In the short to intermediate term I see a lot to worry investors and I am struggling to think of any positive developments that will allow the market to climb the wall of worry. 

* Inflation might not be transitory. Wage inflation is certainly going to stick. 
* The consumer is weak, oil prices continue to rise. 
* Geopolitical headwinds loom with the Russian/Ukraine tensions. 
* Covid is still impacting businesses on a daily basis. From restaurants seeing less foot traffic to the Canadian trucker protest. 
* The Federal Reserve needs to respond to the hot CPI prints and we are certainly in a “taking the punch bowl away” environment. 
* The easy money has been made on all Covid beneficiaries and YOY comps are disappointing investors as they release earnings. 
* The supply chain issues are still here, used car prices remain ridiculous. 

If you’re bullish right now what are you looking forward to? The the reopening trade is off the table in my opinion. Digital transformation is largely priced in. At this point I don’t even think a new stimulus check would jolt consumer behavior. 


I take the long view. That's mostly because I've been spectacularly terrible at guessing what happens in the short/medium term (though I still try purely for entertainment, never for investment purposes). Over the long run, one of the things I am most excited about is semiconductors. When you look at the amount of data that is going to be generated by driverless cars (or even electric cars, which have an order of magnitude more semiconductors than gas), personalized medicine, the proliferation of AR/VR, 5G, demand for AI/ML - it all points to semiconductors. What's most interesting about semiconductors is that the leaders are all essentially oligopolies with 25-30%+ net operating margins, with expanding margins, and negligible chance of being replaced. Taiwan Semiconductor is literally the only company on the planet that can product cutting edge logic chips at scale. In a sense, it has 100% market share. It's growing 30%+ and trades at 22X this year. Just last year Intel, NVDA and Qualcomm all moved their cutting edge chips to TSM because it was the only fab anyone could count on. Lam Research, KLAC and Applied Materials all have similar business models to Otis Elevator, but are growing 3X as fast and have 3X the margins. AMD, NVDA, LAM, KLAC, AMAT and TSM are all benefiting from the mega trend of logic semiconductors transitioning from being a cyclical market into a non-cyclical market (or, just maybe, a 10+ year super cycle). AMD and NVDA are also benefiting from the implosion of Intel, which doesn't look like it will stop anytime soon (if it does stop, it will be because the rising tide is so strong that it lifts all boats). Hyperscalers are not sensitive to price when it comes to cutting edge logic chips - nor are auto makers. Those are the two fastest growing segments, with 30%+ growth YoY. The chip cost is almost inconsequential relative to the value it generates. This makes these chips highly profitable, and I don't see that changing. Margins for NVDA and AMD will probably keep increasing even from their already high levels as long as demand grows faster than TSM can build new fabs (TSM is spending $40-44billion on capex this year). The biggest risk to AMD and NVDA in the long run is hyperscalers in-housing design. But that will be years in the making, and as of now all of the companies I mentioned besides NVDA trade at what I consider to be ridiculous valuations given the growth potential. Google, Facebook, Amazon, Microsoft, Alibaba, Etc are going to spend 25-30% more on data centers this year than last (if memory serves). Growth of this pace starting from such a large base is hard to fathom, but I actually think it will be far longer lasting than most people realize. We have finally reached the part of the "knee of the curve" that can almost be observed from year to year - and semiconductors are the best way to ride this wave. They've already had an amazing run, they may well crash, but 10 years from now they will comprise a much larger portion of the indexes than they do today.

Benjamin Buchanan

Name 1 reason to be bullish

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