For 15 years, you’ve been trained to “buy the dip” in big tech stocks.
Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), Meta Platforms (META), and Microsoft (MSFT) have been among the best stocks on planet Earth over the past 15 years.
$200 invested into each of these stocks ($1,000 total) at the start of 2010 is worth about $18,000 today.
My good friend Jared Dillian of The Daily Dirtnap has a perfect way of explaining investors’ behavior:
If you could make money by pushing a button, how many times are you going to push the button? You’re going to push the button over and over and over again until it stops working.
For 15 years, investors repeatedly made money by smashing the “buy big tech” button.
Unfortunately, most investors don’t realize the game has changed. The 15-year big tech bull market is over.
Not because of tariffs or the political drama unfolding in Washington…
But because of one of the biggest disruptions of our lifetimes.
US stocks have long traded at a huge premium to the rest of the world.
At the start of this year, the S&P 500 was trading at 23X earnings. Meanwhile, international stocks, measured by the MSCI World ex US Index, traded at 14X earnings.
That’s the widest valuation gap ever!
It exists for good reason.
US companies have grown earnings much faster than their international peers. This chart from BlackRock (BLK) shows US corporate earnings (red) compared to the rest of the world (yellow) since 2010:
Source: BlackRock
No wonder investors happily pay up for US stocks. Here’s a list of the most important innovations of the past decade and the companies leading them:
All US companies.
America dominated innovation, allowing it to grow profits much faster than everyone else. Stock prices soared.
The valuation premium of US stocks made sense because US companies dominated innovation.
China is neck and neck (or leading) America in many of the most important new technologies.
China’s BYD (BYDDY) sells more electric vehicles than any other company, including Tesla.
Contemporary Amperex Technology Co. Ltd. (CATL), the world’s biggest battery maker, owns 40% of the global market and keeps churning out game-changing tech.
America’s largest drone maker, Skydio, has made 50,000 drones total. China’s top drone company DJI likely pumps out that many every week.
In 2023, China installed more industrial robots than the rest of the world combined.
|
Did you know it’s the world’s largest producer of solar power, too?
The old narrative of “China is a copycat” is giving way to “China is an innovator.”
Do you hear that? It’s the sound of US tech stocks’ valuation premium going “poof.”
Pop quiz. When did most big tech stocks peak?
It was late January, the day Chinese AI startup DeepSeek shocked the world.
DeepSeek built a ChatGPT alternative that rivaled Silicon Valley’s finest. And, in classic Chinese fashion, it cost about 90% less to run.
More important, it showed the world that the US no longer has a monopoly on innovation.
Investors are blaming the recent stock market selloff on tariffs and political turmoil. Truth is, the selling started on January 27, aka “DeepSeek day.”
Apple, Amazon, Alphabet, Meta, and Microsoft had a historic run. For 15 years, the only investing strategy you needed was to tap a couple buttons, buy them, and go to the beach.
If you made money in these stocks, congratulations.
They’re still world-class companies. I order from Amazon all the time. If you own anything but an iPhone, we can’t be friends.
But there’s a difference between a great company and a great stock. And right now, big tech stocks aren’t great because their valuation premiums will continue to deflate.
Even with Wednesday’s big bump, AAPL, AMZN, and GOOG are still down 10%+.
And I believe it could be a long time before these stocks surpass their previous highs.
Bottom line: Buying the dip doesn’t work in a sector that’s structurally breaking down. Instead, you must find the new leaders. For now, that means stepping away from big tech stocks.
Small- and mid-sized US stocks never enjoyed the same valuation premiums as big tech.
In fact, they’re cheap compared to their long-term averages. That’s where tomorrow’s “Magnificent 7” is hiding. If you’re looking to buy the dip, start there.
If you absolutely must invest in indexes, switch to equal-weighted S&P 500 ETFs like RSP.
Standard S&P 500 ETFs are market-cap-weighted. That means you’re overexposed to the stocks that make up most of the index: big tech stocks.
An equal-weighted version gives you better diversification.
And remember, don’t buy the dip in big tech stocks.
This is the biggest stock market disruption in at least 15 years. Get ahead of the curve, not behind.
To protect yourself and take advantage of the new opportunities our whole team at RiskHedge sees coming in 2025 and beyond, please check out what we put together for our best members like you. It’s all on this page.
In short, it’s the most cost-effective way to take advantage of all our premium research, as you can save upward of 90% over time. Go here to read your private invitation.
Stephen McBride
Chief Analyst, RiskHedge