🎓 Midterms Studying

Last week the midterms resulted in a sweeping victory for congressional Democrats, and in the days that followed it became clear that what that means for the market is obvious, uncomplicated, and straightforward: nobody really knows exactly what that meant for the market, it’s very complicated and in no way straightforward. 

The day after the midterms stocks surged, the day after that the Nasdaq took a historic dump, and then the day after that things bounced back a bit. The upshot of last week in the aggregate was down a bit, but sector-by-sector things are not so simple.  

Companies used the opportunity of the market chaos to rip off some band-aids.

• Microsoft made a flurry of announcements that amounted to a paring back deals with the external providers of compute — chastising the neoclouds and pulling the plug on a compute rental provided by Oracle — that certainly sent a chill through the parts of the AI trade that serve those interests. 

• Tesla managed to pop 5% on Friday in a week that was, electorally speaking, a fundamental rejection of the political project of Elon Musk. It did so by announcing that it was going to stop bleeding money out making Cybertrucks, and instead throw those production lines towards making Cybercabs.

• There was lots of more general house cleaning, such as Waymo announcing it would soon soon be done working with Uber, Oracle canceling a chip lease agreement with Tencent, Kraft Heinz planning to sell off its coffee business, and CVS spinning off… CVS. All the kind of news you drop when the market is so crazy you can’t really figure out what’s moving what. 

In all, the week was less about the end of this trade or the start of that, but more of a rotation. 

• Hyperscalers Microsoft, Amazon and Google all finished the week up; if the week revealed anything, it’s that having existing datacenters in the ground is important, and that if you’re a company planning on putting more in the ground, well, maybe you should let Governor-elect Gina Hinojosa save you from yourself, and just go ahead and give that money to shareholders instead. 

• Meanwhile, some of the biggest losers of the week were the companies that were riding the high of those companies capex moves. Some of the biggest drops of the week were storage chips (Seagate, Sandisk) and the connectivity and so-called “picks-and-shovels” of the data center build-out (Lumentum, Marvell, Astera Labs, Micron). 

• Speaking of picks and shovels, another trade indicates how the midterms’ pushback on new data center construction has manifested in markets. Sure, companies like Caterpillar dropped, but homebuilders gained. Caterpillar supplies the literal picks and shovels of the data center build-out, and with that potentially slowing down, so did it. On the other hand, homebuilders that have had an exhausting time competing with data center construction for capital, materials, and labor surged, with Toll Brothers, DR Horton and PulteGroup all finishing the week up. 

A nota bene on PulteGroup that shows how weird this market has been. The large residential construction company was a huge winner of the week, spiking 8% between Tuesday's close and Wednesday's open, finishing the week up nearly 5%, now that Democrats will finally have a hand in steering housing policy. This is a somewhat ironic market rebuke of the administration, given that the grandson of the company's founder is currently serving as Trump's director of the Federal Housing Finance Agency and head of Freddie Mac.

The Takeaway 

My colleague Luke Kawa, who writes the brilliant EntryPoint newsletter that goes in-depth on this stuff, is fond of the aphorism “my capex spending is your profit margins,” and that has been on display this past week. The AI trade will continue, but the beneficiaries of that trade — and the ultimate total addressable market of the business — will remain in flux.

A few weeks ago, we wrote about the CoreWeave debt contretemps, and we made the point that just because a company got a lot of money doesn’t mean it’s gonna be one of the winners of the AI trade, writing 

“Just because your business model was the beating heart of the AI industry in 2026 doesn’t prevent you from being the bloated, doomed appendix of the AI industry in 2032. Not every buzzy well-funded company’s gonna make it.” 

Last week, if anything, confirmed that the future indeed won’t be evenly distributed. 

— Walt Hickey

The Wall Street Journal reviewed the correspondence between shippers and the Yemeni militant group’s little-known clearance office

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• 🏈 NFL: Tonight the Buffalo Bills face the Minnesota Vikings in a thrilling matchup between two 6-1 teams that are both contenders for the Super Bowl. Buffalo has the edge, according to markets, with a 62% chance of winning. 

• 🎬 Best Actor: This weekend saw the release of “Wild Horse Nine,” and star John Malkovich is currently the field leader to win the Oscar, with markets pricing him at a 48% shot to win Best Actor. 

*Event contracts are offered through Robinhood Derivatives, LLC — probabilities referenced or sourced from KalshiEx LLC, ForecastEX, LLC or Rothera Exchange and Clearing LLC.

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