These Stocks Are Going Down
In a Nutshell
The semiconductor sell-off and strong jobs report are pressuring AI stocks as investors price in higher rates and question massive capex spending. Multiple analysts argue AI models are commoditizing with no moats or pricing power, evidenced by Broadcom's missed expectations and hyperscalers potentially raising equity to fund infrastructure. Despite these concerns, commodity businesses like AWS, Spotify, and Texas Roadhouse demonstrate that operational advantages and packaging can still generate strong returns even without product differentiation.
These notes were generated by AI and may contain inaccuracies.
Last week the market experienced a rapid sell-off in the semiconductor ETF that fell over 10% in a day and a half. South Korea's Kospi index cratered 8% and tripped multiple circuit breakers. Tom Lee described the event as sobering because expectations are higher.
Oracle is reporting earnings this week. The company is one of the key sellers of cloud infrastructure and is meaningful to the AI story. Adobe will also be reporting earnings. There is rumored news that Meta is weighing a big equity raise to finance AI infrastructure. A critical inflation report is also coming out this week.
Gary Marcus posted a viral tweet viewed over 1.1 million times arguing that everybody is building essentially the same technical solution with the same data, creating no moat. Steve Eisman reiterated that AI spend is ultimately a commodity with no moats, noting people switch constantly between models and there is no pricing power despite hundreds of billions or trillions in investment.
Broadcom reported earnings without the expected beat and raise. The company reiterated previous guidance rather than raising it, representing a deceleration from analyst expectations. Broadcom is down 17% over the past one-week period.
The US economy added 172,000 jobs in May, more than double economist forecasts, with upward revisions to the previous two months. The job market is booming rather than slowing. Markets are now pricing in rate hikes instead of cuts, creating a higher rate environment that puts pressure on high-growth AI companies.
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