TMTB EOD Wrap

QQQs finished -75bps although we had a 2% peak to trough drawdown intraday before rallying in the last 30 minutes of the month. Stocks opened higher but investors continue to dismiss Trump’s TACO attempts and their spin on negotiations, but the fighting continues to seem to be escalating with more attacks on key infrastructure/Houthis entering the war/more US troops being deployed to). Should be a fun rest of the week. Yields fell 8-9bps across the curve while fed expects continue not to price in any cuts for the rest of the year.

In Tech, another big factor extreme day with Software outperforming semis by 5.5%, one of the best days ever while US TMT Momentum down 8%, 6th worst day in the last 15 years.

Why were semis so weak today? We heard several reasons: 1) helium shortage: while unclear how much this matters, the longer SoH stays closed, the bigger the perception that it will begin to impact supply 2) some unwinding near the end of the month 3) continued turbulence in the memory trade, which has been one of the leading AI semis sectors. This has been fermenting for the past couple of weeks and we’ve written about it here several times. More fuel was added to the flame over the weekend as datapoints pointing to DDR5 prices dropping circulated on X and spot prices which have been flat to down over the last 2 months, despite contract prices still holding up 3) VitalKnowledge had a piece over the weekend saying “what’s bothering tech” and pointed to OAI’s pivot as a negative (we don’t agree):

OpenAI’s aggressive strategy pivot – we think this is the biggest non-Iran story in the market. The AI industry’s most aggressive and profligate player, who raised and spent mountains of money chasing limitless ambitions, seems to be pivoting dramatically in a leaner and more focused direction. This might help OpenAI’s bottom line and its cash runway, but the rapid pace of AI infrastructure construction throughout the industry could slow at the margin. Imagine if OpenAI from the start (since the launch of ChatGPT) adopted an Anthropic-like strategy – would there be nearly as much hype and hope around AI?

All those “reasons for price action” being said, we believe the simplest explanation is that the decline was already telegraphed in the charts and it didn’t take much for the leading AI semis to “catch down” to the rest of the market. In case you missed it, we went into some of these charts in our weekly yesterday (paywall partially open to regular subs today), pointing out that “gravity would end up seeping into the leading sectors…as a lot of leading AI semi stocks (which we still like fundamentally) looked toppy.”

Meanwhile, it doesn’t look like retail is coming to the rescue to buy the dip right now: