Tech stocks seem poised for a rebound, but according to Steven Jon Kaplan, the CEO of True Contrarian blog and newsletter managing $120 million, the sector may be headed for trouble reminiscent of the dot-com bubble.
Kaplan predicts that the Invesco QQQ Trust Series, which tracks the Nasdaq-100, will drop from its current level of 427 to under 300 within a year, with an even bleaker outlook over three years.
Kaplan argues that the rush towards artificial intelligence (AI) in companies like Microsoft and Apple may not yield the expected profits. Despite heavy investments in AI chips, returns have been disappointing due to the high cost of hiring AI engineers and uncertain profitability.
He warns that investors may be overvaluing these companies, drawing parallels to the irrational exuberance seen during the internet boom of the late 1990s.
Using law firms as an example, Kaplan highlights how AI adoption may lead to cost savings for clients but reduced billings for the firms themselves. He has been shorting the QQQ since February, observing hedge funds’ behavior as they tend to follow a pattern of initial enthusiasm followed by significant shorting once assets cool off.
Kaplan anticipates a major selling wave if the QQQ drops to around 360, driven by hedge fund actions.
To gauge market sentiment, Kaplan looks for insider buying in tech stocks and significant outflows from U.S. stock funds. He believes that a reversal in these trends could signal a buying opportunity.
In the meantime, he favors “boring” investments such as the iShares 20+ Year Treasury Bond ETF, anticipating substantial gains due to undervaluation. He also predicts a rebound for the Japanese yen, which has been depressed due to government policies favoring exports, and holds exposure to the Invesco Currency Shares Japanese Yen Trust.
