Good afternoon. Another ugly day for the AI trade as QQQs finished -1.4% and SOX -3.4% after a nasty close, despite both starting the day ~+1%. Worst 3 day stretch since Liberation day for the QQQs. Lots of red all around as charts continue to break down with semis now below the 200d and Leopold Lows:
De-grossing continues across the space ahead of midterms tomorrow where Dems are projected to take control of the Senate
All eyes on the Abbott race (Tx Gov) as well:
No one seems to want to get in front of results. Although I heard quite a few people talk about midterms being a clearing event with market pricing already pricing in a Dem sweep, none are looking to put $ to work ahead of the event as most are playing defense at this point. MS PB has hedge funds underweight the AI trade relative to its market-cap weight for the first time since early 2023 (34% of nets vs. a 35.4% weight).
Tech investors not feeling confident on the path from here and we sympathize - we remain low gross in our ST/MT books unless we see a spot for a nice r/r entry and leaning on charts to guide us here (a break back above resistance would be a nice line in the sand to try another ST/MT long trade). The cleaner semi set up early last week lasted all of 72 hours so low confidence here, taking it day by day. Not one big catalyst for the sell off today, but we thought the lowered OpenAI raise news on Friday evening was another reminder of how much the AI trade hinges on both Labs ARR trajectories and how the trade is increasingly reflexive both on the up and down (back to ARRs in a moment…)
In semis, optical led the way lower with LITE -18% and MRVL -12%. Never seen a deal hated as much as shit one (I caught this typo proofreading but leaving the Freudian slip in here) and Mei summed it up in one line in TMTB Slack
Rest of the space lower: CIEN -11.3% although COHR -5% held in decently.
Price action just as bad as you can imagine with every bit of news getting sold in the space.
Anthropic filed its amended S-1 this morning here: Q3 revenue nearly $17B as of 9/30 (nudges our Sept ARR estimate to $70B-$71B up slightly from $70B), ~12x y/y and 47% q/q. However, the most important number was missing: October ARR. Bogey sitting at $74-$75B after the weaker cloud numbers last week, with bulls wanting something above $78B as that would point to organic growth accelerating. Some pointed to this tweet from Ramp’s economist as some negative read but we don’t agree:
