Is the Nasdaq In a Bear Market Rally?

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Aug 26, 5:15:59 PM UTC-4 · INDEXNASDAQ · Disclaimer

Yes, the Nasdaq Composite is in a bear market rally after falling from its 16 027 peak in November 2021.

I forecast Nasdaq Composite could rise back to 14 700 points before falling below 12 000 points again.

A casual look at the long term chart of Nasdaq Composite shows bear market rallies could rise to even more than 30 % from their most recent troughs.

Financial markets are actually not so much based on fear and greed, according to my humble opinion, but more on hope. Aside from Walls Street banks trying to manipulate/corner the market as evidenced by the many times the securities regulators globally have convicted and fined them on.

Market participants raise prices by buying up stocks based on the hope the rally will continue and riches will be made. Afterwards, when the hope evaporates due to lack of the expected fundamental drivers a "negative hope" so to say sets in and the markets are sold off. Actually, the feelings are fear and greed, but expressed more tacitly as hope.

However, fundamental drivers are notoriously difficult to forecast. In addition, even after the expected fundamentals emerge, there is always the question how will the investing public react to them.

Personally, I do not see strong fundamentals which support a potential long-term global stock market rally in the near term.

But it is the great Thomas Bayes. He was never published but Thomas Bayes was for statistics what Albert Einstein was for physics. Short-term lean startup thinking agility/adaptation.

Bitcoin's Competitive Advantage

 

Bitcoin is vetted independently. Created by the people. For the people.

When Bitcoin is created via the Bitcoin algorithm, the general public says whether the Bitcoin creation is correctly completed and whether one additional Bitcoin exists.

No meddling by governments, by government backed agencies like the Securities and Exchange Commission and by central banks like the Federal reserve or the European Central Bank.

In addition, Wall Street investment banks do not get to be the gatekeepers for Bitcoin creation. For trading, Wall Street with its liquidity resources will, for the time being remain a vital Bitcoin and cryptocurrencies trading facilitator.

So Bitcoin looks clean for now. As long as the general public prevents large scale fraud involving Bitcoin and prevent government from barring or regulation close to extinction the cryptocurrency market and Bitcoin in particular will continue to thrive.

GitLab's Competitive Advantage. A Valuation in Addition

GitLab, the online cloud based cloud code repository, collaboration and production platform is one of the hidden stars in cloud computing, as far as I am concerned.

GitLab's secret is simple, actually -> collaboration-> TEAMWORK.

What is a code repository, actually, be it in the cloud? A place where a team of technologists-> software programmers predominantly, software engineers and software architects gather, exchange ideas, share the code each of one has written or conceived and ultimately create a service application to service clients.

Game theory is the scientific study of human interaction. The main inference from Game Theory is that one must cooperate with others to be successful. The Manhattan Project is an example of successful cooperation.

In addition to that, GitLab's main products are open source based. Open source code is the epitome of cooperation.

Many Alphabet Inc, the company producing the Google search engine's products are open source based. Examples are Android, Kubernetes, Angular, Chromium, Chromium OS, Go, TensorFlow etc.

Sharing technology is one of the reasons why Google and the company owning it Alphabet Inc has been so successful.

I estimate GitLab's value could reach 70 billion USD in the next 7 to 10 years. Currently GitLab is valued on the Nasdaq bourse at 9.52 billion USD.

The cloud is the future of technology.

Bavarian Nordic Growth Potential

Bavarian Nordic, the biotechnology company which produces the only officially approved monkeypox vaccine could reach a capitalisation of 70 billion USD.

Bavarian Nordic is currently valued at 3.3 billion USD.

Monkeypox has turned into a global pandemic with 45 000 cases already. 

Moderna, the COVID vaccine manufacturer was recently valued at 170 billion USD at its peak. And there is BioNTech and several other COVID vaccine manufacturers.

Bavarian Nordic's, being a pioneer in Monkeypox vaccine production has a huge growth potential in from of it.

Biotechnology companies are notoriously difficult to value, because they tend to overshoot the visible intrinsic value by a lot both on the upside and on the downside.

All in all, Bavarian Nordic has exciting prospects before it in the next 3-7 years, according to my humble opinion.

How to Value Tesla?

Tesla Inc is valued at 928 billion USD by public markets.

All financiers and people in general who have studied company valuation know that regular company valuation methods cannot explain Tesla Inc's lofty valuation.

Apparently, the market is assuming Tesla would grow with 20 % for the next 10-15 years and achieve a net profit margin of 20 %. I would put the likelihood of such favourable developments for Tesla at 1 %.

I estimate Tesla is worth 120 billion USD. This is the value of Tesla electric vehicle production technology and production know-how and expertise and the value of engineers, assembly line workers, financiers and support personnel working for Tesla.

Yes, it took the internet more than 40 years to become commercially viable. But there was not a company like Tesla valued at around 1 trillion USD equivalent in the intermittent space. Yes, shortly dot-com companies like Pets.com were valued loftily and they went bankrupt after the 1996-2001 dot-com boom and bust.

The strategy is clear, of course. Raise funds, buy time to make a technological breakthrough that will make electric cars production commercially viable or profit generating in short. Much like the Internet took decades to become commercially viable.

But still. Tesla is the largest single stock bubble in history, in my humble opinion.

And when it bursts, the ramifications will be huge and wide reaching.

Palantir Technologies Valuation 25 August 2022

Palantir Technologies, the data analysis based on artificial intelligence company is currently valued at 17.3 billion USD.

I estimate, Palantir Technologies' intrinsic value at 127 billion USD.

Artificial intelligence is the current hottest emerging technology. Palantir Technologies is actually the first relatively large, as technology companies are considered, company which is scaling successfully artificial intelligence to analyse, interpret and draw conclusions data.

Palantir Technologies is deeply undervalued, in my humble opinion.

How to Measure the Value of Bitcoin?

Bitcoin, the main cryptocurrency has lost more than 70 % of its value recently.

How to measure the value of Bitcoin?

Growth.  Future growth. Since Bitcoin is not a mature business, which both Warren Buffett and Benjamin Graham would love and Bitcoin does not pay dividends, the only way to forecast Bitcoin's price is to correctly guess/estimate guesstimate the future growth of Bitcoin's adoption by the public.

Actually, this is not much different from estimating Warren Buffett's proverbial competitive advantage, which drives the value of any business. One has to correctly forecast whether the market would buy the particular company's product or service.

In Bitcoin's case, the blockchain algorithm is the true rainmaker.

A comparatively simple hashing, tree algorithm is underlying Bitcoin. But the great benefit of tree algorithms is that they adapt at every step. They are essentially Bayesian econometrics, statistics applied at every step. Essentially, the lean startup method applied with mathematical models.

This inherent flexibility, vetted by the world's population, which actually creates Bitcoins will ensure that the blockchain and Bitcoin find their way and change most businesses by making them more efficient, that is, they will produce more output with less input.

The financial technology will, of course be most transformed by Bitcoin and the blockchain. Wall Street investment banks, which hold the "key" figuratively speaking to investments via their research departments, will be disrupted by Bitcoin.

The Wall Street investment banks' intermediation of capital creation and flows will be eaten away at, disrupted by the creation of new cryptocurrencies, based on the blockchain algorithm, which will be used for very young, immature, predominantly technology startups to finance themselves.

In addition to that, technologists, bankers and investors are fascinated by (financial) technology. Technologists, bankers and investors lead the initial adoption of Bitcoin and cryptocurrencies. Technologists, bankers and investors will lead the next, much bigger and transformative wave of Bitcoin and crypto adoption. 

Adobe Valuation

Adobe Inc, the content production and publishing software company is valued at 192 billion USD currently.

In my opinion, Adobe is worth 270 billion USD.

Graphics, Images and Videos strain people's eyes much less than reading text.

And Adobe's software products, PDF including are actually a way of creating, editing and publishing images and lately videos.

I saw a recent interview in which Adobe's CEO said he is very surprised to see people consuming so much text as a source of information.

Actually, Google's success, partly was based on the fact that Google is a one line internet page site, which is easy on the eyes. Facebook's success was also due to a significant extent on the fact that Facebook's content is mainly image based.

Adobe also exhibits a 30 % net profit margin, which is a huge profitability due to the inherent scaling effects of Adobe's software production business.

To repeat Images and Videos are the current mega trends. TikTok, Facebook are showing this clearly.

And Adobe Inc has a huge first mover advantage, inertia and excellent technology to dominate the next wave of computing.

Palo Alto Networks Valuation

Palo Alto Networks Inc, the cyber security company is currently valued at 51 billion USD.

I estimate the intrinsic value of Palo Alto Networks is 120 billion USD.

Cyber security is a business of the future. Computers which run nuclear power plants, cars which carry the main decision makers, fighter planes, tanks, nuclear missiles silos, war ships are all run by computers.

If one country at war is able to hack successfully and hack the computer systems of the other country with which it is waging war it could block all its vital systems, at least temporarily.

For personal computers, tablets and smartphone users cyber security is of the utmost importance, because people's private lives and most prescient secrets are usually stored on their mobile devices.

What is more, with the future advent of Internet of Things, IoT cyber security will become even more important.

A problem with Palo Alto Networks Inc, is that it is loss making. Palo Alto Networks must find a way to profitability or investors will punish its valuation. Especially when interest rates levels are rising.

Capital is plentiful for cloud cyber security companies like Palo Alto Networks, which can thus finance the cash it is burning with all those net losses throughout the yers.

But sudden stop of capital flow has been known to occur. So Palo Alto Networks must find a path or road map to profitably producing cyber security software.

DocuSign Valuation

DocuSign has intrinsic worth of 22 billion USD, according to my estimates.

DocuSign is valued at 12.55 billion USD currently on the Nasdaq bourse.

DocuSign's cloud electronic signature flagship product and other DocuSign's solutions save firms great amount of time, effort and money.

Before DocuSign reaches its intrinsic value, DocuSign's market capitalisation could decline even more on USD continuing appreciation.

Salesforce Valuation

Salesforce, the cloud software company is currently valued at 183 billion USD.

According to my estimates, Salesforce's intrinsic value is 190 billion USD. 

In 2021 Salesforce made 26.5 billion USD in revenue.

Yes, cloud computing is growing briskly and in 7 years should be, according to many analysts' forecasts a 700 billion USD in revenue per year market.

But Salesforce's average net profit margin is around 5 % on average in the last 5 years. Furthermore, even with the cloud's huge potential, I personally do not see Salesforce justifying a Price/Sales ratio of more than 6 in the next 7 years.

Yes, cloud computing is the future, but as with every exciting new technology investors at large seem to be overestimating cloud computing's future growth rates.

What is more, as with every new technology there is always the danger that another newer technology will come up and annihilate the established high-tech.

Actually, Salesforce is building on its market capitalisation to buy new, exciting software companies like Slack, Tableu and Mulesoft. In the last dot-com boom several companies functioned like a technological Berkshire Hathaway, Warren Buffett's controlled conglomerate, which builds value by buying mature, profitable companies, integrating them, managing them well, using the dividends they distribute to buy other mature companies and thus prolonging a virtuous cycle.

The "trick" of Warren Buffett's Berkshire Hathaway is that all companies Berkshire buys are profitable, mature and dividends distributing. Warren Buffett, the Oracle of Omaha is a genius, accordingg to my humble opinion.

Salesforce and the companies it bought are mainly barely profitable ot loss making. The attempts of technology conglomerates to build value by buying up companies in the dot-com boom ended badly. Most of them went bankrupt loosing tens of billions of USD for their investors.

Salesforce, actually could survive, I think. Because the cloud makes all production, both physical and software manufacturing so much cheaper. 

Thus value is enhanced. Globally.

Technology Stocks Will Be Lifted When The Federal Reserve Partially Reverses the Rate Hikes

The Federal Reserve, the Fed will partially reverse the Federal Funds Rate Hikes in the end of the first half of 2023, in my humble opinion.

First, the Fed will be too aggressive by raising rates, which will tank the US and global economy into a recession.

Afterwards, the Federal Reserve will rush to the exits. Such policy mistakes will create huge volatility in the stock markets, for technology stocks especially. Actually, I think these are not policy mistakes, but republicans(right) and democrats(left) infighting. 

Cloud stocks will recover the most from this volatility. "Software is eating the world" as Marc Andreessen succinctly put it, but software development, computing and along with it almost everything else is moving to the cloud.

Splunk Valuation

 

Splunk Inc, the software data analysis company is currently valued at 17.51 billion USD currently.

I estimate the intrinsic value of Splunk is 37 billion USD.

Splunk should be able to reach 37 billion USD market capitalisation on the fast adoption of search in the cloud.

Search, visualizations and insightful analysis especially in the cloud are already critical to the success of small, medium and large enterprises.

And Splunk has a pioneer, first mover advantage in cloud search, visualisations and analysis.

Cloud computing will lift most cloud stocks' boats, but Splunk's traction in cloud search and analysis, good management and brand equity should ensure Splunk outperforms in the coming cloud stocks' resurgence catalysed by the Federal Reserve stopping and ultimately reversing its Federal Funds Rate hiking cycle.

Bitcoin's Price

Bitcoin is trading at 23 000 USD.

I forecast Bitcoin's price will surpass 100 000 USD in 5 years.

Not least, because the Federal Reserve will stop raising the federal funds rate, the global interest rate for short. The Federal Reserve can even start lowering the Federal funds rate in an year.

Bitcoin is financial technology, fin-tech in its purest form. The adaptive blockchain algorithm which creates Bitcoin is going to deeply change and upend all industries.

Soon more institutional investors will start investing in Bitcoin their trillions of USD under management.

Retail investors will also return en masse.

These developments could simply make Bitcoin's price explode from current levels, according to my estimates.

Digital Ocean Valuation

 

DigitalOcean, the developer cloud company is currently valued at 4.62 billion USD.

I estimate the intrinsic value of DigitalOcean at 25 billion USD.

DigitalOcean offers website hosting, web & mobile apps, video streaming hosting, gaming development on a cloud infrastructure surface.

The cloud computing market and namely the cloud as infrastructure vertical which makes around 70 % of the total cloud computing revenue is dominated by Amazon, Microsoft and Google Cloud part of Alphabet.

I have long had an eye on DigitalOcean as a technology company. DigitalOcean possesses the knowhow to take an ever larger and growing niche in the cloud computing and the cloud as infrastructure in particular market.

And the revenue from cloud computing is forecast to surpass 700 billion USD a year 7 years from now.

Compared to other cloud companies with predominantly around 20 billion USD market capitalisations, DigitalOcean does seem undervalued, as far as I am concerned,

Cloudflare Valuation

Cloudfllare Inc, the producer of DDoS attacks mitigation software and cloud based IT security applications producer is currently valued at 25.73 bln. USD after almost doubling in value in the space of a month after excellent quarterly earnings report.

I estimate Cloudflare at 25.73 billion USD market capitalisation currently is fully valued on an intrinsic basis.

If two events simultaneously unfold, Cloudflare could reach a market capitalisation of 100 billion USD.

1) Cloudflare's quarterly revenue goes on growing at more than 50 % year on year.

2) A regime change ensues on the stock market. The positivity could be brought by either the Federal Reserve pausing the federal funds rate hikes or economic growth resuming driven by either a technology breakthrough or global cooperation.

In short, as with most growth stocks from Technology or Pharmaceuticals the future for Cloudflare is binary.

A third, negative scenario is unlikely at the moment, since computing is moving to the cloud. Altogether.

Emerging Technologies. Stocks Valuation

The current emerging technologies can safely be assumed to be artificial intelligence, financial technology, Bitcoin and other cryptocurrencies in particular and cloud computing.

Based on my more than 15 years of experience analysing stocks I estimate that for small, mid capitalisation and large capitalisation companies in the businesses of artificial intelligence, financial technology, Bitcoin and other cryptocurrencies and cloud computing, the adequate revenue, Price/Sales multiples that is are 20, 12 and 7.

Yes, artificial intelligence, fin-tech and cloud computing stocks have seen their valuations reset in public markets, mainly on the Nasdaq and NYSE bourses since last November.

But corporations and individuals are inadvertently moving toward saving on the costs of producing goods and services. Currently, the fourth industrial revolution is under way driven by computer algorithms epitomised by artificial intelligence, AI, machine learning, fin-tech and cloud computing.

Yes, many of the small and mid-cap stocks in the AI, crypto and cloud verticals are burning cash, that is loosing money, but many of theme will survive and even thrive, because people simply want cheaper and cheaper goods and services. Wealth simply is not distributed evenly throughout the world and among individuals, so the only way to raise a two children middle class family in big metropolis cities is to make ends meet by buying reasonably priced goods. Translation: goods produced mainly in China and soon India and soon the production of these goods will be powered more and more by industrial automation.

Since technology is finding its way everywhere it is difficult to estimate how big is the actual market for many technology verticals, especially for artificial intelligence, financial technology, Bitcoin and other cryptocurrencies in particular and cloud computing.

This makes even the high Price/Revenue multiples stated in the beginning of this article seem not too high. And of course makes the valuation of AI, crypto and cloud companies all the more difficult, challenging and ultimately interesting.