Date Your Stocks, Don’t Marry Them – Jonah Lupton

Summary:

• Fundamental Growth Investor Jonah Lupton shares his investing strategies, including swing trades and hedging, focusing on great companies with strong fundamentals and valuations.
• Why NVIDIA is the top stock to play AI.
• Tesla potentially overvalued with future growth potential. Will they work with Uber or compete against them?

Listen here or on the go via Apple Podcasts and Spotify

Fundamental Growth Investor Jonah Lupton explains his investing strategies, including swing trades and hedging (0:30). Separate great companies from great stocks (22:20) Fundamentals and valuation over technicals (except for swing trades) (27:15). Why Nvidia’s still the best way to play AI (32:35). Is Tesla really overvalued? (37:40)

Transcript

Rena Sherbill: Jonah Lupton, who runs Fundamental Growth Investor, which is one of our newest investing groups on Seeking Alpha and might I add, one of our most well-received and one of our highest rated thus far. So, super excited to have Jonah on the show.

Jonah Lupton: Thanks for having me. I appreciate it.

RS: Yeah, it’s great to have you on. I’d love it if we just started at the beginning, or maybe somewhere in the middle in terms of your narrative. Let’s introduce you to our audience, some on Seeking Alpha already know you. How would you articulate your journey thus far in the investing world, and what brought you to Seeking Alpha? And how did you name your investing group, Fundamental Growth Investor? Let’s start in those places.

JL: Okay. So, I mean, my investing journey goes back more than 20 years. My father was a long time Wall Street veteran. When I decided to go to college, I was actually crazy enough to pick premed as my major. And then once I got into premed, I realized that it was not for me. And I quickly fell into finance and economics, did very, very well. I’m not surprised. I’ve always loved numbers.

I excelled in those subjects in high school, graduated college, went to Morgan Stanley, then went to Smith Barney. Then when I left Smith Barney, those two firms actually got together, they merged. And then I worked for a couple of other investment banks, private banks in Boston. Then I actually took a 10-year break from running client capital.

So when I was at those firms, I was on the wealth management side. So I was running, call it, $0.5 billion of client capital, high net worth foundations, non-profits, et cetera. Ran a couple of tech startups, was out in Silicon Valley for a little while, and then came back during the pandemic.

And when everything got shut down, that included the company that I was running at the time. So naturally, I decided to get on Twitter and start talking about stocks and investing, ended up launching a Substack newsletter, ended up launching my Seeking Alpha service, and thousands of subscribers later, here we are.

So I run a couple of different services just on those two platforms. I’ve been running Seeking Alpha, I think now for about 18 months. I think I’m in the top 10 now. So people seem to like my service. I am definitely a growth investor, but I don’t pigeonhole myself into just growth stocks. I mean, I’m trying to make as much money as I possibly can.

So if that means I end up owning some undervalued value stocks or cyclicals, that’s fine too. I have an energy stock in my portfolio, which is definitely not growth, but it’s a company that’s up almost 300% in the last few years, or actually last two years since I started buying it.

So definitely a growth investor. I would say probably about 20% of my portfolio is small caps and then the rest is probably split up between large caps, mid caps. So I’m looking for growth stocks with the best fundamentals at the most compelling valuations. That’s kind of how I describe it.

I’m looking for stocks that have at least 50% upside in the next two years and at least 100% upside in the next three or four years. Most of my stocks end up doubling much faster than three or four years because I’m finding them when they’re cheap and I’m picking the right entry points and exit points.

So, for instance, I got into CELSIUS (CELH), CELSIUS energy drinks, which a lot of people are familiar with. I started buying that stock in May of 2020 at $3 and exited my position a couple of weeks ago in the mid-$80s. So that turned out to be a very, very profitable position for me for the last three or four years, and I’m looking for stocks like that.

Super Micro (SMCI) was another stock that I found last year. When NVIDIA (NASDAQ:NVDA) last May had their big breakout gap-up earnings report as they sort of unveiled the H100 to the world, NVIDIA was up 25% or 30% that day. I actually started buying NVIDIA the next day.

I’ve done pretty well with NVIDIA, even though it was a little bit late to the party, but I started to think what other companies might benefit from these H100s and this new AI chip revolution, found Super Micro did more due diligence, did a deep dive on the company. I started building my position under $200. And I’ve now sold about 90% of that position at an average price of somewhere over $1,000.

So, I mean, there’s plenty of stocks out there that people just aren’t paying attention to, or they don’t understand the story, or they don’t have — they don’t recognize the catalyst that are coming up and those catalysts are not properly being priced into the stock and the fundamentals.

So typically, I’m going to own 20 to 25 core holdings, which are positioned typically over 3%. I will go up to 10%, 15%, 20% in a position. Typically, most of that over 10% is capital appreciation. I’m very sensitive about not trimming my winners too aggressively because if I catch them right, I want to ride them for two, three years, four years, five years like I did with Celsius.

So I don’t want to get too aggressive with trimming unless the valuation has really gotten too frothy and the multiples gotten too expanded.

I also have five or 10, sometimes 15 swing trades in my portfolio. So those are typically positions 1% to 2% each. There are stocks that I like, I like the company, the fundamentals are strong, but there’s something that just, I don’t like enough to not have me build a bigger position.

So, for instance, well, Coinbase (COIN) actually got stopped out this week, but a stock like Coinbase, it’s my exposure to crypto. I have zero interest in owning crypto coins or any of that stuff. But Coinbase is obviously a platform that allows crypto transactions.

So if I want to play crypto, Coinbase is kind of the only way to do it, but delusion and SBC is just horrendous at Coinbase, makes it impossible for me to have a larger position in that stock.

Same with, I got into Snapchat (SNAP) today as a swing trade. I won’t own that stock as a core position for a bunch of reasons, but I’m more than willing to have it as a swing trade, as the technicals breakout, because I’m more of a breakout trader.

The third piece of my investment strategy, so 20 to 25 core holdings, anywhere from 3% to 20%; swing trades, 5 to 15, anywhere from 1 to 2%; and I’ll own those as long as the fundamentals and the technicals remain strong.

So right now some of my swing trades are Sea Limited (SE), Robinhood (HOOD), Novo Nordisk (NVO), Palantir (PLTR), AppFolio (APPF), Reddit (RDDT), Snapchat, Amazon (AMZN). So strong companies, but I just don’t like them enough to have them as core positions, so they work as swing trades.

And then the third piece, which is really important, which I’ve gotten pretty good at is hedging. So I typically short the index ETFs as my hedges and I’ll overweight whichever index ETFs are showing relative weakness. So there’s typically four that I use: it’s the (QQQ)s, which is the NASDAQ; it’s (IWM), which is the Russell 2000; it’s (ARKK), which is the ARK Innovation ETF; (FFTY), which is the IBD Innovator ETF.

So this year, my heaviest hedges were IWM and ARKK. So I typically run my portfolio on margin. Now disclosure, margin is risky, margin is scary, don’t do it unless you know what you’re doing. And I would only use margin when I’m using hedges.

So I’m typically running my longs at anywhere from 100% to 160%. So 40% to 60% of that is on margin, but I’m using a lot of hedges. So my net exposure is somewhere between 80% to 85%, maybe as high as 90% in the good market, maybe as low as 70% or 75%. If things are getting kind of dicey in the markets, or we’re going into a big earnings week or a big macro week with like CPI, PPI, jobs, that’s where I want to have a little bit less exposure. And then I trade around those hedges during the day.

But this year, if you go and you look at the performance, ARKK is still down, I think 15% year-to-date, IWM is basically flat on the year. I forgot to mention this, probably should have started with this. I’m up 150% year-to-date in my portfolio. I was up 134% last year. So this year, my longs have acted very, very well for me.

Super Micro was up 350% at the highs where I was doing most of my trimming. Celsius was up 80% or 90% when I did most of my trimming and I’m out of Celsius now, like I said. And then I probably have another five or six stocks in my portfolio that are up anywhere from 80% to 150% year-to-date, companies like TransMedics (TMDX), Aspen Aerogels (ASPN), companies that I still like, but companies that have done very well this year.

So my longs have done incredibly well and my hedges really haven’t hurt me at all. I’ve actually made money on my IWM and my ARKK hedges. My QQQ hedge has been a little bit of a drag, but that’s all right. There’s plenty of bait in my portfolio to make up for it. So those are kind of like the three pieces of my portfolio, there’s the core holdings, there’s the swing trades, which I’m only doing in a good market. If we’re in a bad market, bear market, whatever you want to call it, choppy market, I’m typically not going to have any swing trades because the technicals don’t look that great.

And then the third piece is the hedges. This year, like I said, I’ve been tilted more heavily towards ARKK and IWM. Now, if IWM starts to show relative strength to ARKK and QQQ, then I’ll start to underweight IWM and overweight my QQQ hedge. Last year, it was ARKK that really saved me.

So, like I said, it was up 134% last year. I think it was up 86% going into the summertime when we got that big pullback from July. That’s when I put on a 30% or 40% ARKK short, held that short or hedge, whatever you want to call it into the October lows, sold off or cover the hedge and then use that capital to add to some of my stocks that had pulled back and then rallied hard into year-end.

So, I mean, I do think if someone can learn how to hedge their portfolio with some of these index ETFs, and they don’t have to short necessarily. There’s a lot of inverse ETFs out there now. So if you’re a broker IRA, whatever, doesn’t allow a shorting, I mean, there’s ways to hedge your portfolio with inverse ETFs.

And I just think now is a good time to start to add hedges to your portfolio as the markets feel like they’re getting a little bit top heavy. And it’s possible we get a pullback this summer like we did last summer, maybe that last two months, maybe that last three months, and then we could get that year-end rally. But a lot’s going to depend on macro inflation, what the FOMC does, what the election’s looking like. So, I mean, the next six months will be very interesting.

RS: How long did it take you to develop your strategy, A? B, would you say it’s agnostic to – you talked about looking at some of the macro things and navigating for that. Is it agnostic to those things? Will you stay true to this strategy no matter what happens? And then kind of the third prong of that question would be, you mentioned your due diligence process, and I’m curious what that looks like.

JL: Yep. So I definitely look at macro. I mean, I’m not a macro expert. I don’t try to predict where interest rates are going or where inflation is going. I track all of it. But I mean, I do have to have an opinion because I do have to try to position my portfolio when hedges accordingly. But at the end of the day, I mean, I’m more focused on fundamentals and valuations and knowing that if I find the right stocks, I hold them for two years, three years, four years, macro might be a headwind one year, macro might be a tailwind the next year.

So I try not to get caught up too much in the short-term fluctuations because of macro or something the FOMC said, or hot or cold jobs report. But I mean, obviously, impacts the market, impacts the stocks, impacts my subscribers.

So I have to pay attention. I try to have loose opinions, but I try to stay very agile, like I don’t. So my strategy’s definitely changed over the last few years. I definitely don’t stay married to my stocks like I probably used to a few years ago. When the story starts to change, the fundamentals start to change, something in my investment thesis starts to break down.

I am going to either trim that position aggressively or get out. Celsius is a good example. I was certainly one of the biggest bulls out there for Celsius over the past four years. I’ve done dozens of write-ups, probably hundreds of posts on Celsius. I was the one posting monthly, retail sales scan data, posting my investment models, and I was right for four years, I nailed it.

Pepsi (PEP) came in as their distributor, like the story played out perfectly. And coming into this year, I thought revenue growth would be somewhere in that 50% range, which would get them close to about $2 billion in revenues.

And when we got Q1 earnings, I knew the story was changing. Like revenues had started to slow down so much that I knew there was no way they were going to get to my targets for the year. And then when analysts started doing their write-ups for Q1 earnings, they started talking about this Pepsi inventory reduction.

And that’s when I knew that like, I just, I need to get out of the position. Things were about to go from bad to worse with the story. And the multiple was already pretty extended to the point where any bad news was not going to be received well by the market, it wasn’t priced in yet. So that’s why I started exiting my position in the 90s and then aggressively got out in the 80s. Once I got, I think it was the April retail sales data. And then today, we got the last two months and Celsius is now growing 20% year-over-year.

I mean, this was a company that was growing triple digits year-over-year, just eight or nine months ago. And then that growth slowed down into the 50s, the 40s, the 30s, and now we’re in the 20s. So I just think that multiple is going to have to get compressed significantly over the next three to six months kind of right size the company for where the fundamentals are right now.

So I try not to marry my stocks, as I say, we date our stocks, we don’t marry them. And we only keep dating them as long as the fundamentals stay strong and valuations make sense. The hedging is something that I started doing last year. So in 2020, I think I was up 190%. Yeah, 2020, 2021, I was up 90% for the year.

I was up 140% at the highs going into 2021 Q3 earnings, had a lot of tech, cloud software, FinTech exposure, got absolutely destroyed in Q3 earnings. And unfortunately rode those stocks down too far into year-end. So I went from 140% up for the year to up, I think, it was 92% for the year. And then 2022 is when I really started to pivot my strategy and pay more attention to where’s the strength, sector rotations.

So I was out of most of my tech stocks in late 2021, early 2022, pivoted into energy, shipping, those are my two biggest sectors for the first half of 2022. Once they started getting tired, I started to rotate back into some of my typical growth stocks, the Fintechs, the e-commerce names that have been beaten down pretty hard over those previous six months to 12 months. And then in 2023 is when I started to add the hedges as well.

So, I mean, my strategy has definitely evolved. Hopefully, I don’t have to go back to where I was in 2022 and like get out of most of my stocks and rotate into value sectors, which I would prefer not to do, and it’s just not my comfort zone. But at the end of the day, I don’t want to fight the market. And if the market is going to punish my specific strategy for a long period of time, I’m more than willing to pivot into whatever strategy might work for me and my subscribers.

With that said, I mean, my stocks have done very, very well over the past few years. And even though some of them might be starting to run out of gas and kind of hitting that ceiling on valuation, trying to time the perfect exit at a high is very difficult. And then you also have to pay a lot of taxes. So that’s where the hedges work well for me. I can stay a little bit more patient with my winners, knowing that if I’m hedging properly, I’ll protect some of those gains.

And if the markets pull back, those stocks pull back with them, making the money on the hedges, not my longs, trim off the hedges, add to my longs, rinse and repeat. So, I would welcome a pullback this summer. I kind of hope we get one because I know that my hedges will give me some protection and then I’ll be able to use some of the cash that I’m building up to add to some of my longs as we get towards the end of that pullback.

RS: And what else would you add in terms of your due diligence process?

JL: Oh, yeah. So part of my services on Seeking Alpha is the research. So all of my subscribers get my deep dives, my mini deep dives and my earnings write-ups. So deep dives are typically two per month. They’re anywhere from 8,000 or 10,000 words and they go through the overview, kind of like the history of the company, talk about the founders, why was the company started, what’s the mission, et cetera. And then we get into what’s the business model, the market opportunity, the competitive landscape, the risks, and then we talked about valuation, technicals, investment models, and that’s a deep dive.

And I actually did a survey last week for all of my subscribers asking probably 25 or 30 questions, just trying to find out how many people are reading my deep dives, how they’re using the rest of my service and trying to figure out where I could add more value or make some changes. And I was surprised that I think 88% or 89% of my subscribers actually read my deep dives, which I thought the number would be half of that to be honest. And then I do…

RS: That’s a big number for long form.

JL: Oh yeah, I was shocked…now whether they were lying or not, just to try to make them feel better, I don’t know. But because I thought if people aren’t reading the deep dives and they’re taking 15 hours or 20 hours a week or every two weeks, maybe it’s just not worth doing them. But if people are reading them, they obviously see the value.

And then, I mean, with the deep dives, if I’m doing 24 of these a year, obviously, I don’t own most of these positions because the stocks I own, I’ve already done deep dives on it.

So what I do at that point is then we do mini deep dives. So typically, twice a year, I do a mini deep dive on all of my current holdings and explain to my subscribers what’s my investment thesis? Am I still bullish? Where do I see the financials going over the next two or three years? What are my thoughts on the current valuation?

And just reaffirm why I like the stock and why I’m adding to it now or why I would add on pullbacks. And then every quarter on, when we get our quarterly earnings reports, we do a earnings write-up anywhere from 1,500 to 2,000 words and just talk about that company and where they are right now. What did last quarter look like? What does guidance look like? Any new products or catalysts on the horizon that we should be paying attention to.

So those are kind of the three pieces of the research part of the service, the deep dives, mini deep dives and earnings write-ups, and then every subscriber gets access to my investment portfolio spreadsheet, which has all of my core holdings, swing trades, hedges, and then all of my daily notes.

So all day long from 6:00 in the morning until 4:00 or 5:00 in the afternoon, I’m in front of my computers and I’m typically on the spreadsheet posting commentary for all of my stocks, charts and then all of my activities. So I’m adding to positions, trimming positions, starting new positions, all of that goes on the spreadsheets. All my subscribers can see it in real-time.

So literally, when I get filled on an order, as soon as I get filled, I go right to the spreadsheet and post it, so all my subscribers can see it. If they want to copy it, that’s on them. Obviously, I don’t provide any advice. I don’t provide recommendations. My services are just meant to show my subscribers what I’m doing in real time. And hopefully, that helps them make better decisions for themselves.

RS: What would you say is a good example of one of the 20 stocks that you would talk about and one that you’re following, that you don’t own, that you’re looking at maybe as something to include further down the line?

JL: Good question. So some of the swing trades are stocks that are like on the edge, stocks that I’ve started to follow, I like a lot about them. I’m just not ready to go full bore into that company. So like a Robinhood.

So I thought Robinhood was dead a couple of years ago. After the GameStop (GME) meme craze, they were suspending activity, their customers were pissed off, the CEO looked like kind of a sleazy guy. And I just thought Robinhood was done. The stock got down to, I think, $6 or $7. And I feel like they’ve really transformed the company over the last couple of years.

The CEO looks more – he looks and sounds more mature now. I think he’s learned some lessons. The company has 24 million accounts, which is insane. That is such a big number compared to all of the other platforms out there.

Where they fall short is the average account size. So Robinhood’s average account size is only $5,500, very, very tiny compared to all of the other platforms. Schwab is somewhere around 225,000. IBKR is somewhere between 150 and 180. E*TRADE is somewhere around 100,000. So even though Robinhood has the most accounts, they are very, very tiny. But I think that’s an opportunity.

So I think a lot of their customers are early, earlier in their investing career, probably early 20s, mid 20s, they’re just starting to work. They’re just starting to make money. And these people have the ability over the next five, 10 years to make big contributions to those accounts, do 401(k) rollovers, maybe they inherit some money, maybe they sell a business. I mean, you don’t know, but I think there’s a lot of growth potential there.

And now they’re being pretty aggressive with some of their IRA matching contribution plans, and they have this new Robinhood Gold Card that a lot of people want access to. So they have to roll over money in order to qualify for that.

So right now Robinhood has about $135 billion in AUC, which is assets under custody. I think there’s a path to like 300 billion over the next few years. I think in three years, they could easily get to 30 million accounts, average account size of $10,000, 300 billion at their 1.8% sort of revenue to AUC number that puts them somewhere around $5.4 billion in revenues. If they hit $5.4 billion, this is probably a stock that has the chance to go up maybe 150% over the next three or four years.

So, I mean, there’s a lot I like, I’m still digging in. I want to see a couple of more quarters of results and then I might be ready to build a bigger position. So right now, it’s a swing trade. So as long as the technicals hold up, I’ll stay in it. And if I continue to like what I see from the company, I might make it into a core holding.

So typically, like companies that I think I might want to own in the next 12 months that are like almost there for me, they’ll become a swing trade, and then at some point they might get upgraded to a core holding. I mean, there’s a few stocks that I was actually talking about today with my subscribers that have been beaten down so bad that I’m wondering if they’re worth looking at now.

One is a company called Unity (U). I mean, that stock has just been absolutely obliterated. I believe they’ve brought in new management. Revenues are going to take a nosedive this year, but analysts expect them to bounce back next year. So, I mean, the problem is, I mean, you start going bottom fishing for these stocks and even though they look cheap, they can stay cheap for a long time, because they – it could be a frustrating turnaround story.

But at the same time, you go buy stocks at their 52-week highs or all-time highs, and there’s a chance they look kind of expensive. Like CrowdStrike (CRWD), for instance, I have no cybersecurity exposure in my portfolio, I wish I could, but every time I look at a cybersecurity company, I just – my jaw drops at the valuation.

I mean, right now CrowdStrike, and it’s a phenomenal company, I’ve owned it in the past, but the stock’s trading at like 60x next year’s or next 12 months EBITDA. And that’s before you include the SBC, the stock-based comp. If you include the stock-based comp in the EBITDA or the free cashflow, I mean, now it’s trading it over 100x. I just — I don’t understand how you justify that multiple.

Great company, but I think that’s where I try to separate great company from great stock. I want to own great stocks. I want to make money.

RS: So is there ever a time where you get excited about something fundamentally and then look at the technicals and it turns you off?

JL: So if I get really excited about the fundamentals and the valuation and I have a strong investment thesis, and I see catalysts on the horizon that I don’t think are being properly appreciated or priced in, I don’t care about the technicals. And I will add to that stock as long as I have the conviction.

So technicals for me only really matter with swing trades. Once something is a core holding, I have conviction. I don’t mind adding on pullbacks even when the technicals look like crap. So it’s really just the swing trades where like my – I don’t have the conviction to have a bigger position. I’m not going to go against the technicals in that case, which is one reason.

So I started a position in Zillow (Z) a couple – a few days ago, after it reclaimed the 200-day moving average, because I feel like once the FOMC finally cuts rates, you’re going to see Zillow take off. And even if mortgage rates continue to come down, we should see stocks like Zillow, Redfin (RDFN), Rocket Mortgage (RKT) do well, but I don’t really have that much conviction. This is sort of a catalyst play. And as soon as Zillow failed to close above the 200, I got rid of it. I stopped out.

So swing trades definitely respect the technicals. I mean, last year when I got really excited about Super Micro, it was last summer, somewhere around 180, 185, I believe. I started a 2% or 3% position. And then as the summer went along, the fall went along, the stock basically went sideways for four or five months.

And I couldn’t understand it. I thought, I don’t understand what the market doesn’t understand about SMCI. They’re building these custom liquid cooling racks for NVIDIA. We see NVIDIA blowing out earnings every quarter. Why is SMCI not getting any kudos?

So I just kept building my position, building my position. And then in January of this year, after I built my position to about 13% of my portfolio, they came out and pre-announced their — I think that was their fiscal 2024 Q2 earnings, I forget, Q2 I think, and the stock jumped up, I think 40% or 50% the next day and rally another 200%. And it was just, I mean, it’s what I was expecting to happen. I just didn’t think it was going to happen in three weeks. I thought it would play out over the next two or three years.

So once that stock started getting closer to my two or three-year price target, obviously, I had to do the prudent thing and start trimming back my position. But the technicals, I mean, I don’t remember exactly what the charts looked like in late 2023, but I think it might’ve been trading below its 200, but I just — I don’t care because the fundamentals to me were just screaming bye, bye, bye.

RS: Do you ever regret trimming your position when it starts to run like that?

JL: So I trimmed the SMCI a little bit too early. I started trimming probably in the mid-600s, but I didn’t think it was going to go to 1,200 in four weeks.

RS: How right can I be for God’s sakes? How good am I?

JL: I mean, yeah, in the hindsight, yes, I definitely trimmed SMCI too early. But a lot of times, like if I have a 13% position and it starts to rip. I’m probably going to let it get up to 15% or 16% before I start trimming it back. And then that’s kind of like, that’s kind of the ceiling for me.

So like every 5% it goes up, I’ll trim it back to – to bring it back down to a 15% or 16% position. And then once it started to — once it got over 1,000, that’s when I started getting much more aggressive with my trimming. And by the time it got up to 1,200, I think, it had gotten down to maybe a 5% or 6% position in my portfolio.

TransMedics (TMDX) sort of did the same thing. I love TransMedics. I’ve owned it for almost three years now since it was in the 20s. Now it’s in the 140s. And I had a, I don’t know, 15% position going into their last earnings report. They crushed it. Stock was up 30%, 40% the next day, and I had to start trimming it back. Just the position was just too big for my portfolio because one of my big concerns is, when I’m running a service like this, people sign up at all different times of the year.

Some people have been with me for three years, some have been with me for three months, and someone might sign up tomorrow and see my spreadsheet and think, “Oh, Jonah has a 18% position in TransMedics, he must really love TransMedics.” And then they try to copy it and build an 18% position. And what they don’t realize right away is, well, it’s 18% because I’ve been buying the stock for the last three years. My cost basis is probably in the 60s or 70s.

So I try to be mindful of that, but at the end of the day, like, I mean, I still have to run my portfolio in the way that’s best for me. And then I hope my subscribers can keep up or at least learn my strategy over time.

RS: You talked a bit about NVIDIA and I’m not sick about talking about it. Maybe some people are sick about hearing about it. But I think it behooves us as investors to understand the nuance and sometimes the bombastic hyperbole that is the discussion around NVIDIA as it grows and flows and evolves.

How are you thinking about NVIDIA? How do you think about it as a stock in general and as a leader of the market right now?

JL: So they just did a 10 for 1 split. So I was buying in the high 300. So I guess that means I was buying in the high 30s now. And today, it closed at — see where are we? So right now, it’s at $127.40, I don’t know what it’s doing after hours. Oh, it’s up 1% after hours.

I mean, just yesterday, people were talking about the bubbles in NVIDIA is dead, it’s going back down under a 100. And then, NVIDIA gave everyone the middle finger today and was up 7%. So I guess, the story wasn’t dead, maybe it was just taking a breather. I love NVIDIA. I wish I didn’t own AMD. Thankfully my NVIDIA position is bigger than my (AMD) position.

But a lot of people miss NVIDIA. So they thought, okay, I’ll buy AMD who maybe will — it’ll be a catch up trade. And a year later, we’re realizing AMD is like five years behind NVIDIA.

I don’t even know what to make of NVIDIA. I mean, I don’t think we know what the next three, four, five years is going to look like for artificial intelligence. We don’t know their specific roadmap. We don’t know what competitors might be coming down the pipeline with their own chips.

I mean, we’ve all heard stories about the hyperscalers like Google (GOOG) (GOOGL), Microsoft (MSFT), they’re going to want to build their own chips, okay, it sounds good. I don’t know if they’ll actually be able to do it.

And then how will those chips compare to whatever the newest, greatest NVIDIA chip is? And if they’re building their own chips, are they going to save enough money by using an inferior chip to justify not using the best NVIDIA chip? Like, I don’t know.

I mean, China, ByteDance (BDNCE) is apparently trying to develop their own chips now. I just — it’s wild. I just don’t think, I think if you believe in artificial intelligence, I just think this is the one stock that you have to own and you can’t try to trade in and out of it because it’s going to do things like this, down 6% one day, up 8% the next day.

Thank God, I started buying it a year ago when it gapped up on that earnings report. Even though I didn’t fully understand the importance of H100s and where that would lead us.

But now, I mean, you listen to these earnings calls from all the hyperscalers and all they talk about is trying to get their hands on as many H100s as possible, or H200s and the new BGs that are coming out. I mean, Tesla (NASDAQ:TSLA) is getting ready to build a supercomputer with Dell (DELL) and Super Micro with tens of thousands of H100s. Like – it’s like an arms race, which company can buy the most H100s.

And then I don’t even know what’s going to happen in two or three years. Like, let’s just say Meta (META) has 10,000 H100s. At what point does the next, like, do they have to upgrade? And then what do they do with the H100? Do they sell them off for $0.50 on the $1 or do they keep them and go buy whatever the new chip is? I don’t know. It’s going to be very interesting to play out. I just think if you believe in artificial intelligence and LLMs, and I just think NVIDIA is still the best way to play it.

And I mean, the stock might be expensive, I don’t know. I mean, right now, the company’s growing revenues by triple digits, earnings by triple digits, and it’s trading at like 40x earnings. Like that’s obviously not expensive, but obviously those growth rates are not sustainable.

I don’t think we really know where growth is going to normalize out. I believe the analysts are still looking for 50% or 60% growth next year. But then does it stay at 50% for the next five years? Does it drop down to 20%? Do margins stay at 55%? Do they drop to 45%? I have no idea. I’m not sure anyone knows. And if they think they know, they probably don’t. And the people calling the top are just – they’re just pissed. They’re the ones that never owned it.

So like they’re all trying to call the top to justify the fact that they never owned it. So it’s just — it’s been a wild story. I mean, that’s, I think the stock was down to 120 last January, something like that. So, I mean, it’s up 10x in the last 18 months.

Now I’ve heard the problem is some of their employees have made so much freaking money the last couple of years on NVIDIA stock that they don’t ever have to work again. So I don’t know what you do about that.

RS: Yeah. It sounds like a good problem until it’s right in front of you and then it’s probably not such a great problem. I’m curious, you mentioned Tesla (TSLA), that’s another controversial stock that I don’t know if people know where to land on it. What are your thoughts on them?

JL: Yes, I was talking to my subscribers about it today. So I don’t own Tesla right now. Tesla is one of those stocks that I do think it’s overvalued right now based on the fundamentals, but that may not be the right way to look at the company.

I mean, if you think Tesla is just a car company, it’s probably overvalued by 500%, right? I mean, Ford (F) and (GM) traded like 8x earnings and Tesla is probably trading at 45x earnings on a year where I believe revenues and earnings are both supposed to be down this year or flat best case scenario.

So how you justify 40x earnings for that, I have no idea. So Tesla is definitely overvalued where it is. I mean, I would say based on the fundamentals for this year, it’s probably an $80 stock.

However, if we are going to continue to see this electric vehicle revolution, and five or 10 years from now, every state has banned the sale of ICE vehicles, and there are supercharging networks from coast to coast. I mean, then it is possible that Tesla, over the next five, 10 years, can grow revenues at 15%, 20%, 25% a year. But even that doesn’t probably get you back to a $1 trillion market cap.

I mean, where that extra $2 trillion, $3 trillion is coming from that people talk about, it’s all the other stuff. It’s the Robotaxi network, it’s the humanoids or the robots that they’re apparently working on.

And I was talking, because I have a big position in Uber (UBER). I’ve owned Uber for the past couple of years. I was loading up on it in the summer of 2022 when the stock got down into the 20s and I’ve trimmed my position back. I mean, Uber is now almost at 8% position in my portfolio. So I mean, still decent size, pretty low cost basis.

And I mean, for me, the two biggest risks are recession, where people stop going out to eat, they stop traveling, you have less conferences and it’s those airport rides where Uber makes a lot of money, bringing people to bars and restaurants. So if people were going out and spending less money, that would be very bad for Uber. That’s one risk.

The other risk is Tesla and what they do with an autonomous robotaxi network. And we’re going to get a presentation, I guess, in August, that’s what Elon Musk has been talking about for the past couple of months, but no one really knows what to expect.

We don’t know if, at least, I don’t think we know, is Tesla going to develop like a special car or taxi for this robo network, or are they just going to unveil the technology that’s going to power consumers vehicles so they can like donate their vehicle to the Tesla robo taxi network and then have their car essentially act as a Uber during the day and pick people up and then they split the money with Tesla.

Like, I don’t know. I’m trying to like think through what it’s going to be. I’m trying not to waste too much time thinking about it because until we get that August presentation, I’m not really sure we’re going to have any concrete answers. And then I don’t even know if Tesla is going to try to do this themselves or are they going to work with Uber.

Uber has over 130 million customers that use their app. They’ve been doing this for, I mean, almost 20 years, at least, well, 15 years, and they know how to run a ride sharing network.

So are they going to partner with Uber or are they going to compete against Uber? And I don’t even know the answer to that yet. But I mean, I’ve seen, I know Cathie Wood is talking about Tesla, 10x upside over the next decade. I mean, maybe that sounds a little crazy, but I also didn’t think we’d have, Apple (AAPL), NVIDIA and Microsoft combined market caps of $10 trillion.

So is it possible that Tesla could go up 10x from here? Maybe, I mean, if they really build a robotaxi network and 20% of the U.S. decides to buy Teslas and use those Teslas as part of the robotaxi network, like I’m not even sure that the numbers work out.

So it’s one that I want to get back in. I’m just trying to find the right time, the right price. I could see the stock running up into that August presentation. So if you look at a chart for Tesla, it’s currently below the VWAP from the December highs. If it pushes back above the VWAP from the December highs, I’ll get into Tesla with the swing trade. And hopefully, I can hold that into the August presentation because I’m very, very curious what Elon Musk is going to come up with.

RS: Jonah, I really appreciate this first conversation. There’s so much here to chew on for investors. Anything that you want to leave investors with as we wind down?

JL: I mean, I’m sure they probably got a feel for my strategy. So I mean, like I told you before we started recording, I mean, I run a pretty aggressive strategy, but I know what I own. I do a lot of research and due diligence. I understand position sizing, risk management. I have investment models for all of my stocks that I update quarterly or more.

So I have a pretty good feel for valuation and where I think the prices could go over the next three or four years if everything plays out according to plan. So if you are looking to build a portfolio, manage it yourself, which I think you should do.

I think most of us should be active investors rather than passive. I think most of us, if we put a little bit of effort into it, can outperform the indexes. Like I’m just way too competitive to have my money sitting in (SPY) or (QQQ).

I never would be comfortable just owning the index and doing whatever the index does. I want to outperform. I mean, that’s me and I’ve been doing it year after year. So if you’re looking for someone like myself that runs a pretty concentrated portfolio of 20 stocks and swing trades and hedges, definitely check out my service. I’d love to try to help out.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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