🟥 Spec stocks see red

Speculative stocks tied to the AI boom, quantum computing, and energy have tanked over the past month and got massacred yesterday. Among Oklo, D-Wave Quantum, CoreWeave, IonQ, Nebius, Cipher Mining, IREN, Rigetti Computing, Tempus AI, POET Technologies, Bloom Energy, Plug Power, and SoundHound AI, the average member has lost a third of its value since mid-October. 

That’s a sharp pullback for a group of stocks that could seemingly do no wrong, with the average constituent nearly having tripled from the start of July through October 14. What gives?

• First, the peak in speculative stocks came right around the time earnings season kicked off, when investors tend to cast a sharp eye on corporate fundamentals. There are lots of companies out there doing great on fundamentals, and these ain’t them.

• Secondly, a quantum-specific risk factor: bulls got rugged. Stars had seemingly been aligning toward more government support for the nascent industry, culminating in rumors about the Treasury Department taking stakes in leading pure-play firms, only for those reports to be contradicted and then disappear without a trace.

• Third and most importantly: AI has credit risk now. It’s a delicate dance, as megacap tech companies are trying to use their good names (and their good money) to support the overall growth of the AI ecosystem without exposing themselves to too much risk. 

Oracle has now erased more than all the gains it made after reporting a massive pipeline of future demand, which was later revealed to be largely thanks to OpenAI. Not only have shares tumbled, but credit default swap spreads have widened; that is, investors no longer think it’s as safe a bet to make good on its own debts.

The Takeaway

That’s what happens when you’re poised to go on a multiyear capital expenditure binge to build out physical infrastructure to meet orders from a customer that is currently incinerating cash and has more multibillion-dollar spending commitments than a consortium of octopuses has tentacles. 

And it’s not like there’s nothing else out there: 82% of S&P 500 companies reported a positive bottom-line beat and 77% reported a better-than-expected sales surprise in Q3. One might reasonably think, “Why am I continuing to invest more in companies that have a cursory to nonexistent relationship with profitability when there are oodles and oodles of bigger firms whose operations are doing quite well?” 

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The happiest place on Earth is feeling pretty meh. Disney’s fiscal fourth-quarter earnings report came out on Thursday, and investors — a variation of Disney adult, you could say — didn’t exactly cheer the results, with shares sliding almost 8%.

• The company reported adjusted earnings per share of $1.11, below last year but higher than Wall Street estimates. Looking ahead, Disney said it expects streaming profit of $375 million for its quarter ending in December. For the full fiscal year, it expects adjusted profit per share to grow by double digits. 

• The company posted $352 million in Q4 streaming profit, up 39% from the same quarter last year. For its full fiscal year, ended September, Disney reported streaming profit of $1.33 billion, more than 9x the year prior.

• Across its direct-to-consumer and streaming offerings, the studio reported 218.3 million global subscribers as of the end of September, in line with expectations but down about 8% from last year. That number was likely impacted by the company’s decision toward the end of the quarter to pull Jimmy Kimmel’s late-night talk show off the air for a week.

On the linear television side, Disney is embroiled in its longest carriage dispute ever, with YouTube TV. The blackout has been ongoing since October 30, surpassing Disney’s standoff with DirecTV last year for its longest stalemate. Two consecutive weeks of ESPN’s Monday Night Football haven’t been available on the pay-TV provider, which is expected to pass Comcast as the largest US pay-TV service next year.

The Takeaway

Beyond the televised troubles, though, it’s worth admiring the Mouse’s core businesses and enduring brand. The company racked up $10 billion in full-year operating profit for its Experiences unit, which includes parks. Disney’s domestic parks profit grew 9% to $920 million in the quarter. That loyalty has allowed it to squeeze a lot more money out of its customers: Disney+ now costs 172% more than it did six years ago. 

Heck, retail sales related to the character Stitch alone were worth $4 billion this year, up from $2.6 billion in fiscal 2024. To put that $4 billion sales figure in context, Harley Davidson sold about the same amount in motorcycles, parts and accessories, and apparel combined last year.

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Kim Kardashian’s Skims expects to top $1 billion in net sales this year — a mere six years after its inception. No company is flexing its star power quite like Skims, which might be the most valuable celebrity-backed brand ever, beating some very impressive companies.

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• 🏈 College Football: A crucial SEC matchup this weekend sees the No. 11 Oklahoma go to No. 4 Alabama, with the home team, Crimson Tide, the steady favorite, as traders price a 68% chance of victory.

• 🏀 NBA: Just a few weeks into the NBA season and already there’s a consensus emerging that Oklahoma City is the team to beat, with market prices implying a 29% chance that the Thunder wins the NBA finals this year. That’s followed by a 12% chance for the Denver Nuggets and a 10% chance for the Cleveland Cavaliers. 

• 🏈 NFL: Sunday night, the Detroit Lions take on the Philadelphia Eagles in what is arguably one of the biggest games of the season so far, as two serious contenders for the NFC Championship — both Philly and Detroit are priced at a 20% shot at the latest market price — face each other. Philadelphia is favored with a 57% chance to win it, according to the market. 

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

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• Lawmakers quietly slipped a hemp THC ban into the funding bill last night

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