🗞 DiSAASter In The Making

WHILE YOU POUR THE JOE… ☕️

Over $1 trillion USD has been invested into artificial intelligence CapEx…

What have these hyperscalers gotten in return? 👀 

$20 billion in revenue, and 88% of that comes from two companies alone.

So tell me again how investing in AI stocks is going to be good for your portfolio again?

Look, there are some good companies out there with genuine service moats and unique audiences that can likely weather this storm.

But the majority is truly in an easily replaceable landscape.

I mean, some guy just made a fully functional language app that does exactly what Duolingo does (he did it using ChatGPT).

Which is why I’m going to show you one of my short picks in the SAAS space, I think it has ridden the AI hype way too long now. ⬇️ 

Before we get to the short though, I want to show you my long in the finance industry, and in case you haven’t noticed…

Yes, we are ALWAYS trading in long/short filters.

Because assuming a linear position is futile for your future success, but most don’t learn that until it’s too late, and either:

• Blow up their entire savings

• Grow bitter toward the game itself after all the pain

• Remain convinced that their current system will bring them success

Let them be, more for you, right? 🤷‍♂️ 

Anyways, walking you through the entire premise (and importance) of long/short equity would take a few newsletters.

Five to be precise.

So I broke down exactly what you need to get started in this turbocharged path to success in a free 5-day email experience.

It’s called The Sovereign Trader Playbook. ✅ 

Speaking of stock picks, let’s get on with today’s email 📧…

READY THE CHECKBOOKS
T Minus…

I’m sorry to break it to you, but the housing market is in the toilet right now. 📉 

We have roughly 50% more inventory now compared to last year (see above), and no willing buyers to come in and take these listings off the market.

There are a few reasons for this:

• Price/Income ratios are near cyclical highs

• Mortgage rates have priced out most would-be buyers

• Demographics are changing

More on demographics, do you really meet any members of the younger generation who are dying to buy a home? 👀 

I don’t.

They all want to save money (preferably with a remote job and living in a cheap country) only to then buy stocks or Bitcoin.

The American Dream has changed for them.

Nonetheless, people will still need to buy homes, and if not people, then investors so they can rent them out.

Which is why I landed on Rocket Companies stock as a long candidate. 📈 

Let’s Rewind

For reasons our alumni already know, the finance industry became of interest to us this month.

After breaking down some economic data, it’s clear that a potential earnings expansion may be happening there.

This is the Industry Hierarchy chapter within our flagship program The Sovereign Trader. ✅ 

And also where our edge begins. ⬇️ 

Inside the finance industry, a couple of stocks stood out to us as potential buys, those being:

• Rocket Companies

• Applied Digital

However, it was hard to pair Applied Digital with a hedge in the SAAS industry, which also showed up as a short recently.

So we decided to go with Rocket Companies instead.

Here’s why:

• Analysts expect to see 175% EPS growth in the next 12 months

• A premium Forward P/E is therefore justified

• Same story for P/B and P/S

We have a lot more to cover here, so I’m going to skip the KPIs and financials for now, but know that we’ve already connected the dots here.

Before I give you my short hedge, here’s one last pointer on the Rocket Companies bull case:

Building permits are down 5.7% on the year, and reaching a historical division line between boom and bust. 📉 

What happens at this level is key for what’s next in the housing market.

And the only sensible path now is that this excess inventory needs to be moved, ESPECIALLY if the Fed cuts rates in September.

That means more mortgage origination, user data, and everything that’s good for Rocket Companies and its bottom line.

Now for the short.

This was a tough call between Adobe and Salesforce.

But the truth is, at the 1.7x PEG for the peer group and the much larger market cap, Salesforce was the responsible choice here.

The bigger they are, the harder they fall right?

Now going back to the start of this newsletter.

SAAS is becoming a diminishing returns business, and with commercialized AI allowing people to do most of the things companies like Salesforce are known for, what’s the true value add here?

Also, look at the top and bottom line for the company.

It appears that a significant decline is expected in the next 12 months in terms of revenue and earnings. 📉 

Effectively throwing Salesforce into ex-growth status, giving us the opening we need to add it to our roster.

What comes after this is structuring the trade, spreading the stocks and making sure there’s something here statistically speaking. 🔢 

That will be the subject of another newsletter.

For now, at least you know where we’re hunting.

By the time we publish our research and stocks of interest, it might be too late for you.

Which is why I encourage you to join our free 5-day email experience, breaking down the tools and concepts we use to come up with ideas like these.

It’s live now, and the first breakthrough can be in your inbox tomorrow.

Sign Up Here. ✅ 

To your success,

G 🫰 

GO AND MAKE IT HAPPEN
Coming Soon

If and when the United States economy reflects a recessionary state, then you might want to know where your money could be better placed.

Some of you will hate today’s book recommendation 📖, and others will say it changed your entire worldview.

It sure as hell changed mine.

To your success,

G. 🥃