QQQs +11bps but price action under the surface told a more interesting story…
The overarching theme/narrative that is driving in price action in Tech - which began last week but went into overdrive today - is the China/tariff “safe haven's” significantly outperforming names with China exposure. Yesterday’s price action was an important tea leaf: despite the good news around exemptions, these “safe haven’s” outperformed — today the trade went into high gear.
The price action is reminding me of Covid times when a lot of $'s shifted into perceived winners from the lock-downs like ZM, NFLX, etc. This time around its those with limited China + Tariff exposures. In internet, obvious ones like NFLX +5%, SPOT +4%, RBLX +3%, DASH +50bps, MELI +4%, CART +30bps, UBER +1.2%...Videogames…Plenty in sw - from a high level narrative we've called out how we like PLTR +6%, and NET +2% also exposed to AI tailwinds. Cyber also a decent spot to be. In semis, we've talked about AI semis, particularly NVDA being perceived as a "safe haven." PLTR is particularly interesting to me purely from a high-level narrative perspective: benefits from increased geo-political tensions given defense exposure, given Pentagon’s $1T budget not in crosshairs of DOGE as much, exposed to AI spending (another safe haven), no China/tariff exposure, and if Trump fixes things with a tweet, it has the beta to continue to outperform.
Something to think about: META/AMZN/GOOGL A LOT of market cap, and they are all exposed to China/Tariffs in one way or another. It's not surprising to see $ shift into NFLX and SPOT as other large caps in tech, but even they are a lot smaller than the former 3. Think about smaller names like RBLX, DASH, CART etc....Just do the math: if a fund sells a 1% position in META/AMZN/GOOGL...That 1% in $ terms is a significant greater % of mkt cap of smaller names, even NFLX/SPOT, which means you can get some outsized moves like you are seeing today.
In covid, these performance gaps continued to widen call it 3-6 months from March lows through Sept 2020 and the difference in spreads were massive between perceived beneficiaries and losers.
As things have settled down from the hectic pace of last few weeks (similar to lockdowns being announced every day), this is the overriding narrative I’m seeing in Tech this week, and we think will continue as long as China/tariff uncertainty continues. Yes, trump can fix things with one tweet and that’s why remain open-minded/nimble to any new news that comes out and are still taking a relatively cautious approach to sizing. The other pushback is that all tariff/safe havens still exposed to macro shocks / growth slowing and that’s fair. Lots of cross currents happening right now in Tech.
Hey will you look that! I didn’t lead off with macro this time!…Fed expects held steady at 85bps worth of cuts for the year while yields traded flat to down 4bps as bond unwind seems to be….winding down. The dollar rebounded 50bps, its first green close in over a week. Tariff uncertainty continues as Bloomberg said EU Expects US Tariffs to Stay as Talks Make Little Progress:
The European Union and US made scant progress bridging trade differences this week as officials from President Donald Trump’s administration indicated that the bulk of the US tariffs imposed on the bloc will not be removed.
The EU’s trade chief, Maros Sefcovic, left the meeting with little clarity on the US stance, struggling to determine the American side’s aims, according to people familiar with the discussions. He met for about two hours with US Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer in Washington Monday.
Post-close:
Here we go…
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Internet
NFLX +5% as investors took a bullish lens to the release of LT guide in the WSJ article yesterday, especially the rev growth which implied 12% CAGR vs street at 10%. The op inc growing 4x sub growth implies 10% pricing CAGR in their model.
Ad names continue to underperform: META -2% / GOOGL -2% / PINS flat / RDDT -2%. More variations of the chart that was being passed around yesterday showing that Temu spend had fallen off. Temu/Shein around 5-7% of META’s revs, but also have to think that lots of META advertisers exposed to rising import costs from China. Fundamentalbottom had a good post trying to put some #s around impact, suggesting somewhere around 3-4% impact to revs as of now from less China e-comma advertising, although that could increase as we get into 2H if things don’t change. Ad week had an article mid day saying something similar: Temu’s US Ad Spend Craters Amid Escalating Trade War With China and calling out the dynamic with some charts:
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