AI Trade Looks Pretty Smart, For Now

Just What I Needed
I don’t mind you hangin’ out
And talkin’ in your sleep
It doesn’t matter where you’ve been
As long as it was deep, yeah
You always knew to wear it well and
You look so fancy I can tell
I don’t mind you hangin’ out
And talkin’ in your sleep
– Ric Ocasek (The Cars), 1978

How about those CoreWeave (CRWV) earnings? Whoa. Just what the AI trade needed? I’ll have to let you know, but that’s a definite maybe. I know. I saw it. CoreWeave lost a ton of dough, posting a second-quarter unadjusted loss per share of $1.14. The provider of computing at scale for AI-systems was supposed to lose a ton of dough. The truth is that this bottom-line number absolutely crushed expectations.

On top of that, revenue generation of $2.58 billion also beat expectations and was good enough for year-over-year growth of 113%. CoreWeave now boasts an order backlog of $104 billion as CoreWeave inked more than $25 billion in new commitments during the quarter reported. For this current quarter, the company is guiding revenue toward a range spanning from $3.45 billion to $3.6 billion. Not only does that take the low end of the range above the $3.42 billion that Wall Street was hoping for, but at the midpoint would be good for annual growth of 159%.

What this release does is reinforce the idea that demand for AI-driven services and AI-related infrastructure remains more than robust. This may be exactly what the tech trade broadly, and the AI trade more specifically, needed. I write this piece while most of you sleep. The opening bell is still more than five hours away while I’m working on Market Recon. Overnight, I see CRWV shares trading more than 16% higher. There is also some “pin” action. Along with CoreWeave, I also see data center operator Applied Digital (APLD) up 5.5%, and AI GPU heavy neo-clouds such as Nebius Group (NBIS) and IREN Limited (IREN) up 9% and almost 6% respectively. Yes, IREN is the bitcoin miner turned AI infrastructure provider.

On That Note…

This morning, Foxconn, also known as Hon Hai Precision, reported second quarter profit that grew 35% to roughly or close to $1.9 billion when translated to U.S. currency, beating expectations. Revenue of of NT$2.53 trillion in Taiwanese currency was good for year-over-year growth of 41%. Additionally, the company projected that for the third (current) quarter, which is its traditional peak season, operations are expected to accelerate gradually. The July-September quarter is now expected to see significant sequential growth and annual growth.

Who are Foxconn’s largest customers? You know the names well. When you see Foxconn executing well, there’s a good chance that firms like Apple (AAPL), Nvidia (NVDA), Amazon (AMZN), Alphabet (GOOGL), Microsoft and Dell (DELL) are all at least in part, executing well. Either that or those firms are spending a lot, which is good for the “demand” trade.

Just Passing Through

On Tuesday, U.S. Pres. Donald Trump claimed that the U.S. had taken “total control over the Hormuz Strait.”

Even as both the U.S. and Iran had appeared to harden their respective stances and had increased the demands (for peace) made of one another, the president added, “We own it… and at some point, maybe they’ll do something, and then they get blown away.”

This came after Khawaja Asif, who is Pakistan’s defense minister, told the media, from Islamabad, that the U.S. and Iran were “close to some sort of arrangement.”

Asif did not offer up any detail, but Al Jazeera had reported earlier that negotiations between Iran and Oman regarding the reopening of the Strait of Hormuz to at least some maritime traffic had reached an advanced stage.

On Tuesday, as a U.S. Navy helicopter had to fire two missiles at a Panama-flagged vessel attempting to transit the Gulf of Oman, U.S. Energy Secretary Chris Wright posted to social media that the seven-day average for crude oil leaving the Strait is now almost 9 million barrels per day. This is a figure considerably higher than many traders had estimated. The pre-war average, just for your information, was about 21 million barrels.

Marketplace

I currently see front-month WTI Crude trading with an $82 handle (per barrel) overnight. That’s down from about $84.50 about 24 hours ago. That’s a positive. I also see the U.S. Ten-Year Note yielding “just” 4.67% at this early hour. That’s down from almost 4.74% over a little more than 24 hours. Another positive. Traders and investors need to be cognizant of the fact that the Treasury Department will bring $42 billion worth of new ten-year paper to auction this afternoon. That event will impact debt and probably equity markets.

Speaking of equities, the very recent trend continued on Tuesday. That trend would be sideways to slightly lower price action on dwindling late summer activity. Or maybe activity is dwindling ahead of this morning’s release for July consumer price index. Either way, the stock market has been growing quieter and quieter for about a week now.

On Tuesday, the S&P 500 gave up 0.32%, while the Nasdaq Composite stumbled to a close that was 0.6% lower. The Nasdaq 100 outperformed its larger cousin, losing just 0.33% as the Philadelphia Semiconductors swam upstream, posting a gain of 0.87%. The small and mid-cap indexes also outperformed broader markets, putting together gains spanning from 0.24% to 0.32%.

Breadth

Market breadth was not as weak as one might have expected on Tuesday given the performance of the headline level indexes. It’s true that only four of the S&P sector SPDR ETFs ended the regular session in the green on Tuesday, led by energy (XLE). It’s also true that overall, cyclicals easily outperformed defensive sectors. That’s a market and economic positive and that has been the way of the marketplace of late.

Now, this might surprise a few readers. For the day on Tuesday, winners beat losers by a rough five to four at the Nasdaq and by just a bit at the NYSE. That’s right, winners beat losers across both exchanges. It gets better. Advancing volume took a 53% share of composite NYSE-listed trade, which is good for a majority of the volume. That said, advancing volume took a near-commanding 63.4% share of composite Nasdaq-listed activity. Were markets even down on Tuesday? All of my profit/losses were up for the day.

Again, as has been the case for a week, aggregate trade continues to ebb, across NYSE-listings, across Nasdaq-listings and across the membership of the S&P 500. Moral of the story? Trade the markets, but don’t get carried away or lost in your thoughts. No need to get shaken out of conviction trades while the pros aren’t even playing the game.

I don’t see anything in this chart telling me to run for the hills. Is the dwindling trading volume a sign of caution or is it a sign that some folks are taking some time off? Today’s consumer price index report, tomorrow’s producer price index report and Friday morning’s retail sales could tell us a lot.

Economics (All Times Eastern)

07:00 – MBA 30 Year Mortgage Rate (Weekly): Last 6.81%.
07:00 – MBA Mortgage Applications (Weekly): Last -2.9% w/w.

08:30 – CPI (July): Expecting 0.1% m/m, Last -0.4% m/m.
08:30 – Core CPI (July):
Expecting 0.2% m/m
, Last 0.0% m/m.
08:30 – CPI (July): Expecting 3.4% y/y, Last 3.5% y/y.
08:30 – Core CPI (July): Expecting 2.5% y/y, Last 2.6% y/y.

10:30 – Oil Inventories (Weekly): Last +2.479M.
10:30 – Gasoline Stocks (Weekly): Last -1.643M.

1:00 p.m. – US Ten-Year Note Auction: $42B.

2:00 – Federal Budget Statement (July): Last $-120B.

The Fed (All Times Eastern)

No public appearances scheduled.

Today’s Earnings Highlights (Consensus EPS Expectations)

Before the Open: EAT (3.08)
After the Close: CSCO (1.17)

At the time of publication, Guilfoyle was long NVDA, AMZN, MSFT equity.