By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Reality Of AI Laid Bare
Please click here for a chart of Microsoft stock (MSFT).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of MSFT stock is being used to illustrate the point.
- The Arora Report was one of the first last year to share with you the importance of new generative AI technology. From the beginning, we have been sharing with you that AI is real and a fortune is to be made in AI over the next seven years. Later, everybody jumped on the bandwagon. Our call on the importance of AI has been spot on.
- There has been a sharp contrast between The Arora Report and momo gurus.
- Momo gurus were late to the party.
- Momo gurus have been promoting the narrative of getting rich quick with AI compared to The Arora Report’s call of making a fortune over the next seven years.
- Many momo gurus simply lack the knowledge to make the correct call and they jump on whatever is in favor at the moment. Thus, they cannot be blamed for who they are. However, troubling is that some momo gurus knew better but still promoted the narrative of getting rich quick with AI.
- Microsoft’s and Alphabet’s (GOOG) earnings reports lay bare the reality of AI. The reality from the earnings calls is that monetization of AI will be slow. A lot of money is to be spent now and returns are far in the future.
- The chart shows a big jump in MSFT stock on the introduction of the price of AI Copilot. The jump in the stock added at least three times the value than AI Copilot is worth, even in an optimistic scenario. This jump was on top of the already huge rise in the stock. This demonstrates the behavior of the momo crowd that does no analysis.
- The chart shows the drop in MSFT stock on earnings. The drop occurred during the conference call when it became obvious that AI monetization would be slow.
- The chart shows the trendline. Prudent investors will be carefully watching to see if the trendline holds.
- Microsoft is in the ZYX Buy Model Portfolio and there are large unrealized gains. All investors should consider deeply understanding three AI revenue streams for Microsoft due to Microsoft’s importance in making a fortune in AI. An in-depth podcast titled “Microsoft AI Advantage: Three Highly Profitable AI Revenue Streams” went live yesterday. The podcast is available in Arora Ambassador Club.
- Alphabet stock went higher after the earnings, but not because of AI. When it is all said and done, Alphabet is an advertising company. The dollars spent on advertising depend on the overall macroeconomic conditions. The economy has stayed strong and so has advertising at Alphabet. There are several important points about Alphabet that all investors need to understand.
- Alphabet has more AI engineers than anybody in the world.
- Until recently, Alphabet had spent more money on AI than any other company in the world.
- ChatGPT is based on the transformer model that is based on a paper written by an Alphabet employee in 2017.
- Google simply sat on the technology it was developing allowing Microsoft to take the lead. In spite of the foregoing positives, make no mistake, Alphabet faces the biggest disruptive challenge from AI and risk to its stock. To understand deeply, the AI landscape and challenges to Google, listen to the podcasts titled “Full Frontal Assault: ChatGPT vs. Bard” and “ChatGPT: Potentially The Most Important Breakthrough Since The iPhone” in Arora Ambassador Club.
- Microsoft and Alphabet are two of the magnificent seven stocks that have led the rally. Six of the seven magnificent seven stocks have been in the ZYX Buy Model Portfolio. In addition, there was a profitable trade on the seventh stock that is not in the Model Portfolio.
- Investors are eagerly awaiting the Fed’s decision. The Fed decision will be announced at 2pm ET followed by Powell’s press conference at 2:30pm ET.
- The expectation is for a 25 basis point hike.
- We will be carefully analyzing the future course of the Fed.
- As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.
AI Garbage
We have been using AI to help with market analysis for over 30 years. One of the software companies founded by Nigam Arora was based on AI. Even with all the advances in AI, AI is nowhere near close to doing the comprehensive 360 degree analysis that private investors, investment advisors, and money managers alike have come to expect from The Arora Report.
Lately, investors have been inundated with sales pitches based on investment advice using AI. Gullible investors have been falling prey. The SEC is likely to move against AI garbage by proposing guidelines.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) stocks in the early trade. Smart money is 🔒 to reduce risk in the early trade.
Gold
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see gold and silver ratings.
Oil
API crude oil inventories came at a build of 1.319M barrels vs. a consensus of a draw of 1.969M barrels.
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin continues to trade below $30,000.
Markets
Our very, very short-term early stock market indicator is 🔒. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.
Interest rates are ticking down, and bonds are ticking up.
The dollar is weaker.
Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.
Gold futures are at $1971, silver futures are at $24.79, and oil futures are at $78.69.
S&P 500 futures are trading at 4584 as of this writing. S&P 500 futures resistance levels are 4600, 4713 and 4770: support levels are 4460, 4400 and 4318.
DJIA futures are down 111 points.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding 🔒 in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 🔒, and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time.
You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash. When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.
Traditional 60/40 Portfolio
Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.
Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.
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Nigam Arora
Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.
Dr. Natasha Arora
Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.
