I Sold my #1 Stock🥺

Key Concepts

• Capex Surge: Significant increase in capital expenditure by major tech companies (Microsoft, Google, Amazon, Meta).
• Forward P/E Ratio (P/E): A valuation metric used to assess the current stock price relative to future earnings.
• Kaggar (CAGR): Compound Annual Growth Rate, representing the average annual growth rate of an investment over a specified period.
• Generational Buying Opportunity: A rare market condition presenting exceptional investment potential.
• Free Cash Flow: Cash flow available to the company after accounting for capital expenditures.
• Net Income Margin: Percentage of revenue that translates into profit.
• SAS (Software as a Service): A software distribution model where applications are hosted by a vendor and made available to customers over the internet.
• Depreciation: The accounting method of allocating the cost of a tangible asset over its useful life.

Market Decisions & Portfolio Restructuring

The video details a substantial restructuring of a public investment account, described as the “largest moving day in the history” of the account, totaling over $750,000 in transactions. The speaker emphasizes the difficult nature of these decisions, requiring projections years into the future and acknowledging the potential for regret. The core rationale behind the moves stems from concerns about the sustainability of current spending levels within the tech sector and their impact on future earnings.

Meta Sale & Revised Outlook

A significant portion of the video focuses on the sale of Meta (META) stock, which previously constituted over 30% of the portfolio. While acknowledging Meta as a “top tier” company with a $888,000 profit on the position (initial cost basis $184,000), the speaker expresses diminished confidence in its upside potential due to “out of control spending.” 600 shares were sold, representing a $400,000 move. Despite the sale, Meta remains the largest holding (almost 19% of the portfolio).

The speaker revised his projections for Meta, stating that a $1,000 stock by 2026 and $2,000 stock before 2030 are now “long shots.” This revision is directly linked to the massive increase in capital expenditure (capex) across the tech industry.

Tech Capex & Earnings Concerns

A central argument revolves around the unprecedented surge in capex by major tech companies – Microsoft, Google, Amazon, and Meta – now projected to reach $610 billion in 2024, exceeding previous expectations. The speaker highlights the disconnect between this massive spending and relatively modest revenue growth.

Specifically:

• Meta: Projected capex of $130 billion or higher, potentially consuming all operating cash flow, resulting in zero free cash flow.
• Amazon: Projected capex of $200 billion, exceeding 2025 operating cash flow of $139 billion, potentially leading to negative free cash flow.
• Google: Operating income of $129 billion against a projected capex of $180 billion.

The speaker emphasizes that depreciation of new chips (over 5.5 years) will further depress net income, potentially leading to negative earnings per share (EPS) in the coming years. Analyst expectations already reflect this, with EPS growth slowing to 6% next quarter, flat the following quarter, and then turning negative. The speaker believes companies need sustained revenue growth exceeding 30% to justify this level of spending.

New Portfolio Additions & Projections

The speaker details several new stock purchases, outlining his projections for each:

• ServiceNow (NOW): $101,000 buy. Bull case: 20% revenue growth, 22% net income growth, 40-60x P/E, 27-32% CAGR. Base case: 17% revenue growth, 20% net income growth, 30-35x P/E, 20%+ CAGR. Bare case: 12% revenue growth, 10% net income growth, 25-30x P/E, still potentially outperforming the market.
• Salesforce (CRM): $185 per share, $35,000 buy. Bull case: 14% revenue growth, 15% net income growth, 30-35x P/E, 23-28% CAGR. Base case: 8% revenue growth, 12% net income growth, 28-33x P/E, 20%+ CAGR. Bare case: 5% revenue growth, 8% net income growth, 20-27x P/E, still potentially outperforming the market.
• Adobe (ADBE): $35,000 buy. Bull case: 10% revenue growth, 12% net income growth, 25-30x P/E, 26-32% CAGR. Base case: 8% revenue growth, 10% net income growth, 23-28x P/E, 22-28% CAGR. Bare case: 5% revenue growth, 8% net income growth, 20-27x P/E, still potentially outperforming the market.
• Tesla (TSLA): Added $33,000 to existing hedge. The speaker anticipates a negative impact on Tesla’s stock price when SpaceX goes public, shifting investor focus.
• American Express (AXP): $32,000 buy. Bull case: 10% revenue growth, 15% net income growth, 30-35x P/E, 23-28% CAGR. Base case: 8% revenue growth, 12% net income growth, 28-33x P/E, 20%+ CAGR. Bare case: 5% revenue growth, 8% net income growth, 20-27x P/E, still potentially outperforming the market.
• PayPal (PYPL): $35,000 buy. The speaker views PayPal as undervalued at a 64x P/E ratio, anticipating potential gains driven by new CEO incentives.

Risk Management & Investor Philosophy

The speaker acknowledges the inherent risk in these decisions and the possibility of regret. He emphasizes a “keep it moving” mentality, viewing setbacks as a “cost of doing business.” He highlights the importance of adapting and learning from market fluctuations. He also differentiates between his Patreon and private stock groups, positioning Patreon as suitable for newer investors and the private group for more experienced, high-net-worth individuals.

Conclusion

The video presents a bold and contrarian investment strategy driven by concerns about unsustainable spending within the tech sector. The speaker’s actions – selling Meta and adding to positions in companies like ServiceNow, Salesforce, and Adobe – reflect a belief that these companies, despite current market headwinds, offer more compelling long-term value. The emphasis on detailed financial projections and a pragmatic approach to risk management underscores a disciplined investment philosophy. The speaker frames the current market environment as potentially offering “generational buying opportunities” in specific sectors, particularly SaaS.