TMTB EOD Wrap
Good afternoon. QQQs +1% as the IBM -25% neg pre-announcement and the cooler CPI was the big news early in the day. Semis +2.5% led the way higher although throughout the day we saw more intraday outperformance from software, which finished flat after being down 3% in the pre vs. semis which were up 3%+ early. 2-year yields tumbled 10bps while the 30-year only fell 2bps. The market is now pricing 30bps worth of hikes by the end of the year vs 45bps coming into the day.
Lots to get to today so we’ll dive straight in…
AI/SEMIS
NVDA +4% acting better since the middle of last week. Keybanc was out today saying their Asia checks show NVDA’s CoWoS supply in 2027 to 1.1M We wrote a little about why stock has been acting better over the last few days in our weekly Sunday:
First, Jensen had a couple NDRs where he sounded especially bullish. One line that stuck out from the MS note: Notably, one of the more prominent frontier models was developed mostly on an ASIC, so NVIDIA had minimal exposure, but that has risen to close to 50%. Implication here of course is Anthropic. The other change is on the narrative front. We’ll quote ISI’s K. Rippey again as he puts it better than we could have: “Nvidia needs 2 things to work: 1) a large number of viable frontier lab customers; 2) lock-in among customers without their own dedicated ASIC programs… Anthropic’s rise in 1H26 largely challenged both of those premises. What we’ve seen from META + xAI over the past 2 weeks has acted to rebuff that bear case.” While NVDA is a staple in most LO and HF portfolios, it has also become a funding short over the past several months for more high-beta semi trades like memory while the NVDA narrative has become more muddied. That dynamic seems to be reversing in a somewhat choppy semis environment. Talking to investors and feeling the vibes, we are finally getting that sense of resignation that NVDA will just “fail its breakout” and “remain choppy.” In other words, put into words what people are feeling: “Why add back to NVDA if I’m just going to be disappointed again?” (“The seductress")…which all means: maybe the pain trade is now up rather than chop?
The way I’d frame the narrative is that we’ve had a lot of “bad’ news over the past 6-9 months (margin/TPU/moat fears, Kyber/V Rubin push out, etc.) and now we are finally getting some incremental positive tailwinds to the narrative. What I’d add to the above quote re: narrative is increasing realization that NVDA could actually be one of the biggest winners from the main narrative gripe investors are grappling with right now: opensource.
For example, this Clark Tang (from Alitmeter) tweet has gotten passed around a ton the past couple of days, where the implication is NVDA hardware is the biggest winner from Opensource:
Despite NVDA being flat for 9 months, we’ve had some decent PnL playing some short-term narrative shifts along the way. Still: it’s NVDA, and as I told a buddy of mine this afternoon — the opportunity cost of putting that $ into NVDA over the past year instead of something like SNDK means the trades were likely net negative.
Chart looking more interesting if we can get above $212/$213
Hard to imagine NVDA having a nice run as semis chop around, but we’ll see…the seductress strikes again…
Disclosure: We’re long some ST calls in addition to our LT long.
SKHY +27% the big winner today. Lot of questions on why the big move — didn’t hear anything specific other than Hynix overseas putting in a hammer candle. ADR Premium now 45%+ although that likely reverses somewhat once Asia opens. Some good color in this Acadian post around premiums and ADR’s using TSM as a precedent:
AVGO +1.3% as MS was out defending TPU share saying they expect AVGO to retain roughly 80% of Google’s TPU share over time vs bears fearing 50%, with MediaTek likely gaining a modest, additive position rather than disrupting Broadcom’s scaled platform.