A Very Bifurcated February

This past month was like day 3 at Augusta…Moving Day. Some stocks climbed the leaderboard while others crashed to earth. At the Masters, it’s all about positioning yourself for a shot at the green jacket. In the market, it’s all about how your positioned for the coming AI disruption. Are you ready or are you a deer in the headlights?

Ned Davis Research calls this a market “out of gear”. The number of stocks hitting either new highs or new lows is very large.

The explanation to this action is simple and can be described in two words. Artificial Intelligence. But, while the explanation to the volatility is simple, the outcome all investors want to understand is beyond opaque. Right now, no one is sure of what the future holds.

So, what is going on? Investors are trying to hide in the obvious beneficiaries of AI. These would be semiconductors, or anything related to AI buildout. With hundreds of billions of investment coming to this industry, the next few years looks very bright for the Nvidias of the world.

Meanwhile, other groups find themselves suddenly on the radar screen of AI disruption. When that happens, look out below. The $1.5T SaaS wipeout is the poster child for this as suddenly AI’s capabilities have placed software companies’ business directly in harms way.

More recently, a Citrini Research blog titled The 2028 Global Intelligence Crisis has sparked fear in other sectors, like payment companies. This is a great read and I highly recommend you check it out but, be forewarned, the picture it paints isn’t exactly pretty.

Citrini concludes their report with the following statement.

The S&P is near all-time highs. The negative feedback loops have not begun. We are certain some of these scenarios won’t materialize. We’re equally certain that machine intelligence will continue to accelerate. The premium on human intelligence will narrow.

As investors, we still have time to assess how much of our portfolios are built upon assumptions that won’t survive the decade. As a society, we still have time to be proactive.

The canary is still alive.

The conclusion is very much spot on. They, like the rest of us, don’t know what is going to happen with 100% certainty. They also know that change is coming.

The market’s volatility is a sure sign that disruption is going on. It will continue to transpire. As investors, it’s important to keep your eyes wide open and to be prepared for a future that is going to challenge every assumption you’ve had from the past several millennia.

Ever since the earliest civilizations, humans have been the smartest, hardest working force on earth. That’s no longer the case. AI will soon be smarter than us and it doesn’t have office hours.

Block Inc. (XYZ) laid off half their workforce this week. The stock went up 20%.

Why did they lay off employees? AI has made them expendable. For a lower cost, their roles will be taken over by computers.

For XYZ, this is a no-brainer. And, from the market’s perspective, it’s a great thing. Block’s business is suddenly much more productive for lower costs. Margins increase and earnings will leap. Hence, the stock’s reaction.

I predict that in a few years, investors will look at XYZ as a red flag for what the future holds. Every company is going to start reducing headcount. Right now, we are in the sweet spot of productivity gains in a strong economy. There’s no need to panic; stocks should trade higher overall from this news.

Longer term, I buy into the Citrini piece and believe layoffs will eventually overwhelm us, leading to major disruptions. I’m worried.

Meanwhile, at TW Research, we had a solid month led by gains in Kazia Therapeutics (KZIA), Senseonics (SENS), Lineage (LCTX) and others. The small cap world, having suffered for a few years, has many stocks making 52-week highs but still well off all-time highs. There’s still great value in our universe compared to many larger companies.

Entering March, I remain highly optimistic about a number of our stocks.

I write about Kazia (KZIA) frequently, as I find the combination of great value with multiple shots on goal very attractive. When compared to peers with similar products in development, Kazia trades fractionally. The stock can go up a few times over and still be discounted relatively.

Aeluma (ALMU) is another name I love right now. Photonics is beyond hot in both the underlying business as well as stock prices. Aeluma simply needs to get their first commercial deal and the stock will be off to the races. We have been guided by the company to see clear signs of this in fiscal 2026; that ends in June. So, the next four months has potential for fireworks.

Senseonics (SENS) is simply a great value play. This will likely trade higher into and through the approval and launch of their next-gen product. Set it and forget it here.

Aeon (AEON) is the same type of opportunity with the same strategy.

Frustrating me has been INmune Bio (INMB). I consult to INmune Bio. Two programs, both with excellent data. And, a valuation that is ridiculously low.

INmune had webinars on both their programs this past week. For the webinar on RDEB, you can click on this link. The XPro webinar should be available shortly and available on INmune’s YouTube channel.