The Memory of Stock Market Prices. A Tesla Valuation Application

Numerous studies have shown that day to day stock market prices have a memory of one day.

Or they are a so called martingale. A mathematical notion.

But many financial market participants study intently the past, believing there is some long-term causal relationship.

Actually, I think there is a bit of both. When there is no great event, like an economic catastrophe, war or large scale money creation by the Federal Reserve, markets do tend, nonlinearly to exhibit some memory longer than a day.

But when a structural break comes, then the inter temporal price relationship falls apart and there are jumps.

Example. When Elon Musk turned his attention almost entirely to acquiring Twitter Inc, it was quite logical that the fact that Elon now pays less attention to Tesla could lead to underperformance of Tesla's stock price. An easy comparison between Tesla's stock price and the general market easily shows there is genuine case for the above.

I estimate Tesla's intrinsic value is only 120 billion USD, mainly comprised by the electric vehicle production technology and Tesla's staff.

However, if Tesla achieves a scientific breakthrough and starts producing electric cars with a high profit margin, Tesla's value could well surpass 1 trillion USD. The proverbial structure break or jump process or quantum leap.

Apple's Competitive Advantage. Apple's Excellent Integration of Hardware and Software

The obvious durable competitive advantage of Apple is the quality of Apple's hardware.

The Mac, iPhone and iPad all have excellent battery lives, the hardware is very well integrated with the software which provides for superior performance.

All this is due to the vertical integration of the design of Apple products hardware and software.

Yes, Apple products's hardware is manufactured outside the US in various countries, predominantly in China and Taiwan and is later assembled in China. However, the most important part of the production - the engineering design is done by the best design, manufacturing and software engineers in the world in California.

When the hardware and software of Apple's products is combined with the Apple's App Store offering of software applications, this makes for a powerful package of value adding in both hardware and services, which even when relatively dearly priced sill leaves a lot of consumer surplus for people in 2 years or more of usage.

Apple's current market capitalisation is 2.35 trillion USD on the Nasdaq bourse.

In my opinion, Apple's intrinsic worth is 1.0 trillion USD.

In short, a huge financial crisis is coming and Apple is producing luxury, discretionary goods, which are not essential to consumers and in hard times people tend to abstain from buying Macs, iPhones, iPads.

Undervalued Stocks. Overvalued Stocks

As far as I am concerned, currently almost all commodities stocks are still deeply undervalued. while technology stocks are still gross overvalued.

By extrapolation emerging stock markets like Brazil, South Africa, China, Russia even offer great value, while the US stock market is still significantly overvalued due to the higher relative weight and influence of technology stocks.

In 2001 there was a stock market dot-com boom and bust, in 2008 there was a boom and bust in commodities and emerging markets, in 2022 we are experiencing another, even bigger cloud computing stocks lead stock market technology boom and bust.

And contrary to general wisdom, raising the interest rate levels in the economy could prove beneficial to emerging markets and commodities stocks and commodities producing countries like Brazil, Argentina, South Africa, Russia, UAE, Saudi Arabia, etc.

British Petroleum, Occidental Petroleum, China Petroleum and Capital Corp, gold and silver mining companies and other commodities producing companies are undervalued, according to my opinion.

Crypto Valuation

Bitcoin and other cryptocurrencies are undervalued.

Crypto is experiencing a classic boom and bust price cycle.

There is inherent value in Bitcoin as a store of value, unit of account and a means of exchange, not to mention the underlying blockchain algorithm, which is priceless in my humble, personal opinion.

Yes, Warren Buffett has said that crypto is a bubble, but he also invested 1 billion USD in Nubank, the Brazilian neobank, cryptocurrency bank.

Many people were sceptical of the new, new thing in the past, but many impossible things became possible.

Bitcoin should survive this crisis and many other crises it will experience in the future, if it is to become a stable financial asset class both for Wall Street and Main Street.

Does an Unprofitable Technology Company Has Any Value at All?

Actually, this is the age old debate between growth and value investing or Silicon Valley against Benjamin Graham.

In short, I think a loss making technology company has value if its sales revenue has grown by more than 20 % in the last three years, controls its cost base well and can show clear projections that it can become profitable soon, that is 5 years at the most. However, all this is nothing if the technology company in question has no discipline.

The money creation or more simply put money printing by central banks in the last 12 years has created more than 10 trillion USD of new money all over the world. I can understand technology start-up founders  -> they adhere to the "move fast, break things" Moto of Mark Zuckerberg, founder of Facebook, later renamed to Meta.

However, "moving fast" or almost at lightning speed means you do not have a lot of time to plan. And when you do not have time to plan, costs can easily be misjudged and the cost base can spiral out of control. Meta, Twitter, Amazon, Oracle and many technology companies showed lack of discipline, overhired people and now the whole of Silicon Valley is firing, putting on the street more than 200 000 people. It is interesting what the tech CEOs, directors and finally managers explain to the people they re letting go: "Oh, we over-hired, we are sorry we are "throwing you out on the street". This is a business decision." 😀😢

The problem with this line of thought is that in the next (several) rounds the "cutting" managers, directors and CEOs will be the ones that are cut, because many of the niche technology firms and some of the most famous, household corporations in information technology today simply will not survive.

However, it still makes sense to invest in technology companies, in my personal opinion. In the long-term, though.

I personally think the next few years will be prime time for dividend yielding stocks. Or Warren Buffet will come in his prime. It is interesting to note, though, that Warren Buffet has said numerous times that he prefers to invest in companies that are reinvesting their profits and not distributing dividends. Berkshire Hathaway, the conglomerate controlled by Warren Buffett also does not distribute dividends.

And in the same time Berkshire Hathaway, under the guidance of Warren Buffett invests its cash reserves to a large extent in high dividend yielding stocks like Coca Cola, JP Morgan, Citigroup, Bank of America, American Express, Moody's etc. One has to think. 😀

Bitcoin Will Survive. Personal Opinion

 

Bitcoin's price in USD is hovering around 16 000 USD.

Bitcoin suffered badly after the FTX debacle and frankly scandal.

The Blockchain is priceless. In due time this will be realised.

Bitcoin's price could fall even lower in the mean time, however.

However, Bitcoin provides immense value as a store of value, unit of account and a means of exchange or money, that is.

In addition, Bitcoin is much more efficient, its transfer costs less than even electronic money transfers.

In short, Bitcoin, the leading cryptocurrency is a disrupter.

As with most disrupters like the internet, it could take several decades before the commercial value of Bitcoin and other cryptocurrencies is fully unlocked.

Twitter, Meta, Snap, Pinterest? Which Social Network Company Has Higher Growth Prospects?

Both the publicly listed Meta Inc, formerly Facebook and Snap Inc, Snapchat application owner, Pinterest, the social network are undervalued.

In the long term, 7 to 10 years from now, I believe Meta's market capitalisaiotn can rise 4 times, while Snap's market capitalisation can rise something like 14 times, yes 14 fold from current levels. Pinterest's market capitalisation can rise 10 times, according to my estimates.

Regarding Twitter. I just read an internet post that Elon Musk is changing quickly Twitter's corporate culture which will bring turmoil, chaos, negative outcomes in the near term, but will increase Twitter's value immensely in the long-term. Twitter's stock is not publicly listed.

Actually, I doubt the above proposition regarding Twitter. Yes, Twitter at its former around 40 billion USD market capitalisation was significantly undervalued. But Twitter has carved a niche for news and it will be very difficult for Elon Musk to turn it into a giant social network, an everything application, as the leading Chinese apps like Tencent, Baidu etc. as the aforementioned internet post supposed the world's richest man intends. 

What could happen is, actually the disruption in Twitter Inc could bring fruits much slower than expected, just because it is very difficult to change people's perception of what Twitter is really good at.  However, the current changes could  affect some things positively. There is a lot of unlocked value in Twitter, but I think it lies more in product development and sales.

Anyhow, I wish Elon Musk the best of luck. I am a regular Twitter user, after all. 😀👍👏

Leading Technology Stocks Valuation

Apple is 50 % + overvalued.

Microsoft is 37 % + overvalued.

Amazon is 63 % + overvalued.

Alphabet is 42 % + overvalued.

Meta is 12 % o overvalued.

Netflix is 10 % overvalued.

NVDA is 40 %  overvalued.

AMD is 25 % + overvalued.

Tesla is 70 % + overvalued.

Snap is 13 % overvalued.

Pinterest is 17 % overvalued.

Apple Valuation and Analysis

 

Apple Inc, the Mac, iPhone and iPad designer is currently valued at 2.38 trillion USD.

I estimate Apple's intrinsic worth at 1.0 trillion USD. And this is predicated on the assumption that there is no global both economic and social cataclysm that disrupts Apple's manufacturing supply chain.

Actually, Apple's current market capitalisation is equal to the sum of the market capitalisations of Alphabet, Google's owner, Meta, Facebook's owner and Amazon. I think the market here is roughly right. Manufacturing is valuable long-term. The bursting of the current technology bubble is clearly showing again that being profitable matters. Many unprofitable cloud computing, cryptocurrencies and other technology companies' the business model of which is predicated on cheap financing have lost 40 % + of their worth and many of them will go out of business.

While Apple's profitability and stable industrial design and manufacturing business model has provided Apple's market capitalisation with extreme endurance.

I expect there will be a prolonged and deep global economic recession which will test the durability of even the most profitable companies, with most sound business models and fortress like balance sheets.

The pending economic depression will test Warren Buffett and his proverbial value investing approach.

In my opinion, not cash, but profit is king. As it has always been.

Can Tesla's Stock Price Go to Zero?

Yes. I think it can.

Frequently, in blogposts on this blog I have estimated Tesla's intrinsic worth at 120 billion USD which I deem is the value only of Tesla's electric vehicle production technology and the quality and skills of Tesla's staff.

However, I have frequently written here that if Tesla cannot achieve a technological breakthrough and find a way to produce electric cars with consistent profitability, it can go out of business and Tesla's stock price can go to zero.

Now that Elon Musk, Tesla's CEO is devoting a large part of his time to Twitter I doubt that Tesla is being managed very well.

And Tesla, although it has vast cash reserves still needs government subsidies and external funding to remain a going concern in the mid-term future.

So, if markets do not turn positive and if Elon Musk underestimates Tesla's business and mishandles the electric vehicle manufacturer's management, Tesla could well go bankrupt.

Cryptocurrencies Analysis

Cryptocurrencies, Bitcoin's price developments seem to be influenced by several factors.

Stock market sentiment, especially in technology, Nasdaq mainly is one of the main drivers of crypto.

Cryptocurrencies are essentially financial technology, fin-tech leveraged investment play on information technology, which for its part is a leveraged play on the general economy, due to the low capital and operational requirements to start an information technology firm.

On the other hand, the public's psyche and especially its inclination to accept cutting edge financial technology like crypto and Bitcoin is also a decisive factor in the long-run, especially. If  people decide that Bitcoin is useful, that is its advantages prevail over its disadvantages, Bitcoin and cryptocurrencies will not only survive, but also thrive in the future.

Government regulation is a third set of factors, which determines the prices and ultimately the value of cryptocurrencies. If the government leaders of the world's major economies decide in concert to ban, outlaw Bitcoin and other cryptos, cryptocurrencies will face huge, potentially insurmountable difficulties to survive.

Another, fourth set of factors is the state of information technology. A case in point was the latest halving of Bitcoin, which decreased  by 50 % the energy needed to produce a Bitcoin. Bitcoin production consumes huge amounts of energy. That is why, the Securities and Exchange Commission has stated, determined that Bitcoin is a commodity. 

What is more, only 20 years ago the state and resources of computing power were not enough to create Bitcoin. So the power, efficiency and quantum leaps potential of information technology and computer chips hardware is extremely important for Bitcoin and cryptocurrencies to penetrate and ultimately change profoundly our lives.

Cloud Stocks Valuation Analysis

The listed stocks of 85 % + cloud computing services companies are still more than 30 % overvalued.

The smaller cloud computing companies, outside Amazon, Microsoft and Alphabet have mostly been unprofitable and have relied on cheap financing to finance their business as a going concern.

Now that the Federal Reserve has raised the Federal Funds Rate, its leading interest rate which basically influences all interest rates all over the world or in other words the Federal Funds Rate is the global interest rate to 3.75 % to 4.00 % cheap financing is simply not available.

And smaller cloud computing companies, which in numbers terms are most cloud computing companies are close to insolvency. Most of them have not more than 1 year cash surpluses, I estimate.

Even Amazon, Microsoft and Alphabet's cloud computing services revenue growth is either slowing or turning negative.

So all in all, investing in cloud computing has all along been essentially a rates play.

Now that the Federal Reserve is taking the punch bowl away, I forecast most cloud computing companies with listed stocks will not survive in 5 to 10 years down the road.

Cloud computing is the future, however.

So the remaining cloud computing winners, will have extraordinarily high market capitalisation and will realize huge profits.

Will Crypto and Bitcoin Recover?

Yes. As far as I am concerned, the price of Bitcoin will rise to and above 100 000 USD in 5 years or even less.

Other cryptocurrencies, even the more obscure ones will also rise significantly.

Cryptocurrencies will disrupt investment banking and venture capital intermediation by giving a niche for startups to finance their businesses.

Bitcoin's blockchain technology is simply too disruptive to die down easily. It took the internet more than 50 years to become commercially viable.

And Bitcoin will make slow but some significant inroads into replacing the USD as the main global reserve currency.

People, both young and old like new stuff, like to consume news and Bitcoin and crypto is the biggest single financial innovation, most probably since publicly listed companies' stocks were conceived.

Cryptocurrencies conception must remain independent and free, though. If governments manage to interfere with crypto, Bitcoin and cryptocurrencies will suffer and the greatest fin-tech or financial technology innovation probably in history will be in jeopardy.

In the mean time, riches will be made, industries will be disrupted, spoils will be shared and after that latest boom and bust cycle, society should be better off.

Capitalism at its purest form.

Are Cloud Stocks Dead?

Not all.

Many, but not most cloud stocks active today will thrive long term, as far as I am concerned.

Most cloud stocks, however have lost 55 % or more of their market capitalisations from their recent peaks.

Value investing is again about to enter prime time.

The cloud based products companies that will survive and ultimately thrive are the ones that have raised enough cash, that is still on their balance sheets and are currently at somewhere around - 20 % or lower in absolute value negative net profit margins.

Cash is king, again. At least on the balance sheet.

Are We In a Commodities Bull Cycle?

Yes, I think we are in a commodities bull cycle, but it will last 5  to 7 years.

There are currently many headwinds working against oil, gas, base metals and other commodities consumption.

The only reason why the price of both Brent crude and West Texas Intermediate oil futures has not exploded to or above 180 USD as JPMorgan forecasts it will is because of the United States Dollar, USD strength towards other currencies.

Once the USD starts a midterm depreciation trend, which could happen once EUR/USD touches 0.80, I think the price of gold could go to 3000 USD and the price of oil futures could rise above 150 USD.

Actually, significantly higher commodities prices would be good for almost all countries. The industrial production both in nominal and growth terms in the USA is something like 50 % to 70 % due to shale oil and conventional oil drilling production and the associated machinery building/innovation. Also, the USA is a large producer and exporter of other commodities like wheat, corn, nuts, soft agricultural commodities, oil, gas, energy distillates etc.

Nuclear war, however, could be really bad for business, I would say! No surprises here.

GitLab's Stocks Price Could Fall Further, Before GitLab Thrives

GitLab, the online code repository and collaboration service has a current market capitalisation of 7.41 billion USD.

I forecast GitLab's stock price and market capitalisation could still fall further perhaps to 3.9 billion USD market capitalisation.

After that, however, along with the Federal Reserve ceasing of interest rate hikes, GitLab's market  capitalisation could rise multiple fold from its lowest level and even surpass 35 billion USD in market capitalisation 7 to 10 years from now.

GitLab's open source, cloud-native code repository is a small revolution in code production.

GitLab should be able to keep growing and reach profitability as well.

Credit Suisse Valuation. Will Credit Suisse Go Bankrupt?

I estimate the chance that Credit Suisse goes bankrupt in the next 1 year at 35 %.

Credit Suisse, even since the acquisition of US investment bank Donaldson Lufkin and Jenrette has been a major player in the leveraged loans or junk bond underwriting and trading market.

And junk bonds with their much higher yields/interest rates than other higher rated corporate bonds are influenced very negatively in the current rising interest rate risk environment.

In my opinion, Credit Suisse's intrinsic value is 25 billion USD, provided that the current market stress forces the Federal Reserve's hand and the central bank of the United States of America soon stops raising the interest rates levels via hiking the Federal Funds Rate.

If the Federal Reserve drives the Federal Funds Rate to 4.5 % or higher, I believe Credit Suisse can be forced into insolvency. I estimate that probability at 20 %.

Does the USD Influence Bitcoin?

Yes. 

Bitcoin's price moves inversely to the USA exchange rate to major currencies, as almost all commodities's prices do.

Actually, Bitcoin is considered a commodity by the Securities and Exchange Commission. This can be due to the fact that Bitcoin's creation/production requires huge amounts of energy.

However, Bitcoin will sooner or later move in the same direction as the USD exchange rate, I forecast.

Because Bitcoin's main function is to at least partially replace the United States Dollar. One Russian journalist. I think once said that Bitcoin is USD 2.0 or with other words Bitcoin is a perfected, online version of the USD, the main world's reserve currency.

Actually, this is a unique situation. Never before have two currencies, a leader and a challenger developed simultaneously.

Snap Is Undervalued

Snap Inc, the owner of the Snapchat application fell almost 30 % on the NYSE stock market yesterday and is valued at 12.80 billion USD.

As far as I am concerned, Snap Inc's intrinsic value is 140 billion USD.

Because Snap Inc's main product Snapchat is an option on camera and video networking, Snap's  market capitalisation is bound to be volatile.

Option valuation is notoriously difficult and Snap's stock price is a case I point.

However, Snapchat's youth appeal, still growing young user base, its great AI, artificial intelligence technology in processing photographs and videos makes Snap Inc deeply undervalued at the current market capitalisation level.

Bitcoin's Price Could Surpass 100 000 USD in 5 years

Yes. I believe Bitcoin is undervalued on the disruption potential of blockchain.

Bitcoin is and will grow more efficient in the three main functions of money - unit of account, store of value and means of exchange.

What is more, more and more asset managers and hedge funds are setting aside money to invest in Bitcoin.

Bitcoin is simply a new, exciting artificial intelligence application, AI and makes many production chains more efficient.

The USD United States Dollar, Not Rates Is Driving The Stock Market. Stocks' Valuation

 

The USD exchange rate to the EUR, JPY, GBP and all the world's (major) currencies is the major pricer of financial assets with the USD exerting the greatest, disproportionally high influence on technology stocks.

Apple's intrinsic value is 60 % below its current market capitalisation.

Tesla's intrinsic value is 80 % below its current market capitalisation.

Microsoft's intrinsic value is 60 % below its current market capitalisation.

Alphabet, Google's owner intrinsic value is 60 % below its current market capitalisation.

Meta, Facebook owner's intrinsic value is 27 % below its current market capitalisation.

The USD, influenced by the Federal Reserve, the central bank of the United States of America is driving all asset classes' prices, technology stocks being most affected.

Oil stocks, base metals, precious metals mining stocks are undervalued.

Utilities are undervalued.

The healthcare sector is undervalued.

The world is going back to basics, according to my opinion.

Alphabet, Google Valuation. Meta, Facebook Valuation!

Alphabet Inc, Google owner is currently valued at 1.29 trillion USD.

I estimate Alphabet's intrinsic value is around 700 billion USD. Actually, Alphabet's market capitalisation was much higher only 1 year ago. However, as far as I am concerned the market was extrapolating just too high a rate of advertising growth for Google, the ubiquitous search engine.

Advertisement spending is high and growing briskly when economic times are good. Not like now, when the world is on the brink of World War Three.

For Meta inc, Facebook's owner the same argument that advertisement spending just would not grow as high as recently is valid.

However, due to regulatory pressure and Meta, being a very young and still not mature company, Meta, Facebook's owner market capitalisation has already fallen a lot and currently stands at circa 359 billion USD.

As far as I am concerned, Meta's intrinsic value lies around 370 billion USD, so Meta, Facebook's owner is a case in point where, not very often the company's current market capitalisation reflects its intrinsic value, at least according to my projections and calculations.

US Technology Stocks Are Still 40 % Overvalued. Nasdaq

The US technology stocks prices' fall is not over.

US technology stocks, measured by the Nasdaq Composite are still overvalued by 40 %, I estimate.

What we are witnessing is the bursting of the biggest stocks bubble and the largest asset bubble in terms if trillion of United States Dollar of value.

Technology stocks were grossly overvalued. And since tech giants like Apple, Microsoft and Meta are deeply intertwined with the global economy and international both goods and services supply chain, global stocks markets will also fall by 27 % from current levels of the major global stock market indices, I estimate.

The inertia and momentum of falling stocks prices is simply too great.

What we are observing in the last several days is a bear market rally.

When the dust settles, the Nasdaq finds a bottom and the USD starts depreciating, that would prove to be arguably the greatest buying opportunity in history, I foresee.

But up till then, catching the bottom could prove futile.

Commodities stocks and silver should outperform in the meant time, I think.

Oil, Gold And the United States Dollar

The United States Dollar has appreciated significantly in the last two years.

The price of gold, denominated in USD has tanked inversely related to the appreciating USD.

Oil price has risen actually, be it currently at a lower level than two months ago.

Actually, oil is serving like a backing commodity for the USD, much like gold did decades ago.

So it is not surprising that oil has appreciated along with the United States Dollar.

Actually, I think gold stocks are grossly undervalued. Soon the raising of the general level on interest rates by leading central banks, chiefly lead by the Federal Reserve and the European Central Bank will break the economy.

Almost all sectors of the global economy, from industrial companies, through technology companies, commodities producers, retailers, healthcare companies etc. are over-leveraged, that is they have borrowed too much money, compared to their profit earning power. And if interest rates levels go up too abruptly as they are now, something in the global economy will break.

I forecast, the turmoil will start first from the repurchase agreements part of the banking sector much as in 2008, because it is banks which have given out this huge amount of loans.

And when the banks stop the short-term lending via commercial paper, companies will starve for cash with which to pay workers' salaries and other administrative costs. And we will again have a Great Recession as in 2008, but I think the coming one will be deeper.

And of course, the Federal Reserve, the European Central Bank, Bank of England and the Bank of Japan will run to the rescue of mainly banks and the global economy by printing trillions of USD, EUR and etc. fiat currencies by buying up government bonds and overnight repo lending, yet again, I estimate

And as it is logical, in my view, the price of gold will shoot up and gold mining stocks' prices will just explode.

And yes, I do think oil is undervalued. I find it shocking that the price of oil is not at 150 USD for example. Once the United States Dollar, USD starts depreciating because of the future money printing of central banks the prices of both Brent and West Texas Intermediate Oil futures could surpass 200 USD and the prices of stocks of oil producing companies will just explode, go exorbitant, I think.