AI Sees Weak Bounce While Anthropic Filing Fails to Resolve Concerns
The AI sector enjoyed a bit of a relief bounce on Monday, but it lacked energy and wasn’t indicative of a turn. The VanEck Semiconductor ETF ($SMH) gained 3%, the data center names improved, and the Roundhill Magnificent Seven ETF ($MAGS) and the Invesco QQQ Trust ($QQQ) were each up about 1%.
Under the surface, things weren’t as good. Breadth was just 47% positive, and there were more than 440 new 12-month lows. The Russell 2000 still managed a small gain, so the rotation hasn’t fully reversed, but this wasn’t the kind of broad buying that signals a change in direction. It looked more like traders covering shorts in the most beaten-down AI names ahead of the big reports than investors deciding it is time to own them again.
What Anthropic’s Filing Shows
There was plenty of chatter about Anthropic, which filed for what could be the largest IPO ever, and about Elon Musk’s comments that the debt markets have shut off for the neoclouds. Neither changed the main issue, but the Anthropic filing puts some numbers on it.
The growth is enormous. Anthropic brought in $16.3 billion in revenue in the first half of the year, up from $1.1 billion a year earlier, and it cut its operating loss to $693 million. But it has also committed to roughly $450 billion of spending on computing power with its tech partners over about the next decade. Anthropic has to pay for that capacity before the demand shows up, and most of its revenue comes from customers who pay only for what they use.
That is the AI funding chain in a nutshell. Amazon.com ($AMZN) and Alphabet ($GOOGL) are investors in Anthropic and two of its biggest suppliers of computing power. They are building data centers that a big customer is paying for, in part, with money it is now raising from public investors. When the economy is healthy and money is easy, that chain works well. When the debt markets start shutting off, investors want to know how strong each link is.
There is also a supply issue. A record IPO is a lot of new AI stock for the market to absorb, on top of SpaceX’s ($SPCX) debt deals and Meta Platforms’ ($META) setup to sell more shares. Some of the money for those deals is going to come from selling AI stocks investors already own.
The Week Ahead
Microsoft ($MSFT) and Alphabet report on Wednesday after the Fed decision, and Amazon follows on Thursday. After what happened to Meta and Tesla ($TSLA) last week, the odds of a negative reaction are high. These companies will talk about spending even more, and the market has been punishing that. There is no compelling reason to buy in front of the news.
Game Plan
I was a net seller on Monday as I continue to wait for better chart development before putting more money to work. I remain optimistic about the opportunities that await, but I don’t want to act prematurely. This week’s reports will produce big moves, and I would rather be positioned to react than guess which way they will go.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre was long AMZN and SPCX.
