A Fresh Opportunity Unearthed by Falling Markets – Fat Tail Daily

Three things you need to know today…

1. Here at Fat Tail Daily, our contrarian hat always sits at arm’s reach.

Today, we put it on, and ask:

Is now actually a brilliant time to be picking off certain AI stocks?

They officially entered a bear market last week.

The AI trade has powered the markets for several years, as you know. It helped the Nasdaq put on 43% in 2023 and 28% last year.

The investor backlash since Trump took office has been fairly brutal.

And with it you get the usual chorus of mainstream finance pundits and tech spruikers telling you it’s a perfect time to get in.

‘NVIDIA’s 30% correction makes it a screaming buy!’

‘Picking up Palantir at 27% below peaks is a no-brainer!’

That sort of predictable stuff.

The current AI stock correction may get worse before it gets better.

Yes, it presents a strategic opportunity for investors willing to embrace contrarian principles.

But…according to one of the foremost AI stock analysts around, James Altucher…you should NOT be looking at buying into the AI Phase 1 old guard.

Instead…

You should be using this correction to consider accumulating stocks that might lead to AI Phase 2.

Now is the time to forget about how much the likes of Nvidia can go further down…or further up after the correction.

Instead, James reckons, you should be targeting the new breed of smaller AI practitioners preparing to take the revolution to the next level.

You should be taking this down-move in the markets as an opportunity to consider bargain-buying the future leaders of AI Phase 2.

Right now, we have cooling sentiment after two years of hype.

Infrastructure, hardware, chipmaker, and hyperscaler stocks losing a bit of steam after soaring for ages.

And a new breed of up-and-comers who could take the old guard’s place.

It all looks very much like the transition between Internet 1.0 and Internet 2.0…right?

According to James, we’re at a very intriguing turning point.

ANOTHER Wealth Window could be opening up in AI…

You shouldn’t count out the big first-round players yet.

Especially NVIDIA.

But some Single-Use Chipmakers will fall way back.

Firms lacking diversification into energy-efficient or custom silicon (e.g., some GPU-focused second-tier suppliers) will find it difficult to gain back ground.

Basic AI Model Providers offering generic large language models without reasoning capabilities will likely get leapfrogged by frontier models with human-like logic.

So, who are the up-and-comers to seek out right now?

It’s too much to answer in one Fat Tail Daily.

But James Altucher and I are working on this question…

We’re preparing a shortlist of ‘AI 2.0’ stocks.

Many of which you won’t have heard of.

For instance, James is looking at stocks that will help solve the AI energy problem (AI data centres now consume city-level energy).

Next-gen AI chips…AI networking…AI enterprise…

Phase 2 technologies like AI Reasoning…Agentic AI…

Point being…the playing field is wide open again.

If you feel you missed the first part of the AI boom…you’ve now a chance to roll your sleeves up and get stuck into a phase that may even be MORE profitable.

While commentators obsess over falling stocks and Trump’s trade wars, James has identified what’s really happening:

‘Everybody is worried about everything. Everybody is uncertain about everything’, he says.

‘Meanwhile…while everyone’s looking the other way…a SECOND phase in the Artificial Intelligence revolution is sparking. Now is the time to make some ground-floor plays…’

Which plays? Stay tuned…

2. Don’t forget the wisdom of the ‘billion-dollar brain’ either….

Last year I called one of my issues for Australian Small-Cap Investigator ‘The Billion Dollar Brain’.

This came after I read the memoir/finance book of US entrepreneur Brad Jacobs.

He has created 7 different billion-dollar companies…and is working on number 8. Jacobs is seriously rich…and he began as a middle-class American boy.

The billion-dollar brain is his.

The idea I presented in that issue teed off his style. It’s now up 68% in under a year.

Here was the key takeaway from his book, which I cited in that report…

‘Artificial intelligence is emerging as the central determining factor in whether businesses and entire industries will collapse or prosper…

‘What’s clear is that AI’s impact will eventually exceed anything we can imagine.

‘Many industries got caught off guard by the rise of e-commerce, social media, and on-demand everything, such as music, movies, data processing, taxis, and food. AI will be much bigger.‘

This is why I pay no attention to people who write off AI as a bubble or say the bull market in AI stocks is finished.

AI is going to reimagine the entire industrial landscape. We’re just getting started!

3. Here’s a quote from my colleague Ray Blanco about the latest developments in the AI space…

‘Nvidia CEO Jensen Huang was on stage in his trademark leather jacket. And he revealed something that changes everything about AI investing…

‘The computational demands of next-generation AI are going to be much, much greater than what anyone anticipated just a year ago.

‘“The amount of computation we need is easily a hundred times more than we thought we needed this time last year,” he said.

‘This isn’t just another product announcement or incremental upgrade. This is Nvidia essentially saying: “That massive AI build-out you thought was happening? Multiply it by 100.”’

Excited? You should be.

Best wishes,

Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator

***

By Murray Dawes, Monday, 24 March 2025

Beware the short squeeze in weekly downtrends

There is one truth about markets that we can all agree on.

They never move in a straight line. That is especially true as corrections develop.

The short squeeze occurs when markets rally after a period of selling off sharply.

Traders with short positions, that make money as prices fall, will often get caught out by the short squeeze as prices all of a sudden rise rapidly.

Their buying to cover short positions can lead to a spike in prices that is as quick as it is unexpected.

But then once the panicked buying has finished the sellers will move back in and there is often not much buying support around.

Prices can all of a sudden sell off sharply again and head below the previous low in the correction.

I see the short squeezes as a type of mean-reversion event.

Prices head back to test the moving averages and if the selling overwhelms the buyers around that level then next leg down in the sell-off can begin.

In the chart above I have circled the short squeezes in the last major correction that occurred in the S&P 500 in 2022.

You can clearly see each rally heading back to the 10 week and 20 week moving averages before meeting stiff selling pressure and turning back down.

The short squeezes lasted between two and eight weeks before prices turned back down again.

The whole correction took 10 months to play out from top to bottom.

If we are in the early stages of such a weekly correction, we need to be aware of where the key levels are. That’s so we aren’t fooled by the sudden short squeezes that can fool traders into thinking the correction is over.

Until a new weekly uptrend is confirmed I will be viewing markets from this point of view. Expecting lower prices but wary of the sharp rallies that can happen along the way.

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps