Dan @DanielITNiles_

The US Treasury increasing LT debt buybacks is driving an intra-day 8bps decline in 30yr ylds, +0.4% S&P but also a 0.8% decline in the US dollar which puts upward pressure on inflation. This follows yen intervention earlier this month to alleviate upward pressure on US ylds. There is an adage that the bond market will stop panicking when the government starts panicking. So the bulls will be heartened by today’s reaction given credit is the life blood of the economy. Having said that, what bothers me is none of this solves the underlying upward pressure on rising treasury ylds of 1) 6% US deficits (and high deficits around the globe) despite a strong economy, 2) high US government debt of $40T vs $33T in GDP , 3) increasing hyperscaler debt issuance due to a near doubling in capex this year to nearly $900B & likely over 30% next year to $1.2 trillion taking away some of the demand for treasuries. The reaction tomorrow to the reaction today will be an important tell. Does the rally continue or was today a temporary reprieve? As I posted on Sunday, there is normally a 10% peak to trough decline in the S&P between 7/31-11/9 since 1990 at some point during mid-term election years. I worry that the odds are increasing of seeing a repeat.

Last wk, S&P/Nas/Mag7 +0.4%/+0.1%/-0.8%. Cooler inflation (CPI, PPI) & economic data (consumer sentiment, retail sales) but +5% oil steepened the yield curve but lowered odds of a rate hike. Looking forward, I continue to believe the impact of Agentic AI with the advent of OpenClaw on January 30th has at least a year to run: 1) Token production has gone up roughly ~7.5x from the end of January more than offsetting the nearly 50% token cost reduction seen since open-weight model usage started to take off in May. 2) Combined annualized run-rate revenues for OpenAI and Anthropic which ended last year at $29B seems to be around $100B currently with Anthropic getting profitable in Q2. 3) Capex from the Big6 hyperscalers accelerated from 84% y/y/ in CQ1 to 92% in CQ2 with forecasts for nearly 100% in Q3. But this is being supported by cloud revenue growth at the 3 Big Public cloud vendors of $AMZN $MSFT $GOOGL accelerating from 23% y/y in Q1:25 to 35% in Q1:26 to 43% in Q2:26. Arguable more important is public cloud operating margins expanded from 34% to 37% and 39% during those time periods. 4) The $500B financing deal backstopped by up to $125B from $NVDA adds even more lower cost money to fund AI capex spend for the non-hyperscaler players. Nvidia gained 0.5% last week. 5) The liquidation of Situational Awareness and retail accounts during July cleared out some of the frothiness in the AI related names In terms of negatives: 1) The cost of money (yields on government bonds) remain near the highest levels for the 30 yr tenor at 5.3% since 2007. 2) Given large scale offensive US military actions are seemingly off the tablein favor of financial sanctions, probably driven by current election polls, I now believe Iran is likely to hold the Strait of Hormuz hostage until past the US mid-terms. This would be akin to them releasing the US hostages in 1981 (they were held for 444 days) just hours after President Reagan was sworn in replacing Carter. There were severe financial sanctions then also. 3) Since 1990, which happens to be the Gulf War, from the end of July through November 9th, which covers the reaction to all mid-term results, the performance is worse than non mid-term years. For mid-term years the median S&P500 gain from 7/31-11/9 is 0.9% with gains 56% of the time but the median peak loss from 7/31 is 6.2% (intra-period median peak loss of 9.9%.) For non mid-term years the median gain is 2.7% from 7/31-11/9 with gains 59% of the time and the median peak loss from 7/31 is 3.5% (intra-period median peak loss of 5.2%.) This year with the momentum seen by the Socialists which are not big business friendly, I see more risk than normal. 4) The easy money on the AI technical rebound from oversold levels on 7/29 due to the forced sale by Situation Awareness is probably over. There were negative stock reactions to headline beat and raise earnings on both revs & EPS for AI infrastructure winners $CSCO (-8% for the week but still up +45% YTD), $AMAT (-6%/+97%) and $COHR (-14%/+77%). While negatives can always be found, their biggest crime was arguably their recent bounce from 7/29-8/7 of 8%, 24% and 71% respectively and their market beating YTD gains. In summary, I remain bullish. Even from the end of July through November 9th during mid-term years since 1990, the S&P has an additional median gain of 4.2% to its peak before giving some of that back closer to the election. Given some of the negatives, especially the reaction to solid earnings data, I would add some hedges back on further market gains and get more selective. Consumer discretionary hedges should also make sense if oil is higher for longer. I believe value should continue to accrue to the infrastructure layer which includes 1) the public cloud vendors such as Amazon, Microsoft, Google and 2) the semiconductor companies. $INTC, my favorite semi company, still gained 0.8% last week despite: 1) a $20B equity offering which causes ~5% dilution and 2) being up 178% YTD. This clears the funding overhang. All the best in the week ahead.

I think investors are increasingly not focused enough on managing downside risk with Situational Awareness an unfortunate recent example. One of the biggest issues I discuss below. The full interview can be seen at youtu.be/H26lu1CCi3o?si…

SK Hynix missed consensus by 6% for CQ2 rev & operating profits while guiding FY26 capex 11% below. While I have outlined before my case for a near-term AI “speedbump” (which can still be quite ugly like in late 1995/97 for internet buildout,) this is certainly ammo for THE TOP.

Awesome that @JensenHuang is now on X. Great commentary on Openweights. Interesting that $META & $MSFT (owns ~27% OpenAI) is in the list of logos but OpenAI, Anthropic & the two other big public cloud hyperscalers, $AMZN & $GOOGL are not. Seems like battle lines have been drawn.

$INTC vs consensus reported ~2x the EPS & beat revs by 12%. They raised capex (18%) much like their customers did yesterday but unlike their customers their Q3 EPS is going up by ~40%. I like infrastructure beneficiaries w/ expanding margins of all that spend, not the spenders.

I think investors are increasingly not focused enough on managing downside risk with Situational Awareness an unfortunate recent example. One of the biggest issues I discuss below. The full interview can be seen at youtu.be/H26lu1CCi3o?si…

Stock Sharks @stocksharks_

a month ago

The biggest mistake in investing? Assuming today’s winners will stay winners forever. @DanielTNiles explains why great investors don’t fall in love with stocks — they stay adaptable and protect the downside. Full conversation on Stock Sharks: Across the Table. 🦈

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The story today about Silver Lake, a premier private equity firm with over $100B in assets focused on tech, potentially looking to acquire $WDAY likely puts a floor under software sector for some time. Workday prior to today’s 18% move higher had been down 18% over the past year (8/12/25-8/12/26) vs $IGV (the software ETF) which was down 6% and the S&P up 20%. It was considered one of the names most likely to be disintermediated by AI. PE firms 1) use debt which increases risk if they are wrong, 2) the cost of longer-term debt is the highest in nearly 20 years and 3) they need to feel comfortable about terminal value given exits are typically now in 5-7 years. This is a much harder bar to clear than a typical public market investor who has daily liquidity if they change their mind or a strategic acquirer that may have other synergistic reasons to do the deal. Also the size of this deal makes the bar even harder to clear. With a closing market cap today of over $50B for Workday, if it were to occur this would rival the prior record breaking technology PE deal for Electronic Arts of ~$55B that Silver Lake was also involved in. This news follows the results from $TEAM last week, another name that investors have put in the AI disintermediation basket, which rallied 35% the next day in reaction to earnings and is still down 2% from 8/12/25-8/12/26. I continue to believe that AI native companies like Anthropic and OpenAI which I believe are now likely running at over $100B in annualized revenue run rate combined vs $29B to start the year will increasingly put under pressure: 1) point solution software companies that are not system of record, security or gaming, 2) headcount growth as AI empowers current employees and 3) IT services vendors. Every public company will need to find cost savings somewhere given their rapid ramp in AI spending if they want to make Wall Street forecasts. Having said that, these two recent events should help put a floor under the software sector as a whole and may help it to outperform between now and year-end given the massive underperformance and multiple compression seen since it peaked in October of last year.

Is $INTC about to be “super successful?” When they were asked on their July 23rd earnings call about the need to raise capital, which they are doing this morning with their $15B common stock offering, this is how the CFO answered: “we feel like we're in a really good place from a balance sheet perspective. We have over $30 billion of cash. We have a $10 billion revolver. So, we've got $40 billion of liquidity… Obviously, the fact that revenue and profitability and EBITDA are all expanding helps a lot in terms of the cash flow that throws off to the business. And additionally, we have… roughly, call it $10 billion of what it's called non-core assets that can still be monetized on the balance sheet… And we have seen, by the way, our customers willing to invest with us. And we've had pre-pays from customers… that has enabled us to unlock capacity that's helped us. That said, if we're super successful, which we're driving to, we may need to tap the capital markets to drive…some more investment.” My belief of what “super-successful” means is they are close to signing up one or more major foundry customers, which is very capital intensive, and they need a lot more capacity to ramp it. I expect more details from industry sources to come out over time given a press release is unlikely given the secrecy demanded by most customers. I believe with Intel, there are multiple ways to win: 1) higher ratio of CPUs to GPUs in Agentic, 2) advanced packaging and 3) US national champion in foundry. This offering today increases my conviction they are on the path to being “super successful.”

Last wk, the AI surge post Situational Awareness resolution continued. S&P/NAS/SOX was +3.6%/+5.2%/+9.2%. WTI -8% with 10Y bond ylds -9bps helped. I wrote on 7/29, “we could have seen at least a short-term bottom today with a strong rally ahead of us in the sectors most caught in the latest speedbump.” I thought forced liquidations of both retail accounts and hedge funds were creating a bottom. The next day, Situational Awareness had a forced sale of all its public equity positions. The Morgan Stanely Momentum Index is now up a whopping 14% in just 7 trading days from July 29th following the 38% drawdown from June 22nd to July 29th. The more concentrated TMT Index is up 25% from 7/29 following the 54% decline from 6/22-7/29. The S&P/Nasdaq/SOX (Semiconductor Index) is up 6.0%/9.2%/18.3% since 7/29. To end the week, the less than expected jobs report on Friday encouraged equity and bond markets that had been worrying about rate hikes. I still believe hikes are less likely than current fears given Kevin Warsh was appointed as Fed Chairman for his belief in AI being deflationary. The CPI report on Wednesday will be important for this thesis. It was encouraging to see the semiconductor sector rally 9.2% last week despite the acid test of lackluster results from $AMD and the memory names which have been the tip of the spear in the semiconductor trade. $AMD had both revs and EPS edge up low single digits for Q3 but this was disappointing compared to $INTC EPS going up ~40% for Q3. AMD’s stock was up 2% for the entire week despite declining 7% in reaction to results the next day. $SNDK was flat for the entire week despite declining 7% the next day in reaction to guiding CQ3 revenues 2% below consensus. $WDC was down 20% last week after guiding EPS just 4% above consensus for CQ3 which was disappointing relative to $STX results where CQ3 moved up 25%. In the near-term, I continue not to be a fan of the memory sector relative to other AI infrastructure names given I remain concerned about US companies like $AAPL getting approval to use Chinese memory & recent moves by $NVDA to lessen memory requirements. Nvidia is evaluating shipping the Rubin Ultra with as little as 192 GB of HBM vs the original roadmap of 1 Terabyte. But this would be good for Nvidia that reports earnings later this month given they could ship a lot more GPUs for a given amount of memory. Also Elon Musk stated last week, "Going forward, we have decided to build exclusively on Nvidia, because we think the Vera Rubin architecture is the best architecture.” This is a powerful statement given the many companies trying to push the benefits of their ASIC accelerators. Nvidia is also a value and growth play at the same time with just a 25x CY26 PE for over 80% revenue growth. Revenue growth for Nvidia has also accelerated for every quarter from July 2025 at 56% y/y to expectations of 96% for July of 2026. In support of this growth, the six big hyperscalers saw capex growth accelerate from 84% y/y in the March quarter to 92% in the June qtr with forecasts of nearly 100% growth in the September quarter. Each quarter of 2026 is showing higher y/y capex growth than at any time during this AI buildout. In summary, I believe the near-term pain trade is higher in equity markets. For those funds that got punished in July and were forced to de-gross near the bottom, FOMO and performance chasing is now kicking in. None of my technical indicators are flashing overbought yet given the severe drawdowns prior to the current rally. The evolving situation in Iran is obviously the wildcard. Best of luck in the week ahead.

Last wk S&P/Nas/Mag7 +1.0%/+1.6%/+4.7%. The forced asset sale by Situational Awareness helped drive a sharp rally on 7/30. On 7/29, I wrote, “From a technical standpoint, I believe forced liquidations and margin calls in both retail accounts and hedge funds that typically run with leverage over the past couple of weeks is leading to a technical bottom… In summary, my view is that we could have seen at least a short-term bottom today with a strong rally ahead of us in the sectors most caught in the latest speedbump.” On Thursday 7/30, the Morgan Stanley TMT (Tech Media and Telecom) Momentum Index rebounded a record 19% on Thursday and added another 1% on Friday. This followed a decline of 54% from 6/22-7/29. It is now down 44% from 6/22. This is why I focus on avoiding “speed bumps” as I warned about on my 6/20 post. It is hard to predict how bad they will be and down 50% requires a 100% gain to get back to even. I feel like the near-term low on the current speedbump was seen on 7/29. Looking at Mag7 results this earnings season, stock reaction to earnings results mostly came down to two factors: 1) did estimates go up for CQ3 if capex went up and 2) did you report results before or after the Situational Awareness (SA) forced sale. $MSFT results strengthened my recent view that co-Pilot could be a winner in enterprise AI longer-term. As I wrote in my earnings preview. “It operates natively within the Microsoft 365 ecosystem where enterprise work already happens.” There are ~450M M365 paid seats but only ~30M Co-Pilot. Microsoft guided above consensus for CQ3 while capex remained unchanged. Azure also saw growth improve sequentially from 39% to 43% y/y with guidance to 45% for CQ3. Helped by the SA forced sale, the stock saw the 5th highest one day percentage stock move in history at +16% on Thursday. $META unfortunately had both revs & operating income go down for Q3 while revising up capex & opex. They also did not announce any definitive plans around a public cloud offering or API for their foundational models to monetize this spend. The stock declined 8% in reaction on Thursday which likely would have been worse if not for the SA forced sale. $AMZN while guiding both revs & operating income below consensus for Q3 and increasing capex, had AWS rev growth accelerate from 28% in Q1 to 37% in Q2 which was the highest growth rate since Covid in Q4:2021. AWS normalized operating margins expanded 1% sequentially. The stock rallied 15% on Friday in reaction to earnings following a 4% rally on Thursday as investors continued to regross in the AI names. But this brings me to $GOOGL which remains my long-term winner in consumer AI with the complete AI stack. Google like Amazon guided capex higher while implied revs & operating income declined for Q3. But Google Cloud Platform performance crushed AWS performance. GCP saw revs accelerate from 63% in CQ1 to 82% in CQ2 while operating margins expanded 3% sequentially. But Google unfortunately reported a week prior to the SA forced sale and saw their stock decline 7% in reaction the next day. $AAPL was the anti-AI trade leading up to their results and their stock hit an all-time high intra-day on Wednesday. The stock as a result declined 1% on Thursday as investors regrossed AI names on the SA forced sale and fell 7% on Friday in reaction to revenue & gross margin guidance that was below consensus. Big picture, I think the severe drawdown in the AI favorites from 6/22-7/29 was good for the market. It reminded investors of the need to be vigilant and the perils of excessive leverage/risk taking. Long-term bond yields hitting new 20 year highs last week and the unresolved Iran war are factors I am monitoring. In summary, out of the mega-cap earnings the past two weeks and the forced SA sale, my favorites are $GOOGL, $AMZN and $MSFT. I increasingly view value as shifting from the model layer which is increasingly getting commoditized to the infrastructure layer which includes the public clouds. I think the short-term bottom in the current speed bump was on 7/29. Best of luck in the week ahead.

Forced liquidations due to excess leverage typically mark near-term historical bottoms. Situational Awareness at ~4x leverage & over $20B in assets at its peak is now wound down. While I heard there were at least 3 other funds in trouble, today’s rally may have fixed their issues. I also wanted to put today’s rally in context. I gave the stats in my post yesterday about the historic meltdown and why “In summary, my view is that we could have seen at least a short-term bottom today with a strong rally ahead of us in the sectors most caught in the latest speedbump.” The 10.7% rally today in the Morgan Stanley Momentum Index beats all but the 11.1% gain on 4/3/2001 during the dotcom bust. All the other moves in the top 10 occurred during either Covid (3x), the GFC (2x) or the dotcom bust (3x). For the more concentrated Morgan Stanley TMT (Tech Media & Telecom) Momentum Index today’s gain of 19.1% crushes the prior 11.9% gain seen on 12/5/00 during the dotcom bust. 5 of the other top 10 gains were seen just since November of 2025 during the recent meteoric rally. There were 3 more during the dotcom bust. While some give back is certainly likely in the days ahead given the ferocity of this one day move, I believe we have seen the near-term bottom yesterday due to the forced liquidations. I am hopeful the “speedbump” I started expecting back on my June 20th post is now behind us. Getting oil prices back into the $70 range with a decline in bond yields would certainly increase the odds even more. I believe we are still early in the adoption of Agentic AI and the 10-100x increase in tokens needed since January relative to Chat-based AI.

Given a couple of my friends misunderstood my short tweet yesterday, let me clarify. My post on Hynix was to acknowledge a datapoint for those calling THE TOP of the AI cycle. I believe it is important as an investor to not just focus on what is supportive of your investment case but even more so to focus on what is directly against it, especially if it is a universally acknowledged loved idea like AI. Having said that, let me be clear. I still strongly believe this is a “speedbump” which is what I have been writing about since my original post on June 20th. But a “speedbump” can be ugly as I have pointed out before. Starting in both late 1995 and 1997 there were drawdowns of over 50% in the semiconductor index. But the semi index finished up roughly 850% from the end of 1994 to the peak of the internet buildout in March of 2000 despite this. Also back then, those drawdowns had fundamental drivers. In 1995, Windows 95 did not lead to the upgrade cycle expected and companies were sitting on a bunch of DRAM inventory. Intel wrote off about $1B in DRAM inventory as an example. There is no excess memory inventories on balance sheets today. In 1997, the Asian currency crisis forced a slowdown in end-demand. The Iran war and continuation of the Ukraine conflict are both disruptive but there is no general slowdown in demand being caused by them that I can see. From a technical standpoint, I believe forced liquidations and margin calls in both retail accounts and hedge funds that typically run with leverage over the past couple of weeks is leading to a technical bottom. From June 22nd, the peak of the momentum trade, the S&P is down only 2.1% and the Nasdaq is down 6.6%. But the SOX index (the tip of the spear in the AI trade) is down 28.6%, the Morgan Stanley Momentum Index is down 38.0% and their Momentum TMT (tech, media and telecom) Index is down 53.5%. The ferocity of these moves in roughly one month has never been seen before in some cases. I believe this has sped up the cleansing process with prime brokers not wanting another Archegos situation. From a fundamental standpoint, the advent of Agentic AI started arguably at the end of January 30th with the formalization of OpenClaw. This requires 10-100x more tokens than chat-based AI. No question that token minimization is going on at the top 1% of companies which was the main reason for my speedbump concerns but the other 99% are still ramping. In summary, my view is that we could have seen at least a short-term bottom today with a strong rally ahead of us in the sectors most caught in the latest speedbump. Time as always will tell.

SK Hynix missed consensus by 6% for CQ2 rev & operating profits while guiding FY26 capex 11% below. While I have outlined before my case for a near-term AI “speedbump” (which can still be quite ugly like in late 1995/97 for internet buildout,) this is certainly ammo for THE TOP.

Last Sunday, I previewed caution on capex spenders & more optimism on their customers. This past wk, Mag7 (spenders) -5.8%, while Semi Index (customers) +1.2% with S&P -0.6%. This wk, we get earnings from four of the Mag7 for a more complete picture. Last week, WTI +8% and yields across the 2-30 yr curve increased by 9-15 bps, which was also a major issue for equity markets. De-escalation in Iran over the weekend should help both oil prices and yields during the start of this upcoming week. I continue to believe November 3rd mid-terms put a powerful impetus on the US administration to get oil prices down well before then. This is my current framework for AI investing: Positives: 1) The advent of Agentic AI on January 30th with the formalization of OpenClaw will drive 10-100x more token production. 2) Microprocessor vendors benefit in the move from 8 to 1 GPUs per CPU to ~unity in the move to Agentic AI. 3) The current philosophy of the hyperscalers that they cannot afford to lose the AI race keeps me more bullish on the recipients of that capex spend than the spenders. Negatives: 1) AI native revenues will be determined in the near-term by the trade-off between the top 1% of companies focusing on controlling their AI spend vs the ramp of the other 99% given the move from token maximization in March to token minimization by June. 2) Part of that control of AI spend will come at the expense of non-security software companies, IT services and headcount. 3) The cost of money is also more expensive which is a headwind to equity multiples. 11 of the major central banks have gone from cutting rates from roughly 2.7% in July of 2025 to 2.4% by early February to raising them to 2.6% today. At the same time, 10 year treasury yields across the 11 associated countries stayed flattish at roughly 3.2% from July of 2025 through February and has now risen to 3.8%. For megacap earnings this week, my belief is much like last week, ROIC (the interplay between capex and future EPS estimates) is likely to have an outsized impact on the near-term direction in stock prices. $META should have benefitted from increased engagement during the World Cup. But Meta revs grew 27% in Q3:25 vs 22% in Q2:25 creating tough comparisons for the Q3:26 guide. In addition, a potential launch of a public cloud and LLM API may embolden Meta to increase capex spend. Fortunately, valuation in the teens is low vs 22x CY26 PE for the S&P. $MSFT Azure has a high bar given Google GCP revs accelerated from +63% y/y in CQ1 to 82% in CQ2. But I wonder if the focus on AI cost control is an increasing tailwind for Co-Pilot. It operates natively within the Microsoft 365 ecosystem where enterprise work already happens. But Microsoft owns 27% of OpenAI which I remain negative on given they are caught between Google in consumer AI and Anthropic in enterprise. $AMZN AWS rev growth also has a high bar to clear due to GCP. In addition, higher oil prices are likely to be pressuring the logistics cost of their e-commerce business as well as consumer purchasing power. The shift of their 4 day Prime event to late June from early July should benefit Q2 but at the expense of Q3 guide. $AAPL is benefitting from the AI capex spend of others, especially their partner, Google. But I believe CQ3/CQ4 estimates are too high for both revenues and margins (due to rising semiconductor prices) and valuation at a 37x PE is expensive. From a longer-term perspective, I remain bullish on the potential upgrade cycle from a foldable phone with AI enabled Siri. Best of luck in the week ahead.

Awesome that @JensenHuang is now on X. Great commentary on Openweights. Interesting that $META & $MSFT (owns ~27% OpenAI) is in the list of logos but OpenAI, Anthropic & the two other big public cloud hyperscalers, $AMZN & $GOOGL are not. Seems like battle lines have been drawn.

Jensen Huang @JensenHuang

2 months ago

For my first post, I’m sharing a letter @NVIDIA signed on why open models matter. AI will transform every industry, power every company, and be built by every country. Open models strengthen safety and cybersecurity, accelerate innovation and diffusion, and enable sovereignty.

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$INTC vs consensus reported ~2x the EPS & beat revs by 12%. They raised capex (18%) much like their customers did yesterday but unlike their customers their Q3 EPS is going up by ~40%. I like infrastructure beneficiaries w/ expanding margins of all that spend, not the spenders.

$GOOGL: Implied CY26 ROIC worse given capex raised 8% but EPS slightly higher at best given higher rev & expense. Positives: $2.7B rev beat; GCP rev +63% y/y in Q1 & +82% in Q2; Cloud backlog +11% q/q. Negatives: “only” $380M OpInc beat, $150M miss in search rev, $6B FCF burn. These Google earnings are about to put to the test my thoughts that I ended my post with this past Sunday. “I believe it is prudent to start adding back some exposure in the AI related infrastructure names. But I believe this needs to be balanced with prudence at the public cloud layer…” Will the semis (the tip of the spear of the AI infrastructure trade) be able to rally on this capex raise even when the fastest growing public cloud company struggles with ROIC or was it too early to start trying to differentiate during this AI “speed bump”?

Great interview by @WilfredFrost. I listen when Jamie Dimon speaks. W/ almost $5 trillion in assets at $JPM, he has to see trouble coming well before it ever shows up to position properly (and benefit from it.) In my opinion, one of the best CEOs ever over the past 20 years.

Wilfred Frost @WilfredFrost

2 months ago

🚨NEW EPISODE🚨 60 minutes with JAMIE DIMON - wouldn't buy long bonds or SP500 here - "risks are bigger than people think" - "I want @andyburnham to succeed", but Banks Levy is "wrong" - Leadership masterclass - breaking bureaucracy; overcoming insecurity; loneliness at top

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Every great industrial revolution has had overinvestment due to the potential for riches for the last companies standing. Eventually this ends in a bust. AI I believe is no different. But I believe the current “speedbump” is not the beginning of that ultimate bust. On Saturday June 20th, I laid out my near-term concerns of an AI “speedbump” due to: 1) Token minimization 2) Competitive low cost open-sourced LLM models 3) Rising semiconductor cost impact on Q3 guidance Monday June 22nd in hindsight turned out to be the short-term top for the semiconductor index and the momentum trade. Token maximation in March turned into token minimization by June with the most extreme example being the $COIN CEO on June 26th posting how they cut their token spend by nearly 50% by largely routing AI queries to cheaper models. In the near-term, the question becomes can token usage by the other 99% of firms go up fast enough to offset the top 1% of firms like Coinbase cutting their AI bills. Numerous cheaper LLMs have been introduced recently. Last week the introduction of Moonshot’s Kimi K3 (China-based) challenged the performance of the most advanced US models. Profitable AI native revenue growth that is ROIC positive is what is needed to keep the whole ecosystem functioning. $GOOGL reporting this Wednesday will provide the first major datapoint on the trade-offs between cheaper tokens and more token production. Google Cloud Platform has seen revenue growth year-over-year accelerate from 34% in Q3:24 to 48% in Q4 and 63% in Q1:25. This growth rate should accelerate further in Q2 due to token maximization. While I expect forward Rev/EPS to move higher post results due to their core business, comments on GCP growth are likely to drive the stock reaction. While $GOOGL is my favorite consumer AI play given they have the complete AI stack, I am not sure they are immune from the leading 1% of companies trying to cut their AI bills. Uber for example that blew their entire AI budget for the year in the first four months has GCP as their primary supplier. $INTC which reports on Thursday provides multiple ways to win at the AI infrastructure layer which I am more bullish on than the increasingly commoditizing LLM model layer: 1) Agentic AI is driving a surge in demand for server CPUs which are a new bottleneck, 2) their advanced packaging has already attracted several hyper-scalers and 3) their foundry business (our national champion with an investment by the US government) continues to improve and attract new customers. As for the current AI “speedbump” in stocks, the Morgan Stanley Momentum Index (MOMO) which subtracts the Long Index from the Short Index fell 28% since June 22nd through July 16th in just 24 days with a slight reprieve of 1.6% on Friday. Historical corrections of over 10% since 1996 have averaged 20% from peak to trough but have taken 48 days on average to bottom. But the rally of the MOMO index of 40% from the March 30th stock market bottom through June 22nd was also much sharper than historical precedents. In my opinion, investing is about the risk versus reward. On June 20th, it was not good with increasing examples of token minimization. From a technical basis, MOMO is still not oversold given the RSI only reached 35 on 7/16 and on average it bottoms at 31. But the risk vs reward is more favorable today with sentiment having fallen further following: 1) the negative pre-announcement by $IBM which declined 26% last week despite prior claims of being an AI beneficiary, 2) the 3% drop in $ASML and 8% decline in $TSM last week despite positive earnings and 3) the 10% decline in both the Semiconductor Index and MOMO last week. Finally, I believe the advent of Agentic AI which arguably started on January 30th of 2026 with the formalization of OpenClaw requires 10-100x more tokens vs Chat-based AI. As a result, I believe it is prudent to start adding back some exposure in the AI related infrastructure names. But I believe this needs to be balanced with prudence at the public cloud layer given the near-term focus on AI bills needing to be controlled by the top 1% of corporations.