First, I better set your expectations correctly, I’m not trying to sell you anything, nor am I giving you actual financial guidance. Instead this is a posting about how utterly absurd the pricing of the DJT stock actually is.
However, I will tell you a guaranteed way that you can use to make a small fortune on the stock market (skip right to the end for that).
I’ll start by briefly talking about one way you can evaluate a stock price and work out if it is average, a good bargain, or over hyped. Once we understand one approach to doing that, we can then move on to take a look at DJT.
When you look back, picking the right stock is easy, but often at the time you just don’t see it. For example, looking back today then very clearly a suggestion to buy APPL back in 2004 is now seen as excellent guidance. At that time it was perhaps not so clear. Whoever made that buy call then truly nailed it and is most probably retired and sitting soaking up the sun on some Caribbean island that they now own.
Another far more recent example is the current darling of the stock market – Nvidia. So let’s use that as a case study to see if the rapid acceleration in its price is hype or justified.
If you bought Nvidia in Oct 2022, when it was 112, then today, not too much later, you would be utterly astonished to discover that it was now 820 (at time of writing).
That’s an astonishing rate of increase.
Nvidia is of course a profitable business, and so they do indeed have earnings. To measure stock price value you can use their earnings in the context of their current stock price. This is called a PE measurement. That’s where you measure a company’s share price relative to its earnings per share (EPS), hence this is called the price-to-earnings (P/E) ratio.
For Nivida their PE ratio at the moment is 71.7.
That’s just a number so what does that actually mean?
For context, an average PE ratio is 25 and so anything above that suggests that either investors believe that the stock’s earnings will increase in the future or that there is a bubble and that hype has led to a stock being overvalued.
For a bit of comparison, since I mentioned Apple, their PE ratio is currently 26.4 which puts them very much in the just above average category.
So is the Nvidia price justified or is it all hype?
It’s a seriously debatable point. Nvidia manufacture chips that are used for AI and as I’m sure you are aware there is a great deal of AI chatter, hence their chips are in very very high demand, so much so, that they can’t deliver enough chips fast enough.
There has recently been some pullback of the Nvidia stock price for a high, because many did start to feel it was a bit of a bubble. However, last week both Google and also Microsoft published quarterly numbers and beat all expectations on the back of AI. That sent a strong “AI is real and not just hype” signal, hence the Nvidia stock price bumped a modest bit to reflect that insight, then pulled back again.
Let’s go down this rabbit hole a bit further by asking if AI is simply the latest fad or if it will bring financial value?
Answer that and you can then work out if the current Nvidia stock price is hype or worth it.
Be warned, it is a very debatable point.
Is there real value to AI?
Some many indeed retain their skepticism with good reason regarding the real value of AI, but others are now finding that it is an effective tool that enables them to do stuff that simply could not have been done previously. In other words, it’s complicated.
Here for example is a thread by Cory Doctorow, whom I have been privileged to meet and am a fan of. He points out a few rather sensible things … (I’ll just park his tweet below and let you click into it and read it all at your leisure) … but for those that don’t have the time (or the willingness to enrich Elon), here is a brief summary …
- Briefly – There are lots of uses for AI, but much of it is low value stuff. People will pay for it, but not much.
- There are also high-value uses, but these high-value uses are very sensitive to errors (mistakes when AI drives cars or does chest X-Rays has huge consequences)
- Some might not care about mistakes and he cites Air Canada’s chatbot defrauding customers and how they then make it impossible to sort that out, hence they profit.
- One solution he mulls over is the “centaur” … a human head on the robot body to smooth out such issues, and he then points out the problems and consequences of that
- Keep reading his thread and you will discover that he makes a very credible case that AI is just smoke and mirrors. Quote “As @bcmerchant writes, AI claims are eerily similar to “smoke and mirrors” – the dazzling reality-distortion field thrown up by 17th century magic lantern technology. Millions of people ascribed wild capabilities to magic lanterns, thanks to the outlandish claims of the technology’s promoters: The fact that we have a four-hundred-year-old name for this phenomenon, and yet we’re still falling prey to it is frankly a little depressing.“
However … on the other hand, here is an actual example of scientific researchers unlocking immense value using AI …
- Nature: Generative AI for designing and validating easily synthesizable and structurally novel antibiotics
Briefly, what they did was this …
- They used a large language model AI called SyntheMol to generate not text but chemical structures.
- It was trained using 130,000 chemical building blocks
- The challenge is this – there are 10^60 potential drug-like chemical structures that could exist. No human could navigate that, but an AI could so they got it to rapidly explore a “chemical space” of 30 billion new compounds looking for any that could have potential antibacterial activity and must also be easy to synthesize.
- In 9 hours they got 25,000 hits. That was then filtered down to 70. They then managed to create 58 of them, and when tested, six appeared to work.
Identifying six new antibiotics as rapidly as that is an astonishing result that brings not only considerable financial value but a great deal of benefit to humanity.
So is that example an outlier, or does AI bring real value?
My point is this. Caution is wholly appropriate, yet the potential looks real, hence the high PE of for Nvidia might be credible, and then again it seriously might not be The fact that this is debatable explains the current PE value.
OK, all that was background to get you into the mindset of how to think about stock prices. Now, let’s move on to what this posting is really all about.
The utter Insanity of the DJT stock price
Let’s now dig into the Trump Media & Technology Group Corp, or DJT which is its symbol.
Briefly, Trump Media & Technology Group was founded in 2021. In 2022 Trump Media launched its first and so far only product for the public: the Twitter like fringe social media platform called “Truth Social”.
In March 2024 (as I’m sure you may be aware), they went public via what is known as a SPAC.
A what?
To keep it simple, they were acquired by a company whose shares were already trading publicly on the stock market, in this case, Digital World Acquisition Corp.
It launched at a price of $79 and since then the journey that the stock price has been taking is down down down, and then proceeded to bounce back up … a bit.
There is a reason for the rapid decline and then the bounce.
The business itself is not viable.
If you want the precise details, there you can find their SEC filing here.
The business brought in revenue of only $4.13 million in 2023 and posted a loss of nearly $58.18 million to enable it to do that.
You can most probably see where this is going.
So what is the PE ratio for DJT?
Well … since you calculate the PE by taking the latest stock price and then divide by the Earnings Per Share, and there are no earnings, just a loss, then yes, you have a negative PE value that suggests buying this stock would be an insanely stupid thing to do unless you perhaps expected them to rapidly swing into profit.
For the precise number that EPS is -0.59, so we have in essence a negative PE of roughly -70.32
Perhaps “investors” really are forward thinking. (Yes, you need air quotes around the word “investors” there, because handling this pile of dung is not “investing”)
So looking forward, does it have a future?
Management did issue this rather astonishing note …
“As of December 31, 2023 and 2022, management had substantial doubt that TMTG will have sufficient funds to meet its liabilities as they fall due, including liabilities related to promissory notes previously issued by TMTG,”
In other words, even the management of the company are themselves admitting in public “We are truly F**ked“.
As for the number of actual “Truth Social” users, that’s also an abysmal story. To compare, Twitter counts active users in the hundreds of millions, and Facebook talks about not millions, but billions of active users. The number of “Truth Social” users is … well they refuse to say, but we can be sure it is way under one million.
In fact, dig a bit and you will discover that the number of daily active users bounces somewhere between 100,000 and 150,000. That’s not exactly a success story, nor will it inspire investors in any way.
Who owns DJT?
Trump owns about 57% of shares. Next is Kuwaiti-headquartered ARC Global Investments II, LLC (6.9%), then you have United Atlantic Ventures, LLC (5.5%)
That last one is two men – Wes Moss and Andy Litinsky … yes, the apprentice winners. They have filed a suit against Mr Trump claiming he was trying to cheat them out of their shares, and he in turn is suing them for mismanagement of Truth Social.
Say what! … a Trump employee being stiffed, “I’m shocked, I tell you shocked”, says literally nobody.
Wes and Andy actually have a very credible case. The stock has gone from 120 million to 1 billion shares, thus greatly lowering the value of UAV’s shares.
Who is buying DJT?
Very obviously the stock is being held up by Trump Cult members buying it because their orange messiah owns it and they want in on the action and to also support him.
Those poor fools are now getting taken to the cleaners and loosing not just their shirt, but also their pants, socks and everything else as the market reality bites.
You also have the short sellers who could see all this from day 1 and so will have been frantically striving to borrow the stock to sell to MAGA and then wait for the price to sink so that they could then buy what they borrowed at a far lower price. This demand means that the cost of borrowing DJT stock to sell short simply increases to such a degree that it eats into their short-selling profits and so it slows that all down.
What is very obviously going on here is a valuation of a stock that is totally and completely irrational and is not sustainable. The is absolutely no connection between the business and the stock price. Bubbles like this always burst and end up totally wiping out those who were stupid enough to jump in.
The interesting twist is to wonder what happens if he wins the election. At best it might artificially boost the stock for longer, but if the business never makes a profit then the outcome is inevitable in the long run. I suspect, and this is just a guess, he can see this, so when he is legally permitted to sell then he will indeed do exactly that.
There really is a Guaranteed way to make Small Fortune on the stock market
What exactly is the very easy and totally guaranteed way to make a small fortune on the stock market?
Easy, you do what Trump did, you simply start with a large fortune.
That will indeed also turn out to be very true for all those mom and pop MAGA devotees who have “invested” in DJT.