I was chatting with a friend Friday, and we were talking about a stock that was a darling of the 2021 growth / meme trade but has fallen on harder times recently. I mentioned something off hand along the lines of “they’re getting back on track, and it seems like every former growth darling that gets back on track has caught a huge bid.” He responded, “Yeah, it seems like once a company has gotten a ‘compounder / growth’ darling bid once, it doesn’t take much for them to catch that bid again.”
Mark Gomes (aka "Moneymark") has a concept I love and have adopted in my investment thinking. That is: the three stages of a small company, 1. Great Find, 2. Wait Time, and 3. Gold Mine. The idea being when a stock is bubbling up on sudden awareness of infinite possibilities, it is a Great Find. Then comes the Wait Time. Think a biotech getting an approval, but now has to build a sales force, arrange reimbursement, etc...doing the "hard" stuff. Followed (maybe) by the point where their customers are climbing over each other, paying whatever asked, to get the product (NVDA today)...that's "Gold Mine". It is the Wait Time that tries men's souls.
CERS is a stock that went public in the late 1990's, providing a solution to the spread of AIDS via blood transfusion, developed at UCSF. I suppose a bubble stock needs The Big Theme behind it, and since AIDS is yesterday's news, CERS "bubble days" perhaps are not to be repeated. 25 years of "Wait Time". Their solution did get developed, did get approved, and did succeed in becoming a recurring revenue monopoly. Now it is a real business that is at the end of cash burn days, with a significant new product driver just kicking in, and a third product coming 2026. Each product is a bigger TAM. The only two shareholders who seem to care are ARK and Baker Bros. The BTIG analyst (Hold) suggested 3Q 2023 might have been the turn. I postulate 1Q 2024 could be the confirmation of that, and maybe enter "Gold Mine" stage.
I get your thesis, but as a financial newsletter is this sound advice? It's like being at a roulette table and red has come up six times in a row, time to bet black? Surely it must be due... Hopefully, no one gets burnt by this line of thought but someone likely will. I had a friend who turned a few hundred dollars into 13k in a few weeks during the covid mania. I said pay off your car. He lost it all a few months later. Chasing FOMO is great until it isn't. Better to gain wealth slowly than to be rich for a few months.
I'm surprised that no one has mentioned SNOW, maybe because it's too obvious, or maybe it doesn't qualify because the dip is too recent and insufficiently extreme, albeit offering a mere 50% return from here to ancient halcyon days preceding Q423 earnings? So being of simple mind, I'll suggest the obvious.
The fundamental bear case is that SNOW is no longer and maybe never was the leader in its space, and public market investors will soon be able to invest in the true leader. The replacement of its legendary sales-driven CEO with a tech-orientated CEO maybe corroborates its loss of/lagging technological leadership, and Slootman's retirement maybe removes a necessary precondition for return to bubble status? (Cynics, on the other hand, might argue that SNOW was a vehicle for enriching pre-IPO investors and egregiously compensated management; and besides, MSFT muddled through despite the replacement of a more sales-driven CEO with a more geeky successor, the former, based on his net worth, clearly being among the GOAT CEOs).
The bull case is that the promotion of its Senior VP of AI to CEO generates clear AI bubble optionality, and the guidance reset cleared the decks for a succession of beat and raise quarters under a new CEO:
"Kash Rangan
... Mike, how much of the conservatism is due to the transition at the senior most level? ...
Mike Scarpelli
I don't know how to answer that question, Kash. But what I would say is I'd like to set the company up to be successful throughout the year as we progress with Sridhar coming on board."
A similar case could be made for other cloud leaders that guided conservatively at the beginning of their new fiscal years; and collectively, the cash generating potential of the cloud software business model provides (however flimsy) justification for bubblicious valuations.
Very thoughtful essay. In bottom fishing amongst the fallen high fliers, one must ask "Is there a NEW compelling argument to get excited about this stock?" Understanding the reasons for the first run-up and crash is absolutely critical. PLUG is a prime example. Initially the hype preceded the market: "energy nirvana from the most abundant element in the universe." Now we know the product's cost structure is very high in relation to competing alternatives (forget the Walmart contract). Does PLUG now present a different value proposition to potential users, one not dependent on regulation or subsidy? Everyone would LIKE to think that hydrogen is the power source of the future. But is the technology scalable and cost competitive? If one can't answer "yes" to both questions, then hoping for another PLUG bubble is analogous to going long on AMC and GAME again.
Remember the Internet Bubble 1.0 well and chips were simply not the "hot" thing.
At the time it was INTERNET and TELECOMMUNICATIONS. The analogy to today would have been networking (CSCO), fiber optics (GLW) and telecom networks.
NVDA was a niche video game chip company and AMD was an also-ran to INTC that did knock off chips.
Also - not sure that there are that many of us left from back then to go meme stock on these now. Especially because the OGs are definitively NOT the folks bidding up these stocks today...
So what do past data of bubbles show after it pops, I think it’s safer to choose a fundamental strategy than picking up dollar coins (not pennies) in front of a steam roller.
Dotcom was primarily an enterprise tech/datacenter thing, outside of the unprofitable retailers and media plays.
Both AMD and NVDA were primarily consumer tech, especially gaming: neither would start to get a sniff of the datacenter business until later in the 2000s (AMD with the Opteron processors in the middle of the decade; the idea that you could use GPUs for things that weren't strictly graphics only germinated post-bubble).
Mark Gomes (aka "Moneymark") has a concept I love and have adopted in my investment thinking. That is: the three stages of a small company, 1. Great Find, 2. Wait Time, and 3. Gold Mine. The idea being when a stock is bubbling up on sudden awareness of infinite possibilities, it is a Great Find. Then comes the Wait Time. Think a biotech getting an approval, but now has to build a sales force, arrange reimbursement, etc...doing the "hard" stuff. Followed (maybe) by the point where their customers are climbing over each other, paying whatever asked, to get the product (NVDA today)...that's "Gold Mine". It is the Wait Time that tries men's souls.
CERS is a stock that went public in the late 1990's, providing a solution to the spread of AIDS via blood transfusion, developed at UCSF. I suppose a bubble stock needs The Big Theme behind it, and since AIDS is yesterday's news, CERS "bubble days" perhaps are not to be repeated. 25 years of "Wait Time". Their solution did get developed, did get approved, and did succeed in becoming a recurring revenue monopoly. Now it is a real business that is at the end of cash burn days, with a significant new product driver just kicking in, and a third product coming 2026. Each product is a bigger TAM. The only two shareholders who seem to care are ARK and Baker Bros. The BTIG analyst (Hold) suggested 3Q 2023 might have been the turn. I postulate 1Q 2024 could be the confirmation of that, and maybe enter "Gold Mine" stage.
I get your thesis, but as a financial newsletter is this sound advice? It's like being at a roulette table and red has come up six times in a row, time to bet black? Surely it must be due... Hopefully, no one gets burnt by this line of thought but someone likely will. I had a friend who turned a few hundred dollars into 13k in a few weeks during the covid mania. I said pay off your car. He lost it all a few months later. Chasing FOMO is great until it isn't. Better to gain wealth slowly than to be rich for a few months.
I'm surprised that no one has mentioned SNOW, maybe because it's too obvious, or maybe it doesn't qualify because the dip is too recent and insufficiently extreme, albeit offering a mere 50% return from here to ancient halcyon days preceding Q423 earnings? So being of simple mind, I'll suggest the obvious.
The fundamental bear case is that SNOW is no longer and maybe never was the leader in its space, and public market investors will soon be able to invest in the true leader. The replacement of its legendary sales-driven CEO with a tech-orientated CEO maybe corroborates its loss of/lagging technological leadership, and Slootman's retirement maybe removes a necessary precondition for return to bubble status? (Cynics, on the other hand, might argue that SNOW was a vehicle for enriching pre-IPO investors and egregiously compensated management; and besides, MSFT muddled through despite the replacement of a more sales-driven CEO with a more geeky successor, the former, based on his net worth, clearly being among the GOAT CEOs).
The bull case is that the promotion of its Senior VP of AI to CEO generates clear AI bubble optionality, and the guidance reset cleared the decks for a succession of beat and raise quarters under a new CEO:
"Kash Rangan
... Mike, how much of the conservatism is due to the transition at the senior most level? ...
Mike Scarpelli
I don't know how to answer that question, Kash. But what I would say is I'd like to set the company up to be successful throughout the year as we progress with Sridhar coming on board."
A similar case could be made for other cloud leaders that guided conservatively at the beginning of their new fiscal years; and collectively, the cash generating potential of the cloud software business model provides (however flimsy) justification for bubblicious valuations.
$PENN. It's back trading below where it was pre-COVID!
Very thoughtful essay. In bottom fishing amongst the fallen high fliers, one must ask "Is there a NEW compelling argument to get excited about this stock?" Understanding the reasons for the first run-up and crash is absolutely critical. PLUG is a prime example. Initially the hype preceded the market: "energy nirvana from the most abundant element in the universe." Now we know the product's cost structure is very high in relation to competing alternatives (forget the Walmart contract). Does PLUG now present a different value proposition to potential users, one not dependent on regulation or subsidy? Everyone would LIKE to think that hydrogen is the power source of the future. But is the technology scalable and cost competitive? If one can't answer "yes" to both questions, then hoping for another PLUG bubble is analogous to going long on AMC and GAME again.
Remember the Internet Bubble 1.0 well and chips were simply not the "hot" thing.
At the time it was INTERNET and TELECOMMUNICATIONS. The analogy to today would have been networking (CSCO), fiber optics (GLW) and telecom networks.
NVDA was a niche video game chip company and AMD was an also-ran to INTC that did knock off chips.
Also - not sure that there are that many of us left from back then to go meme stock on these now. Especially because the OGs are definitively NOT the folks bidding up these stocks today...
So what do past data of bubbles show after it pops, I think it’s safer to choose a fundamental strategy than picking up dollar coins (not pennies) in front of a steam roller.
You are going all Soros on us Andrew! I need to those cheap stock below IV (I’m old school!)
Dotcom was primarily an enterprise tech/datacenter thing, outside of the unprofitable retailers and media plays.
Both AMD and NVDA were primarily consumer tech, especially gaming: neither would start to get a sniff of the datacenter business until later in the 2000s (AMD with the Opteron processors in the middle of the decade; the idea that you could use GPUs for things that weren't strictly graphics only germinated post-bubble).
Kaspi.kz
C3.ai rode the 2021 IPO bubble -> now it's tangentially riding the AI bubble because it has AI in it's name...