Buy the Dip In Big Tech?

Good morning investors,

With tech getting crushed across the board, I started dabbling in oversold names, rotating capital into AMD, Microsoft, Nvidia, Netflix, Meta, and Tesla from my silver short which was closed out yesterday. Some of these companies reported strong earnings and got punished for factors outside their control. Microsoft at these levels became too attractive despite the SaaS carnage.

This may not be the bottom, but I expect a bounce as this volatility continues. The S&P 500 and Dow both fell 1.2% Thursday, the Nasdaq dropped 1.6%, and Amazon sank 8% after hours despite beating revenue estimates because it guided capex to $200 billion. Bitcoin briefly crashed below $61,000 before recovering above $66,000. We're seeing fear levels that resemble the early stages of a bear market, yet we are only 4% from highs. I don't think this is the big pullback I've anticipated for the year and think the market will recover.

Dow ($DIA ( ▼ 1.33% )) futures up 233 points, S&P 500 ($SPY ( ▼ 1.55% )) futures gaining 0.6%, and Nasdaq ($QQQ ( ▼ 2.03% )) futures rising 0.7% as the market attempts to stabilize after a brutal week.

Amazon ($AMZN ( ▼ 2.2% )) down 7% in premarket after its $200 billion capex guidance spooked investors. But other tech is bouncing: Nvidia ($NVDA ( ▼ 1.64% )) up 3% and Microsoft ($MSFT ( ▼ 0.63% )) gaining nearly 1% after both saw close to double digit declines this week. Reddit popped 9% after announcing an earnings beat, strong guidance, and a $1 billion buyback.

Bitcoin recovered above $66,000 after briefly sinking below $61,000 overnight, a 16% tumble that added to the risk-off sentiment. University of Michigan consumer sentiment arrives this morning with expectations at 55.0.

Amazon shares fell sharply after hours as a modest earnings miss and much larger than expected capex guidance overshadowed otherwise solid results. EPS of $1.95 came in just below the $1.97 expected, while revenue of $213.39 billion beat the $211.33 billion forecast.

AWS revenue reached $35.6 billion, ahead of expectations. Advertising hit $21.3 billion, also topping consensus. Group revenue rose 14% year over year with operating margin improving to 12%.

Where the market balked was forward guidance. Amazon guided Q1 operating income of $16.5 billion to $21.5 billion, below the $22.2 billion analysts expected. More importantly, management lifted 2026 capex to roughly $200 billion, up sharply from $125 billion in 2025.

CEO Andy Jassy framed the spend as a long term bet, citing demand across AI infrastructure, data centers, custom chips, robotics, and low earth orbit satellites. He reiterated confidence in strong long run returns on invested capital.

This selloff looks more emotional than fundamental. Amazon is choosing to reinvest aggressively from a position of strength, not weakness. AWS demand is real, advertising is scaling, and the company has repeatedly shown an ability to turn heavy investment cycles into durable cash machines.

The key risk is timing, not direction. Returns from AI infrastructure will not be linear, and markets dislike that uncertainty. But if you believe AI compute and cloud remain scarce strategic assets over the next decade, Amazon is one of the few firms with the balance sheet, customer base, and operating depth to monetize that spend. For long term investors, this is the type of drawdown that historically creates opportunity.

Big Tech companies have seen over $1 trillion wiped from their market caps this week as fears over AI spending sparked a broad selloff. Microsoft, Nvidia, Oracle, Meta, Amazon, and Alphabet all declined as earnings reports signaled massive continued capex.

The Financial Times reported that Big Tech announced plans to funnel $660 billion into AI this year, a figure higher than the GDP of countries like the UAE, Singapore, and Israel. Questions over the extent of capex, eventual returns, and fear of capacity over expansion will persist.

Apple, which has committed far less on capex than peers, has seen its stock jump 7% since Monday on the back of what CEO Tim Cook called "staggering" iPhone demand. The market is clearly rewarding capital discipline over aggressive AI buildouts in the current environment.

The key focus of Amazon's results was the $200 billion capex guide, up 56% year over year, ahead of market expectations and the highest among hyperscalers. Only Meta and Zuckerberg have managed the magic trick of spending more while winning Wall Street's applause.

The iShares Expanded Tech-Software Sector ETF dropped another 5% Thursday and is down more than 11% for the week, on track for its worst weekly decline since 2008. The nine worst performing S&P 500 stocks year to date are all software and related services names.

Anthropic added pressure by releasing its Opus 4.6 model, described as the "most capable model for all enterprise and knowledge work." On the heels of Claude Cowork, which handles legal, sales, and marketing tasks, this gives Anthropic another push into enterprise while producing projects that normally take days in a fraction of the time.

Goldman Sachs revealed it has been working with embedded Anthropic engineers to co-develop autonomous agents for accounting trades, transactions, and client onboarding. CIO Marco Argenti described it as "a digital co-worker for many of the professions within the firm that are scaled, complex, and very process intensive."

Goldman began by testing an autonomous AI coder called Devin but quickly found Claude worked in other parts of the bank. Argenti said the firm was "surprised" at how capable Claude was at tasks besides coding, especially in areas combining data parsing with rules and judgment.

The big question investors are asking is whether software companies can survive in the middle of the AI supply chain. The key may be their value as navigators of data, regulations, and security. Or simply ease: companies may not want to cook in their own kitchen, and getting tech delivery from ServiceNow or SAP might be worth avoiding the hassle. But right now, the market isn't giving them the benefit of the doubt.

The data turned bleak this week. JOLTS showed December job openings fell to 6.5 million, sharply missing the 7.25 million expected and hitting the lowest level in more than six years. Layoffs increased to 1.8 million from 1.7 million.

Challenger reported January was the worst month for layoff plans since 2009, with 108,435 announced cuts, up 118% from a year ago. Hiring intentions of 5,306 marked the lowest January since tracking began. "Most of these plans were set at the end of 2025, signaling employers are less than optimistic about the outlook for 2026," Andy Challenger noted.

The gap that once defined the worker friendly labor market has vanished. In 2022, there were two jobs per unemployed person. Now it's close to one to one.

Initial jobless claims rose to 231,000, the highest in two months. While winter storms may have distorted numbers, the trend has moved in a troubling direction for most of the past year.

Taken together, the message suggests corporate America has moved beyond trimming headcount at the margins. Companies have embraced cost cutting while pulling back on hiring, a combination that historically signals transition from a growing labor market to a shrinking one. The January jobs report, now scheduled for February 11, will provide critical context.

We started seeing fear levels yesterday that resembled a bear market. The S&P 500 is down 4% from highs set earlier this year and pain is being felt across portfolios. The tough thing for investors has been underperformance of typical safe havens like gold and silver due to their prior short squeeze and retail mania. Everything feels like it's going down.

There have been relative outperformers in international, small cap, and mid cap U.S. stocks, but for the most part, all the names retail owns have been declining. I've had people reach out panicking and getting emotional with their investments, and that's tough to see.

People are trying to figure out what the new Fed chair will look like, trying to rationalize AI spending, and generally seeing money going into precious metals, which isn't a good sign for stocks. I also believe the Epstein files are affecting markets due to the high profile names being mentioned, creating fears around multiple equities and crypto.

I called for a pullback this year, and while I don't think this will be the big 15% to 20% drawdown I anticipated, it certainly has felt like it for some investors. If we do get a bounce from these levels, a lot of people need to get their risk in alignment with their portfolios, because if they're feeling bad now, it would feel awful when it's five times worse in an actual bear market.

Taking emotion out of investing is all you can do. If you're a long term investor, you don't need to ride the emotions of every day's move, as long as the plan meets the goals.

It's been remarkable how small and mid cap U.S. stocks have held up in the face of large cap carnage. Small caps continue to be my top pick for the year and appear far less volatile than mega cap tech. The rotation thesis is playing out in real time.

International exposure has also provided relative shelter. The broadening theme I've championed all year is being validated, just more violently than expected. When Big Tech sells off 4% to 10% in a week while small caps hold relatively steady, that's the diversification benefit working.

I closed my silver short and rotated into beaten down tech names because the risk-reward shifted. Silver's crash from $120 to $64 captured the trade, and now I expect a relief rally. Microsoft, AMD, and Nvidia at these levels represent long term value despite short term uncertainty. The SaaS carnage may continue, but the best companies will adapt.

Amazon's selloff looks overdone. The company beat revenue estimates, AWS is growing, advertising is scaling, and the $200 billion capex is a bet on AI infrastructure scarcity that could look brilliant in hindsight. The market is punishing capital intensity today, but Amazon has proven it can turn investment cycles into cash machines.

The labor market data is concerning. JOLTS missing by 750,000 jobs, Challenger showing the worst January since 2009, and claims rising to two month highs paint a picture of corporate America pulling back. The no hire no fire narrative is shifting toward actual layoffs.

For investors feeling panicked, this is a gut check moment. If a 4% drawdown is causing emotional distress, your portfolio may not be aligned with your risk tolerance. The actual pullback I've anticipated for this year could be 15% to 20%, and you need to be prepared for that without making fear based decisions.

Volatility creates opportunity. The bears and end of world callers are out in force, which typically marks opportunity rather than danger. Stay disciplined, keep emotion out of it, and focus on the long term plan.

Have a great weekend.

As always, feel free to reach out with questions about positioning.

Dan Sheehan

[email protected]

This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.