The holiday streaming season is almost here
Are you ready? As revealed in our holiday playbook, Roku Ads Manager lets you easily set up, measure and optimize your self-serve holiday ad campaign. You can even create a shoppable ad unit that lets streamers buy directly from their remote.
Good morning partner,
A few things to cover this morning:
** PREMIUM MEMBER REMINDER (If you haven’t yet) ‼
You can now access the Telegram Community to receive our live trade desk alerts in real time (no more waiting on emails to hit), and a dedicated Q&A space with access to Gabriel for anything you’d like to discuss
Yesterday’s Session
I mentioned yesterday that the AI rebound would be short-lived, as it was mostly due to the positive associations with AMD’s bullish earnings move.
However,
It didn’t last that much from there, as the more defensive real economy names took over for the rest of the day and so far into this morning’s pre-market action.
This Sunday, during my weekly plan email, you’ll likely see that the factor rotation is only continuing to gain momentum from here.
I’m talking about the value, breadth, and quality factors rather than the momentum-driven AI trade.
That’s exactly why I’ve been structuring the portfolio and research pipeline around these types of businesses, and have been rewarded for doing so.
The portfolio just reached an all-time high since our June inception, and it is mostly due to our PMI picks from last month.
If you missed those, that’s okay.
I’m getting ready to drop a new watchlist over the weekend on this month’s PMI ideas.
Let’s take a look at yesterday’s leaders and laggards:
Basic Materials, Communications, Financials.
The materials rebound, unlike previous episodes, has nothing to do with the AI buildout but rather with the materials needed for the real economy demand uptick.
Think aerospace, transportation equipment, and specialty alloys for cars and some residential construction.
Leadership outside of materials can explain why this has more to do with the tug-of-war away from the AI complex, as communications helped the hyperscalers instead of their AI counterparts.
Financials, as part of the defensive complex, gained to accelerate the rotation away from the speculative corners and back into the areas that gain on this “growth shock” scenario.
On the laggard side, technology sank with the fall of the AI complex, and industrials alike on the data center buildout theme.
Why are they slowing down?
You have both the election effects threatening further financing and backstop money from the government, coupled with unsustainable underlying finances in the AI labs whose revenues are responsible for funding most of the AI-related debt.
For example, there’s Anthropic and its recent S-1 filing.
It demonstrates why $3.7 trillion worth of loans have now been rated as “junk.”
The company’s revenue growth fell more than 50% this quarter, and its compute commitments now outweigh revenue forecasts by over 50x.
With competition coming in hot from other AI models, customer migration becomes a problem that’s amplified by a 60% decline in token prices.
In other words, 90% of Anthropic’s revenue growth came from just five customers:
Google, Amazon, Meta, Microsoft, NVIDIA
Outside of these multi-billion-dollar spenders, there’s nothing much to speak of.
Actually, No Thanks
The market used to pay up for companies that invested aggressively into AI and data centers.
However,
Somewhere along the line, that sentiment changed as these same companies ended up burning through all of their free cash flow, and turned to capital raises through debt and equity dilution.
All of this capital may eventually turn into revenue growth and profitability in the future, there’s no doubt about that.
But, when and how that happens is still under a very uncertain timeline.
Which is why the market no longer pays up for spending related to AI.
Hyperscalers are somewhat protected from this theme due to their ability to quickly return to a positive free cash flow position…
Others, not so much.
When you look at the neoclouds, chipmakers, and infrastructure plays.
They all bet a significant amount of their market capitalizations, and business structure, on these investments.
Effectively changing their revenue and earnings makeup away from former core business activities and into these uncertain areas.
All of this results in an accelerated rotation away from speculative growth areas and into steady value companies.
This is no longer a belief, but a reality.
Otherwise, how do you explain a boring wood products company going up over 15% during a month when AI lost double-digits?
News
Oil Holds Two-Month Low as the Iran and Middle East threats cool down after the election, boosting the profits in our long/short diesel equity spreads as our election thesis comes to fruition.
Amazon Adds Uber Eats to Prime Perks after DoorDash decided to buy Instacart, so now Amazon is inviting Uber to its ecosystem and boost the company’s delivery business growth, which was at the heart of our long Uber thesis.
CVS is Splitting its Businesses into two entities, one for its pharmacy products and another for its insurance business. This will make for a potential arbitrage opportunity after the split is enacted.
U.S. China Relations Will Change after a Democrat win in the midterm elections, tackling the tariffs and other trade restrictions first, which could absolutely boost the bullish Chinese market view we delivered last week.
Movers & ES Levels
Duolingo 📈 Jumped over 25% on a strong earnings beat, cementing our previously bullish call on software stocks outperforming the AI trade.
Uber 📈 Gains 5% even after a weaker quarter, whose accounting choices hid an otherwise much stronger business as they begin to shift from a mobility focus down to a delivery and corporate market instead.
Qualcomm 📉 Dropped over 8% after posting a much weaker quarter than the market expected, taking another stab at the AI bull case and proving the underlying economics are weakening.
Micron 📉 Slipped more than 4% after a Democrat win mixed with Chinese chip competition to threaten the future state of supply and margins for most memory chipmakers.
Now let’s get into some ES levels for today.
We’ve reclaimed the $7,700 cutoff level to raise the odds of a recovery, and potential retest of the $7,800 highs.
However,
$7,750 is now becoming a quarterly “resistance” level where most of the passive selling activity has shown up.
This type of footprint is one of the most meaningful for trends that are yet to be proven, since it resembles a “sell the rallies” point of view without any aggressive rush behavior.
Where things could become aggressive is lower at $7,690 where sellers have to ram through “trapped” buyers, or otherwise lower at $7,650.
Therefore, we have the following probable outcomes…
$7,780 as the next stop if we manage to take out the passive sellers at $7,750.
$7,700 as another retest if the current highs fail to hold.
$7,650-$7,690 as a highly contested area to determine whether we continue on lower or have a chance to trend back above to today’s current range.
Portfolio
Yesterday, we rolled some options to include another quarter of a percent or so in cash flow to the portfolio.
I also sold out of my only AI-related bets, as the evidence on the tape is undeniably bearish for anyone that still relies on data centers or any further spending into the complex.
Our other, more boring and defensive picks, managed to bring a 2.5% rally to the portfolio and get is within 2% of an all-time high performance since June 2026.
I expect some of our recent investments from last month’s PMI to continue to chug along, but that’s not where the “home runs” will be coming from.
Surely this month’s PMI will add some profitable ideas.
But I expect a completely unrelated set of opportunities to be the ones to get us closer to that 20% before the year ends.
That watchlist will be delivered to Premium members in the coming weeks, so make sure you don’t miss it.
Here’s the positioning update for today’s premium members:
Subscribe to our premium content to read the rest.
Become a paying subscriber to get access to this post and other subscriber-only content.
Upgrade