Stocks

Key Concepts

• Market Caution: Despite recent recovery (S&P 500 around 607), upcoming economic data (jobs report, CPI) pose risks.
• AI Hardware Demand: High demand for Nvidia chips, evidenced by the Apollo/XAI deal, despite economic uncertainty. Voice AI lags behind text-based AI in performance.
• GLP Commoditization: The market for GLP medications is becoming saturated, negatively impacting companies like HIMS.
• Capex & Financing: Increased capital expenditure by Big Tech may lead to reduced stock buybacks or increased borrowing; strategic bond offerings (like Alphabet’s) offer cost advantages.
• Political Analysis: A “corrupt competence” matrix provides a framework for evaluating politicians, suggesting a baseline level of corruption is inherent in the system.
• Executive Risk: Concerns about executives pledging shares and facing margin calls during market downturns.

Market Overview & Economic Data

The market is showing signs of recovery, with the S&P 500 holding around 607. However, caution is warranted due to upcoming economic data releases, specifically the jobs report (impacted by the government shutdown affecting the usual ADP release) and CPI. Potential catalysts could disrupt the market. Increased capital expenditure (capex) by tech giants like Google, Amazon, and Meta may force them to cut stock buybacks or borrow. Microsoft’s stock was downgraded by Malias Research due to concerns about capex.

Stock-Specific Analysis

• Tesla: A potential “discount shopping” opportunity in the low 400s, contingent on belief in the long-term vision of robotics and robo-taxis.
• Palanteer: Demonstrating positive momentum, rebounding from recent losses, reaching 125.
• HIMS: Experienced a significant downturn due to the commoditization of GLPs, which account for 40% of revenue growth and 10% of subscribers. The speaker believes the sell-off is overdone, especially as the company stopped selling a Novo Nordisk pill after receiving a letter from the company, and suggests a potential investment.
• Roblox: Rebounding, but profitability isn’t expected until 2028, making it vulnerable to economic downturns.
• Microsoft & AMD: Both showing rebounds.
• Oracle: Jumped 9% following anticipation of a $100 billion OpenAI deal, indicating continued demand for hardware.
• Spotify: Analyzed within a paid membership course, showing a strong valuation and balance sheet but negative momentum and uncertain pricing power.

Apollo & XAI Funding Deal

A $3.4 billion deal involves Apollo raising funds to purchase Nvidia chips and lease them to Elon Musk’s XAI. This highlights ongoing hardware demand, even with economic headwinds. XAI’s reliance on leasing impacts margins. The deal is structured as a Special Purpose Vehicle (SPV) – similar to a Blue Owl model – designed to isolate risk, with bondholders having priority in liquidation. The loan-to-value ratio is approximately 64%, meaning bondholders would only incur losses if equity is fully depleted. Apollo projects an annual return exceeding 22% if chips are sold for 25% of their purchase price in 5 years. The speaker is skeptical of the “bare case” scenario of selling chips for raw material value. Apollo is also exploring investments from life insurance companies.

Artificial Intelligence & Technology

Voice assistants (Claude, Gemini) currently underperform text-based AI models (GPT-4) due to the greater computing power required for audio processing, limiting reasoning capacity. This is considered a red flag for Apple’s Siri, even with Gemini integration, due to lower quality audio training data and user impatience with longer response times. Google is strategically issuing long-term bonds – a $15 billion, 40-year bond at approximately 6% interest (1.2 basis points above treasuries) – giving it a cost of capital advantage. Google is also considering a 100-year sterling bond and a Swiss deal. Crypto.com purchased AI.com for $70 million in cryptocurrency, intending to build a decentralized network of AI agents, a venture the speaker views with skepticism.

Other News & Observations

• Lithium: Prices are making a comeback, potentially influenced by Trump’s policies challenging China.
• SpaceX: Elon Musk announced a shift in focus towards building a city on the moon instead of Mars.
• Crypto: Bit Hump recovered 99.7% of mistakenly sent Bitcoin.
• Microsoft’s Super Bowl Ad: Criticized as underwhelming.
• OpenAI: Continues heavy spending.
• Private Credit: Offering high yields (10-12.5%) but also increased risk.
• Immigration & Housing: Concern about the conflict between immigration enforcement and the need for construction workers to address affordable housing shortages.
• Executive Share Pledging: Investors are wary of founders pledging shares due to potential margin calls.
• Cost of Living: A Chipotle burrito cost $37 (with tip), prompting a recommendation for Costco rotisserie chicken as a more affordable option.

Political Commentary

A “corrupt competence” matrix, inspired by a “hot/crazy matrix,” was applied to politicians. Alexandria Ocasio-Cortez (AOC) was placed in the “fun zone” (high competence, potentially varying corruption), Donald Trump was assessed as having lower competence (around a 5 or 6) and a corruption level left to individual interpretation, and Joe Biden was placed with moderate competence and corruption. The speaker posited that a base level of corruption (a score of 4 or higher) is inherent in all politicians.

Conclusion

The current market presents a mixed picture of recovery and caution, heavily influenced by upcoming economic data and the ongoing demand for AI hardware. While opportunities exist in specific stocks (Tesla, Palanteer, potentially HIMS), investors should be mindful of risks related to commoditization, executive leverage, and the potential for broader economic downturns. The continued investment in AI, despite challenges in voice technology, and strategic financing moves by companies like Alphabet suggest a dynamic and evolving technological landscape. A healthy dose of skepticism, both in financial markets and political assessments, is advised.