VIDEO: Anthropic, Apple and Inflation Set Up Pivotal Week for the Market

Broadcom (AVGO) CEO Hock Tan’s warning that a capital crunch could become the biggest constraint on AI development is taking some air out of the AI infrastructure trade on Monday. But Chris Versace says it may not be the whole story, and Wednesday’s Anthropic pre-IPO analyst day could help reframe it.

In this video, Chris connects the dots across a busy week: Apple’s (AAPL) smart home event, the big bank earnings kickoff, Taiwan Semiconductor’s (TSM) earnings, and September CPI and PPI. He also shares why ASML’s (ASML) price hikes could be a positive catalyst for Applied Materials (AMAT), and why Meta’s (META) Muse retention data matters for the investment mosaic.

Watch now, then bring your questions to Portfolio Office Hours at 4 p.m. ET in the forum.

Transcript

Hey everybody, Chris Versace here on Monday, October 12th. Happy Columbus Day to all those who celebrate. And if you don’t, it also happens to be National Savings Day, National Pulled Pork Day and National Gumbo Day. No, I am not making that up. For me, today was also get-your-flu-and-COVID-vaccine day. No judgments on that; I have a lot of travel coming up between now and the end of the year, and I want to be protected. So far, so good on that front, with no impact from the vaccines, but we’ll see.

Before we get underway, I also want to share that we’re back to business as usual on Mondays. That means our latest Portfolio Office Hours will be coming to you later today at 4 p.m. ET in the forum. You bring the questions, and I’ll bring the answers for the 60 minutes or so we’ll have together.

Now, as far as this week goes, it’s a very big one for us. We talked about some of this in Friday’s Weekly Roundup and touched on more of it this morning in our 8 Key Things Moving the Market. If you happened to miss those, don’t worry, that’s what I’m here for.

So, what do we have? Apple’s “Welcome Home” event is tomorrow, where it’s expected to showcase updated products as well as its push into the smart home. Check our comments from this morning: there’s some speculation that Apple might be doing something with ADT, but as we mentioned, ADT has an investment from Google, so that may not be the case.

We also have Anthropic’s pre-IPO analyst day on Wednesday. That’s going to be a big day. Hopefully, we’ll learn more about where Anthropic sees its revenue, profits and cash flow going, and how it plans to expand its business. Remember, OpenAI just rolled out visual ads in ChatGPT to help spark advertising revenue, so we’ll be looking to see what else Anthropic has to say. We’ll also want a read after the event on the timing of the IPO. The roadshow is expected to kick off sometime in early November, with Anthropic tentatively coming public before Thanksgiving.

I think the Anthropic event and the reaction to it will be especially important to watch, not only for the IPO market, which I’m sure we’ll hear plenty about over the next two days as the big banks report, including our own Morgan Stanley and Bank of America. We also want a better handle on what Anthropic sees in terms of incremental capacity needs and what that means for AI infrastructure. I’ll talk more about AI infrastructure in a moment.

Rounding out the rest of the week, we have September CPI and PPI. In last week’s roundup, we discussed how the September PMI data from ISM and S&P Global suggests we’re going to see a step-up in those numbers. The market is expecting that, but to the extent the figures are substantially stronger, that could jolt the market into reconsidering the probabilities for an October rate hike. It’s really going to depend on the data, and we’ll be watching and breaking it down. We also have earnings from Taiwan Semiconductor and a few other companies we’ll be paying very close attention to. And that’s all before any new developments between the U.S. and Iran, or anything new on the diesel front.

So it’s going to be a busy week, and you’ll want to make sure you’re checking back in with us. As we begin a week that’s likely to grow in intensity, the market today is mixed. Some of the tech names that have been driving the market, particularly in AI infrastructure, are trading off, while others in our portfolio, such as TJX, Welltower and Waste Management, are moving nicely higher. A couple of other portfolio names are doing the same.

Why the weakness in AI infrastructure? As we pointed out in this morning’s 8 Key Things, Broadcom CEO Hock Tan commented that a capital crunch could become the biggest constraint on AI development. Candidly, that’s not surprising. If anything, I’m surprised no one has said it before. We’re seeing many of these companies try to raise substantial sums of money, and we’re seeing a lot of cross-company investments. And when we step back and consider the demand picture, Nvidia says revenue will be up 70% next year but it is capacity constrained, AMD said something similar last week, and there’s Marvell’s multi-year forecast, along with capacity shortages in components, power and other parts of AI infrastructure.

Because AI infrastructure has been carrying the market higher of late, it’s not surprising to see Hock Tan’s comments take a little air out of that balloon. But as I mentioned, what Anthropic has to say later this week, along with Taiwan Semiconductor’s earnings, capital spending figures and fourth-quarter guidance, will be important in helping reframe what we’re seeing today.

This is nothing new, but we’re going to continue to focus on AI adoption and usage metrics. To the extent both are rising, that’s a positive, but I especially want us to focus on usage. I keep going back to the analogy of an internet connection compared with all the things we do on the internet today. I still think that’s the best way to look at AI, especially as we move into agentic AI, whether we’re talking about OpenAI’s Dots or Meta’s Muse.

One metric I saw over the weekend related to Meta’s Muse was interesting. According to Sensor Tower, Muse has crossed 6.6 million downloads, which is a pretty good pace, not the fastest, not the slowest. As we’ve discussed, downloads don’t necessarily tell us people are using an app, so it’s hard to pull much useful information from them, though they do indicate interest. Far more telling are user retention rates. Sensor Tower data shows that more than 30% of Muse users returned after seven days, and 14-day retention was around 22%. Those figures are not far off ChatGPT’s and are more than double Grok’s. Are they below WhatsApp, Google and Instagram? They are. Still, in our view, these are favorable metrics, and they tell us people are starting to use Muse more consistently. That’s a good thing, and we’ll keep monitoring it.

In addition to the Sensor Tower data, we’ll continue mining the various signals we share with you to track overall AI usage across industries and sectors. And over the next several weeks, Q3 earnings season will give us a treasure trove of potential commentary on where companies are adopting and, more importantly, using AI. Are they seeing productivity or other benefits? Are they allocating more capital toward AI? Those are some of the things we’ll be listening for.

That begins tomorrow and continues Wednesday with the big banks: JPMorgan, Goldman Sachs, Citi, Morgan Stanley and Bank of America. Bank of America in particular, because on its earnings calls it likes to share what it’s seeing in productivity versus headcount, and it tends to talk quite a bit about how it’s leaning into technology. That effort will carry through the next few weeks, leading up to the last week of October, when Alphabet, Microsoft, Amazon and Meta report quarterly results and update their guidance.

In those reports, we’ll want to hear about rising AI adoption and usage, but also monetization of their AI and cloud businesses. If monetization and margins continue to move higher, it will give us another vantage point on AI adoption and usage, and it should help calm market nervousness about hyperscaler spending and their balance sheets.

As we connect those dots, we’ll also be looking at other indications of AI infrastructure demand, especially for chips. The chip stocks are pulling back today, and we’re seeing a bit more pressure on shares of Applied Materials. It’s not lost on us that over the last week, the shares are not quite down 10%, but they’re getting closer.

However, we’re also reading in industry reports that ASML, one of Applied Materials’ competitors, is looking to raise prices by 10% across its replacement parts, especially in South Korea. Following that spare parts hike, prices for newly ordered ASML equipment are also likely to increase. We see this as a big confirmation of the supply-demand imbalance afoot in the chip sector. In recent months, we’ve talked about how tight chip capacity would likely give way to higher chip equipment prices and what that would mean for margins, including those of Applied Materials. We see this as a potential positive catalyst for the shares, and it gives us another specific agenda item for when ASML reports on Wednesday.

As for Applied Materials, the shares have passed through their 100-day moving average, and we’re now watching them relative to the 50-day moving average. I’ll share that we do have a wee bit of room to add to that position. There are a few others we’re eyeing as well. On our last Office Hours, members asked about the Health Care Select Sector SPDR ETF and the ROBO Global Robotics & Automation ETF, and yes, we’re still interested in those. There are one or two other portfolio names we’re kicking the tires on for additional shares. And, not to keep teasing this, we’re continuing to do more work on SpaceX. We’ll have more to say on that soon. Don’t expect it in the next day or two, and candidly, not this week, but before too long.

So, my friends, with a busy week ahead, stay on top of your emails and alerts as we dig through everything that’s coming, share our views and tie it all back to the portfolio. Thanks for watching, and have a great day. And remember, Office Hours is at 4 p.m. in the forum. See you there.

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At the time of publication, TheStreet Pro Portfolio was long AAPL, AMAT and META.