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Investors worry that the revenues from AI will not support the enormous debt of data centres.
Investors are adumping debt issued by neoclouds, such as Nvidia-backed CoreWeave which buys 8% of NVIDIA's chips.
OpenAI’s decision to delay its ipo and a slowdown in Anthropic’s q3 sales growth highlights a multitrillion-dollar gap between infrastructure spending and the revenues needed to finance it.
The price of debt issued by Blue Owl and Meta-backed spv Beignet Investor to fund the Hyperion project has slipped to a under 92c on the dollar.
bonds backing two Hut 8-developed projects have fallen to about 94 and 92 cents on the dollar.
Bonds for the Blackstone-owned QTS dc in Georgia and leased to Microsoft have slipped below 88 cents on the dollar.
Neocloud providers have been hit even harder. Bonds issued by CoreWeave have sunk below 80 cents on the dollar.
My last post on concentration made a lot of bulls angry here. they argued that spy's job is to ride winners, and big tech wins.
if that's the bull thesis, you better love this chart from j.p. morgan.
right now, 49% of the s&p 500 index is tied directly to "AI-Related Stocks". J.P. Morgan defines this as the 'Magnificent 7' plus another 34 stocks directy linked to the AI buildout.
We have officially surpassed the peak dot-com TMT concentration (41%) and are approaching levels unseen since the 1880s railroad mania.
this implies that if just that one narrative stumbles, the entire market unravells with zero breadth to catch the fall. the bulls keep saying there is "no reason to worry." if this chart doesn't give you pause, what metric would? are you betting against 200 years of history that this time, it really is different?
This week gave a split verdict: AI demand is still exceptional, but hot inflation kept pressure on growth stocks. Today Fed Chair Warsh's comments plus import prices and industrial production are the last big clues before the Fed blackout ahead of the October 27-28 meeting.
Where we stand. Wednesday's hotter CPI (3.7% year over year vs 3.6% expected) pushed the S&P 500 down about 1.1% and the Nasdaq nearly 1.9%. Thursday's PPI was the real shock at +6.3% year over year versus roughly 5.4% expected. Oddly, bonds rallied: the US 10-year swung from 5.24% back to about 5.07%, and October hike odds faded toward the high 20s.
ASML and TSMC. ASML posted record Q3 sales of 11.7 billion euros and guided Q4 to 14.2 to 15.2 billion euros, with customers already asking about 2029 and 2030 orders. TSMC grew revenue about 51% and net income nearly 69%, and kept capex at 60 to 64 billion dollars with a steep 2nm ramp ahead. Even so, chip and memory names fell on Thursday on reports of slowing growth at a large private AI lab.
My portfolio. SMH and SOXX remain my two largest positions, alongside TSMC, ASML, AMD, Micron, SK hynix, Google, Microsoft and a quantum ETF.
My view. One private growth print does not cancel multi-year foundry demand, but crowded AI trades have little room for narrative shocks. For semiconductors, the reaction in the 10-year today matters more than any single headline. I stay invested and avoid chasing spikes.
How do you read today's data: hot import prices that keep an October hike alive, or soft factory output that pushes yields lower?
If you missed yesterday's second post about the hotter-than-expected CPI report - headline inflation was broadly in line with our expectations at 3.7% YoY, but the call for softer core inflation was wrong, with core coming in at 2.6%. Not an encouraging report, and the October Fed decision certainly won't be easy, but I still don't think it fundamentally changes the macro outlook. The market also appears to be coming around to the interpretation we discussed yesterday, with October rate hike odds now back below 30%.
The important distinction is that CPI doesn't translate directly into PCE, which is what the Fed actually targets and much of yesterday's core surprise came from shelter and used cars, and neither carries through to PCE in quite the same way.
Shelter has a much smaller weight in PCE, while the inflation it measures also tends to lag actual changes in market rents. There is also the broader issue that higher rates increase financing costs for developers and can worsen the housing supply constraints contributing to inflation in the first place so hiking is unlikely to solve this.
Today's PPI release will be important, mainly the medical services components that feed into PCE. I do remain cautious, especially around energy, as gasoline also feeds into PPI and represents a share of final demand. Still, a hotter CPI reading doesn't automatically mean we'll get an equally hot PCE print.
Another thing i wanted to share is that the diffusion of CPI inflation, calculated using an approach similar to Kevin Warsh's preferred PCE diffusion measure, continues to decline.
Basically, inflationary pressure is becoming less widespread, even if some individual components remain elevated.
The bond market is also starting to support our view that the initial reaction was overdone, with the 2-year Treasury yield already moving back below its pre-CPI levels. That doesn't mean inflation is no longer a concern, but it does suggest the market is reconsidering how much yesterday's report really changes the Fed's near-term path.
Moving to equities, I remain constructive going into Q4, and so far the market is behaving more or less in line with seasonal tendencies. We discussed on Monday that some choppiness was likely, particularly with the macro uncertainty and earnings season getting underway, and that's broadly what we've seen.
This is important given the sell-off across AI and semiconductor name as between ASML yesterday and TSMC today, we're seeing little evidence of a slowdown in underlying demand. So, to me, the recent weakness looks much more like a cost-of-capital and valuation adjustment than a deterioration in the AI investment cycle itself.
We also got the Anthropic financials I mentioned yesterday, and I'd describe them as good, although perhaps not good enough to completely change sentiment on their own. The company reportedly grew Q3 revenue by around 45% to $16.8 billion and told potential investors it was cash-flow positive for the quarter. Given the roughly $500 billion in long-term compute commitments this is v important and provides better visibility into the demand in AVGO, GOOGL and AMZN.
What I also find encouraging is that despite everything going on, from macro uncertainty to geopolitical headlines, investors appear to be rotating between winners and losers rather than indiscriminately reducing equity exposure. With this said earnings will ultimately be the real test.
And there's another interesting divergence here. Since the end of June, forward earnings expectations have continued to move higher, particularly across semiconductors, memory and AI infrastructure, while valuation multiples have actually compressed.
Basically, we're seeing earnings expectations improve while investors are paying less for those earnings. This meansthat part of the correction has been driven by multiple compression and not deteriorating fundamentals.
Corporate guidance also remains strong, which is arguably more important than backward-looking earnings beats at this stage. As long as companies continue to deliver and maintain their forward outlooks, I see little reason to abandon the constructive Q4 thesis. That doesn't mean we won't get further volatility, but I continue to view the weakness as an opportunity
Bullish options flow is becoming increasingly noticeable across semiconductors and high-beta stocks, which is encouraging. Keep in mind that tomorrow is OPEX, and we often see trend reversals as positioning gets cleared. The key market maker exposure level is currently around 770 on SPY, which could act as a magnet for price. However, today's PPI is the more immediate catalyst, with options pricing in a move of roughly 6 points, so expect some volatility around the release.
In terms of positioning, we're definitely not out of the woods yet, but volumes have shifted toward neutral, and I suspect we'll remain in this environment until PPI provides some clarity on the next direction.
On the Qs, the key level to watch is $720, where market maker positioning could help support a bounce. A break below that level, however, could see price action deteriorate further, potentially opening the door for a move toward $700. where the market stablises.
On SOXX, market positioning is similarly bearish to what we saw a couple of months ago when the ETF tested $480. Premarket, we're approaching a test of the $500 level, but needs to be noted is that volumes are starting to pick up around $480. Below that, market maker exposure drops off considerably, increasing the risk of further downside. So, similarly to the Qs, we could see SOXX stabilise around these levels
saw this research note from goldman's christian mueller-glissmann in FT and it’s pretty wild.
almost 45% of s&p 500 stocks now have a negative beta. basically half the index is actively moving in the complete opposite direction of spy while headline numbers keep hitting aths.
the last time we saw a spike like this was literally at the peak of the dot-com bubble in 2000.
everyone is watching spy green days thinking the whole market is fine, but under the hood top 10 big tech are basically disguised as the entire economy while 200+ companies are slowly bleeding out.
feels like this divergence can’t go on forever. curious if anyone else is rebalancing into cash/equal-weight or just riding nvidia till it snaps?
First placed $600mln during their IPO, then Abel added $330mln today.
Ok, these are rookie numbers for BRK but why??
It's against all Buffett stood for...high capital costs, high leverage, small moat, huge uncertainty regarding future CFs, questionable accouting practices.
I mean BSP is basically a PE-tech focused firm with no exit strategy, buying hugely discounted firms that lost of their edge due to AI killing SAAS. Its portfolio includes "giants" like AOL, AirTable, WeTransfer, Vimeo....WHO STILL USES THESE COMPANIES??
Tracing a price rise back to its source is the most useful exercise I know, so here's the chain for phones, with who said what.
1. Memory chips got more expensive. Counterpoint Research says memory chip prices shot up.
2. Phone makers passed it on. Phone prices are up about 20% this year.
3. People bought fewer phones. Global smartphone shipments fell 20% in the third quarter from a year ago, the weakest 3rd quarter since 2012.
4. Forecasters are going the other way on memory itself. Bloomberg Intel now expects the market for the memory used in AI chips (called HBM) to reach $641B by 2030, up from a previous forecast of $260B. It expects HBM3E and HBM4 prices to jump 30% to 45% in 2027, and the average HBM price to rise from $15.46 in 2026 to $34.94 in 2030. I saw this via a research account on X, not the original report.
5. This week's wobble. Memory stocks sold off hard after a Chinese chipmaker, CXMT, said it found a way to fit more memory on a chip. CXMT hasn't released performance numbers yet.
Which link in this chain do you think keeps its pricing power longest?
Elon Musk promised a flying car. And the Tesla Roadster did exactly that.
Tesla demonstrated its next-generation Roadster at an event in Waco, Texas, where the electric supercar drove upside down, briefly flew, and accelerated to 60mph in under a second. It was an impressive demonstration of a car that likely will come with some heavy caveats and restrictions if it ever goes into production.
The event was less than 30 minutes and felt more like a stunt show than a product reveal. Indeed, there was no mention of price, trim levels, release date, or other such mundane details. Musk promised the hypercar would go into production in 2028, but after nearly nine years who’s counting. The people were here to see a car fly, and that’s what Tesla gave them.
Jamie Dimon had a pointed question for corporate America.
Speaking to Bloomberg on Oct. 6 on the sidelines of a JPMorgan event in London, the bank's CEO asked whether companies, leveraged or not, are prepared for higher credit spreads when they have to refinance or borrow money.
Households would do well to ask themselves the same thing. Higher borrowing costs for companies tend to travel down the line to mortgages, car loans, and credit cards. Companies under pressure may also cut jobs or slow hiring to protect profits.
