The N-shaped market has two waves and four points. How can technology stocks set the pace of trading?
Author: Tide Research
Original title: Technology Stock Investment Methodology: N-shaped, four points in two waves
Recently, the SDIC Securities Strategy Team recently published a long report called “Technology Industry Investment Methodology” to try to answer a question that all technology investors ask: how to buy and sell technology stocks.
How much money will a company like Changjiang Electric Power make every year for the next ten years. Analysts can calculate that if future cash flow is discounted back, that is the stock price.
Tech stocks can't figure this out. Because technology evolves by leaps and bounds, one catalytic event can reverse the logic of an entire industry. In 2019, the market thought that general artificial intelligence would take 80 years; 2022 was reduced to 8 years; in 2023, ChatGPT came out, and the schedule was changed again.
The A-share data is more direct: technology stocks that doubled their increase in the previous year fell by an average of 40% the next year. Only 5% of technology stocks can maintain a growth rate of 30% or more for five consecutive years.
The conclusion is,Technology stocks are making lots of money, and they can't get it.
N shape: two waves of the market, four points
The core framework of this technology stock investment methodology can be reduced to one chart: N-shaped. To draw a round of technology market with an N word, there are four key positions: A, B, C, D.
A → B is the first wave, from 0 to 1.
What this wave earns is narrative money. The company has no performance, and even a product hasn't come out yet, but the story is sexy enough. The valuation method is crude: the output value space of the entire industry is captured, the market capitalization ceiling is distributed according to the link, and the market capitalization/output value ratio is capped at about 3 to 3.5 times.
We are now in the direction of stage A → B:Embodied intelligence, low-altitude economy, commercial aerospace, AI applications.
B→C is the callback period.
The first wave of speculation was over, the story was over, and the stock price dropped. Most tech stocks died here, and there was no second wave.
C→D is the second wave, from 1 to 100.
What is being earned in this wave is profitable money. The company began to show results, the penetration rate climbed rapidly, and the stock price went up again, but the price-earnings ratio declined because the profit growth rate was faster than the stock price.
I've gone through the C→D example:Optical modules, PCBs, AI computing power chips, data centers.
Point C is the most important
Point C is the real winner or loser for institutional investors.
Characteristics of point C: The stock price has dropped from point B for a while. The market sentiment is very poor, the ceiling cannot be clearly seen, and most people have very light positions. But it was in this position that performance began to appear, orders began to land, and the fundamentals of the industry actually exploded.
How do you tell when point C has arrived? Of the three elements, it's impossible to lack one:
Capital expenses of giants.Are there any big companies throwing money in this direction. The significance of capital expenditure to the industry is equivalent to the significance of credit to the economy. Without a source of capital, the industry cannot start up. The pace of the AI industry follows this line: from 2023 to 2024, overseas cloud vendors spent capital expenses to buy overseas chains (Zhongji Xuchuang launched); in the second half of 2024, bytes spent capital to buy domestic computing power (Cambrian era launch).
Hot product.Is there a product that rips the penetration rate apart. iPhone 4, AirPods, Model 3, ChatGPT, and DeepSeek, every hit marks the beginning of a C→D round.
The industrial chain has been launched.Has any company received the order? After the giant's capital expenditure and explosions formed a closed loop, companies in the industrial chain began to generate revenue, and a positive cycle began.
The report uses a sentence to summarize: as long as the three elements are in place, we should quickly intervene. This is the most critical action to carry out a round of super markets.
How to determine point D (when to sell)?
This section of the report introduces the “M top” framework. M is the two peaks. The first top is the trading peak (sentiment peak), and the second top is the fundamental top.
On top of the fundamentals, there are three observational signals:Has there been a recession at the macro level, has there been a price war on the supply side, and has capital expenditure on the demand side begun to decline.If two or more of the three appear, this round of the industry market is basically over.
If the leader falls due to macro or external factors, the direction of an industry trend is the best place to buy.
For example, when the NASDAQ fell in 2010, Apple was the point of purchase; when the epidemic fell in 2020, Tesla was the point of purchase; the trade war also provided a buying point for AI technology. Nvidia's selling point mainly depends on two conditions: one is whether the US economy has a hard landing, and if it does, it sells; because the cash flow of the five major cloud vendors is highly tied to consumption, the entire logic fails; the second is whether the competitive landscape deteriorates, and if the pattern deteriorates, it should also sell.
In terms of mapping US stocks, it has historically been an important investment methodology. The Japanese stock market fell 67% from the 90s to the 2000s, but Tokyo Electronics, Edwin Test, Toshiba, etc. performed well. The quantitative logic of mapping US stocks has little correlation with performance, but it has a lot to do with the increase in US stocks corresponding to the target. The most effective is industrial chain mapping, such as Zhongji Xuchuang and Lixun Precision, which can generate big bullish stocks as industry trends improve and profits continue to be realized.
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