The Speculation Machine

It feels like semis are absorbing almost all of the speculative capital in the market. If you assume there is a fixed pool of speculative capital chasing the hottest theme, it could help explain why areas such as crypto, biotech, SaaS, and to a lesser extent junior miners, have struggled. Which could present an interesting entry, if you have the patience for the speculative capital to return or more pain if AI continues to suck up all the oxygen in the room. (FT)

The question on my mind is whether this is a bubble or the last opportunity to escape the permanent underclass. (@great_mantis)

Not all semiconductor companies have seen revenues go parabolic like their stock prices but, that hasn’t stopped share prices from moving aggressively, as seen with Intel above. (Ben Evans)

There are certainly names trading at excessive valuations, but there are also companies such as Nvidia that have grown EPS faster than their share price. (@speculator_io)

The caveat is that semiconductor revenues and earnings are cyclical, so a conservative multiple can appear artificially low at a cyclical earnings peak. Any commodity investor will tell you that one.

It probably comes down to end-user demand for AI and whether the data center buildout continues. So far, revenue growth and demand remain strong. (Ben Evans)

Memory makers are likely the most vulnerable to a downturn, commoditized parts of the value chain may struggle to capture long-term value. Telco stocks, for example, have not meaningfully participated in the rally. This could also limit data centers’ ability to generate excess profits if their offerings are not differentiated. (Ben Evans)

So far, coding remains the killer AI use case. (Ben Evans)

The venture industry is rapidly reorienting around AI. Almost all Y Combinator startups are now focused on AI in some capacity. (Ben Evans)

Another dynamic likely fueling speculation is the growing money supply. Commercial bank lending, a measure of real money creation in the economy, has been steadily rising. (Soc Gen)

M2, a broader measure of money supply, is also rising once again. (Soc Gen)

Another sign that excess liquidity remains in the system is the secured overnight financing rate, a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, falling below the Fed funds rate as cash searches for a home. (@zerohedge)

One asset once thought to benefit most from excess liquidity was Bitcoin, yet the price has stagnated and underperformed both liquidity measures and gold. (Bitwise)