TMTB EOD Wrap
TMTB will be out on holiday beginning Friday through next week
Good afternoon. QQQs -27bps as Megacap +3% & Internet/Software +1.5%+ led the way higher while semis -2% lagged.
Today’s action and conversation have us going back to what we wrote over the weekend:
Sometimes the market vibe is clear ( the early “HOT AI SUMMER”) and it’s time to press the accelerator down, sometimes it’s not. We think it’s the latter right now. The big picture remains the same (yes, we’re still LT AI infra bulls and AI datapoints remain strong), but it’s hard for us to come up with a coherent and broad near/medium-term narrative/direction around how AI semis are going to trade (more on that below).
It’s not only factor whiplash investors are suffering from, but narrative whiplash (which usually follows the former). Just today, the script flipped several times. ASML’s print & positive Codex vibes got the AI semi bulls excited in the early morning. Then memory sold off and hypers rallied and I heard variations of the following thought expressed, which was also fueled by Buffett saying he initiated the GOOGL investment, giving credence to the Hyperscaler ROI argument:
(We generally find this narrative/argument compelling and the charts are looking good, particularly META and AMZN’s). Then semis bounced off the lows as Trump defended the datacenter buildout and hypers flat-lined and the narrative started to shift. “Wait, no” some said, maybe it was all about Kimi 3 and that’s what drove the AI sell-off this morning:
The whole back and forth today was just a microcosm of what has been going on in some manner for a few weeks now.
It’s not that the narratives don’t make sense — most are bullish, and many are nuanced and intelligent when not. I find myself nodding to many of the arguments made on X around open source, cheaper intelligence, hyperscaler ROI and other debates on both sides. The outright baffling bearish AI takes have largely disappeared (maybe LLMs have made everyone sound more intelligent or maybe I’ve gotten better at weeding out the noise). Readers know we love our narratives here at TMTB, but narratives need to meet at the interplay of vibes, price (both level and price action), and conviction to drive confidence in a specific direction, and investors are struggling with all those 4 aspects at the moment, partly catalyzed by the pace of new AI developments and shifts that have investors in a bit of a “wait-and-see pattern” before earnings; partly because of factor whiplash; and partly catalyzed by what I call price narrative dissonance (eg, why is ORCL hitting 52wk lows as Codex/OAI vibes ramp?; why was AAPL +4% and DELL -10% today and both being attributed to memory prices peaking? why is NVDA/AVGO at 15x? what’s with the hyperscaler ROI whiplash? etc etc). That’s not to mention the generally broad weak AI semis price action despite seemingly positive developments.
Things won’t always stay like this — investors as a group generally like to be very dramatic. A choppy environment is not the right one to be over-reacting either way. It was only a month ago when the narratives and price action were clean. Things will keep shifting, and our job as investors is to adjust accordingly. We should enjoy the HOT AI SUMMER vibes when they’re here. And adjust our mental models, positioning, attention, and risk when they’re not. Maybe earnings will clear some things up for us.
Let’s get to it…