Jordi Visser / VisserLabs
Your Capex is My Opportunity: The AI Capex Cycle Has Replaced the Old Economy Business Cycle
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TL;DR
Research summary
▶ Market rally and the AI earnings case
The speaker opens by noting that stocks continue to rally despite bubble warnings. They attribute the strength to AI investment driving earnings, earnings revisions, margins, GDP, and semiconductor leadership, and describe the cycle as being in its early stages, with trillions in reported backlog supporting future growth. They also identify warning signs: software and private equity stocks remain near year lows, financials are below a declining 200 day moving average, next year's earnings may already be priced in as P/Es rise, and inflation and rates are flashing early warnings. A turbulence model has issued its first signal, which the speaker says is an early warning rather than a trigger; they cite weakening cross asset correlations and market breadth. They introduce a portfolio framework called benchmark arbitrage, arguing that traditional benchmarks overweight software and reflect a manufacturing and consumer cycle that has become less relevant in an economy where AI investment is growing without job creation.
▶ Earnings, capital goods, and Caterpillar demand
The speaker describes major indexes reaching all time highs and the S&P having one of its strongest months in 25 years. They say a six month rate of change measure has recovered to positive 5%, which historically has often been followed by a healthy market, and characterize recent warnings as mid cycle rather than evidence that AI earnings growth is ending. They cite accelerating forward earnings across the S&P, median stocks, and small caps, and say estimates are rising faster than during the mid 1990s or late internet boom, without the preceding recessionary earnings decline. They attribute upward revisions and margins to the CapEx boom, contrasting it with the usual tendency for analysts to revise EPS down about 2% over the 2011–25 period. They point to strong regional manufacturing surveys and rising core capital goods orders, then use Caterpillar as an example: its backlog reached a record $62 billion, including demand for data center power generation equipment, and the company expects that equipment's sales to be roughly three times larger by 2030. The speaker notes Caterpillar trades at 36 times next year's earnings while Nvidia's forward P/E is at a ten year low, and argues that current demand and AI revenues could keep multiples elevated.
▶ Inflation risks and weakening breadth
The speaker says hyperscalers have a combined $1.3 trillion in cloud backlog, described as contracted revenue they cannot yet fulfill because capacity is insufficient. They argue that faster than expected AI adoption supports market strength, while their own portfolio approach is to short hyperscalers and hold a thematic portfolio of companies that supply or receive AI infrastructure spending. They then turn to risks: unleaded gas futures have broken higher, including deferred contracts, and the speaker interprets that as a possible signal of persistent inflation and weaker future growth. They say a prolonged Strait closure raises the risk of CPI exceeding 4%, cite higher pump and diesel prices, and relay a Goldman Sachs scenario in which global inventories could reach all time lows even if the Strait opens by late May. They report adding to chemicals and energy, which they regard as lower beta, mid to late cycle areas outside the earliest AI buildout; Chevron has remained roughly unchanged despite September oil rising from about $66 to nearly $90. Other concerns include slower air travel, unusually high prices paid in manufacturing surveys, rising Chinese export prices, crop and fertilizer costs, possible El Niño related disruption, inflation swaps, and yields. They say US 30 year yields are just below 5%, 10 year yields remain in a triangle, and Japanese and UK long yields have broken to new highs. Market breadth is weak despite record index levels: the median stock is 13% below its 52 week high, about half of S&P stocks are down on the year, and the speaker cites unusual narrow participation in the Nasdaq 100 and S&P. Financials also remain below their 200 day moving average.
▶ AI cycle stages and benchmark positioning
The speaker highlights Elon Musk's warning that the US could produce more chips than it can power, and says chip hoarding reflects expected demand even as compute capacity remains constrained. Semiconductors are described as the largest level two GICS group in the S&P, valued at $10 trillion; the speaker says the semiconductor group, rather than technology as a whole, is driving performance, and notes that about half its value is Nvidia, which they call one of the weaker performing semiconductors this year. They present a five layer AI infrastructure framework and argue that the next 15 years may make suppliers' customers' CapEx an investment opportunity, compared with the prior 15 years' focus on margins. They say major technology companies and other large firms will fund a buildout they associate with $90 trillion, and argue that RIAs should give the spending companies higher portfolio weights than benchmarks do. Their proposed cycle has semiconductors early, power and data centers in the middle, and humanoids later, after another year or two of infrastructure construction and the ability to meet RPOs. They call the shift a benchmark arbitrage because traditional indexes remain weighted toward past winners, including software.
▶ Thematic portfolio, AI agents, and compute demand
The speaker frames AI as a non tech infrastructure story spanning hardware, commodities, chemicals, and power. Their five layer portfolio categories include racks and advanced packaging, optical components, chemicals, and power; they describe the first three as early cycle, chemicals as steadier and more mid cycle, and the power group as including Exxon, Chevron, Bloom Energy, and potential battery related components. They say a 10% overweight to these themes paired with a 10% reduction in the S&P would have outperformed, and report starting swaps with clients to enable investment in the themes. Their thematic basket has outperformed the S&P while hyperscalers and software have lagged; they attribute US underperformance versus international over the prior 16 months partly to the relevant names being in mid cap, small cap, and overseas markets. They say AI agents drove a new adoption phase, while acknowledging the portfolio's parabolic rise will have corrections. The speaker cites Anthropic revenue of about $30 billion annualized and estimates of $50–100 billion by year end, and says supply of compute will remain below demand. They share their own favorable assessment of ChatGPT 5.5 and report Google's Cloud CEO Thomas Kurian's view that demand will exceed supply for the next 10 years. They suggest some AI product slowdowns may reflect inadequate compute, favor that explanation over the idea of promotional press, and say deals by Google and Amazon with Anthropic involve compute and infrastructure as well as capital. They relay a report that a lab is contracting compute across major clouds, that no material capacity is expected online before September, and that hourly compute prices may rise over the next five months.
▶ CapEx, chip constraints, and power infrastructure
The speaker says strong results reinforce companies' commitment to keep investing, and expects CapEx estimates to be revised higher because demand is ahead of available capacity. They reject the argument that efficiency gains will end the buildout, saying past efficiency gains have accelerated progress and that agent adoption increases compute use. They argue that comparisons with the dot com era rely on an outdated industrial and consumer cycle. They describe advanced semiconductor capacity as constrained across TSMC, Intel, and Samsung, and say Elon Musk has secured Samsung production and is developing Terafab because compute supply is inadequate. Nvidia's multiple has declined even as its stock rose, which the speaker takes as a sign that the market may not believe the compute shortage thesis. They report that the White House invoked section 303 of the Defense Production Act to support grid equipment and supply chain capacity, citing concern that the US is falling behind China and lacks compute. Power plant equipment spending is expected to triple through the 2030s, but data center construction faces bottlenecks and local political opposition, which the speaker says may become a midterm election issue. They identify power semiconductors as a potential next scarcity trade, report stretched lead times due to AI servers, and say the group has risen sharply over two weeks and broken a five year high.
▶ Chemicals, software disruption, and semiconductor valuations
The speaker says chemicals and power semiconductors belong to related parts of the AI infrastructure cycle and recommends focusing attention on the later cycle power and chemical themes. They describe a new report covering 17 chemical companies, ranked by early, mid, and late cycle exposure and investment rationale, while clarifying that the report is not a buy recommendation or a timing call. They say they bought Integris after earnings knocked its stock down and intend to keep looking for names; they also cite Camurus as up about 50% and potentially near double, while saying they believe it still has room to rise. They argue chemicals may be more important than oil in this AI phase because data centers and Terafab require substantial chemical inputs, and describe chemicals as a long term bull market theme. The speaker relays Adam Parker's view that software valuations compress first, then earnings may miss, followed by sales misses, because software companies may need to spend more to compete in AI; analysts' assumptions of roughly 80% gross margins through 2027–29 may be too static for an AI disrupted world. They warn that S&P investors hold large weights in Salesforce, Adobe, and other software companies that may be disrupted. The speaker also relays Naval Ravikant's negative view of Apple's terminal value in an AI disrupted phase, while arguing that power, optical fiber, and compute are more certain infrastructure needs. They reject prior claims that software's fall was a mispricing, and cite Parker's view that semiconductor earnings estimates were materially wrong: Micron is described as trading at about four to five times next year's earnings despite shortages and sharply rising estimates, which Parker views as repricing to a stronger earnings path rather than mean reversion.
▶ Bitcoin and Ethereum outlook and closing
The speaker says Bitcoin's weekly MACD is approaching a breakout after several weeks of movement around resistance, and notes it has risen from $60,000 to $80,000, a 33% rally from its lows, despite waning interest in Korea and Asia as investors focus on AI. They say a turn in those markets could help Bitcoin, but their macro trigger is CPI rising above three month yields. They expect the Fed to be constrained, with a new chair entering a dislocated situation, Powell remaining on board, and the possibility of rates staying relatively low while inflation remains higher; they also cite the Clarity Act as a possible catalyst and say retail participation would need to increase. The speaker discloses buying MicroStrategy calls expiring near year end, saying the position is not aimed at the short term and is tied to their view on inflation and three month yields. They argue Ethereum may be the more important crypto story for the rest of the year if the Clarity Act passes and stablecoin developments continue, because network use and programmability offer a way to value it through discounted cash flow. They tell RIAs and mutual funds that Bitcoin and Ethereum should be included in growth asset allocations. Ethereum has broken a downward trend line but remains around its 200 week moving average; the speaker wants two closes above $2,456 before treating the move as confirmed. They close by directing viewers to their website for subscriber material and thanking attendees in LA and DC.
Full transcript
[0:05] and despite
[0:07] still more calls for
[0:09] bubbles. I was at a an event in LA and
[0:12] in DC.
[0:14] And in LA, I did hear the bubble talk uh
[0:16] and I even heard people say that it's
[0:19] obvious that it's a bubble. So, we'll go
[0:21] through um
[0:23] how the market's being driven
[0:25] basically only by AI. Uh
[0:28] but that is driving earnings higher,
[0:30] revisions higher, margins to the upside,
[0:32] and
[0:34] we're in the early stages of this. GDP
[0:36] is stronger on the back of AI, and
[0:39] semiconductors are basically leading
[0:40] everything.
[0:42] And when you went go through the
[0:43] earnings reports, it's not just how
[0:44] strong things are. There are now
[0:46] trillions in backlog uh for future
[0:49] growth. So, again, this is the early
[0:51] innings of the AI situation. Now, we
[0:54] start to get into the warning signs that
[0:56] are showing up. We are going to have,
[0:58] despite earnings growing, GDP going
[1:00] higher.
[1:01] There's always negatives that show up.
[1:03] In the beginning of the year, we had the
[1:04] negatives of software, which the stocks
[1:07] are still sitting near the lows of the
[1:08] year. Private equity, those stocks are
[1:10] still sitting at least close to the lows
[1:12] of the year. We still have financials
[1:14] under the 200-day moving average, which
[1:15] is downward. So, don't forget the
[1:18] negatives from AI will show up again,
[1:20] and now we have a lot of the next year's
[1:24] uh earnings already built in with the
[1:25] PEs rising. I'll show some of that in
[1:28] stocks like Caterpillar.
[1:30] And we've got inflation and rates
[1:32] flashing early warning signs. Uh for
[1:34] subscribers, I did a webinar this week,
[1:37] and just so you guys hear it, I uh I on
[1:40] the website, I do have the turbulence
[1:42] model for the week. We
[1:44] finally saw our first uh signal in
[1:46] turbulence. Uh it's not a trigger point
[1:49] yet. It's just an early warning sign,
[1:51] but that's because we're starting to see
[1:53] a breakdown in some correlations across
[1:55] assets, and also the breadth is starting
[1:57] to
[1:58] uh break down. I go through the five
[2:00] layer cake framework and how you guys
[2:02] should be thinking about it. Uh for
[2:04] those of you who are working with me on
[2:07] uh
[2:08] your portfolios and how to navigate
[2:10] through this, particularly uh some of
[2:13] the wealth channels and the RIAs, uh I'm
[2:16] starting to release stuff called
[2:19] benchmark arbitrage. Uh it's an
[2:22] opportunity for you guys to think about
[2:23] how you can navigate through this and
[2:25] still make the money because the
[2:26] benchmarks are completely wrong for the
[2:28] AI world. They are still built around a
[2:31] world of software and partly the
[2:33] industrial and the consumer-based
[2:34] economy, which is gone right now because
[2:36] this is being driven by AI and it's
[2:39] going to stay that way because we're not
[2:40] creating jobs as nominal GDP is growing
[2:42] higher. So, the traditional framework
[2:45] between manufacturing and service or
[2:47] manufacturing and the consumer has
[2:50] broken down and a lot of the stocks and
[2:52] a lot of the business cycles that you
[2:53] guys have been associated with they're
[2:55] just not in there. So, I'll go through
[2:57] the AI business cycle and then I'll talk
[3:00] about chemicals uh and highlight I did a
[3:02] spotlight report on one of the
[3:04] chemicals, but I'm also going to give
[3:05] you more details. There's a new report
[3:07] up and then I'll go through Bitcoin and
[3:10] Ethereum. So, here's the S&P
[3:13] all-time highs,
[3:15] uh no divergences. We've got the Nasdaq
[3:18] or the NDX, the Qs, also just a violent
[3:21] move up to new all-time highs. Small
[3:23] caps new all-time highs. For the month,
[3:26] the S&P one of the best months in the
[3:28] last 25 years. Uh basically it looks
[3:31] like uh number four
[3:33] in the last 25 years.
[3:36] Uh I highlighted the growing risk that
[3:38] whenever we do have a recession, you get
[3:40] the six-month rate of change negative uh
[3:43] as the first warning signal. Uh we've
[3:45] now obviously gone back higher and we're
[3:47] now up 5%. The one thing I would say is
[3:50] uh historically when you've broken down
[3:52] to levels like this and then you get
[3:53] back above,
[3:54] the market's usually fine.
[3:57] Uh so, these are kind of mid-cycle
[3:59] warnings and I think that's where we are
[4:01] because I don't think we're going to
[4:02] have a change in the earnings growth and
[4:04] I don't think we're going to have a
[4:05] change any of this stuff uh it related
[4:08] to AI just because of what I'll go
[4:11] through today.
[4:12] Um Mike Wilson put this out. I think
[4:14] this was a just a good thing. Forward
[4:17] earnings in the S&P, look at
[4:19] look at this acceleration. I mean, this
[4:21] is not a small move. This is
[4:23] the trillions of dollars going into AI
[4:26] that is driving this,
[4:27] particularly stocks like
[4:29] Micron and other semiconductors, but
[4:32] also Caterpillar and things like that.
[4:34] Even the hyperscalers contributing to
[4:35] it.
[4:37] Median stock, no different. Small cap,
[4:39] no different. So, you've got
[4:41] year-over-year earnings forward earnings
[4:42] continue to move higher. Warren Pies put
[4:45] this out and just said estimates growing
[4:47] faster than they did in the mid-90s or
[4:49] late internet bubbles. The boom is
[4:51] unique because it is not coming off an
[4:54] EPS drawdown. And that's really the
[4:56] reality is that normally when we get
[4:57] this kind of acceleration, it's coming
[4:59] out of a recession where you've had
[5:01] earnings down and we've had job uh
[5:04] losses. This is all happening
[5:07] because of the CapEx boom that's going
[5:09] on, which I'll go through. And over the
[5:11] last 15 years, analysts have typically
[5:13] revised EPS down by about 2%. This is
[5:16] the normal average over the 2011 to 25
[5:19] period of EPS revisions as we go through
[5:21] the year.
[5:23] This is what's happened this time. So,
[5:24] this is the reason why stocks are going
[5:26] higher, margins continue to go higher.
[5:29] And if you want to look at it again,
[5:31] margins, same thing. Um forward,
[5:35] up here. Trailing, I mean, we're just
[5:37] talking about something that hasn't
[5:39] happened before. Revisions, which had
[5:41] started to eek down. This is overlaid
[5:44] with the PMI. We got the PMI number,
[5:46] went sideways, didn't shoot higher, Uh
[5:49] but I'll show some other things on this.
[5:51] But the revisions This is
[5:53] this white line here is the 10-week
[5:55] average, but this was the most recent
[5:58] week. We're back right up. So
[6:01] PMIs are going to remain strong.
[6:02] Francois put this out this week in
[6:04] LinkedIn and just highlighted that the
[6:06] regionals are very strong. We didn't get
[6:08] a follow through. This is the new orders
[6:09] category. We didn't get anything on the
[6:12] PMI, but the the breadth of the
[6:14] regionals is very strong. We got capital
[6:16] goods.
[6:17] The core capital goods year-over-year
[6:20] just exploding higher associated again
[6:22] with the PMI close to 60. And here are
[6:25] the PMIs. So capital goods continue to
[6:28] be there. I still have a lot of people
[6:29] that are fading the economy and that's
[6:31] because they're focusing on things
[6:33] related to the consumer.
[6:35] Here's Caterpillar. I don't know how you
[6:38] look at arguably the most important
[6:40] industrial stock
[6:41] and not see that this is doing the exact
[6:44] same thing as what we just looked at and
[6:45] this really started after liberation
[6:47] day. But to be honest with you, it
[6:49] started in the second half of the year
[6:50] and as I go through things, this
[6:51] coincides with when DRAM went higher.
[6:53] This is when the data center build-out
[6:55] really started to kick in. It is still
[6:57] early in this, guys, and it's going to
[7:00] continue. In their earnings report, we
[7:02] ended the quarter with a record backlog
[7:05] with excellent visibility into demand
[7:07] over the coming quarters. Backlog now
[7:08] stands at 62 billion. I'm going to show
[7:10] you backlogs for the hyperscalers, but I
[7:13] think when you're getting into
[7:13] Caterpillar and you're dealing with this
[7:15] kind of demand, you can just take it
[7:17] another level. Strong demand for large
[7:19] power generation equipment used in data
[7:21] centers supporting AI was a contributor.
[7:24] The AI boom is spurring additional
[7:25] construction. We now expect sales for
[7:27] power generation equipment to be roughly
[7:29] three times larger by 2030.
[7:33] We are closely monitoring macro econ. So
[7:35] the reason I want to bring this up,
[7:36] guys, historically, if you were seeing
[7:38] these types of things and this is what
[7:39] you're going to see people talk about,
[7:41] well, this is a problem and we're going
[7:42] to have overbuild and all of these
[7:45] things that happen um which
[7:47] traditionally I would say make sense and
[7:49] that's why Caterpillar, the orange line
[7:51] here, is their PE ratio.
[7:54] Forward.
[7:55] So, they're trading at 36 times next
[7:57] year's earnings. The green line here
[7:59] though
[8:00] is Nvidia.
[8:02] So, Nvidia is at 10-year lows in their
[8:04] forward PE. The reason I want to bring
[8:07] this up is historically if you get one
[8:10] of these scenarios up here, it's either
[8:12] coming out of a recession or it's some
[8:15] This is after oil went down to 10 and
[8:17] then you start to move lower. I don't
[8:19] think this is going to happen this time.
[8:21] I think multiples are going to stay at
[8:22] higher levels for what they just said,
[8:24] which is this demand is going to
[8:25] continue into 2030 and that's because
[8:27] it's being funded by
[8:30] the revenues that are happening within
[8:31] side
[8:33] AI, which you have to remember everyone
[8:35] who said we'll get no revenues and now
[8:37] the backlog for three hyperscalers is
[8:39] 1.3 trillion and we're running at an
[8:42] annualized run rate of 30 billion for
[8:46] uh for Anthropic and most estimates are
[8:49] 50 to 100 by the end of the year. The
[8:52] KOSPI, one of the important signs of
[8:54] this whole thing
[8:55] mainly because they have the semis uh in
[8:58] terms of memory, but they have tons of
[9:00] electronic side in there and they also
[9:02] have the heavy equipment, which I
[9:03] showed. So, the KOSPI is directly
[9:05] related to
[9:07] this build out. There's the machinery
[9:09] component, so it's not just semis of the
[9:11] KOSPI.
[9:13] Hyperscalers made new high. This is
[9:14] equal weight. Again, it's kind of
[9:16] lagging and it's just up here, but
[9:18] Google had a move a 10% move higher,
[9:20] Meta had a 10% move lower. I still
[9:22] believe shorting the hyperscalers as a
[9:25] way and being long all of the
[9:27] thematic portfolio I have is still going
[9:29] to work out extremely well going forward
[9:31] uh because that's the spenders and then
[9:34] on the other side you have the buyers
[9:35] now or the receivers. Here are the
[9:38] numbers for the cloud backlog.
[9:41] 400 460 400 Uh you're dealing with 1.3
[9:46] trillion dollars of backlog for these
[9:48] three companies, Amazon, Google, and
[9:51] Microsoft.
[9:53] That's revenue.
[9:54] Those are contracted
[9:56] dollars that right now they can't get
[9:59] because
[10:00] they don't have the capacity. And that's
[10:02] where the issue is right now is the
[10:04] shortage. Uh
[10:06] The hyperscaler is absolutely crushing
[10:07] it right now, and it goes through all
[10:09] the different components. I'm only
[10:11] bringing that up again because it's very
[10:13] hard if you're going to have on the one
[10:14] side all the semis and all the the
[10:16] receivers going, but at the same point
[10:18] you have the hyperscalers showing that
[10:19] adoption is happening at a much faster
[10:21] pace than people anticipated. It's very
[10:23] hard for the market not to have strength
[10:25] when these components are doing well.
[10:28] The buildout is uh the beta. The
[10:30] hyperscalers are just kind of market
[10:32] performers this year. They're actually
[10:34] underperforming by a couple percent when
[10:36] you equal weight them. Uh so, we're just
[10:38] in that scenario. I did do a market
[10:40] update video this week that the
[10:42] subscribers saw, which went through just
[10:45] the warning signs, a lot of which uh fit
[10:47] in with what I'm going to show here,
[10:48] which is we had a breakout in
[10:51] unleaded gas futures. So, this is this
[10:53] week. So, if you haven't been paying
[10:55] attention, I know Iran's moved to the
[10:56] back burner. Forget about it being about
[10:58] Iran and just think about it being
[11:00] a signal for inflation, and a signal for
[11:02] future growth coming down. Those are the
[11:04] two things that historically will impact
[11:05] stocks. When you add in the fact that
[11:07] we've had a massive rally, and people
[11:09] are very much in the market, you end up
[11:11] in the exact situa- uh situation that
[11:13] normally causes an issue because now
[11:15] people are in the market, and it might
[11:18] not be all institutions, but you do have
[11:21] a lot of people in. This is And again, I
[11:23] showed you gas futures. That was 6-month
[11:26] or September. This is September, as
[11:28] well. So, it's not just that we had a
[11:30] move higher in energy, it's that the
[11:33] back months are starting to go up, which
[11:36] means this problem is going to last
[11:38] longer, which means the inflation
[11:39] component, I mean just look at where
[11:41] this is, go back to the gas side, you're
[11:43] talking about now a significant move
[11:45] that if we're in September and we've got
[11:47] prices up around $87,
[11:50] you've got a bigger issue because now
[11:52] you're going to have this year-over-year
[11:53] CPI.
[11:55] And again, I've talked about it being
[11:56] above 4%. I think the risks are growing
[11:59] the longer the strait remains closed
[12:00] that this gets up even higher. Here is
[12:03] uh gas at the pump, which shot higher
[12:05] last week, and again, this is a a a
[12:08] straight line higher, and yes, it does
[12:11] come at a time when we're seeing a
[12:12] straight line higher
[12:13] in profit margins, so that's where the
[12:16] offset is, but again, this reminds me a
[12:19] lot when you have nominal GDP going
[12:20] higher and inflation going higher.
[12:23] This is very 1970-ish in terms of that
[12:25] side. Uh we're not creating jobs, we've
[12:28] got
[12:29] no job creation. We'll see what happens
[12:31] when we get into the stuff next week
[12:33] because it does look like we could have
[12:36] uh a surprising number in the payroll
[12:38] side, if for no other reason, just the
[12:40] claims data plus the ADP weekly. We're
[12:42] not seeing that in the manufacturing
[12:44] PMIs, their employment component went
[12:46] lower, uh but it's just something to
[12:48] keep on. Diesel prices sitting near the
[12:51] highs, so this is diesel prices
[12:54] across the country.
[12:56] The inventory side is is now at that
[12:58] point that people warned about, and so
[13:00] all the energy side, this is from
[13:02] Goldman Sachs, is basically saying under
[13:04] the three scenarios of when it starts,
[13:07] we're past late April. Uh so, let's go
[13:10] to mid-May. This is where they're saying
[13:12] the global inventories would be are
[13:13] likely to reach all-time lows even if
[13:15] the strait opens by late May.
[13:18] Um to show you how the market is not
[13:21] prepared for this, I wanted to use
[13:22] Chevron. Uh on the weekly call, I I
[13:25] mention that uh one of the places that
[13:27] I'm starting to add is in the chemicals
[13:29] and the energy which I believe will are
[13:32] are lower beta
[13:34] parts of this. And the reason is because
[13:36] they're not part of the buildout.
[13:38] They're kind of mid-cycle to late-cycle.
[13:40] I'll show you that in terms of the AI
[13:41] side. The early cycle is really the
[13:43] semis, the optical fibers, and all the
[13:45] stuff that went through it. But, let's
[13:46] just take this as what it is. You've got
[13:49] this
[13:50] when oil was down here
[13:53] uh and again, we're using September oil
[13:55] prices which matters the most for the
[13:57] energy stocks.
[13:58] You were around 66 bucks. Well, now
[14:01] you're up at
[14:03] almost 90.
[14:04] Chevron's basically unchanged from where
[14:06] we were before the war.
[14:08] So, just remember that um there's been a
[14:10] lot of movement. Oil's gone higher, but
[14:13] the energy stocks haven't. And again, I
[14:14] think that's because right now the focus
[14:17] for everyone trying to make money is on
[14:19] the stuff that's working on the long
[14:20] side and chasing all of these names
[14:22] which are related to the semiconductors,
[14:24] the optical fiber, all of the names that
[14:26] are in my thematic portfolio just
[14:28] continue to rip higher to all-time
[14:31] highs, and that's what's driving the
[14:32] market. And I think the earning side has
[14:34] been a lot of the enthusiasm. But, now
[14:36] that we're through the bulk of it, I
[14:38] think maybe you should worry about the
[14:40] things that I mentioned. And like I
[14:41] said, I am now getting more turbulence
[14:44] uh signals. If I get any intraweek this
[14:46] week, I will put them up. If I get any
[14:48] signal that says that just like we had
[14:51] in early February that we've hit a
[14:52] trigger point across assets, where
[14:54] deleveraging starts, I will send that
[14:56] out as a special video update. Um
[14:58] airlines would be an obvious candidate
[15:00] for something to go on. And remember,
[15:02] they've fallen off and they're sitting
[15:04] here. So, kind of the opposite of the
[15:05] Chevron thing,
[15:07] uh the airlines would be the number one
[15:09] risk. You start to see things. And B of
[15:11] A put out this week that air travel
[15:12] travel has slowed substantially.
[15:15] Uh
[15:16] we'll see where this goes. But again,
[15:17] when you start getting into the price
[15:19] moves in the inflation side, you should
[15:20] see a demand response. We got the uh PMI
[15:23] this week and here was the prices paid.
[15:26] I mean, we're basically in stratosphere
[15:28] levels associated with, you know, oil
[15:31] was up at 155 during here before the
[15:33] great financial crisis. And then
[15:35] obviously we had the shutdowns and
[15:37] before that it's very hard to find times
[15:39] where you get prices paid in there at
[15:41] these levels.
[15:43] Uh China
[15:45] there's all kinds of stress going across
[15:47] there.
[15:48] Exporters are raising prices on
[15:49] swimsuits, ski suits. Basically, all the
[15:51] Chinese exports are starting to show it.
[15:53] Fuel inflation's about to hit the
[15:54] kitchen table. We've got crop prices
[15:56] that are breaking out. So, the futures
[15:58] are finally starting to move. They're
[16:00] late cycle of in the inflation side
[16:02] related to oil as the fertilizer prices
[16:05] are higher and then the crop prices
[16:07] eventually go higher. So, you should
[16:08] start to see that. Um this will be the
[16:11] next uh I'm always looking for the next
[16:13] fear-mongering thing of, you know,
[16:15] scaring people and so
[16:17] now we've got not only the fertilizer
[16:19] issue from the gas, but they're
[16:21] forecasting the strongest El Niño in 150
[16:25] years
[16:26] with droughts and all kinds of things.
[16:28] If we get any of that, just remember
[16:30] again, you're looking for things within
[16:32] side the market that could have an issue
[16:34] and cause the next wave and I do think
[16:36] this is the 1970s. So, I think you have
[16:38] to focus on the government is shoving
[16:40] money in the system. We're growing and
[16:43] even though we aren't creating jobs, if
[16:45] we start creating jobs, then I think
[16:47] they have to build rate hikes in. As of
[16:49] now, we've started to build in some rate
[16:51] hikes or at least one into next year
[16:54] after this week, but I think we have to
[16:56] pay attention. The inflation swaps
[16:58] this is another part of the warning part
[17:00] of the video. I mean, we're we're moving
[17:02] higher. Um last time we were at these
[17:04] levels, we had CPI
[17:07] kind of
[17:08] where you associate up here the fears of
[17:10] us getting back in the four or five
[17:12] handle. So, I think the inflation swaps
[17:14] are going higher and long-term yields,
[17:16] they're contained in the US. This chart
[17:18] just looks like eventually it's going to
[17:19] break higher,
[17:21] um, 5%. Michael Hartnett came out and
[17:23] said that's where he expects, uh,
[17:25] problems to be. The government's been
[17:26] trying to keep this below 5%. Obviously,
[17:29] you've got the housing issue if you get
[17:30] above five. Well, right now 30-year
[17:31] yields are sitting just below five and
[17:34] 10-year yields still sitting in this
[17:36] triangle formation. Uh, again, I think
[17:39] you have to watch this. That would be a
[17:40] risk that would come.
[17:42] And we already have it spreading. So,
[17:44] this is 10-year GGB yields, which have
[17:46] broken out to new highs.
[17:48] Uh, we also have gilts. So, 30-year UK
[17:52] yields have broken out to new highs.
[17:54] Uh,
[17:56] the breadth is bad. This is one
[17:58] measurement. Goldman Sachs warned about
[18:00] this. I think it's a good one. The
[18:01] median stock is currently still 13%
[18:04] below
[18:06] its 52-week high. Uh, there are about
[18:08] 50% of the S&P stocks that are that are
[18:10] down on the year. So, despite the
[18:12] all-time highs, it's not being
[18:15] seen with a lot of contribution. Uh,
[18:18] this was an interesting one just because
[18:21] the Nasdaq 100 closed up more than
[18:23] more than half a percent, fewer of the
[18:25] 29% of the stocks, uh, ended up being
[18:29] up. Last time that happened has not
[18:32] happened in at least 20 years. These are
[18:33] all from Jason Gephart, and I think he
[18:36] does a good job of just highlighting
[18:37] when you get these issues of breadth. On
[18:39] Monday, the S&P closed at a record high.
[18:41] The next day at least 1% more stocks hit
[18:44] a 52-week low than high. Uh, that is
[18:46] also not normal. Just shows it's being
[18:48] led
[18:49] by very few companies, and more
[18:51] importantly, it's probably being led by
[18:53] a lot of small and mid-cap names, uh, in
[18:55] terms of what you're seeing on the
[18:57] screen. And inside the S&P, it is a lot
[19:00] of the names that are related to the
[19:01] semis and uh, infrastructure side.
[19:04] Financials, as I mentioned,
[19:06] still below. They've tried to work
[19:08] higher, but they've stayed below.
[19:11] And I just want to bring this up because
[19:13] this is where I think the issue is going
[19:15] to be before the year the end of the
[19:17] year.
[19:18] Elon Musk warns the US could soon be
[19:20] producing more chips than we can turn on
[19:22] and China doesn't have the same issue.
[19:24] So, he said this at the World Economic
[19:26] Forum at the beginning of the year. He
[19:28] said it on Moonshots. I've reported it
[19:30] twice.
[19:31] This is becoming more and more of a
[19:33] reality. So,
[19:35] early cycle, you hoard and buy as many
[19:38] chips as you possibly can
[19:40] in expectation of what you're going to
[19:42] need
[19:43] and as the compute is ramping up,
[19:46] everyone's buying more because there's
[19:48] more compute that's needed. But again,
[19:50] we don't have the compute right now. So,
[19:52] we're starting to run into issues and
[19:55] semis have just accelerated. So, I just
[19:58] wanted to make sure that we get into
[19:59] this point of where we are. If you're
[20:02] not invested in semiconductors, they are
[20:04] now the biggest
[20:06] level two gig in the S&P at $10
[20:08] trillion.
[20:10] Uh media, software, tech,
[20:13] diversified financials. And again, this
[20:15] is level two, so it strips it out. And
[20:17] this is why when you're looking at tech
[20:19] and how tech is driving everything, it's
[20:21] not tech that's driving everything. It's
[20:23] semis, which happen to be in tech when
[20:25] you have a level one gig. When you
[20:27] separate them out, semis are the biggest
[20:29] contributor. And if you don't have a big
[20:31] weighting in them, and again, if you
[20:33] equal weight this, it's even bigger
[20:35] because of that $10 trillion, about half
[20:37] of it is Nvidia, which is one of the
[20:38] worst performing of the semis this year.
[20:41] So, this is being driven by the other
[20:43] semis. This is something I presented at
[20:47] the event in California.
[20:50] So, the prior 15 years was about your
[20:52] margin is my opportunity. The next 15
[20:55] years is about your CapEx is my
[20:57] opportunity. And this is the five-layer
[21:00] cake that Jensen Huang speaks about for
[21:02] the $90 trillion.
[21:04] This is why this won't stop, guys. It's
[21:06] being funded by these companies that
[21:08] were the best that made all the money.
[21:10] So, everyone meta, Tesla, Amazon,
[21:14] Google, just go through the list. They
[21:16] are the ones funding this buildout. $90
[21:20] trillion. Now, it's also going to
[21:21] involve Morgan Stanley, Goldman Sachs,
[21:23] Eli Lilly, Merck, all of the big
[21:25] companies that need AI are also going to
[21:27] be funding this cuz they're going to
[21:29] need their own data centers as well.
[21:31] That's why the 90 trillion is just the
[21:33] beginning. We've only started this. So,
[21:36] this is where you want your portfolio to
[21:37] look like. The problem is the way the
[21:39] portfolios are set up, these are the
[21:41] heaviest weights, the spenders. So, for
[21:44] you RIAs that are looking for what you
[21:46] need to do, this needs to be a higher
[21:48] weighting than what's actually in the
[21:50] weighting.
[21:52] The business cycle has changed. So, this
[21:54] is what everyone looks at. This is what
[21:56] had historically happened.
[21:58] What you're seeing right now is it
[21:59] doesn't matter if oil goes higher. It
[22:01] doesn't matter if the Fed doesn't cut
[22:03] rates, which had been expected. It
[22:05] doesn't matter if jobs aren't being
[22:07] created. The money is still being spent
[22:09] and there's a new cycle that's
[22:11] happening. The early cycle is the
[22:12] semiconductors. The mid cycle is the
[22:14] power, the data centers. We have to get
[22:16] this done. So, you're starting to see
[22:18] the transports go higher and that's
[22:20] because now we're finally in the
[22:21] buildout stage. They've hoarded the
[22:22] semiconductors and as Elon Musk said, if
[22:25] this doesn't come in, we got a problem.
[22:27] Well, once we finally do start getting
[22:29] this built out and we actually can meet
[22:31] some of those RPOs, which is going to
[22:32] take another
[22:34] year to two years, then we'll start
[22:36] getting into the late cycle, which will
[22:38] be the humanoids. This is when AI will
[22:40] be the strongest and this is when we
[22:42] will start solving problems.
[22:44] This is why I'm writing a paper on the
[22:46] benchmark is late.
[22:48] The time where this matters is when I
[22:49] talk about the supersonic tsunami. When
[22:53] something changes rapidly, you end up
[22:56] with an obvious benchmark arbitrage. So,
[22:58] benchmark arbitrage for traders ends up
[23:01] being the ad deletes uh around the
[23:03] Russell or the S&P, but this one is
[23:06] different. The benchmark is completely
[23:09] weighted improperly for the future.
[23:12] Um a lot of the winners back here, if we
[23:14] go back into the Dan Ives and Cathie
[23:17] Wood world of what they've brought to
[23:19] the retail and the RIA world, a lot of
[23:21] that has the software companies in there
[23:23] because those were the winners of the
[23:25] past cycle.
[23:26] This is a non-tech story.
[23:30] That thing I showed you, semiconductors,
[23:32] those are not pure tech. We have their
[23:34] hardware. We've got the hardware names.
[23:36] We have the commodities. All of this is
[23:38] a different story. Chemicals,
[23:41] those are not thought of as AI names,
[23:42] but they are. So, again, here's the
[23:44] breakdown of the way that I did the
[23:46] five-layer cake specifically for this.
[23:48] You have the rack.
[23:49] So, up here, the rack,
[23:52] the advanced packaging is the best one,
[23:54] and then uh you've got the optical. So,
[23:57] these three are the early cycle. This is
[23:59] what was ported. You had the deals with
[24:01] Meta buys uh 6 billion of Corning's
[24:05] fiber. You've got all these deals that
[24:07] Jensen has done with both optical fiber,
[24:09] coherent light, but also
[24:12] Marvell. All of these different places
[24:14] are the semi side. Then, when you move
[24:16] down here, this is the chemicals. So,
[24:18] chemicals have had a good run, and I'm
[24:20] going to go through the chemicals in
[24:21] more detail because they're a big part
[24:23] of this on both the tubing side for the
[24:26] fiber, and also the advanced packaging.
[24:28] The issue is these guys are more
[24:30] mid-cycle. They're a little bit more
[24:31] steady. So, this is lower vol, and then
[24:33] you have the power side. The power side
[24:35] does include Exxon and Chevron and Bloom
[24:37] Energy, but it also includes a bunch of
[24:40] different components, and then some
[24:41] things that I think are going to be
[24:42] brought into the mix related to
[24:43] batteries. So, those are the reasons why
[24:46] I've chosen the five, and here's the
[24:47] S&P. So, if you're overweight these by
[24:50] even 10%,
[24:52] and you're reducing the S&P by 10%,
[24:55] you're getting an outperformance, and
[24:57] this is what people need to do. This is
[24:58] why I'm starting to do swaps with
[25:00] clients so that they have the ability to
[25:02] invest in this stuff. This is just an
[25:04] important thing, and the reason that
[25:05] I've set up those thematic portfolios
[25:07] for you guys. Um here is all of them as
[25:09] a thematic uh the thematic basket as a
[25:12] portfolio, and I just wanted to
[25:14] highlight. The white line here is the
[25:15] S&P. The yellow line here is the
[25:17] hyperscalers. They've still
[25:18] underperformed the S&P, and then you
[25:20] have software. This is the way the world
[25:22] is weighted today. That's why the S&P is
[25:25] is dragged down here. A lot of these
[25:26] names are in the mid-cap, small-cap, and
[25:28] overseas. That's why you've seen the US
[25:31] underperform international over the
[25:33] course of the last uh 16 months.
[25:36] Uh I've been pounding the table over and
[25:38] over again as this AI agent megatrend
[25:40] moves. So, again, when you're looking at
[25:42] these parabolic moves, including the
[25:45] hyperscalers uh and
[25:48] Anthropic, it's all because of AI
[25:50] agents. This all changed, and again,
[25:51] this is why on the one side, why did
[25:53] software get killed? Because of Volpe's
[25:55] 4.5. Why did all of a sudden the
[25:57] adoption start to increase? Because of
[25:59] Volpe's 4.5. Cuz that's when the agentic
[26:01] world took over. This is not some
[26:02] speculation. This is triggered by an
[26:04] actual event, and that is the reason why
[26:06] my thematic portfolio has gone straight
[26:08] up because it is geared towards the
[26:10] agent world. The thing I will say is
[26:12] that has just started. So, are we going
[26:15] to have corrections, and will it stay
[26:16] this parabolic? No, we'll have
[26:17] corrections, of course. The issue is for
[26:20] people that are looking for correction,
[26:22] these numbers are just going to
[26:23] accelerate. We barely have that much
[26:25] adoption happening. It's going to
[26:26] increase dramatically. And if you think
[26:29] about where Anthropic is today, and
[26:30] they're forecasting 50 to 100 billion by
[26:32] the end of the year,
[26:34] and they're at 30,
[26:36] that's a compounding number. We are
[26:38] going to continue to have excess demand
[26:41] because as OpenAI said this week,
[26:43] there's not going to be enough compute
[26:44] in the world to meet the demand. So,
[26:46] think about all of the people, Michael
[26:48] Burry, the people that wrote all of
[26:50] these papers about how it's a bubble.
[26:52] Just go back and think about it. That
[26:55] was 6 months ago. So, how could people
[26:57] be invested in here? I still hear people
[26:59] saying they've seen a bubble, they know
[27:00] what a bubble looks like, this is a
[27:01] bubble.
[27:02] Open eyes revenue chief says enterprise
[27:04] business is accelerating. I have used
[27:07] chat GPT 5.5 more than Claude for this
[27:10] entire week. While I was in LA, it is a
[27:13] phenomenal model. All of the visuals and
[27:15] the images you're seeing were done that
[27:17] by GPT 5, all of the new ones.
[27:20] I only use Nano Banana for about 9
[27:23] months.
[27:24] I've not used Nano Banana once because
[27:26] this imaging is off the charts compared
[27:28] to that. And this is by far the
[27:30] smartest, the most intelligent by far
[27:34] model that I've used. Um
[27:37] Thomas Kurian, the CEO of Google's cloud
[27:40] Google Cloud regarding compute. I think
[27:42] for the next 10 years there will always
[27:43] be more demand than supply.
[27:46] Take a picture of it, save it. Before
[27:49] you go to bed every night, read it
[27:50] again.
[27:51] This way you don't make the mistake of
[27:53] listening to the people who will
[27:54] continually tell you that there's a
[27:56] bubble being thrown. Some White House
[27:58] officials also worried that Anthropic
[28:00] wouldn't have enough
[28:01] access to compute to serve that many
[28:04] more entities. So, the question that's
[28:06] becoming there, when you see the
[28:07] benchmarks of 5.5, it's pretty much
[28:10] right on Mythos.
[28:11] So, the question is, was this
[28:13] advertising for Mythos? Was this a
[28:17] slowdown because they didn't have enough
[28:18] compute and they wanted to get some
[28:21] positive press out of this to say
[28:23] they're
[28:25] I'm going to go with the latter for
[28:26] sure.
[28:28] Uh why Google and Amazon are betting
[28:29] billions on Anthropic. These deals are
[28:31] as much about compute and infrastructure
[28:33] as they are about capital.
[28:34] I don't think they have enough compute
[28:36] for what's going on. Uh just talked to a
[28:37] lab with a war chest balance sheet, they
[28:39] are actively contract actively contract
[28:42] compute across all major clouds and
[28:43] Neos. No one has any material capacity
[28:46] coming online between now and September.
[28:48] Hourly compute pricing is going much
[28:51] higher in the coming 5 months.
[28:53] The cost of compute is far beyond the
[28:55] cost of the employees, an Nvidia
[28:56] executive says right now. This was this
[28:58] week.
[29:00] I was quoted a couple times in the
[29:01] Atlantic article. Here we go.
[29:04] We went from AI is a bubble to there is
[29:07] not enough compute in the data centers
[29:08] in less than 6 months.
[29:11] It's agents.
[29:12] Uh here's the chart of those RPOs again.
[29:15] Just look where it started.
[29:17] OpEx 4.5.
[29:20] Looking ahead, the strong results
[29:22] reinforce our conviction to invest the
[29:23] capital required to continue. Anyone
[29:26] who's worried that the CapEx won't come
[29:30] I just showed you how much they are
[29:32] behind. The CapEx is not only coming, it
[29:35] will continually be revised higher.
[29:40] CapEx consensus, just looking at all of
[29:43] these numbers.
[29:45] If you think for a second we're near the
[29:47] end of this, um I will say I overheard
[29:49] commentary
[29:51] uh with people
[29:53] hedge funds at this event, major pension
[29:56] event, and just listening to the
[29:57] conversations, the number one reason
[29:59] that this is an overbuild now
[30:02] is because magically we're going to come
[30:04] up with some efficiency gain that will
[30:07] allow
[30:09] I I don't know how you can look at these
[30:11] charts and not realize there's no such
[30:13] thing as an efficiency gain which will
[30:15] stop this. In fact,
[30:17] what we have had only over the last 3
[30:20] years is efficiency gains. That's all
[30:22] we've had. We've been able to use the
[30:24] compute we have and get the progress
[30:26] faster, and now the adoption is kicking
[30:28] in. And the adoption is kicking in
[30:30] because the agents are here. The agents
[30:32] use far more.
[30:33] So we're going to be constrained. So go
[30:35] back to the benchmark arbitrage.
[30:38] You're if you're thinking that this is
[30:40] an overbuild and you're using history
[30:42] then you're using the industrial
[30:43] consumer cycle to make a decision on
[30:45] what's going on and that includes the
[30:47] dot dot com bubble guys.
[30:49] The dot com bubble was a quarter of a
[30:51] century ago.
[30:53] Before the iPhone.
[30:55] Do not listen to the bubble heads.
[30:59] Severe shortages of Taiwan semi's most
[31:01] advanced processes are pushing an all
[31:02] out effort to build blah blah blah.
[31:04] Taiwan semi one of the constraints if
[31:06] you guys haven't drawn the map on it,
[31:08] you got three end results of what we
[31:11] need. We've got Intel, we've got Samsung
[31:13] and we've got Taiwan semi.
[31:15] Uh Elon Musk basically bought up all of
[31:17] Samsung's production a year ago or not
[31:20] even a year ago and he now is out there
[31:22] doing terrafab cuz he realizes we're not
[31:24] going to have compute ever.
[31:26] Again, I can say it over and over again.
[31:28] We are not catching up. Semis are going
[31:30] to be needed. This is a completely
[31:32] unique situation. Now,
[31:36] Nvidia stock has been able to go higher
[31:38] while I just want to highlight how much
[31:41] the multiples have gone down. So at the
[31:42] end of this month we'll get theirs but
[31:45] I would say at this point no one
[31:46] believes the compute story because
[31:48] Nvidia has gotten cheaper and cheaper
[31:51] and cheaper. This week
[31:53] the White House admitted we are in
[31:55] trouble with compute. So they're putting
[31:57] in
[31:58] section 303 the Defense Production Act
[32:01] to help with grid infrastructure
[32:02] equipment and supply chain capacity
[32:04] because we are falling behind China and
[32:05] we don't have enough compute. They don't
[32:07] want to use anthropic cuz we don't have
[32:09] enough compute.
[32:11] Uh US spending on power plant equipment
[32:13] expected to triple through 2030s. Again,
[32:16] power
[32:17] is the base of the five layer cake.
[32:20] Uh the Compass data center is pulling
[32:22] out of Virginia.
[32:25] We still have bottlenecks going on that
[32:27] are preventing this and it's going to be
[32:29] an election issue in the midterms.
[32:30] Voters do not want AI and they do not
[32:33] want data centers.
[32:34] Uh Uh, I released this this week on the
[32:37] power semiconductors as the next
[32:39] scarcity trade.
[32:44] It was a reminder that this is the
[32:45] report I put up last week into the
[32:47] subscriber level about the edge as we're
[32:50] getting into and that power semis were
[32:51] in there. You got six companies uh that
[32:54] I highlighted in there.
[32:56] Uh, this came out. Lead times for power
[32:58] semiconductors have become extremely
[32:59] stretched because of AI servers. Again,
[33:02] the reason that the power
[33:05] semiconductors are so important is
[33:07] because they fit both inside the edge
[33:10] side and the power side. This is really
[33:13] important from the efficiency, from the
[33:14] thermal, all of these different
[33:16] components.
[33:17] And here's a chart of those six names,
[33:20] um
[33:23] that I put out in the power semis that
[33:24] are in that report. So, there's two
[33:26] things I want you to look at. Yes, it's
[33:27] gone completely parabolic over the
[33:29] course of the last 2 weeks.
[33:30] But secondly, it just broke out of a
[33:32] 5-year high, just now.
[33:35] So, massive up week again.
[33:38] But again, it just broke out. Now,
[33:42] here's chemicals.
[33:44] Again, mid-cycle, late-cycle, whatever
[33:46] you want. Um, this is the European
[33:48] chemicals overlaid with one of those
[33:50] power semis, Texas Instruments, which
[33:52] just broke out. If I showed you the the
[33:54] power semis, it would look very similar.
[33:56] Chemicals will go up with power semis.
[34:00] They fit into the exact same side. So,
[34:02] as a reminder again, back to the themes,
[34:05] here are the the power names, here are
[34:07] the chemical names. You want to be
[34:08] focused
[34:09] on the late cycle part. Uh, this is a
[34:12] report I just put up uh this weekend.
[34:15] You guys can see it already. Uh, the
[34:18] chemical layer of AI. I go heavily into
[34:20] the 17 names, which I did as a thematic
[34:23] portfolio. But now I go one by one, just
[34:25] like I did for the Kentucky Derby
[34:27] handicapping.
[34:29] Uh, and this breaks them down by
[34:30] exposure scores for early, mid, late
[34:32] timing, and the the investment logic
[34:35] behind both. Again, these are not
[34:38] suggestions on which ones to buy. Same
[34:40] thing as when I released a spotlight on
[34:43] Integris. This is not a timing thing,
[34:45] but these are ones that to me are going
[34:47] to benefit the most over the course of
[34:49] the next few years. I'm not trading
[34:51] these things, but I'm buying them. I
[34:53] bought Integris this week after this
[34:55] report came out, after the earnings
[34:57] knocked the stock down.
[34:58] Uh I bought
[35:00] the stock at that point, and I will
[35:02] continue to look for particular names in
[35:04] there. Kamorsis is another name within
[35:06] there, which I've said to many of you I
[35:08] thought would double this year. Well,
[35:09] we're almost there. Uh I think we're up
[35:11] 50% We might be close to double now at
[35:14] this point, but uh I still think it has
[35:16] a ways to go. All of these names on the
[35:18] chemical side are involved, and you've
[35:21] got advanced packaging, and you have
[35:24] the optical fiber and the tubing side on
[35:26] the polymers. My argument on this stuff,
[35:28] and what I'm writing a report on, is on
[35:30] the energy intensity for chemicals at
[35:33] this stage of AI
[35:34] instead of oil. Oil does not have the
[35:37] same importance in today's world for a
[35:39] variety of reasons, but one of the major
[35:40] things is how chemicals to me are going
[35:42] to become far more important because of
[35:44] the size of the terrafab. What Elon Musk
[35:48] wrote out, the amount of chemicals
[35:49] needed. That is not an oil trade. So,
[35:52] when you're building these things,
[35:53] you're taking a lot. So, the chemical
[35:55] side to me is a major theme that will be
[35:57] in a long-term bull market.
[35:59] Compounded Friends had a great interview
[36:01] this week with my boy Adam
[36:04] uh
[36:05] Parker, and uh I thought he did a great
[36:07] job. I just want to highlight some of
[36:09] the things that he said.
[36:12] He basically said, "Here's the sequence
[36:14] he laid out from the opening software
[36:15] discussion." So, first the market
[36:17] compresses the multiple. That's what we
[36:19] did. The market cuts the valuation
[36:21] first, then the fundamentals start
[36:22] disappointing. What usually happens next
[36:24] is an an miss.
[36:26] He says, "Analysts still have models
[36:28] that assume things like roughly 80%
[36:30] gross margin, similar margins in 2027,
[36:33] 2028, 2029, very little structural
[36:34] change profitability. His argument that
[36:36] those are too static for an AI disrupted
[36:38] world. After earnings misses come sales
[36:41] misses.
[36:42] Multiples contract, then earnings miss,
[36:44] then eventually sales miss. Why would
[36:46] earning Why earnings would break first,
[36:48] margin pressure before revenue pressure?
[36:51] His reasoning is that software companies
[36:53] may need to spend more to stay
[36:54] competitive in AI.
[36:57] Regardless of your view on this, you
[36:59] have to really start to remember this
[37:00] gets back into that benchmark arbitrage.
[37:03] If you're along the S&P 500, you are
[37:05] long salesforce.com and Adobe and all of
[37:07] these companies as a much higher weight
[37:10] than the future says they should be. If
[37:12] for any reason these things were
[37:13] disrupted to the manner they are,
[37:16] you would see a very, very large fall. I
[37:19] didn't include this in this week's
[37:20] video, but Naval Ravikant, who I really
[37:22] enjoy, he has a podcast, I believe it's
[37:25] Naval. Um, he talked about Apple in a
[37:27] very similar way. He was very negative
[37:29] on Apple and he basically talked about a
[37:31] lot of the things that have to do with
[37:33] terminal value. We are at a massive AI
[37:35] disruptive phase. The certainty is that
[37:37] we will need more power, we will need
[37:39] more optical fiber, we will need more
[37:41] compute.
[37:44] We don't need software companies the way
[37:46] we did.
[37:47] We don't need a company like Apple for
[37:49] the infrastructure as this changes
[37:51] unless they can find a way to go through
[37:53] this. Naval was very strong in this. I
[37:55] find him to be one of the
[37:56] most clear-headed thinkers on any of
[37:59] this, not making bombastic comments. You
[38:01] should go listen to it. I thought it was
[38:03] very good. Um, here's IGV versus the
[38:05] S&P. So,
[38:07] if this was like last year out of
[38:09] liberation day, you would have seen
[38:11] software trade with its normal beta. So,
[38:13] here it is the collapse. Everyone who
[38:15] told you, "We got to go in here. We got
[38:16] to buy these." This is wrong. Every
[38:19] single tech person, and I'm not going to
[38:21] go through the names anymore. That said,
[38:24] this is a mispricing. This is panic.
[38:26] Well, now you've had a fall, you've had
[38:28] a rally.
[38:29] Adam Parker's right, in my opinion.
[38:33] Uh what he said on semis for Adam
[38:34] Parker, he thinks investors
[38:36] underestimate how much estimates were
[38:38] wrong. And again, that's the point.
[38:39] That's the only way you can have Nvidia
[38:42] at the multiples it is, and Micron.
[38:44] Micron, the multiples were just wrong.
[38:47] So, the fact that it still trades at a
[38:48] five PE off next year's earnings, and
[38:50] you've had a massive beat, Micron's too
[38:52] cheap. And he makes his argument
[38:53] specifically on this. He thinks Micron
[38:56] is a perfect example of why it makes
[38:57] sense, something like 4.5 times next
[39:00] year's earnings. The product is in
[39:02] shortage. Earnings are being revised
[39:03] sharply higher.
[39:05] Micron is not a mean behavior. It is the
[39:07] market repricing to a much stronger
[39:08] earnings path. Again, Benchmark
[39:10] arbitrage. Do not listen to the bubble
[39:12] talk.
[39:13] Bitcoin, to finish off. Um all right,
[39:16] the MACD, we're
[39:18] despite it being boring and having
[39:20] really no movement, remember, we're just
[39:23] getting these MACD weeklies. We're just
[39:25] breaking through some resistance.
[39:28] We've had now one week, two week, three
[39:30] week, four week, and then this week kind
[39:32] of finished around where we are.
[39:36] Um meaning we're up at uh we're getting
[39:38] close. We're unchanged from last week.
[39:41] We are trying to move higher, and we're
[39:43] coming from a level that normally would
[39:45] be explosive when it finally does go.
[39:47] Uh Anthony Pompliano, on our weekly this
[39:49] week, did mention something in talking
[39:51] to someone about Korea. Korea, which is
[39:53] a major trading hub,
[39:56] and especially for Bitcoin,
[39:58] uh this seems to be an issue. So, this
[40:00] is the Asia growth story.
[40:02] And basically, this is Bitcoin overlaid
[40:04] with it. Right now, everyone in Korea
[40:06] and Asia is trading the AI trade.
[40:08] Bitcoin has lost interest.
[40:10] But the good thing is, it's found a way
[40:12] to move from 60,000 up to 80,000.
[40:15] Well, that's a 33% rally from the lows,
[40:18] so it is moving. Uh it's doing better
[40:21] than software. It's doing better than
[40:22] the Asian growth story.
[40:24] If for any reason we start to see any
[40:26] turn in these things, maybe we can get
[40:28] it higher, but then again, like I've
[40:29] said, my trigger point is the fact that
[40:31] I think CPI is going above 3-month
[40:33] yields. The Fed's not going to be able
[40:35] to
[40:36] uh raise raise rates or cut rates,
[40:39] whatever you want. We're going to be
[40:40] stuck. You have a new Fed chair who's
[40:42] coming into the most
[40:44] dislocated situation. You got Powell
[40:46] staying on board. This just argues for
[40:48] just chaos going forward and a period
[40:51] where they're going to run it hot with
[40:52] rates at lower levels and inflation up
[40:54] at higher levels. We get anything on the
[40:56] jobs picture that moves uh
[41:00] long-term rates higher, short rates
[41:01] can't go higher. The Fed's not raising
[41:03] rates. So, we'll see what happens. Uh
[41:05] but I would keep it in Clarity Act, some
[41:07] positive news. Also, that could be a
[41:10] very big catalyst for this. What really
[41:12] needs to happen is retail needs to just
[41:14] jump on board. And if they do jump on
[41:16] board,
[41:17] go through. I mentioned that I bought
[41:18] MicroStrategy calls uh into the end of
[41:21] the year. I wasn't targeting short-term
[41:23] cuz I think this could take a little bit
[41:25] longer and I'm targeting when inflation
[41:27] gets above 3-month yields.
[41:29] But, PMIs are moving higher. 3-month
[41:31] yields are stuck where they are. The
[41:33] Fed's not move I think all of these
[41:35] things gone. Um on that same podcast
[41:37] with Adam Parker,
[41:39] uh
[41:40] the other person
[41:43] I I brought this up just because I
[41:45] thought it was really interesting that
[41:47] you're starting to see a change and I've
[41:49] believed that Ethereum is the main
[41:51] important story for the rest of the
[41:53] year. If the Clarity Act does go through
[41:54] and as I show you, there are positive
[41:56] developments that are happening on
[41:58] stablecoins and you're starting to get
[42:00] more and more people talk about Ethereum
[42:02] because
[42:04] there is a way to value it.
[42:06] The usage of the network is what creates
[42:08] value. All of these things in here,
[42:11] programmable.
[42:13] So, you get into the coding side.
[42:14] Everything with Ethereum gives people a
[42:16] chance to use discounted cash flow. And
[42:18] in a world where growth assets are dead,
[42:21] I will say this to RIAs again. I will
[42:23] say this to the mutual funds that watch
[42:24] this. You guys that are benchmarked
[42:28] Ethereum and Bitcoin need to be part of
[42:30] your portfolio and they need to be part
[42:31] of your growth asset basket or
[42:33] allocation. I wrote this in Substack
[42:36] about killing the float, the beginning
[42:39] of programmable money
[42:40] programmable money and the new financial
[42:42] guardrails where this goes through the
[42:44] DoorDash decision.
[42:46] Uh and their decision to basically take
[42:49] stable coins in and what this means and
[42:51] how this is different than the legacy
[42:53] system which took forever
[42:55] and how the new codebase system of
[42:58] programmable money has started. Here's
[43:00] the Ethereum chart. We keep running into
[43:03] this 200-week moving average. Uh we've
[43:06] broken the downward trend line, but
[43:08] until we again, I've said it before
[43:10] until we're above 2400. In this case,
[43:12] that line is 2456. I want two closes
[43:15] above that level. Uh we've got a buy
[43:17] signal down there, but right now we
[43:19] haven't gone anywhere.
[43:20] Uh
[43:22] and that's it for this week, guys. So, a
[43:24] lot of stuff in there. Uh thanks to
[43:26] everyone uh who saw me in LA and DC. I
[43:30] appreciate it. For those of you who want
[43:32] more details on any of the stuff here,
[43:34] uh just go to the website for uh 22V.
[43:38] And if you want if you always look at
[43:40] YouTube, I put the link in there. They
[43:42] go directly to the website and see some
[43:44] of the stuff on the subscriber list. See
[43:45] you next week.