It is the most exclusive club in the world. Shares in companies which are, have been recently or are likely to be in the near future, worth over $1 trillion. It is not easy to build a business which is worth $1,000,000,000,000 and all the companies in this club are part of the fastest period of change that Homo Sapiens has ever known, the technology revolution.
This revolution is not only proceeding at an incredible pace but it is even accelerating. It is being driven by a tsunami of r&d spending with members of the club alone spending over $200bn a year on research & development (this figure includes content spend at Amazon and is for seven companies including Meta Platforms).
The latest dramatic development, exemplified by the astonishing success of ChatGPT, is what has become known as generative artificial intelligence, AI for short. This seems so powerful that influential voices are warning that it may even pose an existential threat to humanity.
In the happy position of having no expert knowledge of the subject whatsoever my gut feeling is that this fear is overblown and that as Jensen Huang of Nvidia and Bill Gates, founder of Microsoft, seem to think instead it will be a source of great breakthroughs and huge opportunities.
Whatever, it is already starting to have a dramatic impact on the stock market, and again my suspicion is that we could be in the early innings of a historic stock market boom.
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A Great Proxy Investment for the $1 Trillion Club
This ETF is a strange one because it is actually an Exchange Traded Note (ETN).
FNGS is an ETN that provides exposure to an index of FANG companies (Facebook, Apple, Amazon, Netflix, and Google [Alphabet Inc.]), as well as other companies that exhibit similar characteristics. Presumably, the index will always include these five companies, an index committee is responsible for selecting the additional names. Eligible stocks must be listed on a US exchange (ADRs are acceptable), classified in the technology or consumer discretionary sectors, and exhibit characteristics of high growth technology and internet/media companies along with meeting minimum market capitalization and liquidity requirements. At least ten stocks must be included in the index, the number of constituents when the note launched so investors can expect a high level of concentration. All holdings are equally weighted, and are rebalanced quarterly.ETF.com
What is an ETN?
Exchange-traded notes (ETNs) are different. Instead of being an independent pool of securities, an ETN is a bond issued by a large bank or other financial institution. That company promises to pay ETN holders the return on an index over a certain period of time and return the principal of the investment at maturity. However, if something happens to that company (such as bankruptcy) and it’s unable to make good on its promise to pay, ETN holders could be left with a worthless investment or an investment that is worth much less (just like anyone who had lent the company money).Charles Schwab (US stockbroker)
This ETN has nearly doubled from the bear market low point. There are leveraged versions including FNGU, which is incredibly volatile. It peaked at $500 in 2021, fell to $37 in 2022 and is currently $165.57, up 347pc from the low. You cannot buy this ETN on IG or I would have some. Full marks for excitement and with a golden cross on the 3m candlestick chart it still looks good.
Some Amazing Stats on the Club Members
I have focused on six stocks as my $1 trillion club members – Apple, Microsoft, Alphabet, Amazon, Nvidia and Tesla. Their combined market value is $9.9 trillion, so let’s call that $10 trillion. Spell that out and we have $10,000,000,000,000. Pretty soon we are going to have to do what the scientists do with light years and call that 10 to the 12 millions of dollars (I think that is right).
These six companies currently have $302bn in net cash so seriously minted. Their combined free cash flow (FCF) is $279bn and in some cases this number is climbing explosively. Finally their combined r&d spend is running at $180bn. This may be distorted by substantial content spending at Amazon, which seems to be included in the numbers and is not R&D spend. Even so it is going to be a massive number, well into nine figures.
They are by no means alone but these companies are doing a great deal to move the needle on global technology and both compete and co-operate with each other. It makes a great deal of sense to be invested in all these companies, which are ramping up their spending on AI and are going to both drive and benefit from this incredible revolution.
What is unusual about the current state of the stock market is that some of the most exciting companies are also some of the biggest. Buy shares in these companies and you have endless innovation, substantial share buybacks, a number I have not looked at in this alert, massive financial strength and companies which are magnets for the finest young brains on the planet.
Let us think about them in another way. Apple is the most exciting device manufacturer on the planet around which it is building an ecosystem of services. Microsoft is the biggest software business on the planet with many other exciting things going on. Amazon is the biggest e-commerce business and the biggest cloud services company on the planet. Alphabet is the king of online search and online video. Tesla is the king of electric cars and is leading the charge into autonomous vehicles (potentially leading to robo-taxis and TaaS, transport as a service) with walking, talking robots somewhere down the road. Nvidia is the greatest semiconductor business on the planet and the company doing the most to make accelerated computing and AI happen.
What about Meta Platforms?
How could I forget Facebook/ Meta Platforms, the biggest social media platform on the planet with 2.93bn monthly active users and an absolute beast of a business. META is valued at $0.7 trillion, has annualised sales running at $116bn, net cash of $27bn (my calculations), free cash flow of $7.0bn (my calculations) and r&d spend running at $37bn. This is another company that clearly belongs in the club.
I am not going to show all the charts but they are all strong. What seems to be happening is sharp corrections in 2022, after a dramatic rise, so healthy for the stock market. Share prices are already rallying strongly in 2023 driven by great fundamentals and I expect the rising trend to resume/ continue.
It is amazing to think that there are seven companies in the trillion dollar club and they are all American, many based on that incredible hot bed of innovation, the West Coast, which is to the technology revolution rather like Italy and its city states was to The Renaissance.
Strategy – Investing in a Growing Club of Mega-Caps
These companies are the benchmark stocks par excellence and arguably all must-owns for investors in the 21st century. It is a bit like buying shares in Leonardo da Vinci, MichaelAngelo, Raphael and co. in The Renaissance. Their financial strength makes them indestructible, and their innovation makes them exciting. There can be ups and downs and missteps, like Zuckerberg’s massive punt on the Metaverse and the tail winds can turn hostile as they did for Nvidia in 2022 but these negatives are temporary and quickly overcome. Many of the companies have also used the 2022 correction to take action on cutting costs like Meta Platforms with its massive layoffs.
Investors in these shares are also guaranteed exciting news flow and that can be as big a driver of share prices as actual results.
There is also scope for exciting mergers and acquisitions activity. Nvidia failed in its $40bn plus attempt to buy ARM, which would have been a seminal deal and Microsoft is struggling with its $67bn deal for Activision Blizzard but it shows the ambition of these groups as does the billions Microsoft has pumped into OpenAI, the parent of ChatGPT.
For exciting smaller companies selling to these giants is a lucrative alternative to an IPO and a way of putting a rocket under the commercialisation of their technology.
Apple AAPL. Buy @ $180.50
Microsoft. MSFT. Buy @ $335
Alphabet. GGOGL. Buy @ $124.50
Amazon AMZN. Buy @ $124
Nvidia. NVDA. Buy @ $393
Meta Platforms. META. Buy @ $272.50
Tesla. TSLA. Buy @ $213.50
Microsectors FANG ETNS Due 8 January 2038. FNGS. Buy @ $31.95
Microsectors FANG ETNS 3x leveraged Due 8 January 2038. FNGU. Buy @ $165.50
The $1 Trillion Club in 6m Candlestick Charts
I have changed my mind about the charts. I am going to show you the charts with 6m candlesticks and correspondingly longer term moving averages.
Moving averages are what are known as decision systems. Anything can be a decision system, chart breakouts, trend line breaks, moving averages crossing or changing direction or results beating expectations. Those are just a few of the possibilities.
One I favour on Quentinvest is Coppock buy signals given when this weighted momentum indicator turns higher from a negative position. On these charts Coppock buy signals are marked with a vertical purple line and you can see that they work well. Tesla is the only one of the mega caps not to have a Coppock buy signal and I said some time ago that I expected it would have one when the June numbers are in. This still looks likely.
Another decision system is golden crosses on the moving averages when. a shorter term moving average turns higher and crosses through a rising long term moving average. This is known as a golden cross and there are several in the charts above. The best one is for Nvidia but Apple and Microsoft also have newly minted golden crosses on these long term charts. All the charts look positive to me, building consolidations to act as springboards for the next advance.
Apple Has an Exciting Something New in the Wings
The main feature of the Apple Reality Pro headset is mixed reality. According to Mark Gurman, the headset will include external cameras which are currently being used to test features like hand-tracking and gesture control. Part of this includes the possibility of being able to type in the air with a virtual keyboard.
The hand-tracking and gesture control could also contribute heavily to the headset’s rumored Continuity features, which were partially teased in a recent patent filing. According to the patent application, Continuity and Handoff will allow users to stare at a speaker to transfer music, respond to emails in mid-air and more, all from the VR/AR headset.
Despite a report that claims Apple wouldn’t focus on games for its AR/VR headset, more recent reports insist that gaming and entertainment will be two of the headset’s core features.
In April, Gurman provided an overview of likely Apple Reality Pro features with gaming, entertainment and collaboration at the heart of the device. Apple has apparently built versions of its iOS apps for its headset, and they’ll function a lot like their iPad counterparts. So expect to see stalwarts like FaceTime, Maps, Mail and others as well as new tools like the Freeform collaboration app adapted for virtual reality.
Also included in this list of features was a reality dial — which you can see in this stunning Apple VR/AR headset render. This dial is rumored to allow users to switch between augmented reality and virtual reality with ease. The 3D render also includes an action button, something that exists on the Apple Watch Ultra and is rumored for the iPhone 15 Pro. We’re still unsure what specific features this action button will unlock.
If that wasn’t enough, a new report from The Information claims that the Apple VR/AR headset will let users create their own apps — regardless of whether they know how to code or not. This feature will apparently run through Siri, allowing people to use the headset to scan real-world objects and transform them into digital assets. User-created apps will also be allowed to appear on the app store, though they will no doubt need to pass Apple’s strict approvals process.Tom’s Guide, 2 June 2023
Time and again Apple has launched products to considerable scepticism which have gone on to be game changers. This one looks as though it could start slow but become big and move the needle for Apple and for virtual/ augmented reality in general. The idea for the launch is said to be to get developers interested first and then come up with a retail version which may be cheaper than the rumoured $3,000 for the initial headsets.
Such a potentially dramatic ‘something new’ makes Apple shares look interesting and with a market value approaching $3 trillion Apple is important to market value weighted ETFs like QQQ, SPY, SPXL and QQQ3. FNGS and FNGU are equal weighted so each company counts the same whatever its market value.