Bears were knocked out Friday following another sign the artificial intelligence tailwind is nearing gale force, states Jon Markman, editor of Strategic Advantage.
The Nasdaq 100 index sailed through nominal resistance at 17,000, to close at 17,314, a gain of 2%. The rally for the NDX was the eleventh during the past 12 weeks. Throughout this rally, bears warned that investors were too optimistic about the global economy and that the hype surrounding AI was unwarranted. Worrying about macroeconomics isn’t a great investment strategy.
There are too many moving parts. Betting against AI, given all of the anecdotal evidence, was dumb. The Wall Street Journal reported Thursday evening that Meta Platforms (META) will purchase 350,000 Nvidia (NVDA) AI processors. This commitment is orders of magnitude larger than the 2021 purchase made by Microsoft (MSFT) in support of ChatGPT infrastructure. And while the size of the Meta order was a surprise, the resolve by executives to continue to build out AI infrastructure at a massive scale was not. Tech infrastructure is necessarily an early cycle endeavor.
Orders must be placed quarters in advance of when the gear will be deployed. Following conference calls at firms such as Broadcom (BRCM), and more recently Taiwan Semiconductor Manufacturing (TSM), Bulls understood that the AI order pipeline was bulging. Bears who bet against this reality were delusional at best. Now they are paying a terrible price. The Meta order news jumpstarted an epic wave of short covering.
That frantic buying on Friday was amplified by continued buying from professional money managers. Their coffers are full of investors chasing 2023 winners. It’s the reason the Magnificent Seven stocks such as Meta, Nvidia, Microsoft, Apple (AAPL), Amazon.com (AMZN), and Alphabet (GOOGL) will not decline. Now shares of a new crop of AI infrastructure businesses are catching fire. Super Micro Computers (SMCI), a firm that makes the computers that house Nvidia AI chips, surged Friday by 36% on stronger forward guidance.
This is the beginning of the move higher for these secondary names. Bears have been knocked out of the contest. They are providing no resistance to bulls. The parabolic advance stage of the bull market has begun.
The next upside target for the NDX is 18,296, an advance of about 1,000 points from current levels. Support is 17,000.
Double Trouble: Our timing model is now bullish. Members added the ProShares Ultra QQQ (QLD) on January 17 at $73.90. The QLD closed on Friday at $79.99, up 8.2% from the entry-level. Now place a stop new loss order at $67.22. The target for this position is $88.30.
