This chart is as ugly as it gets in terms of a topping formation.
Micro shares have fallen $400 in the past three weeks and are now at the lowest since May 26. They’re down 32% after initially surging on the most-recent quarterly earnings report. In that report, the company forecast it would earn $31 per share in the coming quarter with no slowdown in sight.
Annualized that’s $124, which puts the shares at 7x earnings (though the consensus is $73.37 this year). For next year the consensus is $157 so that puts forward earnings at just 5.4x.
So in terms of fundamentals, it’s tough to see a drop in the shares unless you anticipate some kind of breakthrough in memory usage for large language models. The thing is, there have been hints that OpenAI is working on something to that effect, so buyer beware.
In terms of the technicals, the measured target of the head-and-shoulders top is about $500. Down there, you’re looking at just 3x earnings and even if memory proves to highly cyclical (as always) that’s a hard number to get to.
All told, there is a powerful technicals-vs-fundamentals setup here that is the main event in markets right now. The volatility in the chip and AI hyperscaler trade is intense right now. Earnings season for the spenders is coming up and that could be the reckoning if they pull the plug but right now the murmurs from Meta at least aren’t pointing in that direction.
This article was written by Adam Button at investinglive.com.