Are We Ready for Another Leg Higher?
OpenAI released their new model and it’s hard to look at it and now surmise this is inherently bearish for software. We are talking about a complete turnkey solution designed to take voice commands from people who know nothing about coding, creating software in a fraction of the time it would take to produce the olde fashioned way.
And yes to build it took an incredible amount of compute, something the market is presently pretending is not needed.
Since the end of June markets have priced in several nonsensical things. For starters, markets have been hellbent on bidding up software stocks and Mag7 names (to a lesser degree), all the while crushing semis, AI construction firms, and photonics. The read through on this is simple: markets don’t believe the buildout is sustainable and is attempting to price in a slow down. The only problem with this frame of thought is — there have been zero clues that a slowdown is coming. As a point in fact, all roads traveled suggest productivity and growth ramps are just around the bend, as these models improve and make their way into the general economy.
That being said, it would behoove me to suggest this is the only thing we ought to be concerned about, when at this moment in time we have retards trying their best to torpedo this economy via high inflation (self inflicted) and even higher rates (also self inflicted). If only someone out there came up with the idea to end the fucking Iran war and also be fiscally responsible — we might see a generational run in stocks, marked for the ages.
As a result of being held hostage by retards, tech stocks are now in valuation contraction mode — rather incredibly. Earnings growth are in the ballpark of 29% YOY. If we stripped out the Capex fueled growth, earnings are still growing 15-20%, which is unique in that usually we get spikes in growth following a trough. This growth is coming on top of already strong growth and yet the mood is as glum as it was during the Greek financial crisis — when that small POS nation was forced to sell itself in order to earn German backstops, lest the entire world was going to drown in PIGS blood (iykyk).
So what’s the play?
Markets behaved much better on Friday, with semis and other AI names bouncing — but said rally crushed everything else. We are stuck in this algo driven hellscape, whereby if SMH is up everything else is down and vice versa. However, if markets are going up, which I believe they are, they cannot do it without the largest companies in the world: AAPL, AMZN, GOOGL, MSFT, NVDA, MU etc. Moreover, and I think this to be a rather unique opportunity, markets presently hate semis.
I’ll caveat this with the standard “well this time could be different” disclaimer, but Stocklabs has been flagging semis on our principle oversold signal for the past week. At no point in recent years has this oversold condition led to disappointment.
In fact, the last time we clustered like this was early 25 and again in 26 just before the gorilla runs higher.
What can go wrong?
Well, Warsh is pretending to be tough and really wants people to know he’s his own man, in spite of the fact that Trump threatened to apply tariffs to America’s trading partners if the Fed hiked rates. That is not hyperbole. That’s exactly what he said. The current risks to everything great lies inside of the executive branch, extending out to the Fed and then the bond markets. In other words, politicians and their schemes are once again disrupting a perfectly fine business cycle. We have to watch oil and watch rates and ponder if tightening of credit will at some point cause the AI debt craze to slow.
Coming up we might see Anthropic’s S-1 and IPO valuation, which is rumored to be above $2t, with lead underwriter being Morgan Stanley (long). I do not view these giant IPOs as bearish for markets, but quite the opposite. Once insiders get to sell some of their shares, the money is going to rotate heavily back into the economy and general markets. It’s hard to look at all of this, seeing banks are at record highs and markets in an earshot of highs, and think to oneself “this is bearish.”
Fuck off and good day.
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