🔄 Here we go AI-gain

The AI trade is roaring back after getting speed checked last week.

Baskets of US AI beneficiaries compiled by Morgan Stanley and Bank of America, which just suffered their worst week since the Rose Garden tariffs announcement, were up big yesterday and led a broad-based market recovery amid optimism that the government shutdown will soon be over.

• The likes of Palantir (which tumbled despite reporting strong earnings results), Western Digital, and Seagate Technologies were all up more than 5% on the day, with Palantir finishing up nearly 9%.

• Semiconductor stocks also rallied strongly after Nvidia CEO Jensen Huang asked his counterpart at TSMC to boost chip output.

• Bank of America argues (convincingly) that last week’s retreat in the cohort had little to do with any industry-specific fundamental news.

• “The pervasive skepticism re AI capex is understandable but likely a contrarian positive, helping minimize overcrowding,” BofA analyst Vivek Arya wrote in a note reaffirming his conviction on his preferred data center and semicap stocks. (More on this after the jump.)

“While the bears will continue to yell ‘AI Bubble’ from their hibernation caves we continue to point to this tech cap-ex supercycle that is driving this 4th Industrial Revolution into the next few years,” Wedbush Securities analyst Dan Ives wrote. “This is our focus and along with our AI use case work in the field is driving trillions of spending over the next few years and thus will keep this tech bull market alive for at least another 2 years in our view.”

The Takeaway

Further bolstering that argument, 22V Research flagged how earnings expectations are improving much more rapidly for AI-linked firms than the S&P 500 at large.

“AI usage and AI related fundamentals are unusually strong,” wrote Dennis DeBusschere, chief market strategist at 22V Research. “In 3Q, AI earnings growth rate has been ~3x that of other S&P names.”

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Back to that Bank of America note, where analyst Vivek Arya has thrown down the gauntlet: there’s one bear case against AI stocks he really doesn’t like.

“The common argument that ‘AI stocks must be overvalued because OpenAI cannot justify $1.4 trillion of long-term commitments’ is a lazy/cherry-picked argument in our view,” he wrote in yesterday’s note to clients.

• “While we agree OpenAI’s plans are very ambitious, none of that spending has yet been put in place and will be gated by practical constraints such as access to power and data center space,” he continued. 

• “The majority of AI spending is being done by profitable, public hyperscalers for whom upgrading infrastructure is mission-critical (upgrade to accelerated from traditional CPU-computing) and defensive (e.g. Google’s $92bn capex ‘defends’ a $200bn+ search leadership by providing Gemini-chatbot driven results to all customers who might otherwise defect to ChatGPT, Perplexity or other search engines.)”

• Reports that OpenAI is moving toward an IPO, however, would offer some enhanced confidence that it’ll be able to get its hands on the cash necessary to follow through on these pledges.

“Meanwhile private AI companies are making rapid strides attracting business customers,” he added, “which will continue to put pressure on public software and infrastructure-as-a service vendors to raise AI investments.”

The Takeaway

On the one hand, sure: while ChatGPT may have been what brought the AI boom into public consciousness, it’s not the alpha and omega of the movement. The continued push from the publicly traded, immensely profitable tech companies that lead the S&P 500 is probably the more important factor behind the mile-deep, inch-wide AI spending boom in the here and now.

On the other hand, OpenAI’s spending commitments have driven big valuation bumps for Amazon, Broadcom, AMD, and Oracle in just the past two months. In other words, those stocks have priced in that demand being real and realized. To the extent it isn’t, or can’t be, well then some overvaluation worries would be somewhat justified.

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“Grand Theft Auto 6” won’t arrive until late 2026, and the stakes couldn’t be higher

After more than a decade, Rockstar’s crown jewel — and one of the highest-grossing video games of all time — just hit the brakes... again. CEO Strauss Zelnick said the extra months will help “finish the game with the high level of polish players expect and deserve.” Still, shares plunged on the announcement, even as the company raised its full-year bookings outlook. 

How long we’ve waited

• 💸 Crypto: Bitcoin rallied on “renewed optimism” for an end to the shutdown, with market-implied probabilities derived from event contracts* showing that traders now think there’s a 29% chance bitcoin gets to $130,000 or above this year.

• 🏛️ Government: Markets are confident that the US government shutdown will resolve by the end of the week, with traders pricing in just a 12% chance that the government will still be shut down through Saturday, November 15. Overall, the market is pricing in a 97% chance that it continues through 10 a.m. Wednesday and just a 36% shot it runs through 10 a.m. Thursday.  

• 🎵 Music: Taylor Swift’s “The Fate of Ophelia” remains at the top of the Billboard Hot 100 in its fourth week of release, and now the question is how long it will stay there. Prediction markets assign a 96% chance of getting to a fifth week, an 86% shot of making it to seven weeks, but down to a 25% chance of making it all the way out to nine weeks.

*Event contracts are offered through Robinhood Derivatives, LLC — probabilities referenced or sourced from KalshiEx LLC or ForecastEx LLC.

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