively diverge from the broad market, since 2018, it has led to a greater than 10% drop in equities.
The S&P 500 made a higher high without the Mag 7 Index. This is a rare signal that historically signals market weakness that leads to volatility.
For the AI driven bull market to continue, it follows that the companies responsible for funding the build out of expensive AI infrastructure should also look strong. This is simply not the case, as many of them are already confirming breakdowns that are underway.
Microsoft (MSFT)
Microsoft is one of the Mag 7 stocks that has spent the most in this AI Capex cycle, spending more than $116 billion in 2023 and 2024 combined. For 2025, Microsoft is estimated to spend at least $90 billion, though this may be higher considering it has outlined plans to spend at least $80 billion towards AI data center capacity in fiscal 2025 ending in June.
Interestingly, it has also not made a new high since July of 2024. We have since seen what looks like a large distribution between the $448 – $419 region. Note the two breakdowns circled in yellow. The first was a break i the uptrend, while the 2nd is a breakdown below the $405 support. Unless MSFT can reclaim the $419 – $448 region, the pressure will remain down. Microsoft is likely one of the Mag 7 leading this decline, and it is targeting the $375 – $350 region, if buyers don’t step in soon.
Microsoft stock has been breaking down for weeks, long before the S&P 500.
Google (GOOGL)
Google has contributed approximately $85 billion in capex expenditures over the past two years, with 2025 forecast to see spending rise 43% YoY to $75 billion. Google is one of the more concerning charts of the Mag 7. It topped on February 4th, just before its last earnings report. Since then, it has seen a sharp drop that is flashing warning signs. Google just broke below the uptrend line that has supported the uptrend since the September 2024 low. This is a notable development in technical analysis that suggests more volatility is ahead. GOOGL will need to reclaim this trendline soon to invalidate the signal. If it does reclaim the trend line, it will also need to also reclaim the $196 resistance level to suggest that it could see another push to all-time highs.
GOOGL stock is showing technical weakness, recently breaking a key trend line.
Meta (META)
Meta is projected to spend around $62.5 Billion in capex by the end of 2025, nearly equal to the $66.8 billion it spent in 2023 and 2024 combined. It has also been the strongest MAG 7 in the recent uptrend and has been a heavy spender on its AI build out and a key player in the current bull market. After making a fresh all-time high two weeks ago, what’s worth pointing out is that it did so with lower momentum and lower volume. This is typical of 5th waves, which lines up with the larger pattern that started on the 2022 low.
Considering that price is not below the last two weeks’ lows, it supports a period of volatility into the $590 – $481 region. META must hold $419, or a much deeper correction will unfold.
Meta stock is currently below the prior 2-week lows, signaling a turning point in the trend.
Amazon (AMZN)
Amazon has spent the most, so far, to build out their AI infrastructure. Spending totaled nearly $136 billion in 2023 and 2024 combined, with $104 billion more expected in 2025.
Like GOOGL, the market did not like what it reported in its earnings, showing a sharp drop. Amazon had a strong reaction off the $203.30 support. If AMZN is going to make a new high, it will need to clear $233.50. Even if we see a push to new highs, it does not look like a breakout worth chasing, as it will be the 5th wave, and final swing, in a very large 3rd wave. The 4th wave should take us sub-$200 and last for several months. If instead we break below $203.30, then we have already topped and will look for a low between $186 – $151.
Amazon stocks shows the final support Below the recent low will signal a notable correction is unfolding.
Nvidia (NVDA)
Nvidia has been the primary recipient of the above Big Tech companies’ CapEx spend. For this reason, it has been the darling of the current bull market, and one of the most important stocks regarding the AI focused bull market.
Since the 2022 low, there have been three clear uptrends. We are in the 3rd of these, and it is markedly different than the prior two. For one, unlike the 1st two, the uptrend that started in August of 2024 is relatively weak with a messy and overlapping structure. The prior two were nearly vertical. The second notable difference is that volume is weakening as price goes higher into the current uptrend. This is not like the prior two uptrends that saw volume expand with price.
NVDA has seen 3 uptrends since the 2022 low, the most recent is notably weaker.
If we examine the potential pattern the current uptrend is taking, there are only two that make sense, given the price action.
Nvidia’s stock is range bound, with a probable target of sub-$100
The Green Count – If this is a continuation of the larger uptrend, it is taking the form of an ending diagonal pattern. These patterns are the final 5th wave in a larger 5 wave uptrend, and they tend to follow a powerful 3rd wave uptrend, which is what we saw with NVDA in 2024.
Ending diagonals are also a 5 wave patterns that have significant overlaps and are relatively weak. If this is the pattern in play, we will need to hold over the $119 – $123 support zone and then break above the $144 – $149 resistance zone. If this does happen, we will be in the 5th wave of this ending diagonal, which will target between $165 – $211. This will end the 5th wave and should lead to a notable retrace.
The Blue Count – Considering the messy and overlapping nature of this uptrend, there is a chance that this was a corrective bounce in an on-going correction that started in June of 2024. This would suggest that the B wave of this downtrend ended on January 7th with a double top. The final C wave drop should break below $123 – $119 and find support between $102 – $83.
Considering that Nvidia has been the market leader since 2023, and the most important name in the AI infrastructure spending cycle, how this stock trades will be very important to the bull market. More importantly, what will be the catalyst to push it to new highs?
We have been saying for a while that the NVL systems should be that catalyst, expecting fireworks by now. There is $100 billion pointed at one SKU, which is unheard of (the NVL72 systems alone are expected to reach 30,000 racks at the midpoint at $3 million per rack). It took the iPhone fifteen years to get to that revenue (2023). Needless to say, this is an important SKU in terms of a catalyst.
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However, underneath the bullish language and standard beat/raise we’ve become accustomed to with NVDA reports, this week’s report confirmed Nvidia “had a hiccup that probably cost us a couple of months.” Nvidia stated the NVL systems have “successfully ramped in production” but did not say they were shipping in volume, which was the original expectation. This is also present with the price action in the NVL suppliers. You simply can’t put $100 billion into production for one SKU and ship in volume without a splash in the large supply chain that builds these AI systems. There was no splash (yet). We covered this more here.
Some might be thinking that what we are seeing is a rotation from the overextended Mag 7 into other, beaten down names in the market. In other words, this would be a positive sign, as the FED has engineered a no-landing scenario, and the bull market is about to continue to grind higher with more involvement.
If this were the case, we would see a rotation from the Mag 7’s December 17th top into beaten down sectors like transportation, small caps, high beta, retail sales, biotech, etc. These are sectors that not reclaimed their 2021 highs and would benefit from a further economic expansion with lower rates and expanding credit.
However, since the December 17th high in the Mag 7, we have seen money flow into predominantly risk-off sectors that represent inflationary and defensive positioning. Gold, Healthcare, Utilities, Energy, Financials, Consumer Staples, even Long-Dated bonds and Money Markets are outperforming most risk-on sectors. This is where money should be flowing, if this narrative were true, all of which are getting sold since money started rotating out of the Mag7.
Since the Mag 7 topped in December, money is flowing into risk-off sectors.
Sentiment
After seeing two back-to-back years of +20% returns in the markets, we are seeing historically high valuations coupled with historically high sentiment. The Bank of America Global Fund Manager Survey for December, which monitors how money managers are positioned, shows the lowest allocation to cash on record.
This is followed up with the highest allocation to equities on record.
Fund managers are all in on stocks, unlike any period we have ever seen.
The same can be said about retail investors. When we look at the most recent data of the equities held as a percentage of financial assets for US households, it has just reached all-time highs, surpassing the 2000 top and 2021 top.
Retail is all in on stocks in 2025
This trend reached a climax into the recent February top. JP Morgan saw the biggest weekly inflow of retail funds into equities starting February. Of this money, over 70% went into the Magnificent 7 stocks.
On aggregate, retail exposure to equities has more than doubled since the start of 2025
It appears that everyone is all-in on this bull market, with a level of exuberance that historically does not last. However, an important point to consider considering that retail is pushing more money into the Mag 7 on record – with this level of fund flows into these names, why are they not pushing to all-time highs? The only explanation is that bigger institutions are selling into the retail buying frenzy.
Broad Market Analysis
We have reached the upper target zone outlined in our last October report. Now that we are here, the potential target zone has been adjusted to account for multiple scenarios that could play out.
Even the most bullish interpretation of the bull market off the 2022, suggests that, at some point within the 6140 – 6500 target zone, we should start a relatively large correction back to the 5600 – 5200 region this year.
However, note the Relative Strength Index (RSI) below. It has made a series of lower highs, suggesting momentum is fading the higher price pushes. This is the type of divergence we see at market turning points, especially when the RSI starts closing below the 60 region, as we just did at the recent February high.
The S&P 500 is setting up for a sizable correction
Since 2024, each dip has found a low on the 53 region on the RSI. This level just broke, which suggests a drop to the bull market support region at 39 of the RSI. The market is currently on its last leg before fully confirming this drop.
The RSI can give advanced warnings of bigger moves, and as of today, it is breaking below the minor dip level that has caught each dip in 2024. Now, we need confirmation with price. If we see a sustained break below 5885 – 5860, I am expecting a drop into our lower SPX target around 5600. If this level does not hold, the level below that is 5200. This scenario is shown in blue and appears to be the most probable outcome.
However, while we are seeing ample signs of a market starting to break down, until SPX gives us a sustained break below 5860, this market has the potential to make one more swing into the 6300 – 6500 before starting this larger correction that we believe is on the horizon. This scenario is shown in green in the chart below.
The S&P 500 is on its last leg before confirming a drop into the 5600 region, minimum.
For this to happen, we need to hold over 5885 – 5860 and break above 6080 to suggest this is likely to play out. What this would mean is that this is a minor correction, which will lead to one more high before the larger correction unfolds. If this happens, based on the warning signs discussed, we will not chase this push higher, and likely sell more into it.
The I/O Fund has been 100% hedged since December 27th. The portion of the correction that we are in could potentially see us hit our targets below in a short amount of time. If this happens, we plan to remove our hedges and add the cash that we raised into beaten down AI names.
Conclusion:
In conclusion, 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. While this bout of volatility may have already started, we still could see one more swing into the 6300 first.
We do not believe this is the end of the bull market, especially considering the on-going Capex spend and products coming to market to meet that flow of money. We have set up aggressive buy targets for some of the Mag 7, as well as suppliers that we believe should benefit from the continuation of the AI bull market.
If you are overexposed to equities, sitting on outsized gains, or looking for a safe entry into richly valued tech stocks, we encourage you to join our weekly webinar for Premium Subscribers. Every week at 4:30 EST, we discuss broad market risk, our personal risk management strategies, as well as long-term buy targets for important AI stocks.
Disclosure: The I/O Fund owns Nvidia and a handful of Nvidia suppliers including some of the suppliers listed in this analysis. To view the full portfolio, subscribe heresubscribe here.
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 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, there are 456,000 messages sent every minute. On Facebook, there are 510,000 comments posted every minute and 293,000 status updates. Outside of social media, there are 16 million text messages sent every minute and 156 million emails.
For an investor, the antidote to noise is quality stock analysis. Due diligence requires dozens of hours per equity, 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, 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 particularly in the tech sector can be hard to come by.
Below are highlights from our free newsletter 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 to our free readers.
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 300%, but also for the tech leader Apple to plateau.
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:
Data center revenue grew 676% to $18.4 billion. Data center revenue scaled from a $10 billion run rate to a $75 billion run rate in 2.5 years, a feat that took AWS 6 years to accomplish.
Nvidia’s total revenue increased 240% during the period driven by blazing data center growth, versus a 43% increase for Apple, with iPhone revenue rising just 4.5% from fiscal 2021 to fiscal 2023.
Nvidia’s quarterly EPS grew nearly 400% during the period, versus just 14% for Apple.
Nvidia’s operating margin increased from 47% to nearly 67%, while Apple’s expanded from 28% to 34%.
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 – AMD’s executives forecast the market to reach $400 billion by 2027 – with Nvidia taking the lion’s share. Nvidia’s accelerated product roadmap to a one-year release cadence lets it continue to pry away Big Tech capex, while the software opportunity beckons, already reaching a $1B+ run rate. These tailwinds combined with a valuation that was “eerily low” at the time considering the rapid ascent shares had made through 2023.
Supply chain and demand signals point to 2025 being another strong year for Nvidia as Blackwell comes to market, with the I/O Fund tracking these data points to assess Nvidia’s growth potential in the year to come. The I/O Fund has published numerous free analyses on Nvidia’s Blackwell; some of this explaining back in May why there was still room in the stock price as Kindig called out institutional analyst estimates being too low (which later materialized). Kindig also boldly wrote that delays on Blackwell were overblown, and we have gotten yet another confirmation from Nvidia’s management team at CES that Blackwell is shipping on time. The I/O Fund’s ongoing consistency and accuracy on this stock dating back to 2018 for up to 4,000% returns has been unparalleled –premium members received nine real-time buy alerts below $20 in 2021 and 2022; learn more here.
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 Fund’s 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 should not be understated in terms of the value we have delivered. To refer our newsletter to your friends and family, please click here.
Meta to Outperform Snapchat
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 Snapchat would struggle with monetization. Since then, Meta shares have risen nearly 65%, while Snapchat has declined -28%.
Meta was demonstrating improvements in ad pricing with strong ad impressions growth of >30% in Q2 and Q3 2023, while average revenue per user (ARPU) accelerated in those quarters; whereas Snapchat was struggling to effectively monetize its user base. Additionally, we explained that Meta was much more efficient with spending, maintaining R&D spending below 40% of gross profit while improving ARPU, significantly improving operating margin, and investing in AR/VR and AI technologies. Snapchat was “spending around 80% of its gross profit dollars on R&D,” a disproportionately high amount on R&D relative to peers 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.” Q3 2024’s results put this prediction very close to coming true, with 9M operating margin at 39.6% and net margin at 35.8%.
The I/O Fund is also closely analyzing the supply chain to identify overlooked beneficiaries of the AI infrastructure buildout, sharing this information as well as potential buy and sell plans and real time trade alerts with premium members. The I/O Fund recently entered two separate beneficiaries for gains of 23% and 17% since November. Learn more here.here.
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.
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.
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. We noted that AWS was contributing more than 60% of Amazon’s total operating income despite contributing less than 20% of total revenue, one reason that gross profit margin has quickly approached 20% and operating margin reached double-digits for the first time ever, at 10.7%. Growth from AI quickly reached a multi-billion dollar run rate, while improvements in operating leverage at AWS aided Amazon’s bottom line and stock price — shares have risen nearly 30% since the February 2024 analysis.
Honorable Mentions
The I/O Fund was also quick to call out a fundamental acceleration for one of 2024’s best performing AI stocks, alongside another AI-exposed ad-tech winner and an AI theme that quickly came to the forefront thanks to Nvidia.
1) 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].”
Palantir’s shares ended 2024 as the S&P 500’s best performer with a 341% return.
We discussed how TSMC was “riding the enormous wave of demand from Big Tech,” with HPC revenue rising 3% QoQ to $8.68 billion in Q1 2024, “a fresh record despite the first quarter typically being seasonally weaker.” Additionally, we said reports of “Nvidia and AMD fully booking out TSMC’s advanced packaging capacity through the end of 2025” lent “to a strong AI-driven outlook.”
April’s sales numbers gave us confidence that TSMC was “on track to land in the upper half of or above the guided range” for Q2 revenue — it ultimately beat estimates by $500 million, the largest in more than two years.
3) AI Power Consumption
In June 2024, the I/O Fund published a thematic analysis on AI power consumption, and the rising power draw from next-generation GPUs. This analysis was underpinned by the “rise of generative AI and surging GPU shipments [which] is causing data centers to scale from tens of thousands to 100,000-plus accelerators, shifting the emphasis to power as a mission-critical problem to solve.”
We explained how Nvidia’s Hopper and AMD’s MI300X accelerators consume 50% to 75% more power than the prior generation, while Blackwell represented “up to a 300% increase in power consumption across one generation of GPUs with AI systems increasing power consumption at a higher rate.”
With power draw now quickly becoming mission-critical for data centers to address due to each generation of GPUs becoming increasingly more powerful than the last, we pointed out that this was driving a shift to liquid cooling.
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 plus a special, one-hour 2025 webinar held on January 14th. Learn more here.
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, TSM and BTC at the time of writing and may own stocks pictured in the charts
This article was originally published on Forbes on Jan 1, 2025,06:21pm ESTForbes Forbes on Jan 1, 2025,06:21pm EST
The Nasdaq 100 is capping off 2024 with a return of 27.0%, building upon 2023’s 53.8% return (its best year since 1999). Since the start of 2023, the Nasdaq 100 has nearly doubled with stellar returns of 95.3%, its second highest two year performance since 1998 and 1999’s 274.2% rise.
This year, the Nasdaq had countless winners and strong repeat performances from AI leaders like Nvidia, but 5 stocks took the market by surprise with significant outperformance relative to the broader indices. I think it’s important to pause and draw some parallels around the stocks that performed well in 2024 to form an opinion on what might perform well in 2025, as many of the year’s top performers shared similar fundamental improvements or had similar thematic tailwinds such as AI, nuclear and quantum computing.
Below, I review five of the top stocks of 2024, selected based on their price action, fundamentals and presence withing leading tech themes. Choosing a top 5 means many great stocks were left off this list, yet this sample helps to form conclusions around how 2024 shaped up versus years past, centered around leading, core thematic opportunities.
Read about our Top 5 Stocks from 2023 here and our Top 5 Stocks from 2022 here – many of which went on to lead the following years.here and our Top 5 Stocks from 2022 here – many of which went on to lead the following years.
AppLovin (APP)
AppLovin was one of the Nasdaq’s best performers, up 735%and joining the Nasdaq 100 on a special rebalance in November. From the start of 2024, AppLovin rose from a mere $13 billion valuation to $111 billion, peaking above $135 billion in early December – the stock has done the unthinkable this year, awakening a low-growth mobile gaming ads industry with an AI engine that is showing demonstrable results.
This meteoric rise stems from APP’s AXON 2.0 AI advertising engine, which has driven significant revenue acceleration and massive fundamental improvements to margins and cash flow. AppLovin has reported four consecutive quarters with revenue growth above 30% YoY, a major acceleration from late 2022 and late 2023 where three of four quarters saw declining revenues. Management expressed confidence in maintaining 20% to 30% YoY growth for the foreseeable future due to the efficiencies of AXON’s self-learning and catalysts from web-based e-commerce expansion.
AppLovin has reported four consecutive quarters with revenue growth above 30% YoY, a major acceleration from late 2022 and late 2023. Source: I/O Fund
Not only has revenue accelerated substantially, but AppLovin’s margins have more than doubled further down the income statement. GAAP gross margin expanded more than 8 points to 77.5% in Q3, while operating margin rose more than 13 points to 44.6%. Taking a look annually, AppLovin is on track to potentially double its operating margin to ~38% from 19.7% in FY23. Additionally, net margin nearly tripled to 36% in Q3 on a GAAP basis, up from 13% a year ago. EPS rose 317% YoY to $1.25, with YTD EPS reaching $2.81, up 462% YoY.
AppLovin is on track to potentially double its operating margin to ~38% from 19.7% in FY23. Source: I/O Fund
AppLovin’s near-flawless execution has also translated to strong cash flow generation, with operating cash flow margin doubling, rising from 23% a year ago to 46% in Q3. Free cash flow margin followed, reaching 45.5%, up from 22% a year ago.
This kind of operating leverage while maintaining revenue growth rates in the 30% range is quite rare indeed, separating AppLovin from a majority of its ad-tech and software peers. Analysts are excited to see what the company’s expansion to e-commerce can contribute to growth and a path to $6+ in EPS next year from AppLovin’s very strong margin profile.
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Palantir (PLTR)
Palantir joins this Top 5 list for a second-year running, with shares rising 356%. My firm’s free stock newsletter previously pointed out that Palantir was “one of the rare few that sees AI drive both real returns for its business and real value for its customers,” as it continues to crush its software competitors in AI-related growth. Palantir’s Artificial Intelligence Platform (AIP) has driven a significant revenue re-acceleration following its launch, with profitability also expanding – a rare combination for growth software stocks.
Palantir has capitalized on the AI software opportunity at hand via AIP’s unique value proposition, its scalability and versatility. November and December’s partnership announcements alone help demonstrate the versatility of Palantir’s platform, spanning numerous different industries from autonomous drone navigation to AI models for defense tech to more government program wins. Palantir benefits from the best of both worlds in both government contracts and AI exposure, as enterprise adoption of AI builds.
Palantir’s 2024 was characterized by strong underlying AI momentum, with Q3 seeing revenue growth reach 30%, more than 10 points faster than when it entered the year and nearly 5 points above guidance for 25.2% growth. AIP has aided this revenue acceleration story by driving significant growth in Palantir’s US commercial segment, with the past two quarters seeing growth there above 50% YoY.
Palantir’s 2024 was characterized by strong underlying AI momentum, with Q3 seeing revenue growth reach 30%, more than 10 points faster than when it entered the year. Source: I/O Fund
Similar to AppLovin, these AI growth tailwinds are not just driving revenue, but also aiding operating margin expansion and EPS growth. GAAP operating margin was 16% for the second quarter in a row, up 9 points from last year, while adjusted operating margin is approaching 40% and has been >30% for four quarters in a row. Cash flow margins have been strong — operating cash flow was nearly $420 million, or a 58% margin, while adjusted free cash flow was $435 million, a 60% margin in Q3, up from the low-20% range in the first half of 2024. Palantir is targeting adjusted FCF of $1 billion-plus this year, or ~36% of revenue.
Fundamentally, to have revenue growth around 30%, free cash flow margin of 30%, and adjusted operating margin nearing 40% is impressive, to say the least. Palantir’s returns this year reflect that fundamental strength from AI-driven growth as well as optimism about its AI growth prospects for next year.
IonQ (IONQ)
Quantum computing stocks have been on a tear to end the year, with a handful of names seeing returns of more than 2,000% over the past three months. IonQ has risen 244% on surging enthusiasm for the quantum computing sector and revenue reaccelerating 40 percentage points over the past three quarters.
IonQ reported $12.4 million in revenue in Q3, with revenue growth of 102% YoY, following on 106% YoY growth in Q2. This has accelerated 42 points from 60% YoY growth in Q4, as IonQ is starting to quickly scale revenues as it has been consistently delivering on its technical roadmap ahead of schedule. IonQ also slightly raised its full year revenue guidance to $40.5 million at midpoint, for growth of 84% YoY.
As it is still in its scaling phase, IonQ is by no means profitable or close to profitability, with analysts not expecting the quantum computing firm to break into profitability until well after 2027. However, revenue is currently expected to grow at a ~95% CAGR through 2027, from $22 million last year to an estimated $315 million.
IonQ's revenue is currently expected to grow at a ~95% CAGR through 2027, from $22 million last year to an estimated $315 million. Source: I/O Fund
This positioning in a leading theme among investors in the second half of 2024, as well as consistent execution ahead of schedule with revenue growth forecast to rise at a nearly triple digit CAGR through 2027 has landed IonQ a spot on this list.
Reddit (RDDT)
Despite not even trading for the entire year with its IPO in March, Reddit has returned a remarkable 224% from its first day close of $50.44. The social media and online community platform reported a blowout beat and raise in Q3, with investors eyeing some AI training data opportunities ($60M/year deal with Google) on top of strong advertising growth.
Q3 revenue rose 68% YoY to $348 million, a 14 point acceleration from 54% YoY growth in Q2 and up 20 points from 48% YoY growth in Q1. Advertising revenue growth accelerated 15 points sequentially, rising 56% YoY to $315 million. Q4’s guide for $385 million to $400 million in revenue came in well above the $361 million consensus estimate, pointing to growth of 57% YoY. The market is expecting another blowout in Q4, with analysts already projecting $403 million in revenue, above the high end of management’s guided range.
Reddit's Q3 revenue rose 68% YoY to $348 million, a 14 point acceleration from 54% YoY growth in Q2 and up 20 points from 48% YoY growth in Q1. Source: I/O Fund
Reddit is demonstrating significant operating leverage, as it surprised the Street by reporting GAAP net income in the high single-digit percents in the quarter. GAAP operating expenses rose 53% YoY, less than that 68% YoY revenue growth, pushing GAAP operating margin to 8.6%, up from (3.4%) a year ago and (3.7%) in Q2.
Cash flow generation has improved, with Reddit generating $71.6 million in operating cash flow and $70.3 million in free cash flow in Q3, or margins of ~20%. This doubled from ~10% cash flow margins in Q2. Adjusted EBITDA has increased more than 9x from the start of the year, at $94.4 million in Q3, a 27% margin, up from just $10.0 million in Q1.
Reddit excites the market due to its fundamentals — a 90% gross margin business quickly shifting to GAAP profitability on rapid quarterly revenue growth. This combination hints at potentially strong EPS growth, should it scale from the single-digit net margin range of 8.6% in Q3, to the double-digit range in short time.
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Astera Labs (ALAB)
Though Nvidia arguably deserves a spot on this Top 5 list with a 114% gain following Hopper’s breakout 2023, with data center revenue continuing to beat estimates by $1 billion each quarter, I think it’s time to highlight an Nvidia supplier and ASICs beneficiary – Astera Labs. Astera returned 179% in Q4 for a total YTD gain of 128%, with the company showing multiple growth opportunities and a push for profitability despite still solidly being in its hypergrowth phase.
Astera is a major supplier to Nvidia’s PCIe-enabled GPUs with PCIe5 retimers and components, and its upcoming Scorpio fabric switches built on its lead in PCIe5. Management expects the new product to “exceed 10% of revenues in 2025” with “good momentum going into 2026” as it unlocks a $12 billion TAM by 2028.
Astera reported record revenue of $113.1 million in Q3, up 47% QoQ and 206% YoY, beating estimates by 16.1%. Management guided for $126 million to $130 million in revenue in Q4, well ahead of the $108 million consensus estimate and representing YoY growth of 153%, its fifth consecutive triple-digit growth rate.
Astera Labs reported 206% YoY revenue growth in Q3 and guided for 153% YoY growth in Q4, its fifth consecutive quarter of triple-digit growth. Source: I/O Fund
Even with revenue growth expected to be triple-digits for at least the next two quarters, management forecast for GAAP net income in Q4, though at a razor thin margin. GAAP operating margin is moving towards positive territory, from (7.9%) in Q3 to (4.3%) at midpoint of Q4’s guide. Adjusted operating margin expanded significantly to above 32% in Q3, up from 2% a year ago, while adjusted net margin improved 35.6% compared to (-1.1%) last year.
Astera was one of a handful of AI-exposed semiconductors to see dazzling returns this year, as AI semiconductors remained investor favorites throughout the year. Astera also shared key similarities to the rest of this list: adjusted margins showing strong expansion, high cash flow margins (56% operating cash flow margin in Q3), and AI-related rapid revenue growth.
For a more detailed look at Astera’s product lines, Blackwell and ASICs opportunities and its AI-driven TAM growth, read more here.here.
Conclusion
If there’s one major takeaway from this selection of 2024’s top tech stocks, it’s that being at the top comes with quite the price tag and premium. All five of these stocks trade at quite high multiples, headlined by IonQ at 230x forward revenue and Palantir at a 2021-esque 63x forward revenue and 32x 2027 revenue. Astera Labs trades at 53x forward revenue, while AppLovin and Reddit are not quite as high, at 24x and 22x respectively. However, these revenue multiples are all 130% to 500% higher than they were six months ago, highlighting just how quickly these five have gotten more expensive as they’ve rallied.
All five of these stocks trade at quite high multiples, headlined by IonQ at 230x forward revenue and Palantir at a 2021-esque 63x forward revenue and 32x 2027 revenue. Source: YChartsYCharts
Looking back at 2024 can be important as it often provides clues for tech investors as the new year begins. Winners have kept winning, from Nvidia to the five discussed here, and that is one reason I like to reflect on the clear winners from the previous year. These five stocks above highlighted similarities among winning tech stocks in 2024 – presence and prevalence in leading themes such as AI and quantum computing, strong revenue acceleration (and rapid growth), and operating leverage driving margin expansion.
For 2025, the I/O Fund has worked to identify key Nvidia suppliers with Blackwell on deck to ramp significantly, sharing this research and buy zones with premium members. Stay tuned for our upcoming 2025 and Q1 webinars to hear more about what the I/O Fund expects for the new year. Learn more here.
I/O Fund Equity Analyst Damien Robbins contributed to this report.
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.
