Key insights
- The author argues that the market is mispricing tech stocks (NVDA, MSFT, GOOGL) relative to stable, low-growth businesses (COST, WMT, MMM). They believe tech companies, particularly those benefiting from AI, are undervalued given their growth potential and importance to the US economy. The author suggests a long tech/short retail strategy, anticipating either tech sector dominance or a broader economic downturn that would negatively impact all sectors.
Looking at COST, WMT, MMM, etc that has wide moat but fair to non-existent growth, they have very high multiples, cost with ~50 P/E!
On the other hand, equally solid business like NVDA, MSFT, GOOGL who are likely to take advantage of the AI revolution, are much cheaper.
Coming from tech background, I think this is a huge market misprice. I get it that the crowd doesn't understand the moat from many of those tech. Also, their moat is weaker simply because they have smarter and more ambitious competitors. But such valuation gap is unjustified.
From another perspective, US economy is based on those tech shops. If the tech sector degrades, the whole US economy will fall. COST and WMT will fall with it. If the tech prosper, their cash flow will blow up and eventually they become value stock and the market will have to catch up. So in both versions, buy tech, sell WMT seems like a high r/R strategy.