AI Funding Worries Ease and Buyers Show Up
Meta’s offering and Anthropic’s IPO filing answered questions about where the money will come from.
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Tuesday turned into a solid day for the market. Breadth finished around 59% positive, and the AI-related names rebounded strongly. The Invesco QQQ Trust (QQQ) gained 1.3%, the iShares Russell 2000 ETF (IWM) rose 1% and the SPDR S&P Biotech ETF (XBI) jumped 2.8%. Speculative action improved nicely, and by the close there was a long list of smaller stocks up more than 10%.
That was a big change from Tuesday morning. At midday, I wrote that my scans were nearly empty and almost nothing was trading at its high of the day. The afternoon is when the buyers showed up, and they showed up in both tiers of the market. Monday’s bounce was confined to the AI names while most stocks went nowhere. On Tuesday, the AI names and the rest of the market moved up together.
Funding Question Gets an Answer
The Meta Platforms (META) offering, combined with the Anthropic IPO filing, seems to have helped the market discount concerns about how all this capital spending gets funded. Plenty of concern remains about the level of debt involved. But companies are finding ways to get the cash they want, whether Broadcom (AVGO) guarantees loans for Anthropic or Meta sells stock, and that brought in some buyers on Tuesday.
Markets struggle with uncertainty. For weeks, the question was whether the money would be there at all. Now investors can see the terms. They may not like how much debt is involved or how much new stock is coming, but a known cost is easier to price than an unknown one. Once a worry is out in the open and quantified, it tends to lose its power to drive the selling.
That doesn’t resolve a bigger issue. Knowing the AI companies can raise the money is one thing. Knowing that all this spending will produce a return is another, and that is the question Microsoft (MSFT) and Alphabet (GOOGL) face when they report after the Fed decision on Wednesday. We still have the risk of negative reactions to these reports.
However, the market is grappling with the capital spending issue, and that is a positive. For months, investors ignored the cost of the AI buildout and paid up for the growth. Now they are working through how it gets funded, what it costs and who can afford it. That process is painful, but it is how worries get resolved. A market that is confronting its biggest concern is in better shape than one that is pretending it isn’t there.
Game Plan
I watch for improvements in speculative action because it shows that traders are willing to take on risk again. One afternoon isn’t enough to change my approach with the biggest reports of the season still ahead. I’m keeping my cash levels elevated and staying ready to act on the reaction to the news, but today was a good reminder of how quickly conditions can shift once the selling pressure eases.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
