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Good morning partner,
Few things to cover this morning:
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Yesterday’s Session
A rebellious session to say the least.
The tug-of-war between the semis/memory names and hyperscalers got a bit more selective yesterday, as names like NVIDIA sold while Broadcom bid.
This sort of disagreement has rarely happened this year, but I believe I have a good idea behind the reason why.
Yesterday:
Anthropic released its financials through an IPO prospectus
NVIDIA recruited insurance companies to cover GPU-backed loans
The combination of those events created chaos in the AI trade, as they both meant chances of anyone involved in the race likely will never get paid.
Therefore,
The only sectors that really saw progressive price action were the ones that are either part of the defensive economy and/or are nearly guaranteed to receive the capex cash flows in the coming quarter.
We’ll get to those next.
For now, you need to really understand what the NVIDIA and Anthropic news mean for the rest of the market.
Let’s take a look at yesterday’s leaders and laggards:
Utilities, Industrials, Communications.
The leaders, as mentioned, are the ones who probably are perceived as having less exposure to the loan collapse that is about to come in.
In Utilities, select companies will still get paid from active data centers in use.
Industrials who already got paid from this quarter’s AI supply chain needs will report a better quarter.
And, communications (select semis/memory) likely already fulfilled analyst expectations in sales and promised backlogs for the year.
Even if those backlogs never materialize…
What this tells me, in essence, is that the market is becoming infinitely more selective about AI, choosing carefully who they back and who they punish.
You can’t have a smooth sail in any sector or narrative with this much disagreement.
Disagreement which wasn’t there three months ago!
Anthropic’s Rude Awakening
Anthropic Revenue & Margin Scenarios, Offside Capital
Anthropic just released their IPO prospectus, and the numbers were worse than everyone thought.
A $42 billion operating loss, despite massively growing their revenues from $9 billion this year to $65 billion.
The problem gets bigger, especially as you zoom out to understand what’s happening at the industry level.
Token prices are down over 60% this year, while chips, computing, and training costs continue to hold their highs.
Simply put,
Anthropic must now increase their volumes by 150% just to keep their old revenue targets alive…
I doubt that will happen.
Customers are routing their AI usage to other - cheaper - platforms who can deliver the same output as Anthropic, after all AI has now become a commodity.
Business goes to the company who can deliver the commodity for less.
Now as this price war + customer routing path continues, future revenues for Anthropic will likely remain well below the company’s ~$350 billion target.
Their compute commitments?
Still at $518 billion and growing.
If those commitments don’t get filled, who really ends up holding the bag?
Click here to see who NVIDIA just gave the hot potato to.
News
OpenAI Seeks $30 Billion of additional funding at a $1.4 trillion valuation, just after the company announced it will postpone new model releases, and bad timing after NVIDIA just made it clear AI finances are broken.
Trump Rejects AI Safety proposals from top CEOs in tech, as this would signal slowdowns for the technology and lost business for his investments in Palantir and other firms.
Consumer Confidence Falls to a 2014 low as the average consumer now fears inflation and job stability the most since then, reiterating the sector as a coiled spring waiting for the right catalyst.
Recovering Oil Pipelines and export bans have pushed the price of crude lower this week, sending our long/short diesel trade stocks straight into profit territory.
Movers & ES Levels
Carnival Cruises 📈 Gained over 13% after posting a revenue beat and better-than-expected earnings, raising my interest in the coiled spring that is the consumer sector.
Carmax 📈 Rose by 5% after an upbeat quarterly result, starting to prove my thesis on the used car market correct, great news for longs in this OPENLANE thesis.
Apple 📉 Lost close to 3% after its new CEO announced the first restructuring plan, makes sense for the market to be wary of change as they test the new leadership.
Lindt 📉 Slipped 7% after weaker quarterly results, seems like the cocoa futures spike of earlier and a weaker European consumer took a hit on the company’s financials.
Now let’s get into some ES levels for today.
Once again the $7,725 support level proved to be a fruitful area to take action around.
Clearing that level and having another close above $7,700 gives me confidence of a move higher, even through all the new Anthropic and NVIDIA drama that’s going on.
I would be careful as we approach $7,750 and even $7,800.
The reason is we’re getting tons of data to end the week, Micron’s earnings included tonight.
PMI, GDP, NFP, and PCE all come to hit the tape hard.
If I were trading this week, I would lean on the $7,700-$7,725 to $7,800 range and levels for potential trading opportunities.
Otherwise, take the week off and come back after the releases are out.
Portfolio
Decent move higher in some of the names which we added to earlier this week.
Then, news about the Saudi pipelines and export bans bringing crude/diesel prices lower helped make a move in the diesel spread trades we have on as well.
I expect to see one final push and whipsaw in most of the AI long/shorts and diesel spreads as discussed, especially as further economic data comes out this week.
There is one major risk beginning to grow around these data center long/shorts, and that is both the NVIDIA call for insurers as well as the Oracle data center delays.
I will cover them for you accordingly as we move forward.
Here’s the positioning update for today’s premium members:
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