This fund is shorting Apple — and just bet against another popular AI stock


It’s looking like an upbeat start to fearful February as investors look past a hawkish Fed and put their faith in the last of Big Tech results coming after the close.

“An immaculate landing is fully priced in, and only downside risks remain,” warns our call of the day from wealth managers Bireme Capital, who discuss sticky inflation and “unsustainable” fiscal policy, in a just-published December investor letter.

But Bireme, founded in 2016 by two MIT classmates Ryan Ballentine and Evan Tindell, stands out even more for the axe it has taken to its Big Tech holdings.

In late 2020, the managers recall how they hailed Apple, Amazon, Microsoft, Facebook and Alphabet as “transcenders,” gobsmacked by lower earnings multiples for many of those versus the Nasdaq-100 and often lower valuations. In 2023, they jumped at the chance to buy Meta
META,
-2.48%
at $110/share as well as Netflix
NFLX,
+0.22%,
as many transcenders got shredded, alongside more speculative businesses.

But the “massive gap between intrinsic value and market price has been mostly realized,” they say, rattling off their fresh changes.

“We have sold our Netflix
NFLX,
+0.22%
position, and significantly pared our Meta position. We remain short Tesla
TSLA,
-2.24%
– a car company with car company margins, having an increasingly difficult time masquerading as a tech company with tech company margins – and have added a short position in Apple
AAPL,
-1.94%
– a low-growth company trading at a high-growth valuation,” says Bireme.

They explain that the “Magnificent 7 and their ilk still have transcendent businesses,” but valuations are no longer that reasonable.

“Given today’s unprecedented concentration, the fortunes of the major equity indexes – and the fortunes of hundreds millions of Americans via their retirement savings and pensions – are increasingly tied to the performance of a few increasingly overextended stocks.”

The Apple short came about in the third quarter of last year, meaning Bireme missed a year-end bounce for many tech stocks. Apple rose 48% in 2023 and is down 4% so far this year. They also bet against Arm Holdings
ARM,
-1.81%
in the second half of last year, saying valuations were too rich and its aims to raise chip prices could backfire.

The team also took a short position on C3 ai
AI,
-2.94%,
slamming the provider of AI enterprise software for cash burning and changing its names to suit “whatever hot new trend they were supposedly capitalizing on.” Better bets are Snowflake
SNOW,
-5.14%,
GitLab
GTLB,
-4.40%
or Datadog
DDOG,
-1.88%,
they say. C3.ai soared 156% in 2023, but has lost 13% so far this year.

Apart from tech, Bireme weighed in on consumer staples, noting a new position in British American Tobacco
BTI,
-1.46%

BATS,
-0.13%,
which they say is cheap, with much to offer when it comes to next-generation products. They shorted Clorox
CLX,
-0.33%,
citing long-term headwinds and price rises that came as fewer products were sold, alongside “overpriced” Tootsie Roll Industries
TR,
-1.60%.

“Consumer trends do not bode well for sugary treats that are terrible for your teeth,” they say. “With staples stocks still less than 10% from all-time highs, we expect the sector to continue to underperform.”

The markets

im 94565924?width=700&height=424

As of 30 Jan. ’24; Source VandaTrack, Vanda Research

Vanda Research analysts used machine learning algorithms and several years of data to forecast future retail flows. They say their above chart that indicates retail flows in coming weeks will likely stay robust. “Thus, while downside flow risks from systematic institutional investors are currently a concern given the elevated starting point, equities should be able to rely on retail demand in the near term if trading gets choppy.”

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

Ticker

Security name

TSLA,
-2.24%
Tesla

NVDA,
-1.99%
Nvidia

PLUG,
+19.30%
Plug Power

AMD,
-2.54%
Advanced Micro Devices

NIO,
-2.94%
NIO

AMZN,
-2.39%
Amazon

MSFT,
-2.69%
Microsoft

AAPL,
-1.94%
Apple

GME,
-2.20%
GameStop

META,
-2.48%
Meta Platforms

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