My MOU with Semiconductors and AI...Don't Be A Hog

First off…happy father’s day!

Onward…

What. A. Week.

I watched most of this week unfold from my desk in Phoenix because it was 115 degrees outside. Too hot man.

I watched way way way too much news this week. It feels like I put on 20 pounds on anger. I watched so much news that my well tuned YouTube TV algorithm of comedy and silliness got a makeover. When I was not watching news it was being texted to me.

Where does one start?

The Pakistan organized MOU, the Vance Peace Treaty signed by Trump (with a Sharpie) at Versailles, The UFC fight in the White House Lawn, the Reflecting Pool ‘algaegate’, Iran’s neighboring enemies will pay Iran $300 billion (the Middle East version of ‘the Mexican’s will pay for the wall), the JD Vance podcast book tour, the New York Knicks parade, oh and all the major US stock market indices - led by the incredible semiconductor index - closed at or very near all-time highs, despite the new fed chair Kevin deciding that rates should probably be raised…

Trump says he signed the MOU to keep stocks rising and to bring down oil prices. But, as you can see from this long-term chart, the Nasdaq 100 and the semiconductor index did not skip a beat during the four month Iran war. Since the Iran war started, the semiconductor index has climbed nearly 100 percent.

I celebrated Friday by selling down a big chunk of my semiconductor index. For me it is purely asset allocation as you will see from all the charts below.

The AI and semiconductor bubble argument continues, but I have no interest in the debate.

What I believe is demand for compute, AI tools and apps will continue to grow.

Why?

I have shared these Om articles before but here they are again…we are an upload nation and memory is the machine.

I am not a student of bubbles, but the AI boom seems bigger than the railroads because of the speed of proliferation. In 100 years, AI and Railroads may be the only thing left, he internet long gobbled up by AI.

Timing when and how the financing mismatches funding this boom come home to roost is something I am focused on managing with basic asset allocation.

So why take so many ‘chips’ (no pun intended’ off the table right now to be reallocated ?

Let’s go to some charts I gathered from around the web…

1. The weight…

2. The concentration risk of these large technology companies…

3. The leverage and degeneracy by investors chasing this trend…2 images below

4. The leverage and degeneracy by the largest companies trying to ‘win. We are no longer in ZIRP by the way and how will these copmpanies buy back their stock on the next big dip when that money may have to go to pay back interest and principal…

5. The scale/speed of the spending on the datacenters and infrastructure…

6. The sheer momentum seems dangerous…

7. While I have no idea if this is a bubble, there is some bubble ‘rhyming’ going on…

I hope this is helpful.

PS - While there is an MOU, the war is not over. My good friend Moshe texted me last night that his 21 year old nephew was killed in a drone attack. The markets are the last reason to care about this awful war.