04.06.2024 Issuer Call Redemption Notice

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Big 7 vs Reality

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· Mega-cap tech stocks once again carry the market on their shoulders.

· Nvidia suffers the major blow from the rising geopolitical conflicts.

Last week, the big seven stocks climbed to an all-time high, as their concentration reached nearly 30% of the entire S&P 500 index.

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However, excluding the „Magnificent Seven”, most stocks in the index look somewhat undervalued. The S&P 493 (Ex-the Mega 7) trades at a handle of 16x, below its 10-year average of 17x.

Regarding the „Big 7”, these large-cap U.S. tech stocks trade at considerably higher valuations than the other 493 stocks in the index. Many investors have piled into those high-flying big techs: Apple, Microsoft, Amazon, Google, Nvidia, Tesla and Meta.

To put it differently, for every dollar you invest in the S&P 500, almost 30 cents go to just seven stocks, and the remaining 70 cents go to the rest of the 493 other stocks.

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So far this earnings season, stocks have seen a lot of downgrades. Fidelity forecasts Earnings Per Share (EPS) jumping 12% for the next two years, which looks ambitious. Should bond yields continue to climb to a 5-handle, levels not seen since 2007, there will be even more pressure for sky-flying tech stocks to correct. Not to mention that the high probability that we head into a recession scenario, which would be very negative for the bulls.

The rising trade war between the US and China will only add further headwinds for equities, on top of the escalating conflict in the Middle East. Those geopolitical risks could lead to high-tech valuations, correcting the downside as risk premiums increase.

One of the leading stocks, Nvidia, has seen its biggest drop this year as President Biden restricted AI chip sales to China. The goal is to limit China’s “access to advanced semiconductors that could fuel breakthroughs in AI.”

Nvidia substantially relies on China for the graphics processing units (GPUs), as the chipmaker generates over 22% of its sales from the 2 nd largest global economy.

Shareholders were stunned as the stock vaporized nearly $100 billion in Market Cap in just 24 hours after the announcement from Biden’s administration.

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US commerce announced that the goal was to curb China’s access to advanced chips, which „could fuel breakthroughs in AI and sophisticated computers.”

GPUs have been a critical component for training AI models for tech, start-ups, and even governments.

Nvidia has been trending downward since September. If this trend continues and breaks critical support levels of 410 and 400, it has the potential to drag down the remaining big tech giants’ valuations and the entire S&P 500 index with them.

Investors could long the S&P 500 using our 3x US 500 , 5x Long US 500 , or short it using our -3x US 500 .

Alternatively, they could bet again the big tech using our -1x NVIDIA , -3x NVIDIA , -3x Apple , -3x Microsoft , -3x Amazon , -3x Alphabet , -2x Tesla , -3x Tesla .

Also, traders might continue riding the tech wave using our 2x NVIDIA , 3x NVIDIA , 2x Apple, 3x Apple , 3x Microsoft , 3x Amazon , 3x Alphabet , 2x Tesla , 3x Tesla.

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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