If you can’t beat ’em, rent ’em? As Tesla comes off a record quarter, the company is now grappling with how to keep sales from driving off a cliff now that the government’s $7,500 EV tax credit has ended. But Tesla has a plan: to get people hooked on driving its EVs, it’s allowing customers to rent them from select dealerships starting at $60 a day. To sweeten the deal, the company has thrown in freebie features and $250 credit if you choose to buy a Tesla within a week of your rental experience.
The markets rallied on Monday following the Sunday evening announcement by the US Senate that a tentative compromise bill would advance, potentially ending the US government shutdown this week. Tech stocks got an additional boost as Nvidia CEO Jensen Huang “asked for wafers” from TSMC in light of “very strong demand,” boosting both stocks and the broader AI trade. The S&P 500 closed up roughly 1.5%, the tech-heavy Nasdaq 100 soared more than 2% for its best day since May, and the Russell 2000 rose over 1%.
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The AI trade is roaring back after getting speed checked last week.
Baskets of US AI beneficiaries compiled by Morgan Stanley and Bank of America, which just suffered their worst week since the Rose Garden tariffs announcement, were up big yesterday and led a broad-based market recovery amid optimism that the government shutdown will soon be over. |
- The likes of Palantir (which tumbled despite reporting strong earnings results), Western Digital, and Seagate Technologies were all up more than 5% on the day, with Palantir finishing up nearly 9%.
- Semiconductor stocks also rallied strongly after Nvidia CEO Jensen Huang asked his counterpart at TSMC to boost chip output.
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Bank of America argues (convincingly) that last week’s retreat in the cohort had little to do with any industry-specific fundamental news.
- “The pervasive skepticism re AI capex is understandable but likely a contrarian positive, helping minimize overcrowding,” BofA analyst Vivek Arya wrote in a note reaffirming his conviction on his preferred data center and semicap stocks. (More on this after the jump.)
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“While the bears will continue to yell ‘AI Bubble’ from their hibernation caves we continue to point to this tech cap-ex supercycle that is driving this 4th Industrial Revolution into the next few years,” Wedbush Securities analyst Dan Ives wrote. “This is our focus and along with our AI use case work in the field is driving trillions of spending over the next few years and thus will keep this tech bull market alive for at least another 2 years in our view.” |
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Further bolstering that argument, 22V Research flagged how earnings expectations are improving much more rapidly for AI-linked firms than the S&P 500 at large.
“AI usage and AI related fundamentals are unusually strong,” wrote Dennis DeBusschere, chief market strategist at 22V Research. “In 3Q, AI earnings growth rate has been ~3x that of other S&P names.” |
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Back to that Bank of America note, where analyst Vivek Arya has thrown down the gauntlet: there’s one bear case against AI stocks he really doesn’t like.
“The common argument that ‘AI stocks must be overvalued because OpenAI cannot justify $1.4 trillion of long-term commitments’ is a lazy/cherry-picked argument in our view,” he wrote in yesterday’s note to clients. |
- “While we agree OpenAI’s plans are very ambitious, none of that spending has yet been put in place and will be gated by practical constraints such as access to power and data center space,” he continued.
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“The majority of AI spending is being done by profitable, public hyperscalers for whom upgrading infrastructure is mission-critical (upgrade to accelerated from traditional CPU-computing) and defensive (e.g. Google’s $92bn capex ‘defends’ a $200bn+ search leadership by providing Gemini-chatbot driven results to all customers who might otherwise defect to ChatGPT, Perplexity or other search engines.)”
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Reports that OpenAI is moving toward an IPO, however, would offer some enhanced confidence that it’ll be able to get its hands on the cash necessary to follow through on these pledges.
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“Meanwhile private AI companies are making rapid strides attracting business customers,” he added, “which will continue to put pressure on public software and infrastructure-as-a service vendors to raise AI investments.” |
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On the one hand, sure: while ChatGPT may have been what brought the AI boom into public consciousness, it’s not the alpha and omega of the movement. The continued push from the publicly traded, immensely profitable tech companies that lead the S&P 500 is probably the more important factor behind the mile-deep, inch-wide AI spending boom in the here and now.
On the other hand, OpenAI’s spending commitments have driven big valuation bumps for Amazon, Broadcom, AMD, and Oracle in just the past two months. In other words, those stocks have priced in that demand being real and realized. To the extent it isn’t, or can’t be, well then some overvaluation worries would be somewhat justified.
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After more than a decade, Rockstar’s crown jewel — and one of the highest-grossing video games of all time — just hit the brakes... again. CEO Strauss Zelnick said the extra months will help “finish the game with the high level of polish players expect and deserve.” Still, shares plunged on the announcement, even as the company raised its full-year bookings outlook.
How long we’ve waited |
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