Early one today as I need to head out shortly. QQQs +61bps as of 2pm ET, after the S&P and NDX both tagged fresh record highs late morning before fading as crude bounced off its lows; small caps lagged (IWM -62bps; ARKK -1.8%). Software +1.2% outpaced semis +67bps, with cyber leading again (ZS +3.6%; PANW +3%; FTNT +3%; CRWD +2.5%) on ZS’s investor day and more AI-enabled breach headlines. The quiet semis tape hid a big rotation inside AI infra: optical/networking and power ripped (CIEN +12.4%; GLW +6.8%; NOK +6.9%; ALAB +7.4% on MRVL’s investor day read-through; VST +11.2%; GEV +5.4%; BE +4.3% on GOOGL’s 3.6GW CEG deal), while storage, memory and semicap got hit (STX -9.4%; WDC -7.2% extending the TDK-heads selloff; SKHY -4.2%; LRCX -3.6%; TER -3.1%). MRVL +5.5% itself gave back some of an early +11.1% pop after some ambitious LT targets at their analyst day.
Lots of dispersion across all sectors right now. We think that' is leading to scarcity premium on good clean narratives (hello SHOP). Outside of the catalyst driven trades (CPUs, Optical in conferences, etc.) where we have gotten confidence to size up, we’re finding it helpful to use charts as a guide to see where to move our feet in semis…
Haven’t seen this level of dispersion in AI semis in a long time:
Despite dispersion, semis in generally getting healthier as a whole:
Our view from our weekly Sunday:
The reason we’ve stuck with our choppy but upwards trending call is that we’ve felt AI semis were still trading under several unresolved overhangs and debates that needed to clear: 1) Frontier ARR trajectory; 2) Gap between open source and frontier model capability; 3) Power supply gap in ‘28; 4) Next use-case beyond coding to drive compute; and 5) SI safety and public sentiment heading into midterms.
We think all 5 debates have improved in favor of the bulls over the last several weeks, significantly improving the near/medium-term narrative…(TMTB: more detail in the full weekly )
We still think dispersion is here to stay, and we’re not going back to the go-go days of April through June when a rising tide lifted almost every boat in a vertical line. But the setup feels healthier: leadership is broadening without becoming indiscriminate, and with the overhangs clearing, we think good idio names have a clearer path to working.
So far so good….
In macro land, the long end got a breather. Yields eased intraday (10Y -3bps to ~5.28%; 2Y -2bps to ~4.81%; 30Y -2bps to ~5.65%, a day after hitting the highest since 2002) as Le Pen’s deficit plan rallied European sovereigns and Bessent said the US can bend the debt curve “very quickly.” The 3Y auction stopped through by 0.2bp despite light indirects. Fed pricing barely moved: ~20% odds of a hike on 10/28, vs. ~21% yesterday and 70%+ early last week, with roughly one more hike priced this year and two in 2027. WTI ~flat near $89.5 after trading -2.9% at the 8:20am lows (SHEL’s CEO put Gulf flows at 80%+ of prewar levels). BTC flat at ~$85.6K.
Let’s get to the good stuff…
AI/SEMIS
STX -9.4%; WDC -7.2% extended this morning’s -2-3% into a much bigger drop on Bloomberg’s report that STX and Toshiba are vying for TDK’s HDD-head business (Toshiba disputed it). One of the bullish pushbacks yesterday was that Toshiba depends on outside suppliers and therefore cannot ramp freedly; bears will take this news as Toshiba getting serious; Ardo in TMTB Slack here: on Friday the HDD defenders asked where Toshiba gets the components, “well, that’s how.” Bears will also say Toshiba ownership could therefore create concerns around supply allocation and component pricing, not just stronger competition in finished HDDs. Bulls will say Toshiba already buys most of TDK’s heads, WDC has locked up a material chunk of TDK’s 2027 capacity, HAMR also needs glass media, and some doubt the deal closes at all since Toshiba doesn’t need that volume of heads & potential regulatory issues might be a roadblock.