A simple recap
What I’m watching
This past week we had the key mega-cap tech earnings These earnings showed there is some progress in terms of AI monetization, particularly by way of cloud business revenue. MSFT and AMZN both got rewarded by the market when they say their cloud business (Azure and AWS) saw significant growth that can justify spendings so far. META disappointed because they are seemingly lagging in this front as they don’t readily have a cloud business that can capitalize on this. AAPL also sold off hard after earnings, but mostly because their growth guidance is impacted by supply chain restrictions due to AI capex, all the while facing some less than expected growth in the high margin services segment.
To me personally this is not really an all clear signal for AI monetization. This could simply just be the lag where OpenAI and Anthropic have been actively ramping up compute and signing service contracts with these megacap giants for computing demand. The underlying issue of, “will companies and users continue to pay for it once the subsidy goes away” still is an unanswered question in my eyes, one that will likely remain unanswered for at least the remainder of 2026.
Therefore, I think there will be ongoing scrutiny regarding AI monetization and any signs of slowdown. Like I wrote about last week too, I think there is a strong incentive from the government side as well for the monetization to be a success, which could mean artificially induced demand if organic demand falls short.
FOMC also delivered a hold as expected. There were three dissents, Hammack, Kashkari and Logan, who favored a quarter point hike instead of hold. During the presser, Warsh was asked about why not hike if he is so adamant about getting inflation under control and not moving the goal post of 2% and sticking to PCE as the measure. The market wasn’t satisfied with Warsh’s answer, potentially calling his bluff by saying “you might be able to talk the talk but we don’t think you can actually walk the walk. It probably didn’t help when Trump and his associates later in the day and after said that Warsh wants a lower rate. There was a very strong curve steepening on Wednesday.
Another thing of note is that BOJ and the Treasury department apparently jointly intervened in Yen by shoring up the currency. This might have some broader impacts on the global asset allocation and the carry trade, but I don’t know enough about the topic to have an opinion.
Finally, there have been ups and downs in the Iran situation. Trump was talking about bombing Iranian infrastructure on Friday before backing down on Sunday. Honestly, it’s impossible to know what he will say or do and how fast it will be reversed or if he will actually stick to it. This could drag on in this state of limbo for longer.
A position or thesis
This week saw extreme volatility in chips stocks and Korean stocks, with Tuesday and Wednesday featuring back to back 10%+ sell-offs. I remarked on Wednesday during the day after the Korea session ended that this sell-off might have run its course in the immediate term. I took off all my SOXS that day. And sure enough, we heard the news on Thursday that the newly created hedge fund by a young ex-OpenAI employee, Situational Awareness, basically got carried out of the casino due to high leverage and concentration amid the sell-off. SOXX proceeded to rally 8% that day. Korea rallied something like 17%. Talking about a meme stock.
Now both of those were back at the daily EMA level on Friday. And my intuition is that in highly speculative markets like these, a sustainable bottom usually only comes when volatility has subsided, meaning that there should not be any large sell-offs or rallies. The fact that it rallied double digits in a single day tells me it’s probably not there yet. It hasn’t gotten boring yet. So I reopened a SOXS position, though half of my previous size, to gauge how this plays out. I might add more this week. My target is essentially the 200 day EMA for the SOXX.
What I got wrong or updated
There hasn’t been anything substantial that I updated this week. Basically still tracking the same things broadly speaking.
The Ephemeral Tourist 