‘Too fast, too furious’... That’s not just the name of famous street racing movie, but also how popular US tech stocks have moved in the past few months. In our November 27, 2022, edition, we at bl.portfolio had recommended investors start investments in Mirae Asset NYSE FANG+ ETF with a three-year horizon since the correction had played out and the ETF was trading near its trough. Since then, the NAV of the FANG+ ETF has gained over 57 per cent in about six months, capturing the upside potential fully. Thus, at this point in time, the margin of safety is slim and makes the risk-reward unfavourable for investors. The pace of gains has been much too brisk stretching valuations significantly and hence we are of the view that it is a good time for investors, who have profited from our call, to take some profits off the table if they require money in the next one-two years.
The three-year rally in US tech stocks built upon easy money-fuelled liquidity screeched to a halt in 2022. Beloved US tech stocks were down 30-70 per cent year to date (YTD) in November 2022, a good time to do bottom-fishing amid cheaper valuations and intact long-term business prospects. The NYSE FANG+ index, which tracks a concentrated 10-growth stock basket, at that time offered an attractive opportunity and one which could be played via Mirae Asset NYSE FANG+ ETF, which was down over 30 per cent YTD.
Fast forward to June 2023, the situation has markedly changed. As many as five tech giants — Apple, Microsoft, Alphabet (Google), Amazon and NVIDIA — today are in the $1-trillion+ companies valuation club. The underlying stocks in FANG+ including Meta, Nvidia, AMD, Apple, Amazon, Netflix and Alphabet (Google) have seen valuations harden as stock prices rose.
For instance, Meta and Nvidia stocks jumped over 120 per cent in the past six months, pushing up price-to-earnings valuation by 140 per cent and 246 per cent respectively. AMD’s stock has surged 53 per cent in this period, while its valuation went up manifold. Tech titans such as Apple, Amazon, Netflix, Microsoft and Alphabet saw valuations rising 25-50 per cent in this period. Tesla and Snowflake were the only stocks that haven’t seen a significant rise in stock prices.
FANG+ index near record-highs
Prices of some US tech stocks, in particular, have benefited from the razzmatazz surrounding Artificial Intelligence (AI) especially after the excitement surrounding interactions with AI-powered chatbots such as ChatGPT, Google Bard and Microsoft Bing. This buzz picked up even more pace after NVIDIA’s blowout earnings last quarter. While it is too early to conclude whether the current AI boom has similarities with dot-com bubble of the 1990s, stock valuations are notorious for pencilling in only the blue-sky scenario.
Though one can argue that the NYSE FANG+ index is still 8 per cent away from all-time highs hit in November 2021, investors need not wait till the peak to take action. After hitting the November 2021 peak, FANG+ index dropped over 45 per cent. Hence, this may be a good time to book some profits. Of course, tax implications will need to be kept in mind. While old investments would be unaffected, the profit on fresh investments in international funds done after April 1 will be taxed as per your slab regardless of the age of the units sold.