TMTB EOD Wrap; CRDO HPE First Takes
Good afternoon. Quite a day in Tech as QQQs finished +60bps, but price action felt very different than what we have seen all year. Software led the way higher with many names up double digits, but we saw none of the factor whiplash we’ve been accustomed to seeing over the first few months of the year. That’s been the environment for a few weeks now as rotation to software hasn’t scared people off their AI semi longs. That ties in with what we’ve been hearing anecdotally in conversations with investors — people are happy to rotate and put some money to work in certain software names, but no one wants to sell their AI semi longs, particularly those in favorite thematic areas like Memory/HDDs (the memory trade sentiment vibes as high as I’ve felt them).
A couple things to point out in today’s price action across Tech:
1) hyperscalers were big underperformers: META -5%; AMZN -3.5%; GOOGL -1%; MSFT +2% (underperforming IGV by 500bps). AAPL -2% also getting a bit of sell the news after a big rally into WWDC. Why the weakness? This ties in with what we said above: no one wants to sell AI semi longs so the shift to sw has to come from somewhere, and there’s plenty of market cap among the big hyperscaler names. GOOG another -2% in the post market after announcing a $80B capital raise, and hitting amzn/meta slightly. $30B public offerings ($15B depository shares from convertible preferred, $15B Class A and C Capital stock) along $40B ATM (Class A and C) and Berkshire getting in with a $10B stake in a private placement.
2) We saw some dispersion in AI semis. While most aren’t willing to sell their highly convicted AI semi names, that's not the case for some of the more frothy, high spec stuff where retail (and institutional) tourists have been hanging out in and where EPS upside is more a late 2020s story. Names like WOLF -11%; QCOM -9%; NVTS -6%…the analog weakness jives here as the 800v power theme is still a couple years away…ALAB -6%/CRDO -4% always a tourist centric place where many don’t understand the technology.
Still, broadly speaking, AI semis price action continues to be full HOT AI SUMMER, with right tail outcomes more prevalent than left tail. Just check out ARM +15% despite many expecting the NVDA RTX Spark announcement at Computex. Even NVDA +6% beginning to dance with one of its best days in months. We have said this before, but HPE after the close is reminding us: while the moves have been big, the actual #s during EPS season have been just as good or better in many cases
So why the continued big squeeze in software? We had some thoughts in our weekly yesterday on why we think the SNOW print was a more important read-through to the space than many investors gave it credit for. A quick snippet:
This was the key quote for us from SNOW management:
“So CoCo is a general-purpose coding agent that has a set of features that are specifically for Snowflake and data platforms. We have published benchmarks that show that CoCo can outperform even the frontier models when it comes to doing operations within Snowflake.”
This quote underscored why the print also had an important read-through for the broader software group, raising a couple of interesting questions that stand in contrast to the prevailing bear case on software: