Alex Zhang

[Warren Pies @WarrenPies]

Despite the nervousness around compute demand ($META), B200 rental rates have shot up over the past week ($5.30 to $5.77 - @Silicon_Data ).

This confirms what we have seen in B200 availability, which collapsed back to 0% a few weeks back (excerpt from @3F_Research H2 Outlook).

[Paradis @ParadisLabs]

Need help building some conviction in your AI names during this market downturn?

Read this post. Bookmark it. Come back to it.

Let Paradis guide you:

In my view, AI names are broadly down for a few reasons:
1. The market viewed $AVGO earnings + guidance as decelerating growth.
2. Hawkish turn from the Fed.
3. A cluster of AI bubble commentary at the end of June.

Please note what's not on that list:
1. Hyperscaler capex cuts.
2. Cancelled orders.
3. HBM oversupply.
4. Collapsing GPU rental pricing, etc etc.

Broadly speaking, absolutely nothing negative has happened on the demand side.

If you strip the whole AI trade down to first principles, it mainly boils into two layers that the market always confuses:

1. Financial stuff e.g. equity valuations, financing loops, neocloud debt stacks, where scepticism is warranted and where some pullbacks are healthy.

2. Physical stuff e.g. wafers, HBM, CoWoS capacity, optics, where demand > supply essentially everywhere.

Nothing's changed on the physical layer. So in my opinion, this sell off is just a reset before hyperscalers guide capex in their upcoming earnings.

But, for the case of this post - let me just stress test the bear case for the AI trade:

Basically everyone's desperate for compute rn.

Total hyperscaler capex guidance for 2026 is near $725B across $MSFT, $GOOGL, $AMZN, $META and $ORCL. Plus the OpenAI and Anthropic compute commitments layered on top.

I think that capex guidance has been revised up by every credible institution over a dozen times this year so far. From Goldmans, to MS, to BofA.

And I am sure that during earnings coming up soon, pretty much all of them will revise their capex forecasts up for 2026 remaining.

It was just a week or so ago, but remember how everyone felt about the $MU earnings? Pretty good, right? HBM sold out...LTAs...growing volumes of locked in demand/pricing.......I could go on and on.

But I feel like the bear case I see most often lately is to do with $NVDA's ecosystem commitments. E.g. their ~$124B spider web of investments + POs across areas like LLM labs and neoclouds.

I'll look at that a bit below, but they exist because fronteir demand is outpacing everyone's balance sheet + ability to fund it.

But first, you MUST realise that the structural driver has shifted in a way that "bubble" doom posters miss/ignore:

- The 2023/24 phase was a training-led capex cycle with lumpy and cancellable revenue.
- The 2025/26 phase is inference and agent led with reliable recurring and usage based revenue.

Inference demand compounds with deployment = so do financials.

This is the transition dark fibre never made in 2000 where telecom infra was built ahead of a demand curve that took something like a decade to actually arrive.

Compared to AI compute that is being built behind a demand curve aka shortages. Shortages are not bubbles!

In 1999-2000, telecom capex was funded by companies burning cash. In 2026, the marginal dollar of AI capex is funded by 5 of the largest cash generation machines ever. They're so well insulated from the capex they're spending that it won't matter in a few years time.

Now, I think we all know that AI names are super crowded.

I've noticed that since joining X where I get people commenting things like "What happened to $AAOI?" and "Do you like $SIVE?" when the names drop 10% in a day from volatility.

But on top of that, you look at data like BofA Fund Manager Survey that shows >80% of managers naming long-AI/semis.

That's a record high for any trade or thematic in the survey's history.

So crowding of this level mechanically deepens drawdowns because everyone's stop is behind everyone else's...it can become a vicious cycle on red days. And it explains why an >10% air pocket can arrive on no company or sector news at all.

Then you've got idiots posting online and going on podcasts saying that the AI trade is just like the internet trade back in 1997.

But as we all know, those internet names like Pets dot com had literally no cash flows and most had fugazi financials.

You just have look at the financials for companies like $SNDK which people also say is a bubble. They seem kinda fine to me? And will be fine going forwards. (Understating it slightly, their earnings will largely all be fantastic)

That being said....

Let me actually give you signals to look for that'll actually change my mind on whether I have conviction or just blind faith in the AI trade:

1. Capex cuts from hyperscalers rather than a deceleration in growth.
2. GPU rental spot pricing declining sustainably rather than plateauing.
3. HBM contract pricing rolling over while supply agreements get renegotiated.
4. Neocloud credit spreads gapping to distressed levels.
5. Fronteir labs like Anthropic/OpenAI seeing MRR's decline or stall.

These are probably the big five "tripwires" + none have been triggered so far. I don't see any being triggered for the forseeable future.

But all you need to know for a TLDR bull case for the AI theme is:
- demand for compute remains supply constrained.
- hyperscalers funding the capex are cash flow generative machines.
- valuations for high quality names from $SNDK to $MU to $AVGO to $NVDA are stupidly low.

On top of everything else mentioned here (I could keep going but I'll save you from reading more of my ramblings/rants).

That being said, in my view, there's certainly a case to rotate into higher quality names rather than random upstream shitcos.

I've mentioned this many times over the past couple of weeks.

From 2025 to early Q2 2026, you could basically long almost any name that had some sort of ties to AI and it'd go up 100% in weeks. $POET and $IREN come to mind.

I personally think being a little more selective going forwards will be more crucial, and financials will matter a lot more than going long a name that just falls in the AI bucket.

[Alex Zhang @zhangarang]

@John__Ferguson Thanks, seems like July 4 could be even bigger!

[Alex Zhang @zhangarang]

@John__Ferguson How were things during Memorial Day? Was pretty surprising to see such material follow thru post DOT week

[RiverRoadPartners @partners_road]

Best advice I got from Steve Cohen: Always stay on offense. To do that, you need positive P&L & a ruthless ability to cut losing positions quickly. If you don’t, you play defense. D ends up taking all of your time & you miss opportunities b/c you aren’t looking. Stay on offense.

[Nicolas Bustamante @nicbstme]

https://t.co/v7sot4WCI2