👾 The AI trade’s quarterly checkup

The nice thing about business news is that it’s essentially the only category where the subjects legally have to be honest with you at least four times per year (or half that often in Europe). This week we’ll get a look past the bluster, the boasting, the rumors, and the suspicions about what’s actually happening with the AI trade, with companies representing the entire AI behemoth snout-to-tail reporting earnings. 

• The big three are the hyperscalers, the companies that have existing cloud operations and ambitions to supplement those with large AI capital investments: Alphabet, Amazon, and Microsoft. 

• Yes, all of them have their ancillary business that could be megacorps in their own right — Microsoft with its Office and video game divisions (and don’t forget LinkedIn!), Alphabet with its advertising and phone business, and Amazon with its retail operation — but realistically investors are going to be paying attention to their AI buildout, how much it’s costing, the manner in which they intend to cover those costs, and so on. 

• Those costs are other companies’ sales, and we’ll be hearing a lot from them, too. If you want to build an AI data center (and these guys really, really do!) you’ve got to spend money that eventually ends up in the pockets of the disk storage companies (Sandisk and Seagate are both reporting), the chip manufacturers (Intel on Thursday, AMD the following week) and the companies that make optical communications equipment (Corning, on Tuesday) and power and cooling racks (Vertiv, on Wednesday).

• Those are just the direct suppliers, but you’ve got to build the things too, and for that you need power generation (GE Vernova reports Wednesday) and the equipment to construct the things (Caterpillar, the day after)

The long and short of it is that this week will be a check-up on virtually every component of the most important trade in markets. Traders will be making inferences based on these flagship companies for not just the rest of earnings season and their competitors, but also the overall health of the trade itself.

The Takeaway

The AI trade in general and semiconductors in particular have been rattled for the past few weeks, as my colleague Luke Kawa wrote in EntryPoint last Friday. The VanEck Semiconductor index has taken a beating over the past several months, with semis nearing a dip below the 200 day moving average that could spell algorithm-inflected pain for bulls. This week, we’ll get some serious clarity on what the current state of play is, and even better some insight into where these hyperscalers are forecasting things will go; earnings estimates over the next 12 months for the big guys have plateaued, and it’ll be interesting to see if they happen to agree. 

— Walt Hickey

“At its core, Netflix dominated the streaming landscape in the early 2020s when other entertainment companies were just entering the streaming landscape. And now Netflix’s share of the top streaming shows is a lot smaller.”

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Makes sense, the game’s got unprecedented appeal, I mean, it’s not like you can carjack a manatee in Hogwarts Legacy. 

— Thomas Jones

• 📊 Senate Check In: Democrats are now a 70% chance to win the Senate. Democrats must flip four seats and hold all their current ones to take the Senate. Current state-by-state chances of a Dem flip: North Carolina (98%), Alaska (77%), Texas (67%), Maine (61%), Ohio (71%) and Iowa (42%).  

• 🏈MNF: The undefeated Kansas City Chiefs take on the Seattle Seahawks this Monday night, but don’t let the 3-3 record in Seattle fool you, markets price the Seahawks at a 58% chance to win this one. 

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

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