Per @JamesCarville “as the bond market. You can intimidate everybody.” Entire Yld curve from 3m to 30yr hit new 52wk or multi-decade highs. 10yr +15 bps to 5.11%. I continue to advocate not fighting the Fed, bond mkt or seasonality, especially leading up to mid-terms on Nov 3rd.

While oil & equity mkts were flattish last wk, bond ylds hit multi-decade highs in different countries as central banks raised rates. While AI frontier model pacing was initially a concern, that faded by Friday. I expect the upcoming wk to be challenging. I have some simple portfolio rules including: 1) Don’t Fight the Fed: hiking cycle seems to have begun 2) Don’t Fight the Bond Mkt: Multi-decade highs in ylds 3) Don’t Fight Seasonality: Sept is worst month for hit rate & returns with mid-term yrs even worse These rules influence how I think about leverage, the ratio of long positions versus short positions, and individual position sizing. Investing is hard enough without fighting headwinds. As Warren Buffett (a remarkable 61 year run came to an end last week) has said, the market has to keep pitching but you do not need to swing. For AI, the battle lines seem to be drawn. OpenAI and Anthropic are pushing for regulatory capture while $NVDA & $MSFT are pushing for better testing before models are released. I’m in the latter camp. No product from any company should be released before it is safe. AI related companies focused on the potential bullish implications in case there was model innovation pacing including: 1) Focus on security 2) Resources deployed for testing 3) Potential for any training slowdown offset by limited hardware capacity being deployed to the infrastructure layer The SOX index, a representation of the infrastructure layer, rallied 0.8% last week with $IGV (the software ETF) also up 2.8%. Software was led by the security names, the $HACK ETF was up 8.0%, despite the 0.1% decline in the S&P. Longer-term, my view is that companies do not need the most advanced models for 90% of their workflow and usage will increasingly go towards open weight models. I believe that ultimately the LLM layer is likely to become commoditized. As an example, the ASP per token peaked in late May and has gone down ~50% since then while the number of tokens produced has gone up by ~4x. This is Jevons paradox in action. This should also be supportive of the infrastructure layer. As the model layer becomes increasingly commoditized, I believe the winners will be those that have the following attributes: 1) strong open weight models 2) distribution capability 3) training data 4) base business that is highly cash flow generative I believe the following companies have the attributes above to varying degrees: 1) $META (Muse from Meta is the #1 free app on the Apple app store with ChatGPT #2), 2) $GOOGL (I expect a new frontier level model soon that should help the stock) 3) $MSFT (Co-pilot might be the "safe" way ~450M M365 enterprise users choose to access AI. But their 27% ownership of OpenAI does concern me and they do not have the wealth of training data that Meta and Google have.) Earlier this year, the advent of Agentic AI increased token production by 10-100x. This should keep demand strong for the semiconductor portion of the infrastructure layer. Given the escalating geopolitical tensions over the weekend and its potential impact on oil/bond yields, this could prove to be a challenging week: 1) Ukraine fired over 1,000 drones at Russia, including "largest ever" attack on Moscow 2) There was a missile attack on Riyadh for the first time since July On a positive geopolitical note, hopefully something constructive comes from the meeting between Presidents Trump, Xi and the attending business leaders on Wednesday. All the best in the week ahead.

Former OpenAI researcher Diogo Almeida @CompleteSkeptic just released a model that 1) uses parallel processing to cut costs by ~450x & improves speed by ~200x, and 2) provides confidence scores on the answer. This should be another big advancement in Agentic workflows.

Last wk, oil +9% & ylds +11-26 bps across 2/30 curve w/ S&P/Nas/R2K -0.3%/-0.7%/-2.4%. This wk, I am watching reaction to 1) oil/rates, 2) calls to slow down AI development & 3) Fed on 9/16. I remain on the cautious side till US mid-terms on 11/3. This weekend, the CEO of Anthropic called for a slowing of frontier model development over safety concerns. This follows comments along similar lines by the CEO of OpenAI to employees last week if other companies were willing to do the same thing. The fundamental issues I have with this is 1) foreign adversaries would welcome the US slowing down AI development, 2) I view this as an attempt to slow down open-weight model development which would help the market dominance of OpenAI and Anthropic which are currently in the lead and 3) I do not see other companies agreeing to anything that slows down progress catching up to these two market leaders. Having said that, I could see 3rd party evaluators to limit liability risk going forward and some sort of executive order from the White House. But I hope the longer-term result of these actions is broadly distributed personal AI capabilities for all individuals versus having it become concentrated in the hands of a few companies. Along this vein of AI competition, after releasing their paid API of Muse Spark 1.3 two weeks ago with open-weight versions coming later, $Meta launched their personal AI agent Muse last week with the stock gaining 5%. With 3.6 billion daily active users, a hit product could yield large results. Meta is increasingly showing other ways they can monetize their AI capex spend. This should help the stock to re-rate from a 17x CY27 PE to a multiple closer to peers trading in the low 20s. Meta Connect on September 23–24 is another potential catalyst given their leading frontier model Watermelon should be coming at the latest by October. On the front of broadly distributed AI capabilities, $AAPL stock gained 4% last week on their new product launch. The foldable Duo will provide a personalized AI agent in your pocket with a 50% larger screen than a Pro Max. I continue to see a big upgrade cycle next year. The change from a 4” screen to 5.5” screen with the iPhone 6 drove revenue growth from 7% in FY14 to 28% in FY15. The Android ecosystem has had a foldable Samsung phone since 2019. As for the Fed on Wednesday, I believe Warsh will raise by 25 bps and echo his hawkish statements from Jackson Hole on August 28th that “Price stability is not self-executing… 65 months of sustained, elevated inflation sits squarely with the Central Bank.” The ECB statement last week when they hiked might provide some hints: “For inflation excluding energy and food, the baseline foresees 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028. Compared with June, the baseline projection for inflation in 2026 is unchanged, while it has been revised up for 2027 and 2028… The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth.” In summary, my caution between now and the US mid-terms on 11/3 remains for reasons I have fleshed out in prior posts including: 1. Don’t fight the Fed: The market historically under-performs during a hiking cycle with the bond market discounting 2 raises by year-end and 3.5 raises by mid-June of 2027. 2. Seasonal headwinds: September is down -0.5% on average and up only 48% of the time since 1957. 3. Historical volatility: S&P drawdowns of 10% between 7/31 and 11/9 have occurred in the lead-up to mid-terms since 1990. 4. Regulatory friction: There is bipartisan pushback against datacenter expansion that could hurt the AI buildout in the near-term. 5. Geopolitical risk: Despite US efforts to de-escalate, I believe Iran drags out hostilities at least through the 11/3 US mid-terms, keeping oil prices elevated. 6. Macroeconomic pressure: Long-term government bond yields are hitting multi-decade highs for several countries, slowing down growth and providing a reasonable alternative to stocks. I believe in not fighting the Fed, the bond market or seasonality. I like the odds stacked in my favor which should improve at least seasonally following the mid-terms.

CPI has likely changed the debate from if Fed will raise to how many times. Last “one & done” was during internet buildout in Mar-1997 to 5.5% vs only 3.75% today. Bonds now pricing in 2 hikes this yr & 3.5 by Jun-2027. But W.H. wants rates lower. No win situation for Fed nxt wk.

S&P resilience has been impressive given Iran w/ Brent back over $100. But US Treasury buying back only $6B today in long-dated bonds after threatening to use TGA which has ~$900B has sent 5/10yr bond ylds to new 52wk highs & 30yr threatening multi-decade highs. Straw meet camel?

Last wk despite WTI +10% & ylds +2-7 bps across the curve, S&P/Nas/R2K +0.1%/+0.4%/+0.1%. $NVDA acquisition of Hugging Face & $Meta release of Muse Spark 1.3 last wk make both names more attractive into year-end. My view is that LLMs increasingly bifurcate into 90%+ usage of open-source/ open-weight models in the future as companies optimize the right models for the right task. Since the focus on controlling AI expenditures, the Silicon Data token cost has fallen over 50% since late May but the weekly usage of tokens in models across OpenRouter has increased by 3.6x over this same time. In addition, enterprises are increasingly focused on making sure their own proprietary data does not leak out when they use third party closed frontier LLMs. Hugging Face is the premier central collaborative platform, repository, and toolkit for open-source and open-weight AI with over 18 million developers. Nvidia has three customers that accounted for 44% of their revenues over the past six months and their largest customers are increasingly designing their own ASICs and in some cases selling them externally. A more diversified customer base that owns their own AI compute stack instead of renting from the big cloud service providers would help Nvidia with both of these issues. With this acquisition, Nvidia is in an even better position to sell enterprises a complete alternative AI stack (from the model to chips) where the customer will own their own data. Valuation is also compelling. Nvidia trades at a 15x CY27 PE versus their own guidance for 70% revenue growth and the Big 3 public cloud service providers at 21-23x for 15-26% total revenue growth. The S&P trades at 19x for 9% revenue growth for comparison. Nvidia is also up “just”24% versus the Semiconductor Index up 66% following underperformance last year at up 39% versus 42%. As for Meta, the stock is down 7% year-to-date after being up just 13% last year driven largely by concerns that 1) they can only monetize their near doubling in AI capex spend through efficiencies in their own business and 2) they were falling behind in the AI model race. The launch of the Muse Spark 1.3 API last week, catapulted Meta back to near frontier status (Top four in the Artificial Analysis Intelligence Index out of 10 models) but with aggressive token pricing (Bottom four in Cost per Task.) Open-weight versions of the Muse Spark lineup are coming soon. This will give the company another way to monetize their aggressive capex plans. This follows Meta's settlement in late August with state AGs on their youth addiction trial which was another overhang on the stock. Trading at 16x CY27 PE for 20% revenue growth is compelling with the settlement and Spark 1.3 launch as catalysts. From a broader market perspective, I recommend caution between now and the US mid-terms for reasons I have fleshed out in prior posts including: 1) Don’t Fight the Fed given I believe a 9/16 hike is likely 2) September -0.5% on avg & up only 48% of the time 3) S&P drawdowns of 10% in lead-up to mid-terms 4) Bipartisan pushback against datacenter expansion 5) Iran dragging out hostilities through US mid-terms

August NFP 162k vs 55K expected & 2m revision of +55K. IMO, odds favor Fed hike on 9/16 as a result. Even if CPI on 9/11 lower than expectations, inflation has been above 2% target for 65 months. Hike could also help cap rising 10/30y ylds which is long-term more important. To me, it is hard to argue that 2% inflation is in fact is a hard target when it has not been there in over 5 years and the last six rate changes have been to cut rates starting 2 years ago. A rate hike is likely to help the Fed’s credibility going forward. Finally, I doubt the Fed wants to risk having to raise rates on 10/28 given US mid-terms are only a few days later on 11/3. Given the political pressure on Fed independence, risking the need to do a rate hike that close to the election is probably something they would like to avoid given the likely political backlash.

Last wk, SPX/Nas/R2K +0.5%/+0.8%/-1.5% w/ oil -4%. But a hawkish Warsh on Friday led to a bear flattening of the yield curve. Despite $NVDA guide of 70% CY27 rev growth vs consensus of 47%, SOX Index -2.3% while software $IGV +5.9% on solid earnings. In general, many AI investors have been bullish on semiconductors and bearish on software on the belief that AI will displace many point solution software companies. This is why the SOX index is up 62% YTD and IGV is still only up 4% YTD versus the S&P +13%. Situational Awareness was the poster child for this type of positioning. But since the unwinding of the Momentum trade which started on 6/22 (I wrote about these concerns on 6/20), IGV has rallied 25% while the SOX Index has declined 22% through 8/28. For perspective, the Morgan Stanley Momentum index (momentum long performance minus momentum short performance) from 6/22-8/28 is down 36% while their more concentrated TMT index is down 54%. But a bullish twist on AI for the software sector introduced recently is that AI agents will access software tools ~10-100x more often than humans. On 8/6, $TEAM, which was in the bucket of software names widely considered at risk of being replaced by AI, rallied 35% the next day in reaction to solid earnings & outlook. Then on 8/13, $WDAY rallied 18% on the news that private equity firm Silverlake might be pursuing an acquisition which I wrote probably put a floor underneath software. Workday was also supposed to be in the AI crosshairs and private equity has higher bars to clear given their use of leverage and holding period than a typical investor. Then on 8/26, $CRM reported solid results, guidance and a deal with Anthropic (in which they also first invested in May of 2023.) The stock was up 23% in reaction the next day. This seemed to be a strong counterpoint to the SaaS-pocalypse worries. This strategic alliance allows users to execute actions natively inside Claude without needing to open traditional software screens. Salesforce also seems to be changing how they charge customers with fees more related to customer use and benefits to their business. Then on 8/27, Workday reported results which were good enough but arguably acquisition prospects drove more of the stock reaction of +6% the next day from the slightly down opening price. Historically, system of record, security and gaming software have been the only three areas I have liked within software. I now wonder whether the fundamental implications of Atlassian, Workday and Salesforce are supportive of the technical reactions in the software stocks as a group as agentic AI continues to ramp. So how do I square this with my concerns that the rapidly escalating amounts spent on AI by corporations has to come from somewhere? Annualized revenue run-rates for Anthropic and OpenAI have ramped from $29B to start the year to $105B just 7 months later. Software spending globally excluding AI was roughly $1 trillion in 2025. But IT services at $1.7 trillion is a bigger category which I believe still has risk. And finally, knowledge worker compensation is an even bigger category where disruption would be even less noticeable at an estimated $35-50 trillion in 2025 or roughly 30% of the global workforce. Looking forward, the deal on Friday for Venezuelan oil fields that hold the largest crude reserves in the world at 17-18% should get us off to a positive start to the week with declining oil prices. But a bit further out: 1) “Don’t Fight the Fed” given I believe a hike is likely on 9/16 because the 10/28 mtg is right before mid-terms, 2) September has the poorest seasonality of all months, 3) there is even worse seasonality than normal during mid-term election years (see prior posts for more detail) and 4) recent bipartisan pushback against datacenter expansion (one of the few things both sides seem to agree on though I believe this is wrong and hope it will change with more education) puts pressure on the AI infrastructure names. As Warren Buffett says, the market has to keep pitching but you do not need to swing.

“Don’t Fight the Fed.” Warsh at Jackson Hole: “Price stability is not self-executing… 65 months of sustained, elevated inflation sits squarely with the Central Bank.” Probability of rate hikes just went up going into mid-terms which historically see more than avg downside risk.

Given my concerns on Treasury trying to set bond prices, everyone should read Stanley Druckenmiller @WSJ op-ed: "Governments defending prices against fundamentals always lose. The only variable is how much they spend before conceding. The U.S. shouldn’t put itself on the wrong side of that trade, not with the most important price in the world, and not when that price is trying to say the one thing Washington most needs to hear: Let the bond market speak." wsj.com/opinion/let-the-bond…

James Carville: “as the bond market. You can intimidate everybody.” Despite Bessent’s efforts, bond ylds increased last wk 1-7 bps while S&P/Nas/SOX (AI proxy) -1.4%/-2.1%/-5.4%. Next wk has Iran sanctions (Mon), $NVDA earnings (Wed) & Warsh at Jackson Hole (Fri.) On Monday, the US is likely to put financial sanctions on Iran and any country supporting them in lieu of further military action going forward. The polling numbers in the US for support of the war are poor. But given China, who buys the most Iranian oil, will most likely be exempt from sanctions, I doubt this will have much impact other than what Iran does to retaliate. I believe Iran will try to keep the Straits hostage through at least the mid-terms. The US hostages in Iran were held for 444 days despite financial sanctions. They were released just hours into the inauguration of President Reagan in 1980. The “Gipper” (Knute Rockne, All American is a good nostalgic sports movie but I am a sucker for most of them) crushed the re-election attempt by President Carter by winning 489 electoral votes to 49 due to high inflation, interest rates and gas prices compounded with the foreign policy issues. On Wednesday after the market close, Nvidia reports results. Despite solid results, the stock has been down the next day in reaction for the past four quarters and declined from open to close the past eight quarters (and been down for the full day for six of them.) But trading at just a PE of 17x CY27 vs the S&P at 19x and with the stock down 4% over the past two weeks versus just a 1% decline in the S&P, I think the risk vs reward is good. However, the public (& therefore political) sentiment against datacenters continues to grow going into mid-terms which is likely to restrain multiple expansion. From a fundamental perspective for Nvidia, hyperscaler capex grew 92% y/y and 29% q/q in Q2 which is the fastest ever since launch of ChatGPT in late 2022. Public cloud revenue growth at the Big 3 vendors accelerated to the fastest pace ever at 43% y/y and 15% q/q in Q2 and arguably more importantly their operating margins expanded by 2% to a record 39% in aggregate. This compares to consensus estimates for Nvidia revenue growth decelerating to 13% q/q growth in Q2 from 20% or greater in each of the past 3 quarters. With regards to the AI infrastructure names, the roughly 50% decline in token costs driven by open-weight models since late May is being more than offset by the ~2.5x increase in token production during that time and increase in operating margins. But datacenters need to be put somewhere. When Gallup polling numbers for those opposing their construction locally are worse at 71% than for nuclear reactors at 53%, that is not good. Politicians want to keep their jobs also. On Friday at 10am, Fed Chair Kevin Warsh will speak at the central bankers meeting at Jackson Hole. The S&P declined 1.2% and 1.5% during his last two press conferences following FOMC meetings. The financial picture is even more complicated today: 1) the Iran situation looks likely to drag on for longer, 2) global bond yields are higher, 3) there is intervention in Japanese currency markets, and 4) the actions by the US Treasury to try and lower bond yields is putting downward pressure on the US dollar and upward pressure on inflation. In summary, despite strong S&P earnings growth, I am wary of further declines given the typical season drawdown of 10% from peak to trough during mid-term years since 1990 from 7/31-11/9. I gave more detailed stats last Sunday. Best of luck in the week ahead.

Great info by @SaraEisen. I was wondering why the stock action in many names was akin to the time before Situational Awareness was forced to sell its public positions to Citadel with AI beneficiaries getting hit while the ones in the cross hairs rallied. As a reminder, the Morgan Stanley TMT (Tech Media and Telecom) Momentum Index had a decline of 54% from 6/22-7/29. On 7/30, following the acquisition of the public portfolio of Situational Awareness by Citadel, the TMT index rebounded a record 19%. The rally continued with a total gain of 35% from 7/29 through 8/17 for TMT. But since Monday 8/17, this index has fallen 19% as of intra-day Friday 8/21. This letter by Ken Griffin now explains why it felt like there was some other large fund unwinding the same positions that SA had because in fact it was the SA positions. With more than 80% of the unwind finished in ~3 weeks, it would imply this should be mostly over by next week…At which point I can go back to worrying about 1) the median 10% drawdown typically seen on the S&P from peak to trough during 7/30 -11/9 in mid-term years since 1990 and 2) related to this, the US Treasury trying to bring down long-term yields and the bond market saying it will not work with yields across the curve now roughly flat to 6 bps above the levels on Tuesday prior to these actions.

Great info by @SaraEisen. I was wondering why the stock action in many names was akin to the time before Situational Awareness was forced to sell its public positions to Citadel with AI beneficiaries getting hit while the ones in the cross hairs rallied. As a reminder, the Morgan Stanley TMT (Tech Media and Telecom) Momentum Index had a decline of 54% from 6/22-7/29. On 7/30, following the acquisition of the public portfolio of Situational Awareness by Citadel, the TMT index rebounded a record 19%. The rally continued with a total gain of 35% from 7/29 through 8/17 for TMT. But since Monday 8/17, this index has fallen 19% as of intra-day Friday 8/21. This letter by Ken Griffin now explains why it felt like there was some other large fund unwinding the same positions that SA had because in fact it was the SA positions. With more than 80% of the unwind finished in ~3 weeks, it would imply this should be mostly over by next week…At which point I can go back to worrying about 1) the median 10% drawdown typically seen on the S&P from peak to trough during 7/30 -11/9 in mid-term years since 1990 and 2) related to this, the US Treasury trying to bring down long-term yields and the bond market saying it will not work with yields across the curve now roughly flat to 6 bps above the levels on Tuesday prior to these actions.

The US Treasury increasing LT debt buybacks is driving an intra-day 8bps decline in 30yr ylds, +0.4% S&P but also a 0.8% decline in the US dollar which puts upward pressure on inflation. This follows yen intervention earlier this month to alleviate upward pressure on US ylds. There is an adage that the bond market will stop panicking when the government starts panicking. So the bulls will be heartened by today’s reaction given credit is the life blood of the economy. Having said that, what bothers me is none of this solves the underlying upward pressure on rising treasury ylds of 1) 6% US deficits (and high deficits around the globe) despite a strong economy, 2) high US government debt of $40T vs $33T in GDP , 3) increasing hyperscaler debt issuance due to a near doubling in capex this year to nearly $900B & likely over 30% next year to $1.2 trillion taking away some of the demand for treasuries. The reaction tomorrow to the reaction today will be an important tell. Does the rally continue or was today a temporary reprieve? As I posted on Sunday, there is normally a 10% peak to trough decline in the S&P between 7/31-11/9 since 1990 at some point during mid-term election years. I worry that the odds are increasing of seeing a repeat.

Last wk, S&P/Nas/Mag7 +0.4%/+0.1%/-0.8%. Cooler inflation (CPI, PPI) & economic data (consumer sentiment, retail sales) but +5% oil steepened the yield curve but lowered odds of a rate hike. Looking forward, I continue to believe the impact of Agentic AI with the advent of OpenClaw on January 30th has at least a year to run: 1) Token production has gone up roughly ~7.5x from the end of January more than offsetting the nearly 50% token cost reduction seen since open-weight model usage started to take off in May. 2) Combined annualized run-rate revenues for OpenAI and Anthropic which ended last year at $29B seems to be around $100B currently with Anthropic getting profitable in Q2. 3) Capex from the Big6 hyperscalers accelerated from 84% y/y/ in CQ1 to 92% in CQ2 with forecasts for nearly 100% in Q3. But this is being supported by cloud revenue growth at the 3 Big Public cloud vendors of $AMZN $MSFT $GOOGL accelerating from 23% y/y in Q1:25 to 35% in Q1:26 to 43% in Q2:26. Arguable more important is public cloud operating margins expanded from 34% to 37% and 39% during those time periods. 4) The $500B financing deal backstopped by up to $125B from $NVDA adds even more lower cost money to fund AI capex spend for the non-hyperscaler players. Nvidia gained 0.5% last week. 5) The liquidation of Situational Awareness and retail accounts during July cleared out some of the frothiness in the AI related names In terms of negatives: 1) The cost of money (yields on government bonds) remain near the highest levels for the 30 yr tenor at 5.3% since 2007. 2) Given large scale offensive US military actions are seemingly off the tablein favor of financial sanctions, probably driven by current election polls, I now believe Iran is likely to hold the Strait of Hormuz hostage until past the US mid-terms. This would be akin to them releasing the US hostages in 1981 (they were held for 444 days) just hours after President Reagan was sworn in replacing Carter. There were severe financial sanctions then also. 3) Since 1990, which happens to be the Gulf War, from the end of July through November 9th, which covers the reaction to all mid-term results, the performance is worse than non mid-term years. For mid-term years the median S&P500 gain from 7/31-11/9 is 0.9% with gains 56% of the time but the median peak loss from 7/31 is 6.2% (intra-period median peak loss of 9.9%.) For non mid-term years the median gain is 2.7% from 7/31-11/9 with gains 59% of the time and the median peak loss from 7/31 is 3.5% (intra-period median peak loss of 5.2%.) This year with the momentum seen by the Socialists which are not big business friendly, I see more risk than normal. 4) The easy money on the AI technical rebound from oversold levels on 7/29 due to the forced sale by Situation Awareness is probably over. There were negative stock reactions to headline beat and raise earnings on both revs & EPS for AI infrastructure winners $CSCO (-8% for the week but still up +45% YTD), $AMAT (-6%/+97%) and $COHR (-14%/+77%). While negatives can always be found, their biggest crime was arguably their recent bounce from 7/29-8/7 of 8%, 24% and 71% respectively and their market beating YTD gains. In summary, I remain bullish. Even from the end of July through November 9th during mid-term years since 1990, the S&P has an additional median gain of 4.2% to its peak before giving some of that back closer to the election. Given some of the negatives, especially the reaction to solid earnings data, I would add some hedges back on further market gains and get more selective. Consumer discretionary hedges should also make sense if oil is higher for longer. I believe value should continue to accrue to the infrastructure layer which includes 1) the public cloud vendors such as Amazon, Microsoft, Google and 2) the semiconductor companies. $INTC, my favorite semi company, still gained 0.8% last week despite: 1) a $20B equity offering which causes ~5% dilution and 2) being up 178% YTD. This clears the funding overhang. All the best in the week ahead.

I think investors are increasingly not focused enough on managing downside risk with Situational Awareness an unfortunate recent example. One of the biggest issues I discuss below. The full interview can be seen at piped.video/H26lu1CCi3o?si=YV_t…

The story today about Silver Lake, a premier private equity firm with over $100B in assets focused on tech, potentially looking to acquire $WDAY likely puts a floor under software sector for some time. Workday prior to today’s 18% move higher had been down 18% over the past year (8/12/25-8/12/26) vs $IGV (the software ETF) which was down 6% and the S&P up 20%. It was considered one of the names most likely to be disintermediated by AI. PE firms 1) use debt which increases risk if they are wrong, 2) the cost of longer-term debt is the highest in nearly 20 years and 3) they need to feel comfortable about terminal value given exits are typically now in 5-7 years. This is a much harder bar to clear than a typical public market investor who has daily liquidity if they change their mind or a strategic acquirer that may have other synergistic reasons to do the deal. Also the size of this deal makes the bar even harder to clear. With a closing market cap today of over $50B for Workday, if it were to occur this would rival the prior record breaking technology PE deal for Electronic Arts of ~$55B that Silver Lake was also involved in. This news follows the results from $TEAM last week, another name that investors have put in the AI disintermediation basket, which rallied 35% the next day in reaction to earnings and is still down 2% from 8/12/25-8/12/26. I continue to believe that AI native companies like Anthropic and OpenAI which I believe are now likely running at over $100B in annualized revenue run rate combined vs $29B to start the year will increasingly put under pressure: 1) point solution software companies that are not system of record, security or gaming, 2) headcount growth as AI empowers current employees and 3) IT services vendors. Every public company will need to find cost savings somewhere given their rapid ramp in AI spending if they want to make Wall Street forecasts. Having said that, these two recent events should help put a floor under the software sector as a whole and may help it to outperform between now and year-end given the massive underperformance and multiple compression seen since it peaked in October of last year.

Is $INTC about to be “super successful?” When they were asked on their July 23rd earnings call about the need to raise capital, which they are doing this morning with their $15B common stock offering, this is how the CFO answered: “we feel like we're in a really good place from a balance sheet perspective. We have over $30 billion of cash. We have a $10 billion revolver. So, we've got $40 billion of liquidity… Obviously, the fact that revenue and profitability and EBITDA are all expanding helps a lot in terms of the cash flow that throws off to the business. And additionally, we have… roughly, call it $10 billion of what it's called non-core assets that can still be monetized on the balance sheet… And we have seen, by the way, our customers willing to invest with us. And we've had pre-pays from customers… that has enabled us to unlock capacity that's helped us. That said, if we're super successful, which we're driving to, we may need to tap the capital markets to drive…some more investment.” My belief of what “super-successful” means is they are close to signing up one or more major foundry customers, which is very capital intensive, and they need a lot more capacity to ramp it. I expect more details from industry sources to come out over time given a press release is unlikely given the secrecy demanded by most customers. I believe with Intel, there are multiple ways to win: 1) higher ratio of CPUs to GPUs in Agentic, 2) advanced packaging and 3) US national champion in foundry. This offering today increases my conviction they are on the path to being “super successful.”

Last wk, the AI surge post Situational Awareness resolution continued. S&P/NAS/SOX was +3.6%/+5.2%/+9.2%. WTI -8% with 10Y bond ylds -9bps helped. I wrote on 7/29, “we could have seen at least a short-term bottom today with a strong rally ahead of us in the sectors most caught in the latest speedbump.” I thought forced liquidations of both retail accounts and hedge funds were creating a bottom. The next day, Situational Awareness had a forced sale of all its public equity positions. The Morgan Stanely Momentum Index is now up a whopping 14% in just 7 trading days from July 29th following the 38% drawdown from June 22nd to July 29th. The more concentrated TMT Index is up 25% from 7/29 following the 54% decline from 6/22-7/29. The S&P/Nasdaq/SOX (Semiconductor Index) is up 6.0%/9.2%/18.3% since 7/29. To end the week, the less than expected jobs report on Friday encouraged equity and bond markets that had been worrying about rate hikes. I still believe hikes are less likely than current fears given Kevin Warsh was appointed as Fed Chairman for his belief in AI being deflationary. The CPI report on Wednesday will be important for this thesis. It was encouraging to see the semiconductor sector rally 9.2% last week despite the acid test of lackluster results from $AMD and the memory names which have been the tip of the spear in the semiconductor trade. $AMD had both revs and EPS edge up low single digits for Q3 but this was disappointing compared to $INTC EPS going up ~40% for Q3. AMD’s stock was up 2% for the entire week despite declining 7% in reaction to results the next day. $SNDK was flat for the entire week despite declining 7% the next day in reaction to guiding CQ3 revenues 2% below consensus. $WDC was down 20% last week after guiding EPS just 4% above consensus for CQ3 which was disappointing relative to $STX results where CQ3 moved up 25%. In the near-term, I continue not to be a fan of the memory sector relative to other AI infrastructure names given I remain concerned about US companies like $AAPL getting approval to use Chinese memory & recent moves by $NVDA to lessen memory requirements. Nvidia is evaluating shipping the Rubin Ultra with as little as 192 GB of HBM vs the original roadmap of 1 Terabyte. But this would be good for Nvidia that reports earnings later this month given they could ship a lot more GPUs for a given amount of memory. Also Elon Musk stated last week, "Going forward, we have decided to build exclusively on Nvidia, because we think the Vera Rubin architecture is the best architecture.” This is a powerful statement given the many companies trying to push the benefits of their ASIC accelerators. Nvidia is also a value and growth play at the same time with just a 25x CY26 PE for over 80% revenue growth. Revenue growth for Nvidia has also accelerated for every quarter from July 2025 at 56% y/y to expectations of 96% for July of 2026. In support of this growth, the six big hyperscalers saw capex growth accelerate from 84% y/y in the March quarter to 92% in the June qtr with forecasts of nearly 100% growth in the September quarter. Each quarter of 2026 is showing higher y/y capex growth than at any time during this AI buildout. In summary, I believe the near-term pain trade is higher in equity markets. For those funds that got punished in July and were forced to de-gross near the bottom, FOMO and performance chasing is now kicking in. None of my technical indicators are flashing overbought yet given the severe drawdowns prior to the current rally. The evolving situation in Iran is obviously the wildcard. Best of luck in the week ahead.