Warning for 2025: Tech Stock Bubble Risks and Alternative Opportunities
1min read The Magnificent 7 tech giants drove a stellar stock market rally in 2024, dominating headlines and boosting the Nasdaq to record highs. But can this momentum continue into 2025?
Steven Jon Kaplan, CEO of the True Contrarian blog, warns that tech stocks may already be in a bubble. Kaplan, known for accurately predicting key market sell-offs, including during the 2020 pandemic, suggests that expectations for corporate profits are overly optimistic, and the AI-driven investments by large tech firms have yet to deliver substantial returns.
Kaplan predicts that the Invesco QQQ ETF, which tracks the Nasdaq 100, could plunge below $300 in 2025—a nearly 50% decline from current levels. He notes a troubling trend: heavy insider selling by executives at companies like Nvidia, Microsoft, Apple, and Amazon. Insider sales surged to record highs in July, dipped slightly in August, but soared again in November and December, signaling potential overvaluation concerns.
Algorithmic Selling and Hedge Fund RisksKaplan also points to the role of hedge funds and algorithmic trading. Hedge funds, which constitute a significant portion of daily trading volumes in tech stocks, often rely on trend-following algorithms. He warns that a 20% drop in QQQ could trigger mass algorithmic selling, amplifying market losses. Kaplan anticipates the first major sell-off wave to occur if QQQ falls to $360.
Comparing the current environment to the dot-com bubble of 2000, Kaplan observes that past crashes often lacked clear triggers. "It only takes a few sellers to start the avalanche," he cautions.
Contrarian Opportunities: Bonds, Palladium, and Emerging Markets
While warning about tech stocks, Kaplan highlights opportunities in boring investments such as long-term U.S. Treasury bonds. He has allocated funds to the iShares 20+ Year Treasury Bond ETF (TLT), which has fallen from $180 in March 2020 to $87 today. Kaplan believes that significant inflows into TLT will occur once investors begin realizing losses in equities.
Another overlooked opportunity is palladium. Kaplan invests through the abrdn Physical Palladium Shares ETF (PALL), arguing that hedge funds are heavily shorting this crucial industrial metal. Palladium is essential for fuel cells, automotive production, and broader infrastructure needs, making it an undervalued asset with strong long-term potential.
Looking back to the winners of 2002–2007, Kaplan recommends focusing on emerging markets, gold mining stocks, commodity producers, and small- and mid-cap companies rather than chasing overvalued tech giants.
Conclusion
Kaplan's analysis offers a sobering perspective for investors entering 2025. With risks of a tech bubble bursting and the potential for algorithmic-driven sell-offs, investors should consider diversifying into less popular but fundamentally strong areas like bonds, palladium, and emerging markets. While the Magnificent 7 dominated 2024, the coming year might belong to more contrarian and value-oriented investments
