Podcast with Motley Fool: I/O Fund’s View of the Growth Market Right Now
May 06, 2021
I recently joined the Motley Fool podcast with Brian Feroldi and Brian Stoffel where we discussed electric vehicles, artificial intelligence, and whether growth tech investors should rotate into value. Below, we provide a summary of each video and YouTube clips.
As a bonus, I’m also adding my take on Fastly from podcasts with the Motley Fool and Chit Chat Money. While I remain bullish on the future of edge computing, I voiced my doubts about Fastly when the stock was skyrocketing, reaching a peak of $136.30 last October and a lower high of $122.75 early this year. I summarize my view below.
Why I/O Fund Is Not Selling Growth Stocks
For us, the most important question is whether we are in a secular bear market. We believe in long term buy and hold—except in a secular bear market and a long economic recession. This is because the goal is to avoid holding positions at a loss during an extended period of time. Therefore, in any selloff, the question we ask ourselves is whether this is a quick correction or secular bear market. Unless you are a day trader, most investors are better off holding through these quick corrections than trying to time both an exit and an entry.
We are not financial advisors, but based on the indicators we follow for our portfolio, we are positioned for a continuation of the long-term uptrend. We anticipate potential strength into the summer months with a high consumer savings rate, strong GDP, and dovish monetary policy from the Fed. Those are excellent signs for a strong economy. The I/O Fund did some buying in late March and are not letting the news headlines push us to close our long-term positions.
On that note, I only recommend a stock if my conviction can withstand a 30% selloff. This is because most tech growth stocks go through periods of exuberance and fear/doubt a few times.
Why I’m Bullish on Electric Vehicles
Last time I spoke with Motley Fool, we discussed electric vehicles. Although stock prices have come down, we remain long. The personal savings rate in the U.S. has soared, reaching 13.9% in February and 27.6% in March. As a result, we expect the auto sector to be strong. Electric vehicles are also answering multiple problems. For example, in China where there is less access to oil the government incentivizes EVs through subsidies. Manufacturers are also producing EVs with cutting edge technology at close to the price of a traditional vehicle.
The AI Economy Will Be 4x Larger Than the Mobile Economy
We are long Nvidia for the trend of artificial intelligence. The AI economy is projected to be four times larger than the mobile economy, and the mobile economy brought us FAANG stocks like Apple, Facebook, and Google. I expect to see some FAANG-level companies arise from the AI economy.
Fastly: Not a Slam Dunk
Last December, I joined the Motley Fool Podcast and voiced my doubts about Fastly. I later discussed Fastly with Chit Chat money. Fastly is not a slam dunk, and I voiced my doubts when the stock was skyrocketing. Below I summarize both videos.
Content apps are a great market for Fastly, but for the really big problems that edge computing will solve, it will be difficult for Fastly to be a clear leader in that market. That doesn’t mean Fastly can’t pull it off, and I’m always for everyone making gains. But I prefer slam dunks and my point was that Fastly would face serious challenges and investors were not factoring that in by saying “Fastly was an edge computing leader.” In fact, Fastly has not had edge computing revenue for nearly 16 months after the launch of the Edge Compute product.
Content app developers will say that Fastly is delivering content in under 20 milliseconds and therefore it is edge. However, Fastly’s core competency is a CDN, which is a space that has been highly competitive for 25 years. CDNs saw major tailwinds from streaming and usage last year, however, this was revenue was not due to edge computing.
As a tech analyst, I stuck my neck out to make sure people knew the real story. It was bold, as this was a favorite stock on social media, and there was a flood of negative responses after I simply pointed out that edge computing was not contributing to the current growth.
There are big problems that can be solved with edge computing and I outline this in the video. There also still seems to be an absence of discussion in the retail community around AWS, Azure and GCP moving into this space with telecom partnerships. Projections show that 75% of data will come from the edge. That will be mainly answered by the companies who own the cloud computing market—Amazon, Microsoft and Google.
In the past, I was also asked what company I would choose between Cloudflare and Fastly; I said Cloudflare due to their strategic approach to capture SMBs. This is a market where Cloudflare performs well.
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