“Markets are never wrong; opinions are.”
The above quote came from Jesse Livermore, the infamous trader/plunger/speculator of the early 20th century. To this day, many (including myself) consider Reminiscences of a Stock Operator, a slightly fictionalized biography of Livermore under the name Larry Livingston, the best investing book ever written—highly recommended if you haven’t read it yet.
That said, the above quote came from Livermore’s short book How to Trade in Stocks, which is also a great, quick read and reveals a few tidbits about how he operated back in the day. We had this inscription carved into the mantle of the fireplace in our old office so all of us analysts wouldn’t forget it!
Of course, the quote isn’t to be taken literally: There are obviously times when, say, a stock will tank for months only to reverse higher and recapture lost ground. But the main idea was to avoid arguing with the market—whether amateur or professional—that’s how many investors take on heavy losses, including some of the biggest blowups in history.
I was thinking of this quote recently as we’ve seen the sloppy action in most growth areas turn ugly, especially in tech and AI sectors—frankly, a lot of well-known leaders look intermediate- to longer-term toppy, and some are already slicing through long-term support (40-week moving averages, etc.) and are massively off their highs …
… and yet, at the same time, the firms themselves continue to announce amazing results while often sticking with or raising their multi-year forecasts. Wall Street analysts agree, with growth at most top AI firms expected to remain rapid through 2027, if not much longer. And all that means something has to give: For many fundamentally leading AI names, the valuations are getting very, very tame, especially compared to the expected growth rates.
To be clear, I’m not a valuation guy, but the point is that the market (driven by big investors) is clearly forecasting some sort of AI slowdown or even bust phase starting in the next couple of quarters—while company managements and Wall Street analysts see the historic buildout continuing.
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Take Broadcom (AVGO), one of the leaders in the AI chip space and part of the trillion-dollar market cap club. Growth has obviously been hot (sales up 86%, earnings up 96% in the July quarter), but the top brass says it has a “line of sight” for $230 billion of revenues in fiscal 2028, up from an expected $106 billion this year, with earnings exceeding $30 per share, vs. $11.70 or so seen this year! And yet the stock looks awful, below its 40-week line, no higher than it was 14 months ago and trading at just 17x this coming year’s earnings estimates.
Seagate Technology (STX), one of the two leading plays in hard disk drives, is even more dramatic. In the just-reported September quarter (fiscal Q1 for Seagate), sales (up 61%) and earnings (up 194%) growth remained in the stratosphere, and management said it expects this fiscal year (ending next June) to see meaningfully higher growth than last year; analysts see revenues booming 55%. Meanwhile, the top brass said the vast majority of demand is locked in through calendar 2028 (!), with some deals extended to 2030. But, of course, the stock has tanked, breaking down from a multi-month pattern (nearly 50% off its peak) as it trades at just over 9x earnings estimates for the fiscal year ending next June!
Even lesser-known AI winners are seeing the same pattern. Take TTM Technologies (TTMI), a maker of specialized circuit boards; it does good business in aerospace and defense, but data center demand has kicked growth into overdrive during the past year. And after the recent Q3 report, management remained very bullish, thanks in part to booming orders (more than twice output) and backlog (up more than 100%)--analysts see 2027 bringing sales and earnings growth of nearly 50% and 70%, respectively. But, as with the others, TTMI looks like death, sitting more than 60% off its high, below its 40-week line and trading at less than 10x 2027’s earnings estimates.
My main point in bringing up this topic is simply to highlight the dramatically different viewpoints from the two competing sides—it’s obvious big investors are discounting some sort of mini (or larger) AI slowdown, while analysts and most management teams are saying full speed ahead.
I would expect the tension between the stocks and the numbers to be resolved relatively soon—either some of these names will see big rallies, or analysts are going to have to slash outlooks as reality changes. The most important thing is to remain flexible, but for now anyway, you know my take: In the moment, the market is never wrong, so while bounces are possible/likely, it’s best to tread lightly with these damaged stocks.
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