AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained

Companies / Investing 2021 Mar 02, 2021 - 06:31 PM GMT

My last look at AI stocks buying levels late November 2020 had some of the must own AI stocks trading at high valuations for instance Apple was trading on an EC of 76 against a target of 50, Nvidia on 173 against about 100! Whilst IBM was dirt cheap on -3, so I could not resist buying more where I am sure several years from now many investors will be kicking themselves for not having had the foresight to pick up IBM when it was trading so cheaply. Next I picked up some more Google as numero uno and Facebook given it's continuing VR market success despite the dying lame stream media lobbying governments to get the tech giants to share ad revenues with them. And I also sought to pick up some Amazon on trading below $3000.

As well as looking to pick up some more AMD given its moderating valuation in response to unlimited demand for it's CPU's. With Nvidia still a little pricey to prompt fresh buying despite the success of it's RTX 3000 series of GPU's that literally allows Nvidia to PRINT MONEY! Sell as many GPU processors as it can produce (most Nvidia GPU's are made by third parties using their GPU processors).

And lastly there was TSM that I was eager to buy despite not being exactly cheaper on an EC of 46, nevertheless to gain exposure to another company that can literally print money then one needs to bite the bullet and hit the buy button to gain exposure.

This analysis will seek to act as a major update to my AI stocks portfolio in terms of a reordering of the layout as well as seeking incorporate a number of higher risk smaller cap tech stocks that I have been researching over the past couple of months, though remember that I consider sub $100 billion small caps, and not sub $1 billion stocks which I consider high risk penny stock gambles to steer well clear of. Nevertheless incorporating higher risk stocks at a low % of the portfolio for the long-run should add some spice to the portfolio, where hopefully we can achieve some of the buying levels else like TSMC be forced to bite the bullet and pay top dollar for a top stock.

Firstly what are Buying Levels?

Buying levels are high probability technical levels that a stock 'could' trade down to during a correction i.e. it's an achievable technical chart level that could be used to for instance to put in buy limit orders at just above the buying level if one is looking to accumulate more stock in any particular company i.e. the Buying Level for Google (Alphabet) was $1395, so a limit order at $1395 or higher would be the objective depending on how eager one is to gain exposure to the stock i.e. If I really wanted to buy more Google then the limit order would be OVER $1400 as stocks tend to find support at round numbers.

Stocks Expensive or Cheap Indicator (EC)

This basically condenses down some 12 financial indicators I track for most stocks to determine if they are expensive or cheap (EC), as stock prices are usually not a good indicator of value.

At it's most basic the higher the number the more expensive a stock is and conversely the lower the number the cheaper a stock is. Where a reading of 20-60 tends to be the sweet spot for most AI stocks as it implies earnings growth coupled with sustainable speculative interest and thus results in good trending charts with support during corrections, where value tends to be fair so as to enable one to accumulate stock.

Whilst readings above 60 increasingly indicate high levels of speculative interest in future earnings growth. However, this does not automatically mean that a stock trading over 60 should not be bought or sold, it just means that there is a lot of speculative interest in that stock so expect greater price volatility as investors are more likely to react to news events. So I would still invest in a stocks trading over 60 if they have a good reason to justify such speculative interest i.e. such as AMD and Nvidia as being higher risk stocks. Or Amazon of a say 6 months ago that was set to greatly profit from covid-19 lockdown's.

Over 100 is where stocks are becoming a bit to hot to handle where holding let alone buying depends on understanding what's in the pipeline, what it is driving the stocks into the stratospheric valuations such as AMD first killing Intel and now giving Nvidia a run for it's money. Whilst there will be some such as Amazon, I can't quite fathom the high valuation hence reduce my exposure to.

Whilst readings Under 20 suggests little speculative interest to drive stock prices significantly higher, so likely to expect trading ranges and thus tend to be sleeping giants in the AI mega-trend. Also could be signaling problems with the stocks i.e. such as Intel losing the CPU war to AMD which has has made Intel a disliked stock to hold whilst AMD has been heavily bid up into fever making it an expensive buy.

This article is an excerpt form latest extensive analysis that concludes in AI Stock buy ratings, levels and valuation analysis for 2021 that has first been made available to Patrons who support my work.

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Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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