South Korea’s Ants Renew AI and Data Center Pressure: 8 Key Items Shaping the Stock Market Tuesday

These are the early headlines and other items poised to influence the market at the start of trading Tuesday. As we share this collection of market drivers, U.S. equity futures point to another mixed start to the trading day.

1. Oil prices rose Tuesday, with December futures for both West Texas Intermediate and Brent crude crossing $100 a barrel as traders weighed persistent Middle East supply risks, including attacks on shipping through the Strait of Hormuz and Houthi strikes on Saudi Arabia… Record tanker freight rates are also adding to transportation costs, according to ING. Allowing sanctioned tankers into the regular shipping market could help lower freight rates, although the amount of additional capacity and how quickly it could become available remain uncertain… (WSJ) The International Energy Agency ‌is ready to coordinate more emergency oil releases by member countries if needed, its boss said on Tuesday, while it spurs the release of diesel under existing plans to help cool surging prices… Global diesel markets could remain tight well into ⁠next year, with resulting high prices driving inflation, the IEA said in its most recent oil market report. (Reuters)

With the quarterly earnings season kicking up a notch today, our eyes and ears will be open as company management teams discuss the impact of higher input costs and the degree to which they will use incremental price increases to protect their bottom lines. As we do this, we’ll be connecting the dots back to the Portfolio’s holdings and surmise the incremental impact on consumers and their spending.

That brings us to our next item…

2. European airfares will see their “biggest increase in history” next year, CEO Michael O’Leary said on Tuesday, with airlines largely unhedged against higher jet fuel costs… “Boeing are hoping to have the MAX 10, the new aircraft, certified before the end of October … We’re pretty optimistic that that date will be hit,” (Reuters) US Transportation Secretary Sean Duffy is expected to announce on Tuesday that the Federal Aviation Administration has approved the Boeing 737 MAX 10 during a visit to Washington State, sources briefed on the plans told Reuters. (Reuters)

Ryanair (RYAAY) CEO O’Leary’s warning on airfares isn’t likely to blow anyone’s hair back, and we’ll look to see what Alaska Air (ALK) and United Airlines (UAL) has to say on airfare pricing when they report after today’s market close. As we do, we’ll be mindful of the flow through to CPI data in the months ahead.

The second part of O’Leary’s comments, about expected certification for Boeing’s (BA) 737 MAX 10 aircraft, and the indication by Reuters reaffirms the move we made yesterday to pick up additional shares of the aircraft company. When we listen to this morning’s earnings call from GE Aerospace (GE), what it says about engine demand for commercial jets and plans to ramp that up will be among our points of interest.

3. Shares in a South Korean data centre builder sank by nearly a third on their first day of trading, adding to growing investor concern about valuations in the AI sector. Elice’s weak performance came amid a continued sell-off of semiconductor stocks in Seoul as investors continued to fret about the durability of AI spending… With financial backing from venture capital firms such as Vertex Ventures and Altos Ventures, Elice intends to use the IPO proceeds to expand its domestic AI data centre operations and expand globally. (FT) It represented an abrupt downturn after the company raised 201 billion won ($151 million) in an initial public offering priced at the top of the marketed range, with the retail tranche 400 times subscribed… Elice was able to generate demand among South Korean retail investors, who poured roughly 10.3 trillion won into subscription deposits in hopes of buying shares. The stock’s plunge sent shockwaves across South Korea’s retail investment community, known as ants. (Bloomberg)

The pronounced drop in Elice shares, in our view, showcases the anxiety rippling through what folks have come to refer to as the “AI trade.” As we’ve seen before, FOMO and other factors cut both ways, and in the case of Elice, we are seeing that reflected of the “Extreme Fear” reading being flashed by the Fear & Greed Index.

Earlier this year the so-called “ants” piled into Samsung (SSNLF) and SK Hynix (SKHY) shares and those for single-stock ETFs, racking up margin loans to do so. A subsequent crash and margin calls followed a market selloff in early June. In our view, this emotionally driven trading is another factor keeping the market volatile, but as we’ve seen in the past that can bring opportunity for those of us that stick to following the data.

4. ByteDance, Alibaba and Tencent have ordered more than 3 million of Nvidia’s new RTX PRO 5500 graphics cards with a collective sticker price of over $35 billion, two people familiar with the matter said, in a rush for a less powerful but export-compliant chip amid US restrictions on trade with China. US-based chipmaker Nvidia has told customers and partners it cannot guarantee that it can fill the orders because demand from Chinese technology companies far exceeds planned production… One source said Nvidia told partners they might receive only 5% to 10% of the quantities requested. Another said the company had indicated it could produce no more than 3 million RTX PRO 5500 ⁠cards globally in 2027. Total orders from customers in China have exceeded 6 million, two of the sources said. (Reuters)

The above is another data point that speaks to strong AI and data center chip demand, but reading between the lines reaffirms the degree to which Nvidia (NVDA) is running flat out and capacity is constrained. It also speaks to the demand opportunity for companies such as Marvell (MRVL), Broadcom (AVGO) and others given that capacity constraint but also because not every instance calls for bleeding-edge AI chips.

5. OpenAI is racing to secure investor commitments before rival Anthropic’s expected public market debut in mid-November, in an unusually fast fundraising that could value the ChatGPT maker at over $1.4 trillion, according to two people familiar with the matter. The rapid timetable reflects, in part, a desire to get ahead of Anthropic as the two frontier labs are increasingly tapping in to a similar investor base, the people said, adding that OpenAI wants to capitalize on its recent revenue growth after launching new models. (Reuters) Nscale Ltd., the AI cloud computing firm, is in talks to sell computing power to Anthropic PBC in a deal that could be worth about $45 billion, according to people familiar with the negotiations. The Nvidia Corp.-backed data center developer is seeking a second major deal with the firm behind Claude for a second facility at its Monarch data center campus in West Virginia, the people said. (Bloomberg)

Given recent headlines surrounding Anthropic as well as the dueling nature between the two, you should not be surprised OpenAI is angling to complete its latest fund raising round ahead of Anthropic’s IPO roadshow. Our take is these funding rounds as well as hyperscaler results and guidance this week, and in the coming few, have the potential to reinforce AI adoption and usage expectations. The key will be for those companies to also show they are starting to better monetize AI as previous spending on cloud and data center capacity comes online.

We’ll get our first taste of that tonight when SpaceX (SPCX) reports its quarterly results, followed by results and guidance from Meta (META) after Wednesday’s market close.

6. As Waymo expands into new cities with its self-driving cars, the company plans to use the $5 billion it recently borrowed to massively increase its fleet. The company, which currently has 4,000 cars, is looking to bring its total number to 8,000 by the end of the year and grow to 20,000 by the end of next year, according to people familiar with the matter… Waymo, which operates in 15 US cities, is also bringing its rides to locations such as Toronto. Waymo recently opened a facility in Nashville in partnership with Lyft to charge, clean and maintain cars. (Semafor)

We’ve expressed our longer-term view about how the adoption of autonomous driving will be another catalyst of data center and network capacity. Granted, on its face, the move from 4,000 autonomous cars to 20,000 by one provider will only modestly move that needle, but it’s the reception to that 20,000 we’ll be tracking. We’ll also be interested in the comments from Tesla (TSLA) management on the autonomous driver landscape when it reports after the market close on October 21.

7. Economic data today per TipRanks: ADP Employment Change (Weekly), Housing Starts & Building Permits (September), Pending Home Sales (September).

8. Companies reporting today per TipRanks: AM – 3M (MMM), Ally Financial (ALLY), GE Aerospace (GE), General Motors (GM), Genuine Parts (GPC), Halliburton (HAL), Hasbro (HAS), MSCI (MSCI), Northrop Grumman (NOC), Philip Morris International (PM), RTX (RTX), Synchrony Financial (SYF). PM – Alaska Air (ALK), Capital One (COF), Netflix (NFLX), SpaceX (SPCX), United Airlines (UAL).

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At the time of publication, TheStreet Pro Portfolio was long AVGO, BA, META, MRVL, and NVDA.