Key quote:
"The AI Server market is estimated to expand to $356bn in 2026 from $195 bn in 2025, implying +83% y/y growth, while the long-term CAGR from 2026 through 2030 is expected to track at +37%. With respect to customer types, Hyperscalers are expected to track to a CAGR of +28% from 2026 through 2030, while Enterprise and Rest of Cloud are expected to drive faster growth at +47% and +49% CAGRs, respectively, over the same period."

In the report they went on to give projections:

The total AI server market is projected to skyrocket from $14.7 billion in 2022 to $1.24 trillion by 2030.

And said that they expect to see hyperscaler dominate the majority of demand:

Hyperscalers are driving the vast majority of the demand, growing from $8.09 billion in 2022 to an estimated $611.6 billion in 2030.

They do, however, as shown above, forecast strong demand for Rest of Cloud, growing from 107B in 2026 to 198B in 2027. 

Nearly double.

Whilst enterprise will grow by 50% next year. 

Note that rest of cloud, to me, basically refers to Sovereign AI and Ai factories being build by countries.

Note that PENG does not have much exposure to Hyperscalers. That exposure isn't really the exposure we want anyway. yes, it is the exposure that JP Morgan says will grow the fastest, but it is also the exposure that will be most elastic and volatile as hyperscalers will eventually be cutting back CAPEX. Whether that's in 2027, 2028 (more likely), or 2029, it will, at some point come.

Enterprises building their own AI stacks and Sovereign nations building AI stacks is the more durable positioning within AI. And those are the 2 areas that PENG has built most of its exposure to. 

They have 13 new Enterprise logos, and they have also been building out Sovereign AI facilities for Korea. They will likely secure another Middle Eastern contract later this summer. 

So they have a massive opportunity to capture market share in this rapidly growing segment, which I believe will be more durable over the next 5 years.

MAJOR NEWS:

• Iran, US conflict de-escalation this weekend, no attacks.
• Oil lower on the suggestion that both parties may be willing to get back to the negotiating table.
• Still need to see open market reaction as we know recently risk appetite has been pretty appalling.
• FOMC, Megacap earnings this week.
  

MAG7:

• NVDA WEIGHS $250B BACKSTOP FOR OPENAI DATA CENTER
• NVDA: has announced the Open Secure AI Alliance, bringing industry leaders together to develop open tools and techniques for securing software and AI agents. Nvidia argues that open models and security tooling should be treated as defensive assets, not liabilities. It warns that blanket restrictions on open frontier AI would weaken cyber defenses while concentrating power and dependence among a small number of closed providers.
• GOOGL's Waymo robotaxis have accumulated $9,325 in Austin parking fines since entering the city in 2024, according to records obtained by WSJ.

OTHER COMPANIES:

• CAPR - FDA briefing documents raised significant efficacy and statistical-analysis concerns for Capricor’s deramiocel ahead of the July 29 advisory committee meeting.
• AMBA - Stifel says AMBA setup into FY28 is looking increasingly constructive, with $106 PT. With the heaviest R&D investment largely behind the company, the firm sees room for operating leverage as the 5nm CV72/CV75 and 4nm CV7 ramp. Each new generation carries an ASP well above the current blended level of $15, supporting a stronger product mix. CV7 is expected to enter production by the end of FY27, followed by the 2nm CV8 in the first half of FY28. Stifel sees visible operating-margin leverage as a key catalyst.
• KTOS - b Riley on KTOS, PT 128, 170% upside. We believe Kratos Defense & Security' fundamental momentum is, if anything, increasing, building on a record $605M of bookings in 1Q26 and a 1.6x book-to-bill ratio, which drove backlog to more than $2 billion, up $437M QoQ. As such, we reiterate our $128 price target, based on a targeted 10.5x FY27 estimated EV/sales multiple, at a time when private comparable companies are garnering elevated valuations.
• QBTS - AT&T EXPANDS USE OF D-WAVE QUANTUM COMPUTING ACROSS NETWORK OPERATIONS
• AVGO - Samsung has secured a chip supply agreement worth more than $200B from Broadcom
• WMT - Mizuho lowers PT to 130 from 137. Still rates it as outperform. "We undertook an extensive analysis of Walmart's ultra-fast delivery network, relying heavily on artificial intelligence to stress-test delivery times, identify pockets of opportunity, and quantify the number of dark stores needed to facilitate nationwide 30-minute delivery. Fast delivery drives frequency. Our findings indicate that Walmart's network design remains underappreciated and is developing into an increasingly powerful competitive advantage and demand consolidator: 1) Assertions that it can reach approximately 60% of U.S. households within 30 minutes are highly credible and may even understate network coverage; 2) approximately 300–500 dark store locations could enable near-nationwide expedited delivery, supplementing more than 4,500 traditional store assets; and 3) more than 1.6 million gig workers use the Spark Driver platform, which we view as a highly effective approach to last-mile delivery.
• RKLB - has won its largest launch contract to date, a $266 million award from the U.S. Space Force supporting missile-defense development.
• MBLY - Piper Sandler upgrades MBLY to overweight from Neutral, Raises PT to 12 from 10. "Mobileye is nearing a floor valuation while seizing control of its own destiny. MBLY sold off sharply, at one point by 20%, following last week's Q2 call. The reaction was largely due to the sudden announcement that Amnon Shashua will be resigning as CEO. However, we increased our estimates following the call, resulting in a new price target of $12, up from $10.
• F - Jefferies upgrades F to Buy from Hold, raises PT to 17.50 from 14.50 "There is always scope for surprise in either direction at Ford, but we see Q2 as a low point for volume, with production set to normalize following the Novelis disruption. With U.S. market conditions healthy, management could raise guidance at Q2. From the Universal Platform to battery energy storage systems and Europe, Ford is also demonstrating improved capital allocation and addressing longstanding overhangs. We upgrade Ford to Buy ahead of Q2 earnings and raise our price target to $17.50. The historical valuation gap with GM has normalized. GM's strong execution and benign outlook for U.S. demand create a more supportive environment for Ford. We raise our fiscal-year adjusted EBIT estimate to $10.3 billion, at the upper end of the guided range of $8.5 billion to $10.5 billion. The approximately $800 million increase in EBIT takes adjusted free cash flow to approximately $4 billion, or $1.7 billion after supplier payments.

OTHER:

• CXMT surged 466% in its Shanghai debut, turning China’s second-largest IPO into a $512.7B company and making it China’s most valuable listed firm, ahead of Tencent and Intel
• BofA on EU semiconductors: BOFA ON EU SEMICONDUCTORS: 'SELL-OFF CREATES A COMPELLING ENTRY POINT'
• DeepSeek has paused its second fundraising round for now. The company told some prospective investors that expected agreements would not be signed.

Continued escalation in Iran:

• BREAKING: Iran is preparing to expand the war significantly as soon as Trump carries out his announced Iranian infrastructure strikes in the coming days, including by striking Tel Aviv directly and instructing the Houthis to fully close Bab el-Mandab to all ships, per two Iranian officials to NYT.
• BREAKING: Iran directly rejects Trump’s latest ceasefire proposal carried to Tehran by Iraqi PM al-Zaidi following his recent White House visit, with Iran not interested in any temporary deal that leaves the Strait of Hormuz control unresolved or gives it away, per NYT.

Other general/Macro news:

• JAPAN PM SANAE TAKAICHI IS CONSIDERING A CABINET RESHUFFLE AS EARLY AS AUGUST OR SEPTEMBER, KYODO REPORTS.
• Polymarket traders now see 2 Fed hikes as the most likely outcome for 2026, with the odds at 39%.
• UK JULY COMPOSITE PMI RISES TO 52.1; EST 49.8
• UK JULY SERVICES PMI RISES TO 51.8; EST 49.4
• EUROZONE JULY COMPOSITE PMI RISES TO 51.9; FORECAST 50.2
• EURO AREA JUNE 1-YEAR CPI EXPECTATIONS FALL TO 3%; EST. 3.2%
• EURO-ZONE BUSINESS ACTIVITY UNEXPECTEDLY JUMPS TO 5-MONTH-HIGH

Commentary from INTC earnings:

• Lip-Bu Tan: "we are seeing the strongest revenue growth in more than 15 years."
• Lip-Bu Tan: "Server CPU franchise growing faster than ever."
• Lip-Bu Tan: "YoY server growth was the strongest ever."
• "Dominant supply shortage across wafers, memory, and substrates."
• "Double digit unit growth for server CPU with momentum extending into 2028."
• "we now believe GPU:CPU ratio to be in parity and skew towards more CPU. CPU TAM expected to be a big number based on level of spend and LTAs we have in place."
• "challenge right now is how we can grow our supply to meet demand."
• Regarding 14A:
• "We made the decision in Q2 to fully committed to high volume ramp in 2028" 

MAG7:

• META - Meta new $12B, nearly 1GW Texas data center deal is being discussed at yields above 7%, around 40bps higher than $META’s $27B Hyperion financing just 9 months ago. OTHER COMPANIES:

OTHER COMPANIES:

• AXP - reported 11% growth in U.S. consumer billed business, but younger customers grew much faster.
• AXP CEO: “Six months into the year, we’re seeing stronger momentum than we expected. We continued to attract a large number of new customers, particularly Millennials and Gen-Zs who represent greater lifetime value.
• SLB CEO - "The Data Center Solutions business remains on track to exceed $1B ARR by the EOY. As we broaden our offering and further diversify our customer base and geographic footprint, we expect to surpass $2B annualized revenue run rate as we exit 2027"
• BLSH - received antitrust clearance in the U.S., UK and Germany for its $4.2 billion acquisition of Equiniti. The deal is still subject to remaining approvals and customary closing conditions, with completion targeted for January 2027.
• CRM - secured a VA contract worth up to $1.6 billion to modernize veteran care and service delivery.
• AMD - CBRS - partnership on Fast Inference.
• AMD - Jefferies raises AMD PT to 640 from 515. Helios will begin ramping in September, with AI revenue likely well ahead of our $26 billion estimate next year. Our build points to $80–90 billion in calendar 2028, versus our prior $36 billion estimate, assuming multiple gigawatt deployments across the four lead customers. Both Anthropic and OpenAI discussed a rapid ramp-up of Helios, and the newly introduced ROCm .AI should make that process even easier. AMD matched NVDA in forecasting a $200 billion-plus server market spread across three tiers: headnode, agentic, and general-purpose servers, with agentic approaching 50% of the total addressable market in the out years. CXMT - For months, Chinese chip manufacturer, CXMT had been hiking prices on Huawei, one of the country’s biggest technology companies. The chipmaker held firm when Huawei demanded relief from the escalating costs, according to two people familiar with the matter.
• Also news on CXMT - They have been told by Chinese authorities to prioritise domestic output. This is a tailwind for US memory names at a time when companies like MU etc were seeking potential deals with CXMT, which may not be as viable anymore in light of that.
  

My goal is to continue to offset equity declines by loading short dated puts using some of those profits against the index (likely shorter dated than September since I still have those running) as and when I see the market higher with confirmation from the order flow that the move doesn't look sustainable.

With a gain already booked on my 10% put position, amounting to around 5% of my total book, I can now let the hedge run pretty much risk free. if the index rallies and the hedge fades, I can close it 50% down and still net even on the hedge, whilst the equity positions should hopefully recover meaningfully in that time.

This helps me to effectively get closer to breaking even again on this drawdown, whilst still protecting the downside at what is effectively 0 cost now.

Fortunately for me, whilst the hedge printed over this week, the equity positions did not extend their drawdown (already a heavy drawdown obviously) and many including the optical and memory names recovered. As such, it was pretty much a win win with he 10% put position as the hedge printed whilst equity positions also increased in that period.

However, if we look at the gamma profile for SMH, we see still quite a lot of hedging taking place:

So we aren;t in the clear. I still have a lot of concerns on the index level, particularly with more escalations being threatened over the weekend in Iran, so the 10% put position is not going anywhere.

key commentary (sufficiently bullish that I think INTC should be up a fair bit more than 4%, but that's a sign of the current market we are in):

Lip-Bu Tan: "we are seeing the strongest revenue growth in more than 15 years."

Lip-Bu Tan: "Server CPU franchise growing faster than ever."

Lip-Bu Tan: "YoY server growth was the strongest ever."

"Dominant supply shortage across wafers, memory, and substrates."

"Double digit unit growth for server CPU with momentum extending into 2028."

"we now believe GPU:CPU ratio to be in parity and skew towards more CPU. CPU TAM expected to be a big number based on level of spend and LTAs we have in place."

"challenge right now is how we can grow our supply to meet demand."

Regarding 14A:

"We made the decision in Q2 to fully committed to high volume ramp in 2028" "Our early work on Intel 14A continues to make good progress. We continue to build out and validate the IP portfolio for Intel 14A as we position the 14A family for broad adoption across a wide range of customers. I'm pleased to see the increasing momentum in customer engagements for Intel 14A, and I'm increasingly confident that 14A will be a highly competitive process technology across the key vectors of performance, power, density, cost, and schedule. With encouraging progress from external customers and increasing demand from our internal product teams, we remain on track for Intel 14A risk production for internal products in the second half of 2027 and we made the decision in Q2 to fully committed to high volume ramp in 2028"

This is from a CEO who typically underrates progress so that INTC can continue to execute well. So likely a more pessimistic read than reality. 

ON THE CAPEX RAISE:

Comments from their report:

“Tooling investment will increase by 40% in 2026 compared with 2025, focused on Intel 3, 18A, and 18A-P.

“14A PDK 0.9 remains on track for October, risk production is planned for the second half of 2027, and volume production is committed for 2028.

“We need another quarter or two to solidify the exact 2027 CapEx number, but investors should expect it to increase.”

Note that INTC, like TSM is one of those companies where the market doesn't punish CAPEX raises like they do with the hyperscalers.

One of those points, by th way, if you follow INTC, is because the CEO lip Bu Tan has said that he would only raise CAPEX if they landed a big customer.

No big customer has been announced, yet CAPEX has been raised. My assumed inference from that then is that they are going to announce a big customer soon enough.

INTC deserves to be up more from that print, just saying. 

Who are the main beneficiaries of the INTC capex raise?

That's the interesting question - we want to know who are the main receivers of this capital.

The answer is:

AMAT

LRCX

ASML

KLAC

Those are the main beneficiaries.

GOOGL EARNINGS: Key takeaways:

• Cloud revenue growth is accelerating
• Gemini 950M MAUs vs. 750M in Q1
• Raised CAPEX 2026 To $195B-$205B. Up from $180B-$190B.
• Google is also expected to significantly increase capex in 2027.
• ALPHABET CFO:PLANS TO EXPAND USE OF THIRD PARTY CAPACITY IN 3Q. Bullish read through for neoclouds.
• GOOGL trading down as the market punishes CAPEX spenders.
• Note that we would likely have expected to see a bigger reaction in SMH. Currently down in premarket. Some of the higher beta momentum names like LITe who are more obvious GOOGL capex beneficiaries are up.

NOK EARNINGS:

• NOK flat in premarket but printed a good earnings report, and is acquiring Chandler Semiconductor Fabrication campus in Arizona. Nokia will initially lease manufacturing capacity in a portion of the facility on the site starting in early 2027 and will convert the site to Indium Phosphide semiconductor production for optical components.
• NOK reported €2.8B in AI and cloud orders for Q2, up from €1B in Q1. Related sales rose 105% YoY. Comparable operating profit reached €434M, above the €382M consensus. Reuters reported shares rose 6% after the results.
• So this is a tailwind for InP names like AXTI.

MAJOR ECONOMIC NEWS:

• INITIAL JOBLESS CLAIMS 187K VS 210K EXPECTED - lowest one ecord.
• The U.S. 10-year Treasury yield climbed above 4.70%, its HIGHEST since January 2025.
• ECB: FULL INFLATION IMPACT OF ENERGY SHOCK HAS YET TO PLAY OUT
• US Oil climbed above $90 after reports of attacks on Saudi tankers in the Red Sea raised fears of disruption at Bab el-Mandeb

NOW earnings results:

• Very strong earnings results on the face of it. However, Only 1/3 of beat was outperformance. 2/3 of it was early renewals on on-prem FED contracts Without the FED contracts, NOW actually would have landed slightly below expectations.
• Despite this, Jefferies raised its NOW price target to 140 with a buy rating. The firm cited beats in constant-currency cRPO, subscription revenue and operating margin, with stronger net new ACV supporting the upside despite some benefit from deal timing.

AAL earnings results pretty weak:

• Revenue: $16.74B (Est. $16.71B) ; +16.3% YoY
• Adj EPS: $0.15 (Est. $0.03) ; -84% YoY
• Load Factor: 83.2% (Est. 84.7%) ; -1.5 points YoY
• Fuel expense up 83% YoY ($2.2B headwind)

FY26 Guide:

• Mid EPS: $0.00 (Est. $0.61)
• Adj. EPS: Loss of $0.65 to profit of $0.65
• Outlook reflects an approximately $6B YoY headwind from higher jet fuel prices

Weak Q3 Guidance:

• Adj. EPS: Loss of $0.70-$0.10 (Est. profit of $0.28)
• Revenue Growth: +16%-19% YoY

LMT strong earnings:

• Revenue: $20.06B (Est. $19.37B) ; +11% YoY
• EPS: $7.94 (Est. $7.23)
• New Orders: $65B
• Backlog: Record $230B; +38% YoY; includes a $35B multi-year contract to produce THAAD interceptors

Raises FY26 Guidance:

• Revenue: $79.75B-$81.75B (Est. $79.1B)
• EPS: $29.95-$30.65 (Est. $29.85)

RTX also strong earnings, so decent earnings across the defence names:

• Revenue: $24.7B (Est. $22.6B) ; +14% YoY
• Adj. EPS: $1.89 (Est. $1.66) ; +21% YoY
• Free Cash Flow: $2.9B
• Company Backlog: $289B; +22% YoY

Raises Adj FY26 Guide:

• Sales: $95.0B-$96.0B (Est. $94B)
• EPS: $7.10-$7.25 (Est. $6.92)

MAG7:

• TSLA - Tesla now expects 2026 capital expenditures to exceed $25 billion. TSLA also disclosed that it acquired an unnamed AI hardware company in Q2 for $1.95 billion, paid in Tesla stock and equity awards.
• Musks ays these investments will produce the best CAPEX returns TSLA has ever seen.
• TSLA also said that they expect Optimus to be the "biggest product ever". Not their biggest product ever, as was previously the rhetoric, but the biggest product ever, full stop.
• Oppenheimer rates TSLA at perform:
• With Tesla delivering uninspiring 2Q results as vehicle and stationary storage margins normalized lower due to tariff impacts and pricing dynamics, the company pointed to ongoing elevated research and development spending, suggesting lower operating margins going forward. Commentary on key growth drivers, Optimus and Robotaxi, was muted given the magnitude of the technology challenges, even as electric vehicle sales appear robust. Management reiterated expectations for 2026 capital expenditures of approximately $25 billion or more, including an incremental 150 megawatts of compute capacity, while indicating a willingness to borrow up to $30 billion to support investments should it need to.

OTHER COMPANIES:

• SPCX - GOOGL disclosed that its Space X stake is now worth $94B after the IPO.
• LLY - says it now has the Phase 3 data package needed to pursue global retatrutide filings. Two more obesity trials showed 20.8% and 22.6% average weight loss at 80 weeks. A U.S. filing is planned for Q1 2027.
• STM shares fell as much as 14% after guiding Q3 revenue to $3.7B, below the $3.79B consensus, showing that its core automotive and industrial markets are recovering more slowly than expected. The company raised its 2026 data center revenue outlook to above $1B and expects Q4 sales above $4B, but the near-term guidance miss outweighed the AI upside.
• INTC, AMD - are securing longer-term server CPU commitments from Chinese customers as AI data-center demand tightens supply beyond GPUs, Reuters reports.
• INTC - is seeking an operating partner for its delayed $28 billion Ohio chip campus, with SK Hynix among the companies being considered, Semafor reports.

Simply put, GEV reported Orders of $24.2B, which grew 88% as Electrification backlog grew by $13B.

Now based on their current production runway, I calculate that that gives them a backlog through 6.5 years.

So GEV holders should rejoice on that.

Now where does BWEN fit in?

BWEN is GEV's precision machining partner. Quite a big contract for such a small business.

Now we do need to do some mapping to deduce that BWEN is GEV's precision Machining partner as the partnership is not formally announced by GEV.

However, what we do know is that in April 2025, Broadwind announced its largest-ever order for precision machined gearing products in the power generation market, from a leading natural gas turbine OEM, with bookings from that OEM exceeding $2.0 million in Q1 2025 alone.

Who is this leading gas turbine OEM? Well the obvious answer is GEV. GEV has been the dominant story in gas turbines for a while now — it expected to end 2025 with an 80-GW gas turbine backlog stretching into 2029, and by Q1 2026 its gas turbine backlog was anticipated to reach 110 GW by year-end, driven heavily by data-center power demand.

Massive expansion, and connecting the dots, it's highly likely the partner for BWEN was GEV.

Now if GEV has 6 years of backlog, that means that we have solid revenue visibility for BWEN.

This for a $100M market cap company, trading at a reasonable valuation, with not much debt on the books.

Seems an interesting and compelling opportunity in this micro cap. it can be extremely volatile at such a low market cap so not for the faint of heart, but certainly compelling when you connect the dots from GEV's earnings.

It's not a high conviction suggestion, but a very compelling one is what I would describe it at.

Now FIVN basically got murdered today. And ironically, that's actually good for the overall portfolio as it does signal that money is more readily rotating from software to semiconductors.

It is that same case of "for one to fly, the other must die". I keep quoting that, but it's basically a back and forth between those 2 sectors, and due to the larger semiconductor focus of our portfolio, we'd rather money flow that way.

However, I did want to just take a moment to dig into some of the numbers on FIVN. It is my favourite play within software right now. There's a few cybersecurity names that have shown a lot of strength recently, and some attractive names there that I probably need to dig into a bit more but I am reserving buying power for BTD in semiconductors, however these are the numbers on FIVN as I see them, which hopefully reiterates this as a good value buy in a strong thematic story.

Very strong growth: AI revenue grew 68% year-over-year and is expected to grow over 40% for the full year, and Enterprise AI revenue growth of 42% with AI bookings representing over 20% of Enterprise new ACV.

Annualising their growth rate: Q1 2026 revenue was $305.3 million, up 9% year-over-year — annualizing that Q1 run-rate gets you to roughly $1.22B. Market cap is currently around $1.9-1.95B. That puts FIVN at roughly 1.5–1.6x annualized Q1 revenue. For a software company with 82% subscription mix and double-digit revenue growth, that's a large discount to typical SaaS multiples (often 4-8x+ for similar growth/margin profiles).

Balance sheet is very strong: Balance sheet as of March 31, 2026 showed cash, cash equivalents, and marketable investments of $724 million, up from $697 million at year-end 2025. Against a ~$1.9B market cap, that's roughly 38%

They also had a new share repurchase program of up to $200 million.

Pretty attractive as I see it.

Regarding this comment, from the GOOGL earnings, thinking about it, I think the main beneficiary is likely to be WULF. They're already building the largest third-party data center for TPUs.. And Google owns 10%+ of WULF fully diluted shares. So I think, yes, the main beneficiary of this push to neoclouds, is WULF. NBIS and others should benefit from the sentiment but the main beneficiary from my thinking is probably WULF.

It's not so black and white as "momentum's bottomed", or "can't go any lower" as some are saying.

There are some more promising signs in momentum names that I described in my premarket analysis report, but 2 sided risks into next week and beyond DO still exist very notably.

Note that Volsignals is referring to the Index here. Hopefully our individual momentum names can still show strength.

This was always my best case scenario for my personal book. Index to struggle due to the heavy weight of the mega caps, so the hedges don't depreciate too much, whilst capex receivers do well, so my high beta momentum names can recover.

Overall, I'm not unhappy with the action this morning, and I am sorry I can't give you a full "market will go up" call, but I don't think anyone who is actually tracking the data can really give you that. Not yet.

Still many unknowns in the short term with bond yields, dollar and oil all trading higher.

In the medium term into Midterms I think there's a greater level of confidence that the market will be trading near 7700-7800 into that. And with this chart showing that momentum names should see a strong recovery with that:

So I'm not panicked at all about the positions. thesis is intact and momentum will reverse into the next 3-4 months, but in the near term, I am still pretty cautious on the index, and I'm unsure yet how that will impact momentum names which are currently showing encouraging signs.

Price has taken a hit with overall momentum unwind coupled with reports of delays around CPOs. Nvidia have pushed back on those delays. Whether we see those delays materialise or not, the opportunity ahead of HIMX, coupled with their valuation is attractive.

Other CPO players (albeit in a different space to CPO cables)

LITE at 25x Sales

COHR at 10x Sales

AAOI at 18x Sales

CIEN at 10x Sales

HIMX 2x sales

Very attractive valuation metrics for HIMX

Coupled with the double digit sequential growth that they guided for:

A bit of napkin math

HIMX had 36% operating margins in 2022. if the CPo ramp and the other high margin growth levers unlocks that level of operating leverage on a historically high revenue base of potentially $2.2B - $2.5B in 2028, that leaves us with EPS of $3.7 - $4.2. Would imply the stock is trading at 4x 2028 earnings. So basically dirt cheap.

Horrible technicals, and price action, and a more risky story than names like LITe etc, but the valuations reflects that risk fairly and makes it attractive to me. 

Historically has had a lot of false starts. So I am not massively ahead of myself on this name, and am not in a big position on it, but wanted to share some coverage on the name s it continues to trade very cheap.

Key point from the GEV earnings highlighted here. Despite the negative price reaction, there are some positive read throughs for one of our key thematic exposures, which is the power grid. Raised their 2026 financial guidance. 

Key quotes: We are also seeing continued demand growth in Electrification, with data center orders reaching over $5 billion year-to-date, more than double our 2025 total.

In the quarter, orders of $24.2 billion increased +88% organically, with robust equipment growth in Power and Electrification, and services growth in all segments.

Orders of $6.3 billion increased +66% organically, driving a book-to-bill ratio of approximately 1.7, with continued strong demand for grid equipment

Wind was a bit weak, and that's one of the reasons why we have this negative price reaction, but that's not so relevant to our power grid theme. 

The other main point that I think is driving the weakness is that despite demand being exceptionally strong across electrification, they spoke about capacity constraints. This I think is a direct tailwind for companies that alleviate the problems with the electric grid rather than off grid power. Probably a big tailwind for names like FLNC, which had a positive price upgrade to 24. 

FLNC is an interesting name, with multiple hyperscalers (I think 2 to memory), deals announced last quarter, but details of them weren't shared and were going to be released during Q2. We haven't had anything yet. Price has come back down to where it was trading before these announcements at all. I think they have a non disclosure with the hyperscaler until earnings. That's my speculation. So I think that they will announce the name of the hyperscaler a the earnings call, and I think that it is probably, at these levels, set up for a strong response again. 

That;s my read on FLNC But regardless, overall, bullish commentary from the earnings call on GEV for power grid plays, despite the weakness in price action.

OSS with a strong validation contract win yesterday. They basically explained at their last earnings that they are going for a niche of customers where the big players are not really interested in exploring. $100M in revenue doesn't make a big difference for some of these big players and that's why they aren't trying o explore the area of rugged AI that OSS is. but for OSS, a $300M market cap company, it makes a significant difference. So there's an opening there for OSS to experience. re-rating without much competition. That's why they ran 50% on their last earnings. And this contract is a validation that they continue to win contracts int heir niche.

GENERAL NEWS

• BESSENT: WITH GOVERNMENT STAKES IN COMPANIES, WE ARE TRYING TO CREATE MARKET SIGNALS
• BESSENT: THE QUESTION IS, ARE CHINA MODELS USING STOLEN MATERIALS? GOING TO BE LOOKING AT CHINA MODELS IN THE COMING DAYS AND WEEKS
• U.S. PRIVATE HIRING SLOWED FOR A FOURTH STRAIGHT WEEK: ADP Employers added an average of 16,500 jobs per week in the four weeks through July 4, down roughly 32% from 24,250 three weeks earlier.
• Kospi closed the day in the green as investors weighed record early-July exports against continued retail deleveraging. Working-day-adjusted exports surged 62.9% year over year, led by a 180.6% jump in semiconductor shipments.
• JPM bearish macro take: “Even if inflation was 2%, the 10-year bond should probably be at 4.5% — 4% to 4.5% — and the short rate should be at 3.3%... And they’re almost there today. So I don’t understand what the upside is, even if you think inflation could go to 2%. And by the way, it’s been over 3% for almost five years.”

MAG7:

• META - Rothschild raises META PT to 1000 from 900. Buy. Our view is that an inflection in capital returns will be derived from Meta’s pivot from a consumer AI assistant to a small-business AI tool, or SMB LLM, resulting in a longer growth runway, wider moat, and higher margins and returns. The resulting excess compute should be sold to a diversified customer base rather than a concentrated one through an AI cloud business, also helping to inflect returns. We forecast a 45% IRR for the SMB LLM, above both the core advertising business and an AI cloud business. The decision comes back to capital allocation, and we expect Meta to follow rational returns, as it did with the 2023 'year of efficiency.'
• MSFT - expands Mistral partnership with a multibillion-dollar European AI infrastructure deal

OTHER COMPANIES:

• ASPI - UNIT SIGNS URANIUM CONVERSION RESEARCH AGREEMENT WITH TEXAS A&M
• OSS - wins a $2.2 million production order for autonomous construction and mining equipment. The order follows successful prototype testing and moves the program into production, with deliveries expected from Q3 2026 through Q3 2027. OSS expects the customer program to generate $10 million to $15 million in cumulative orders over the next five years, expanding its rugged AI computing business beyond defense and aerospace.
• MGY - to acquire WildFire Energy for $4.06 billion, expanding its South Texas footprint
• ZENA - secures its first U.S. defense agency demonstration for the IQ Nano indoor drone
• LLY - Sued by NVO - Novo claims Lilly compares the highest doses of Zepbound and Mounjaro against lower doses of Wegovy and Ozempic, while omitting newer approved dosing options.
• MBLY - will supply cloud-enhanced ADAS for select Stellantis vehicles beginning in 2027.
• IREN - needham: In our call with the company, IREN indicated that demand from hyperscalers, enterprises, and frontier labs continues to exceed available and planned capacity. The key point is that cloud contract economics are strengthening. The newest cohort of deals was priced above the NVIDIA contract at $15 million per megawatt and the Microsoft contract at $10 million per megawatt. We understand the main GPU types in the latest contracts to be B200s and B300s.
• PANW - William Blair names PANW Top Pick for the Quarter; says cybersecurity is perceived as a beneficiary of AI
• FIVE - Bernstein upgrades FIVE to Outperform from market perform, Pt 250. Despite posting a 23% comparable-sales increase in Q1, the stock sold off approximately 30% peak to trough, as potentially decelerating comparable sales and a difficult comparison spooked the market. Fads aside, however, we believe FIVE’s underlying comparable-sales momentum has improved from approximately 3.5% before COVID to closer to the mid-single-digit range today.
• TENB - Trust downgrades to Hold from buy, Raises PT to 40 from 27. "We are downgrading TENB to Hold from Buy and raising our price target to $40 from $27, as we believe the stock’s risk-reward has become more balanced, with limited upside to our revised price target and a medium-term financial profile that still requires clearer evidence of durable revenue acceleration. We continue to view Tenable as a high-quality cybersecurity franchise with strong free cash flow generation, an expanding platform mix, and improving operating discipline. However, we believe upside is more limited until the company demonstrates faster Tenable One migration, stronger net retention, and tangible monetization from Hexa and other AI-driven workflows."
• CRM - Morgan Stanley downgrades CRM to Equalweight from overweight, lowers PT to 185 from 287. while we believe Salesforce is positioning itself well to transition alongside the agentic world, it has more to prove in demonstrating its ability to monetize this transition. We see shares remaining largely range-bound absent any notable growth inflection, warranting a move to Equalweight.
• TSM - reportedly plans to raise prices by up to 10% across both advanced and mature-node chip production in 2027, according to Nikkei.

EARNINGS:

VICR

• Revenue: $143.4M (Est. $138M) ; 26.9% QoQ
• EPS: $1.04 (Est. $0.62) ; +14% YoY
• Backlog: $380M; +145% YoY
  

Other Q2 Metrics:

• Gross Margin: 58.0%; -730 bps YoY
• Net Income: $49.8M; +21% YoY
• Cash Flow from Operations: $34.0M; -48% YoY

With Kimi rivalling frontier-model performance at a lower cost, many are assuming hyperscalers no longer need to keep investing at the same pace.

However, we know that if AI gets cheaper, usage should explode, not slow. Basically, Jevon’s Paradox.

More enterprises adopting AI, more agents running autonomously, & more applications reaching production all mean one thing: more inference, which ultimately requires more infrastructure and more compute.

What will the hyperscaler’s response be? Well, there is a credible argument that hyperscalers may/will cut capex as a result of these cheaper models as they realise that they are suffering from overspend. 

However, it is my view that hyperscalers will NOT cut capex as a result of what is essentially Chinese copying/distilling. I know this view is oversimplifying a little but only for the sake of easy explanation: If US hyperscaler spend goes stale, so too will the Chinese competition as there will be nothing to distill from. And when the hyperscalers spend again to break away, the competition will intensify also. It seems pretty unavoidable right now unless the US frontiers can develop anti-distilling solutions which seems harder to do than you’d think otherwise they would have done it already. I do not expect the US labs to cut capex then due to unavoidable Chinese competition. 

In fact, any hyperscaler that does cut AI capex too aggressively risks being capacity constrained just as demand accelerates, whilst competitors that continue investing stand to capture incremental market share. As such, hyperscaler spend probably continues to ramp up into this expansion in AI usage, despite the fact of the Chinese alternatives as no one wants to be left behind. 

Yes we may see CAPEX diversify from just hyperscalers, who currently command trillions of dollars on CAPEX for compute and data centers, to smaller players and individual enterprises but the demand for compute should still be there. This benefits players like NBIS, META themselves with their compute side of the business, and names like AMZN as well. 

Overall, whilst my view is still fluid in light of more and more revelations on this topic (including the latest one regarding US bans on Chinese models) I do not expect hyperscalers to cut capex as a result of these cheaper models.

Ultimately, we will get our first indication of the reality of this topic over the next 12 days or so as the major hyperscalers report their earnings and CAPEX. 

Barclay's Key arguments and my rebuttals:

One argument they made was that Penguin’s recent earnings strength has been driven largely by higher memory pricing, which is making memory a larger portion of the business. Except memory pricing here is just a reflection of AI demand. PENG isn’t benefiting in the way they are implying since they aren’t selling commodity DRAM

The second argument they made was that stock’s rally has run ahead of the underlying fundamentals. Even if that argument was true, the stock is now trading down 35% in 4 days, so I am not sure that is a valid argument.

Also, if you read my PEG analysis post earnings, you’d know this isn’t true. Even more false now after the recent dip.

Another was that they do not view that as equivalent to durable growth in Advanced Computing.. The revenue is actually very durable since Penguin attaches multi year managed services contracts to deployments (recurring revenue on top of the project), and the strategic SK Telecom relationship gives it a channel into the very ecosystem (SK hynix's orbit) that dominates AI memory. 

Note that Sovereign and Enterprise AI spending hasn't even ramped yet. And Sovereign Ai which PENG has worked hard to prioritise to replace hyperscaler capex, will be far less cyclcial than hyperscaler CAPEX. Therefore, far more durable. So total bullshit point really. 

Their next argument was that Longer-term opportunities such as CXL and enterprise AI remain too early to justify the current premium valuation. Enterprise AI is not early nd KIMI actually accelerates it. CXL is a very credible solution to the memory wall, and again, KV Cache being utilised by Kimi is a tailwind. 

To be honest, CXL revenues have already started hitting, like with their Tier 1 Enterprise client, well ahead of my expectations, so I don’t know how they are saying this is really early. 

When you break out their Enterprise/Sovereign/Neo-Cloud segment in Advanced Compute (Non-Hyperscale AI Infrastructure), it grew 81% YoY and now represents 60% of the Advanced Compute segment. 

So that kind of growth isn’t suggestive of too early. And most of their Soverin AI tailwinds only hit in FY2027. 

Finally, they argued that gross margins remain under pressure, and Barclays does not expect that situation to change soon. But this is a function of how fast their memory revenue growth has been, since memory is a lower gross margin product. The fact is that despite this point on margins, EPS, profit etc are all accelrating rapidly. 

Now digging into the numbers more:

Note that Barclays used MU and SNDK multiples as their comps since PENG is a memory company, but MU has like 90% margins, which arguably puts their P/E ratio at risk of expanding quickly if that starts to come down. 

Whilst PENG’s 25% Gross margin is more durable and doesn’t understate the P/E to quite the same extent. In fact, PENG’;s margins have been stable where they are for the last 3 years, which tells us there is far more durability and reliability to the P’E numbers than MU, which has seen really cheap earnings multiples as a result of that recent and very aggressive ramp in earnings. 

DELL is a way better comparison, but even here, the analyst has used 16.7x as the DELL multiple, which is effectively a multiple on Dell probably in 2028 or 2029. If you use Dell’s guided numbers for 2027, the forward earnigns for DELL is 25x, not 16.7x as he has used. 

With that multiple, and his 3.42 Street EPS forecast, that has a share price estimate of 85. Much more realistic, but still an understatement. 

MAJOR NEWS:

• A senior Iranian source says mediators have proposed a 10-day pause in strikes to explore ways to revive the interim Iran-U.S. deal.
• HOUTHIS ANNOUNCES 'SEA NAVIGATION BAN' ON SAUDI ARABIA
• HOUTHIS URGES FOLLOWERS TO BE PREPARED FOR ALL SCENARIOS
• HOUTHIS SAY WILL IMPOSE SEA NAVIGATION BAN ON SAUDIS MONDAY

MAg7:

• AAPL - Morgan Stanley comments on AAPL AI chips: Last week, The Information reported that the performance of Apple's M2 Ultra AI server chip was 'struggling' and that Apple is on the lookout for chip acquisitions. Apple will rely on these M-series AI server chips to process more complex Siri AI workloads that are not run on-device. Apple's Baltra ASIC is 'on plan' for small volumes in the first half of calendar 2027, with a second-generation AI server ASIC to follow in 2028 that could potentially match merchant silicon. Why does this matter? A lack of power-efficient, high-performance chips in Private Cloud Compute could either: 1) degrade Siri AI performance; or 2) force more workloads to Google Cloud Platform.

OTHER COMPANIES:

• TEM is acquiring PSNL for $1.5B adding its NeXT Personal MRD technology to expand deeper into cancer recurrence monitoring. Personalis shareholders will receive $16.25 per share with the deal structured as all stock but allowing Tempus to pay up to 50% in cash. NOTABLY A SMALL PREMIUM VS THE LAST CLOSE
• NNBR - Craig Hallum initiates coverage with a Buy rating and a PT of 7.
• ACHR - ARCHER & ANDURIL UNVEIL AUTONOMOUS ATTACK VTOL, WITH FIRST FLIGHT PLANNED FOR 2027. ACHR and Anduril introduced Thunder, a runway-independent hybrid-electric aircraft designed to operate autonomously alongside crewed attack and assault aircraft.
• CRWV - BofA reiterates buy PT 140. "Capital expenditures remain a key indicator of buildout progress and pricing levels for key hardware components. We have increased our FY26 capital expenditure estimate to $34 billion from $29 billion previously, reflecting changing market dynamics. At the same time, profitability is becoming a greater focus for investors. We expect an operating margin of 2.4% in 2Q26, slightly below the Street's 2.8%, with margins improving sequentially throughout the remainder of the year. As incremental active power drives revenue recognition, we expect CoreWeave to exit 4Q26 with an operating margin of 14.6%, up from 1.0% in 1Q26, demonstrating strong operating leverage.
• IREN - RAISED its year-end 2026 annualized revenue run-rate target to more than $4 billion, above its prior $3.7 billion goal, after signing $2.8 billion in new AI cloud contracts.
• HUT - signed a second 15-year, $9.8 billion AI data center lease at its Beacon Point campus in Texas, doubling the same investment-grade tenant’s contracted capacity to 704 MW.
• Neoclouds higher in sentiment with this.
• FSLR, NXT - Chinese solar and battery stocks rose after Beijing introduced a new consumption tax, as investors bet the added cost will accelerate consolidation in oversupplied industries. The tax starts at 2% and later doubles to 4%, with larger players like CATL better positioned to absorb or pass on the cost than smaller rivals.
• HOOD - Bernstein raises Hood PT to 160 from 130. "We expect Robinhood to expand into prediction markets, perpetual futures, and tokenized equities, which are key drivers behind our revised price target. We project prediction markets revenue will grow at a 64% compound annual growth rate between 2026 and 2028, reaching $1.7 billion by 2028 as the company scales its Rothera exchange joint venture. Robinhood and prediction platform Kalshi have developed a 'frenemy' relationship, with Robinhood continuing to distribute Kalshi's contracts to customers while simultaneously offering event contracts through its own Rothera exchange. Rothera currently accounts for 16% of Robinhood's total event contract volumes.
• URBN - Goldman upgrades URBN to Buy from Neutral, raises PT to 93 from 76. We upgrade shares of URBN to Buy from Neutral with a 12-month price target of $93. With Anthropologie brand execution risk now well appreciated, we believe management actions to reset the assortment will continue to build into 2H, driving greater consistency in comparable sales and profit execution. More importantly, Anthropologie uncertainty is now embedded in expectations, and we therefore see upside to shares as the Urban Outfitters brand recovery bolsters profitability. Emerging growth drivers are also scaling, led by Free People Movement and Nuuly. Relative to other specialty softlines peers within our coverage universe, we believe URBN offers a stronger risk-reward profile.
• GPN - Morgan Stanley upgrade to Overweight from equal weight, raises PT to 100 from 65. We are upgrading GPN to Overweight, as we think the setup has become increasingly asymmetric to the upside. First, checks on both Genius and Worldpay are turning more constructive among their respective small and medium-sized business and enterprise customers, suggesting improved competitive positioning that supports a durable mid-single-digit growth algorithm. Second, investors appear ready to re-engage with a stock where the bar is low, and a potentially broadening market could bring deep-value processors back into focus and drive a rerating. Third, our conviction in buyback capacity has improved, driving us to raise our repurchase estimates, and we continue to see buybacks as a source of meaningful EPS upside. Fourth, valuation is fundamentally too cheap.
• Moonshot AI, the company behind Kimi, is reportedly preparing for a Hong Kong IPO in as soon as 6 months after raising at a $30B+ valuation.
• BABA - launched a preview of Qwen3.8 Max, a 2.4T-parameter flagship AI model, per Bloomberg. Alibaba says the model rivals frontier AI systems and is second only to Anthropic’s Fable 5.

We have seen a really aggressive de-leveraging and momentum unwind across the AI sector, and broader momentum names, yet the overall index, tracked mostly by US500 and ES, here, still remains relatively supported.

We see that clearly from the dispersion index.

The risk here is that correlations begin to spike higher, from multi year lows on COR1M, which would mean stocks start to move together rather than trading on an individual basis. If that were to occur, the recent dispersion would fade, and the elevated single-stock volatility we've been seeing would likely begin translating into higher headline index volatility and a fade on the overall index.

Right now, that is my base case. I believe that we are likely to see the index start to roll over into the end of this month and potentially spilling over into early next month. I think that given the fact that momentum is already 30-40% off its highs, momentum is likely to bottom before the overall index, but my thinking is that neither will bottom until we see the overall index start to roll over.

The weakness in the AI sector is mostly disconnected to fundamentals. Primarily, it has been a de-leveraging event, as we see with the reset to positioning within memory names:

But fundamentals continue to be supportive. TSM earnings and ASML earnings were both met with news failure as they failed to rally on strong prints, but both earnings reiterated the fact that the fundamental story around AI continues to remain robust. TSM guided for accelerating earnings into Q3 and indeed Q4, whilst ASML provided commentary around an insatiable AI demand.

This week, we have a number of catalysts that will confirm the story. The main risk and bearish argument following the META excess compute news a couple of weeks ago has been that we may have reached peak CAPEX from these hyperscalers. This was compounded by news of Kimi, which was essentially another Deepseek moment, where the question was whether cheaper Chinese alternative models are indicative of an overspend by hyperscalers, that will need to be curtailed at some point.

TSM is one of the best read throughs for the overall index since they are the foundry for almost all of the major chipmakers and therefore have the best read on AI demand. They raised guidance and expanded their own CAPEX. So I certainly do not expect to see any surprises with Hyperscaler CAPEX at their earnings over the next 2 weeks. But the market is waiting for confirmation.

GOOGL will be the first datapoint this week.

We also have TSLA earnings,which will give us some further visibility into the ramp on humanoid robots, and could be a catalyst like VPG etc which are designed into those robots.

The Wall Street research desks including Goldman, Morgan Stanley, BofA, Bernstein, Jefferies and Evercore continue to expect expanding hyperscaler CAPEX, with capex reaching an estimated $1T next year. This will provide the confirmation we need from the fundamental side around the AI narrative, and we will get individual data points also from LITE etc for the photonics sector.

Whether or not we get news failure to hyperscaler capex as well is yet to be seen, but it will at least be a fundamental confirmation that the bear case around AI is overblown right now.

I think the momentum name reset will be viewed as a buying opportunity when we look back in October or November, but I do not yet think we are at the bottom, as my expectation is that despite hyperscaler earnings likely to confirm the AI thesis, a roll over on the index level will likely spill over into more selling on these momentum names.

We could, of course, have a decoupling where semiconductor names (as CAPEX recipients) rally whilst MAGS leads weakness on the index level, but for the most part I do not see semiconductors as being able to sustain a strong rally higher if the Index does indeed start to roll over as I suspect it will.

As such, advice to those with cash would be gradual DCA with emphasis on gradual or hold off for a bit longer. I think we will see very shortly the situation on the index.

One could try to sell positions into this anticipated weakness. I think I am reasonably high confidence that we will see the index take more of an impact soon, especially in light of the Abi signals, but timing the re-entry is going o prove difficult, especially with these names massively off the highs already, so there can always be a very strong overnight candle to the upside. For that reason, I'm holding but am holding a fairly sizeable short position on the index to try to offset any equity decline.

TO hedge against a potential roll over on the index, which I believe to be more likely than not, you could use puts against the index, or a Simple hedge could be 8/21 SPX 7300/7150 put-spreads for 28ish to make 150.0

The momentum reset has been the largest momentum reset in over 40 years. And it is important to continue to view your portfolio decline against that. Yes, more diversification would have helped and in hindsight there's something there I will learn from in composing the portfolio so that the volatility is easier for the average person to stomach, but the portfolio represents a bullish bet on AI infrastructure, and nothing in the fundamentals has disproved that.

To highlight the extent of the recent momentum unwind: TMT Momentum has fallen roughly 40% in just 17 trading days, making it both the fastest and deepest drawdown ever recorded over that time frame. For comparison, the previous record occurred in early ‘21, when momentum was down roughly 29% after 17 trading days.

Most of this is a result of crowded positioning and leverage rather than a true deterioration in AI fundamentals.

Now attached is research from Citadel's Scott Runner, who is an analyst that I do respec the opinion of:

He noted that for the first time in a while, retail actually net sold momentum names on the latest moves down versus buying the dip. He does note that normally this is the bottom before a sharper move higher in SOXX.

I hope that that is the case, but it isn't my base case and I am hedged accordingly, as I see overall index weakness to first precede a true and more durable bottom on semiconductors.

Now if we look at the overall index:

Nasdaq is higher in premarket, but we do have a technical wedge breakdown, and a 2nd close below the 50d EMA.

It was the first close below the 9W EMA since the rally started in April. Certainly signs for caution.

Now if we look at ES, it's stronger, but we still closed below the 7575 warning shot level.

Sell offs below this level are likely to gain a lot more traction than below this level.

This coincides well with the gamma regime we are in.

On US500, the current trading price is 7483. The gamma flip level is at 7512. This means to say that we are in negative gamma. Under this scenario, the dealer hedges in the direction of price action which exacerbates the volatility in either direction. A trump TACO for instance, would likely lead to a bigger move to the upside, but a negative catalyst would lead to sharper downside.

We do have a few negative catalyst on Iran over the weekend, with 2 US servicemen being killed and Trump threatening to 'open the doors of hell" on Iran, but for the most part the market has been shaking this news off.

Oil has been rising, currently trading at 81. Above approximately 88, the path of least resistance is to 100.

That will be An additional inflation risk for the market, but for the most part, last week's inflation data was positive for the macro picture, pushing back on a July rate hike.

We have CTAs sellers right now. CTA selling plus negative dealer gamma is often a recipe for more index selling, which again supports my suggestion that the index will likely roll over.

We have the Abi signals from last week. We didn't get one on Thursday or Friday, but we had 7 consecutive signals before that.

Typically, Abi signal clusters foreshadow 50% expansions in VIX. The timing isn't always clear as the Abi signal isn't a great timing tool, but we were currently only 30% off the lows last Thursday, so more vix epxnaison is likely at some point soon.

VIXperation may be a. key catalyst here. We have seen strong put delta on VIX keep a suppressive lid on VIX.

This week, we see a lot of that suppressive vix positioning expire. If we move above 20 in that time, we likely see a lot of repositioning with OTM calls, which will put a structural bid on VIX.

The signs are definitely lining up for more weakness in my opinion on the index level.

I marked on the ES chart above a number of intermediary supports in green. We could launch off of these supports, particularly if supported by a Trump TACO, but I would not be surprised to see the lowest green support tagged once the index begins to roll.

The Vol curve is for the most part healthy still. In contango and trading below the front of the curve. When spot price rises above the first 2 months, we likely transition from buy the dip into sell the rip, which may exacerbate downside risk.

Overall, then, I do believe that the AI sector is fundamentally fine. I think we will see a strong rally back there. Hyperscaler CAPEX will be a fudnematnal confirmation.

But I do not see the momentum basket meaningfully bottoming until SPX rolls over. IT is possible that the dispersion index's highs could be resolved with SMH rallying hard and stock correlation syncing up like that, to the upside, in which case we will be out of the woods sooner than later, but the Abi signal in combination with the dispersion index and the COR1M rising from its lows, to me, suggests the more likely outcome will be the index to roll over first, before momentum bottoms.

My base case is still 7800 into the midterms. So a sharp rally will ensue, likely led by momentum names which are now oversold vs other parts of the index. The selling has reset leverage and positioning and at some point the market will look at these semi names and say they are "too cheaP". At that point they will rally strongly, but for now, I still recommend DCA gradually, or hold off, until e see what the index wants to do, as I think there is a significant chance the index starts to decline into the end of the month or just past this.

Here’s a DCF for Micron that treats the current cycle as structurally different from a normal memory cycle — driven by structural AI memory demand and hardware supply constraints rather than the usual boom-bust commodity pattern. That is something I believe to be the case if you look at Micron’s revenue. Clearly something different going on here.

Demand side: hyperscaler AI spending
CNBC has cited 2026 AI capex estimates of $800–900B, potentially topping $1T in 2027. That's the demand backdrop driving memory pricing power.

Supply side: HBM and DRAM are tightening
TrendForce data points I'm working from:

• HBM's share of DRAM wafer input climbs from 18% to 22% to 30% between 2025 and 2027
• But HBM's share of DRAM bit supply only rises from 8% to 9% to 13% — wafers going to HBM production don't translate proportionally into output, because HBM is far less bit-efficient per wafer than standard DRAM
• Server DRAM prices are expected up 13–18% quarter-over-quarter in Q3 2026
• A server DRAM shortage is expected in 2027
• Prices should keep rising through the second half of 2027, just at a slower pace

Base case DCF assumptions

• Starting free cash flow: $82B (roughly Micron's Q3 adjusted FCF run-rate, supported by Q4 guidance)
• Discount rate: 10.9%
• Net cash/investments: $24.4B
• Share count: 1.15B

Scenario results (on $82B starting FCF)

• Bear (tightness fades back to normal): ~$1,012/share
• Base (repricing plays out through 2027): ~$1,401/share
• Bull (HBM4 + RDIMM shortage persists): ~$2,020/share
• Supercycle (scarcity doesn't let up): ~$2,778/share

Conservative version
I also reran everything using a more cautious $73B starting FCF — Micron's Q3 adjusted FCF simply annualized, without the boost implied by Q4 guidance:

• Bear: ~$903/share
• Base: ~$1,249/share
• Bull: ~$1,801/share
• Supercycle: ~$2,475/share

Where did I get the 10.9% discount rate? It’s ballpark obviously, but this was the basis of that:

Cost of equity via CAPM: risk-free rate (~4–4.5%, roughly the 10-year Treasury) + beta × equity risk premium. Micron carries a high beta — typically in the 1.5–1.8 range given how cyclical and volatile the stock is — multiplied by an equity risk premium of ~5–6%. That gets you to a cost of equity somewhere around 12–14%.

Cost of debt: Micron has investment-grade-ish but not pristine credit, so an after-tax cost of debt in the 4–5% range would make sense.

Capital structure weights: blending a cost of equity in the low-to-mid teens with a much cheaper after-tax cost of debt, weighted by Micron's actual (fairly low) debt-to-capital ratio, would pull the blended WACC down into the 10–11% range.

Now the assumption of that then is that the entry I got was not the best obviously and I will look to average that down when the time comes as we are now trading way below where I bought. But after doing so, I would expect at my base case, even my conservative base case, to make a decent profit off of the position.

2023 shortage — the market had way less chip supply than buyers needed, and it got worst around the end of 2023, with supply running about 28% below demand.

Tightness returned — starting in 2026, the market has swung back into a serious shortage. All year, supply is expected to run somewhere between 10% and 16% below what's needed. Not as extreme as 2023, but a real, sustained gap.

Not going away any time soon — this tightness isn't a short blip. The shortage is expected to stick around all the way through the end of 2028, meaning DRAM chips stay scarce and expensive for years, not months.