I ran into this meme on Reddit and it made me chuckle. When stocks were ripping to all time highs this year, everyone was upset they missed on. SanDisk SNDK 0.00%↑, Micron MU 0.00%↑, and semiconductors ripped higher. Now that we’re seeing the markets treat a bit, investors are scared to pull the trigger to add more.
Now that we’re seeing the market drop by double-digits, this is the opportunity we’ve been waiting for. The markets have fallen back down to a reasonable valuable, based on forward looking earnings and fundamentals. Now, I’m not going to pretend that I know where the bottom is, but I do know that the outlook is incredibly attractive. If you follow me, you know that I’ve been pretty consistently accumulating ETFs like CGDV 0.00%↑ and VFLO 0.00%↑ every week.
Similarly, you also know that I hold a mix of high yield ETFs and classic dividend ETFs to create a growing income stream. This way, I collect income no matter what direction the market is moving. For instance, I recently shared a comparison piece on SCHD 0.00%↑ and DIVO 0.00%↑. I think these funds will outperform the S&P 500 through the remainder of the year just because they hold more boring blue-chip consumer companies, which aren’t related to the AI trade.
With that said, the market is seeking stability right now. So in the short term, defensive funds will probably do better than the technology sector. However, I think the indsutry forecast for 2027 still shows us that technology has lots of growth left. A Democratic Congress took over, interest rates are trending higher, inflation is rising, and hyperscalers are burning through free cash flows. Despite all of this, AI is here to stay and I think there’s lots of proof that companies we hold ( META 0.00%↑, MSFT 0.00%↑, AMZN 0.00%↑) are all heading higher through 2027.
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Demand Didn’t Move
But first, let’s talk about what just happened. Semiconductors declined hard. Capex spending was the issue a few weeks ago during the last earnings season, which I already covered. It’s the reason why the Mag 7 sold off. Now, the market is selling off AI and semiconductors because a Democratic Congress is assumed to push back on data center construction. If regulatory changes push back the infrastructure to support AI, this can eventually translate to slower earnings growth. However, I don’t think you should stress any of this shit.
Republicans, Democrats, Trump… none of it matters. Historically, the market has always gone higher after midterm elections. In fact, the current setup is perfect. A President that opposes a Democratic Congress means nothing gets done. On average, the market has traded higher by 14% over the twelve months following midterms, since 1950.
Do you really think this time is any different?
Nothing getting done means that the market gets a sense of stability and predictability. Pushing past this noise, I think there’s plenty of data to confirm the fundamentals are still strong.
For instance, the latest forecasts estimate that chip sales will roughly double this year, while growing another 29% in 2027. Then, the latest earnings season consisted of management teams confirming the outlook is attractive and guiding revenue and earnings growth higher. The buyers of those chips are the same companies the market is worried about. Their spending budgets are trending higher because the reality is that you need to make money to earn money.
However, the pullback is clearly an opportunity when looking at the valuation across the hyperscalers. As you probably know, one of my larger positions has been CGDV (Capital Group Dividend Value ETF) because of its high quality holdings and outperformance against the S&P 500. We can see the companies across CGDV and here are some of the valuations of its largest positions:
MSFT: forward P/E of 26.62x.
Nvidia NVDA 0.00%↑: forward P/E of 18.67x.
META: forward P/E of 20.95x.
AMZN: forward P/E of 20.24x.
Therefore, I will continue to accumulate CGDV and all of the hyperscalers through this weakness. That’s it. Nothing special here to report and I’ve struggled with this. I can easily sell you some nonsense about why Democrats are going to crash the market, or why data centers are bad, or why interest rates will cause an influx of mortgage defaults.
All of that is just noise. Let’s focus on the future and how we’re growing our wealth through consistent actions over time.
The Chip Companies That Pay You To Wait
You know that I love income from my portfolio. Therefore, I wanted to share a few different positions that are aligned to pay growing dividends through the chip frenzy, that will likely continue to pay higher dividends over the next decade.
I still earn roughly $43k a year from my portfolio through weekly paying ETFs. However, I will highlight four positions that provide growth and a small dividend, with the potential to pay fat raises.
