BE READY! Tuesday Could Change Everything for Stocks

Hey, bow tie nation. Joseph Hog with your weekly stock market outlook and a giant update for you this week. SpaceX just added $750 billion to its market value. Synopsis announced a billion dollar Amazon deal and AI stocks are crashing on an open AI report that is bigger than destroy all humans. But the biggest warning could come on Tuesday with inflation threatening to send stocks plunging again. I'll break down the stocks I'm buying this week, the biggest opportunities, and why we could see that big sell-off this week. First up though here, SpaceX ticker SPCX has rallied 54% from its July low, adding $750 billion back to its market cap with investors and analysts slowly coming back. An analyst at Barclays initiated coverage at a $254 price target. And Thursday's news that the company would purchase lowband spectrum as part of its plan to offer wireless service not only boosted its shares, but drove telecom carriers like AT&T and Verizon lower. Now, the valuation here is a little better than when the stock jumped to $225 each after the IPO, and analysts are forecasting $155% revenue growth with $2 a share in profits for next year. But this one is still trading on a lot of that hope for future growth, even on that $2 a share in profits. It's a price of 80 times earnings and a price to sales of 43 times this year's expected revenue. Now, that's not too expensive for that kind of growth expected, but any disappointment in those numbers is going to hit the stock hard. But what is still really keeping me on the sidelines here is this lock up expiration that we'll continue to see until early December. Companies just don't allow their employees and insiders to sell their shares immediately after an IPO. Instead, locking them up for about 180 days, or like SpaceX did here, staggering those unlock dates. We're about 120 days since the IPO, which means about a 48% of those shares have been unlocked and can be sold, but still another 52% to be unlocked through December. And that means more shares available in the market and without a strong turnout in buyers that just naturally weighs on the share price. So I'd be holding off for another month here. I'm also watching Synopsis ticker SNPS where shares surged 10% following its investor day with three major announcements that could fundamentally change the company's growth. First here the company announced a $1 billion plus agreement with Amazon to provide intellectual property for its custom chips including the tranium AI processors and Graviton CPUs. Now, beyond licensing fees, Synopsis is going to collect customization fees and royalties as Amazon produces more chips. What I like most about this is that recoccurring revenue stream that could create out on licensing. Second, those synopsis also partnered with OpenAI to develop a GPT synopsis, a specialized AI model that could automate complex semiconductor design. Now, this could be a breakthrough waiting to happen. AI helping design the next generation of AI chips. On the deal, the companies are going to share revenue from the technology, potentially opening up an entirely new market for Synopsis. But the biggest surprise of all this was the financial outlook. Management guided to 15% annual revenue growth through 2030 with 2027 revenue reaching 11 billion, way above analyst expectations. Even more impressive though, was Synopsis projected adjusted operating margins expanding from 44% in 2027 to 50% by 2030. So, not only solid revenue growth, but also converting more of that into profits as well. I'm starting to really like this stock, and I'm preparing a video for Wednesday on its tie-up with Nvidia as well, highlighting the company's benefit from increasingly complex chip designs, regardless of which semiconductor manufacturer ultimately wins. That agreement with Amazon, though, also got me thinking about Amazon's other investments, other companies it might want to boost with extended partnerships. According to its most recent 13F filing, Amazon holds shares of six companies totaling over $4 billion. Now, the largest investments here are in X Energy and Rivian Automotive, ticker RIVN. But I'm especially interested in the investments here in Astera Labs, ALAB, and Marll Technologies, MRVL. Astera is a smaller rival to Broadcom, ticker, AVGO, and Arista Networks, A&E, in that data center networking space. And while the stock has traded sideways since June, this is one of the biggest bottlenecks in that AI supply chain. So, I like Astera on that theme. Marll is another one of my favorite AI stocks and a key player in the accelerator chip buildout to compete with Nvidia's GPU chips. But what's really interesting here is that Nvidia is now bringing Marvel into its own ecosystem. So, not only competing with that company, but also working with it in chip development. Memory stocks plunged last week along with other AI names when OpenAI revenue numbers renewed fears about that AI spending. Open AAI told its investors that its annualized revenue reached $50 billion by the end of September, up more than 130% from last year, but still falling short of the $70 billion forecast the company made just August. Now folks, this is the big fear AI investors are facing that that revenue growth ends up being just too slow to justify trillions of dollars in spending. I do believe that day comes, but likely not for at least a year. The OpenAI report was more of a change in accounting than anything, adjusting for how it reports revenue to to more closely match that of Anthropic does. So, it's never should have been promising $70 billion in the first place. And 50 billion is actually pretty good. Given the selloff though, we could have a good opportunity to pick up some of these names in the space. The AI, memory, and storage space. I've got the four leaders here next to each other for a comparison. Micron Technologies took our MU, STX, that's Seagate Technology, Western Digital to our WDC, and SanDisk Corporation ticker SNDK. Really SanDisk and Micron really the key players in there. We're going to see that in this one-year chart. SanDisk up just almost,00% over the last year. The others not doing too badly either. Micron up 435%. Seagate up 253%. Western Digital up 231% over the last year. But let's look at this 5-day chart cuz this is where we really saw the the crash here last week. Micron down 3%, Seagate down 11.7%, Western Digital down 9, and SanDisk down 8% last week mostly on that news about OpenAI. But if we scroll down to compare the growth across these and then the valuation, we will see that these are still expected to grow very well and the valuations are getting attractive for these especially after that drop last week. We can use the re the forward revenue growth. So this is the revenue growth analysts expect the companies to post over this next year. Micron expected to double its revenue again this year. 104% growth there. Seagate 41%. Western Digital 40% and SanDisk also expected to double its revenue growth. So Seagate and Western Digital a little bit slower growers there. Not quite in that AI um AI memory space like Micron and SanDisk both expected to double their growth over the next year. We can look at uh IBIDAG growth which is that earnings before interest, taxes, depreciation and advertisation. This is that key earnings growth. Really shows you the profitability here. Not only are these companies expected to almost double or to more than double their revenue growth, but they're going to grow their earnings even faster, folks. That is a core sign of profitability for these companies and how the shortage of those memory chips has played a factor of them being able to basically raise their prices, drop their marketing and other spending and really increase profitability. 151% EBID growth for Micron 278% EBITD growth or earnings growth expected for SanDisk over this year. Scrolling back up here to compare these on valuation. See which one's the best deal with this price toearnings to growth ratio. This PEG ratio basically again this is just the PE ratio that core measure of valuation. How many dollars are you paying for every dollar in earnings for this stock and then adjusted for that growth to put them on more of an even playing field. All of these companies growing their earnings very quickly. But here we can see adjusted for this growth. Micron by far the least expensive of the group just 009 times on this price to earnings to growth ratio. The others though not expensive at all. If you compare them against other uh similar AI related stocks here, SanDisk 09 times on a price to earnings to growth ratio for Seagate and Western Digital a little bit more expensive, which is interesting because they're not growing as fast either. So, really want to focus here on Micron and SanDisk for pickups after that sell-off last week. AI power stocks, especially those in the nuclear generation space, jumped last week on a 20-year agreement between Google and Constellation Energy. That's ticker CEG. This follows a similar deal with constellation and Amazon, as well as a $4.2 billion loan from the US Department to Vstra, ticker VST, to finance its improvements on its own nuclear sites. Folks, this is one of the biggest bottlenecks in that AI supply chain, getting the power to those data centers. Now I focused on pure play AI names like Bloom Energy to grow BE and Verdive VRT in the past but I also want to broaden this out to compare with those other power producers those in the nuclear space which is really catching a bid lately. Here we have Bloom Energies BE Verdive Holdings VRT Quant Services PWR Monolithic Power Systems MPWR and then here the the nuclear players Vistra Corporation ticker VST and Constellation Energy CEG. Looking at the five-day chart, we can see how these reacted to that news. Constellation Energy up 15% last week, Vista up 13.6%, Quanta there, PWR up 5%, but the rest of them selling off a little bit after a very good year. Bloom Energy down 2%, Verdive down 4%, and Monolithic Power down 4.4%. Here, I also like to look at the longer term, the one-year picture, because it can speak volumes on what the market is telling you about which stocks have that competitive advantage, which stocks they think are going to continue to to rise on this, where maybe some opportunities are over the last year here. Bloom Energy still up 223% over the last year. Quantum up 64%, Verdive up 43%. Really the key players in that AI power generation uh buildout theme. Monolith monolithic power of 41%. Constellation and Vista down 22 and 23%. Nuclear not getting quite the bid that uh that it has for those other those other faster colloccated uh power generators there. But now we are seeing investors come back into these nuclear stocks. Could be good deals waiting in CEG and VST. Scrolling down here comparing these across growth in revenue. I think we'll see why Constellation and Vista have struggled have lagged these other these AI power related names over this last year. Bloom Energy expected up 66% for revenue growth this year. Verdive 31% quant services 24% and Monolithic Power expected to post about 34% revenue growth this year. But then we see Vista and CEG constellation expected to post revenue growth of only about 12 and 16% this year. So obviously you've got a distinction. And you got a difference here between the more legacy traditional power generators, the nuclear generators, which obviously take a lot longer lead time to put put up a nuclear plant or increase that capacity versus these faster uh these new faster AI related power generators. A lot of these bloom energy can collo collocate power with a data center as little as 90 days. Okay, so very much quicker, very much u more ondemand power for these. So that's why they are growing faster with the AI trade here. And we're going to see some of that difference here in the valuation numbers. We're going to use a combination of uh the price to earnings, the non-GAAP, and the GAAP basis numbers. Of course, you know, GAP generally accounted, generally accepted accounting principles. That's just the official accounting that companies always put out on their financial statements required to put out this non-GAAP is more adjusted for reality. Okay. So removing one time one-time items and such. So for PEG the price to earnings to gap ratio we have bloom trading at just 04 times that is on on top of its 100 plus percent uh increase in re or in earnings each year. Okay so obviously a very high price to earnings ratio. This is a very expensive stock just on the basis of how much you have to pay for those earnings. But those earnings are growing so fast that it does uh it does lower that valuation and make it a little bit better deal at least uh against that that base number. So PEG for Bloom Energy 04 a little bit higher 49 for Verdive and a well higher 2.27 for quant services 1.5 for monolith monolithic power. within those pure play AI power generation trades. Bloom still the better deal even after that 230% return over the last year on the nuclear plays. Vista just.5 times on the price to earnings adjusted for growth basis. Constellation Energy 1.5 times. So Constellation clearly getting more investor attention here. I do like Vista in comparison on that valuation and on relative growth here. still growing relatively uh quickly compared to CEG, but is much better valued here. So, Vista and Bloom Energy for these uh power generation stocks. Bank stocks are going to kick off the third quarter earnings this Tuesday and what is expected to be another extremely good profit reporting for stocks. Overall, Wall Street expects companies in the S&P 500 to report profits were up 30% from last year. That's going to be the third straight quarter of earnings above 25% for the index. Now that said, earnings for the banks and the financial sector specifically are are looking very weak, expected up just 3% over the last year. Of course, the big question here is going to be how those rising treasury yields are affecting the banks and the higher long-term rates can boost their interest income as the banks reinvest their assets into higher yields. But also, those existing investments in bonds lose their value. Now, those of you out there in the nation, especially if you watched last week's video, you know I'm not a big fan of these legacy banks. I think the online the fintech banks have got their number with the higher deposit rates attracting more depositors into those online banks versus these. But we will see some major banks, Goldman, JP Morgan, and Wells Fargo all going to be reporting Tuesday night starting that earning season. I'm going to be watching the outlook for loan growth as well as deposit rates and how it's going to affect the profits. Looking at the one-mon chart on these stocks, it is clear that what the fear is over those higher deposit rates. Most of these banks pay less than4%. That's basically the national average for savings on deposit rates. A lot of these banks pay much less than that compared to three and 4% you can get from some of the online banks like SoFi. So a big fear that these banks are going to be these legacy banks are going to be forced to raise their deposit rates. That's going to narrow that spread the money that they make between what they pay out in deposits and what they bring in on those loans and it's going to hit some of the net interest income. So the uh the margin that they make on this over the last month. City Croup down almost 6%, JP Morgan down six, Wells Fargo down 6.8, US Bank down 8%, Bank of America doing worse at 13% down over the last month. But I don't want to totally ignore these stocks. So I do want to compare them on growth and then valuation. See if there might be some pickup opportunities, especially after that selloff over the last month. Here we can look at revenue growth here. Cityroup 7%, JP Morgan about 6 and a.5% and US Bank expected to post revenue growth about 6.8%. 8%. Wells Fargo, the lagard of the group, expected to only post revenue growth of about 4% over this next year. Bank of America though, kind of surprising because it's usually lagged uh some of these others like JP Morgan in the past, but now expected to grow revenue at 8.5% over this year. Scrolling up here and using this price to book valuation. We can use price to earnings on these as well. But for bank stocks really just because how they carry their their deposits and their loans on their balance sheet. It's a very good estimation of their actual book value, their actual value of the uh of the bank. So we can use this price to book. So that's how much you're paying for every dollar in book value for these shares. And we can see here trading for 1.13 the lowest of the five bank stocks here. But you got to understand Croup always trades lowest. Okay, Cityroup investors just are not willing to pay very much for a share of Croup which tends to slow grow slower since tends to have a little bit more risk than some of these other banks. So 1.1 times uh price to book value is actually probably about fair value, maybe even a little expensive forgroup. Here we see JP Morgan trading for 2.5 times. Of course JP Morgan always trades a little bit higher as well just because it grows grows faster. it grows. It's got a better a better scope of products and really a a worldclass uh investment bank as well as bond trading. A lot of a lot of good good products there from JP Morgan but at 2.5 times price to book very expensive. I wouldn't touch it here. What I would look at here though is 1.4 times for shares of Bank of America. We saw it was growing faster on a revenue basis than these others and it is trading relatively cheaply against some of these other stocks. Definitely looking at Bank of America ticker BAC right here for the broader market and our market outlook. Earnings are going to show two very different worlds for investors. Looking here at Faxet Research, the earnings growth expected quarter 3 for 2026. So that is the the quarterly earnings that are going to start reporting just this Tuesday. Here you see well higher oil prices have meant 121% profit growth for energy companies. That is profits net income up 121% over the last year. The AI growth story also meaning 50% plus earnings growth for stocks in that technology and the communication services sector. Most of these most of the rest of the market is lagging badly though. Here we see stocks in six of the 11 sectors are expected to report earnings grew less than 10% over the last year with with four of these with profit growth under 5% for the quarter. And we'll look at valuation next. But among the group here, I do continue to like tech stocks on just that continuing AI story. Energy stocks might be tapped out here, especially on any hormuse deal after the midterms. Okay, so President Trump has said that they the US won't attack Iran again until after the midterms. I think Iran is just holding out on a deal to to inflict maximum political pressure on on the Republicans and on President Trump. It's the exact same playbook they used back in the 70s against Carter, only releasing those hostages on the day that Reagan was sworn in in 1980. So obviously same playbook. They're just waiting until after the elections to really finalize some kind of a deal. Stocks in the material sector are also still looking pretty good supplying those building materials and the copper that all the stuff that goes into data centers for that AI buildout. I'm bringing up the rear here though. Healthcare stocks are also a good bet if you're worried about any eventual weakness in the market and and around AI. a profit growth of only 4% from last year hasn't helped the healthc care stocks over the last few months, but it is a reliable cash flow group that that you can count on long-term. Now, where this really gets interesting though is combining those profit growth numbers with the valuations. Here we see. So, here we see S&P 500 SE sector level forward 12-month PE ratios. I know that's a mouthful, but what this is folks, this is those PE ratios. So, what you're paying for every dollar in earnings, the price divided by earnings, that key measure of valuation. This is forward though. So this is the earnings expect analysts expect these companies and in these sectors to report over the next uh 12 months right so what we're looking at here is all of the stocks in each sector all the stocks the biggest stocks in the United States the S&P 500 stocks in each sector so all the stocks in the consumer discretionary sector all the energy and oil stocks in that energy sector the price to earnings ratio for those compared to the 10-year averages right so how expensive are they now versus how expensive have they been in the past? Give you a really good measure of really key uh prof or valuation and and expensiveness compared to what investors have been willing to trade in the past. And looking at this chart, the good news is that even in the hottest sectors, stocks aren't terribly expensive here on that price to expected earnings basis. So looking at the current price of the stocks in each sector divided by their earnings that the companies are expected to report over the next year. That's the dark blue bar here, the current one here in this fact set bar. Comparing that with the 10-year average valuation, that's the one in the green there shows most sectors aren't expensive and some are even at good deals compared to what investors have paid over the last decade. Now those trading at valuations under their 10-year average. So that's the dark blue bar is lower than the green bar here. those that trade at a good price or a good discount to their long-term average. Utilities trading for just 16 times versus a 10-year average of 18 times price earnings. So about an 11% discount to that long-term average. That's followed by materials trading for 16.6 times versus 17.8 times average. Again, earnings growing very strong for the material sector just on that that demand for materials, the cement, the construction, the uh the copper, everything that goes into those data centers. Real estate stocks also a good deal here at 16.7 times versus 18.6 times price to earnings average though I think it's these are going to get cheaper on that rising interest rate. So I'd hold off on real estate stocks but already looking very attractive on valuation. Now folks the big warning though is going to come on Tuesday with the consumer price index the CPI measure of inflation. The market shared last month's personal consumption expenditures. That's the PCE report on inflation for August that came in well below expectations. But one look at what happened to oil prices in the last few months shows you how this could all come back to bite us in the ass with this month's inflation numbers. The price of crude came down from July to August and contributed to that softer August inflation that the market loved so much. But then the renewed attacks on Iran oil surged to new highs in the year for September. Now of course the market is expecting some of this and is forecasting CPI inflation up 6% for the month versus just 4% for the prior month. That headline number is also expected to jump to 3.7% inflation over the year versus 3.4% reported last month. But there is still a chance we see inflation even higher than this, which which would be a huge weight on stocks. Now, I still like some of those opportunities in AI related stocks, especially the memory names and the other hardware. But you need to be ready for what could be a rough week on those inflation numbers and save some of your money aside to buy on that dip. Now, if you're still looking for more stock ideas, YouTube thinks you're going to love this video on the right next.