Lift Off
I figured I’d annoy you with a double entrendre to kick off this week’s newsletter. Yes, markets went up and indeed SpaceX came public, much to the chagrin of all of the Elon haters and ZH aficionados. It was a spectacular IPO, the finest of all time, and there’s a lot more where it came from.
So what should markets expect when Anthropic, OpenAI and other very large IPOs go to market?
Well, in the cases of Anthropic and OpenAI, shouldn’t markets be relieved to see them raise an enormous amount of capital in order to pay Larry at Oracle? Isn’t that the entire bear narrative for ORCL, “muhhhh how is Sam (OpenAI) going to pay Larry?” I hear it all the time.
But the much larger story here, as far as I can tell, is the wealth effect about to take place vis a vis these enormous trillion dollar valuations. Pray tell me, if any of you happened upon Anthropic back in 2023 and now you get the chance to sell at your leisure — what will you do with said proceeds?
Precisely.
These are extremely stimulative events for both the economy and markets, since much of the proceeds of the gigantic wealth created in these companies will, at some point, be spent on luxury items, new homes, and of course a reallocation into the stock market — the likes we have never seen before.
Now with the Iran war finally winding down for the 40th time, maybe, just maybe, we can see both oil and the inflation rate moderate a bit — eventually creating an environment to reduce interest rates. This is most likely more of a 2027 narrative than the current year, given the circumstances.
However, markets are already pricing in some alleviation, with the XRT (retail ETF) lifting more than 6% the past week. That being said, and this goes without saying, the dominant investment sector for more than 2 years has been semiconductors, up 8% the past week.
We’ve lived with them all of our lives and have bore witness to them rise and fall in their cyclical manners, buoyed or compressed by iPhone and laptop sales for much of the 21st century. But this time is indeed different, as the AI capex boom barrels into year 3 of depraved profligate spending.
AI Capex and estimates
2024: $250b
2025: $450B
2026: $750b
2027: $1.1T
2028: $1.2T
2029:$1.3T
2023: $1.5T
My sense of things is we cool down second half of 2027, but perhaps not. The themes that should continue to work well are GPUs, CPUs (cough, AMD) fiber (GLW) and companies assisting the hyperscalers create efficiencies/save money. One of the little fiber companies that I like and own is VIAV — one of two companies that made up the dot com era giant JDS Uniphase (remember the CEO with the stupid beret?). The other one goes by ticker symbol LITE, +1,628% the past 3 years. By comparison, VIAV got the short end of the break up stick, up merely +422% over the same time period. At any rate, they test the fiber going into the datacenters to make sure it isn’t dark (bad), assisting the spendthrifts in returning the trash fiber doled out to them by incompetents, thereby saving them money!
Much of the AI datacenter narrative will be volatile and if you’re not able to raw dog an afternoon staring at 12% losses for no rhyme of reason, perhaps some shares of KO or CVS might interest you.
House Fly just returned back from Japan and we enjoyed it immensely. It was, by far, the cleanest country I’ve ever seen, the inverse of the filthy Italy. And, most importantly, the people proved to be both honest and virtuous. Throughout my entire trip I used ChatGPT to help me read signs, navigate train stations, and to translate addresses from Romanized to Japanese. Inside the train station, which by the way do not smell like train stations, I’d snap a photo of where I was, and ChatGPT would know exactly where I was, look up my train and direct me to the track. Incredible stuff.
Mrs. Fly’s next sojourn is most likely NYC this summer, but that would be to visit our Mothers. Aside from that, we are contemplating moving Girl Fly (my daughter) to Austin to pursue her career in film. It’s crazy to think I started iBankCoin when I was just 28 and now my eldest son is 29, and my other two children both adults in their 20s. By the way, on the 25th of May I turned 50, officially very very olde.
At any rate, that’s about all I have for you fuckers this week. Markets have resumed its upward lift, Elon is a trillionaire, and Sam is about to be able to pay Larry extremely large sums of money. Let’s keep an eye on rates and see if the “broadening out” nonsense comes to fruition, best represented by RSP, XHB, KRE, IWM ETFs. We’d also like to see IEF and TLT lift — because that would mean rates would be coming down.
Cheers and Good Day,
Fly
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