In partnership with
Speak naturally. Send without fixing.
Wispr Flow turns your voice into clean, professional text you can send the moment you stop talking. Not rough transcription you have to clean up. Actual polished text — ready for email, Slack, or any app.
Speak the way you think. Go on tangents. Change your mind mid-sentence. Flow strips the filler, fixes the grammar, and gives you text that reads like you spent five minutes writing it.
89% of messages sent with zero edits. Millions of professionals use Flow daily, including teams at OpenAI, Vercel, and Clay. Works on Mac, Windows, and iPhone.
Good morning partner,
Few things to cover this morning:
Yesterday’s Session
We are kicking off the mega-cap earnings season with a bang in Google.
The stock is still down over 3% overnight, dragging all other hyperscalers down with it.
Now you may be asking…
Why is Google down when it reported 294% EPS growth?
That’s because they actually missed earnings expectations, real cash coming into the business was much lower than what they chose to report, and that’s going to bite them later (or perhaps sooner.)
What Google created was an auction that further amplified the hyperscaler vs semis divergence, let strictly by the chipmakers and not the ones spending trillions on the future of AI.
As I broke down in a previous post, this means one thing:
Uncertainty around AI returns is fading, so markets punish the ones overinvesting into it.
Capex receivers (semis) are reporting cash flow from all of this, so they become the safer bid
In a market where semiconductors are safer than a conglomerate like Amazon or Google…
You should become cautious.
Let’s take a look at yesterday’s leaders and laggers:
Utilities, Materials, Energy.
Very mixed signal here from the leaders yesterday. Though I think it can be classified as an inflation “growth scare” more than anything else.
I haven’t seen much out of the bond market just yet, but if yesterday’s equity price action is to remain in place, then I suspect long-duration bonds will begin to give us more signs of life.
On the other hand, you still have an AI bet leading the day in materials, as some believe infrastructure construction will continue to boom.
However, I don’t think that trend will actually fulfill, considering what we saw out of GE Vernova yesterday (good earnings, stock sold off.)
In fact, when you discern which industries in the materials sector actually rallied, you get the following list:
Gold and Silver
Chemicals
Wood
Doesn’t sound a lot like the AI materials chain everyone’s obsessed with, so I stand by what I said about GE Vernova.
Moreover, I stand by my oversupply thesis pointing to when AI winners become losers.
Euphoria
Corporate teams are now boosting their future guidance more than ever before.
I can’t tell you what each company is saying, but I can give you one recent example that is dear to the market right now.
Micron: The company is touting multi-billion dollar contracts that cannot be filled up to four years into the future
Note that these contracts can be adjusted, cancelled, or outright worthless if during those four years competitors start to make better chips at cheaper prices.
This is why each time corporate guidance gets overextended from consensus estimates, the market tends to see a top and drawdown thereafter.
Expectations cannot be met, Google and GE Vernova were two examples this week.
News
The Houthis attacked two Saudi tankers in the Red Sea, crude oil is up over 3% this morning to create another tail risk event for equities. We continue with the inflation growth scare scenario.
An OpenAI Agent goes rogue and hacked Hugging Face (private company) to further raise concerns about safety and enterprise adoption headwinds in the AI trade.
30-Year Bonds have traded above 5% for the longest stretch since the 2008 financial crisis, adding to the list of similarities to previous market crises and peaks. The turnaround in the bond market could be approaching on mean reversion, boosting our long bond thesis.
Goldman Sachs picked 36 stocks focused in the HALO and real economy themes of the market, choosing to steer away from the concentrated AI trade for good reason.
Movers & ES Levels
Phillip Morris 📈 Rallied by 3.3% after reporting stronger than expected earnings and demand driven by Zyn and nicotine products, showing that expectations around the real economy theme are overly pessimistic and becoming easier to beat.
Super Micro Computer 📈 Gained nearly 20% after reporting very strong profits, just like Google though, I would lean on dissecting the earnings discrepancy to cash from operations as they may not be as clean as they seem.
Reddit 📉 Lost 8.3% after announcing it will block Google from accessing its data to train AI models. I think this is a net win actually, considering that they will now turn to creating a toll booth for companies to access their data, monetizing AI’s raw materials.
GE Vernova 📉 Is down over 8% after reporting a 40% decline in their wind turbine business, a direct insight into the slowing demand of the so-called AI bottlenecks. Data center construction growth is down to 5% annualized, and that’s when AI winners become losers.
Now let’s get into some ES levels for today.
Yesterday’s digest gave you the exact day’s high again.
What’s important to note from the auction is that the buyers that were looking to go all-in to buy the dip at $7,483 and $7,500 had very little energy left at $7,552.
I say this because we lost over 30 points from the high without much seller participation, meaning these big sellers could be saving their hand for a tackle through $7,500 or lower.
That said, I think the auction for today remains relatively simple.
Bulls want to successfully shake off these potentially aggressive sellers at $7,500 and $7,480 if we get there.
Bears want the auction to remain below $7,530 for as long as possible, exhausting the patience of passive buyers until they tempt the lower levels stated above.
If you absolutely have to trade today, I would watch for the breaks or rebounds at those lower levels, otherwise an aggressive buying return at $7,530 - $7,552.
Portfolio
Healthy - and expected - drawdown from the all-time high mark.
After taking a 1% hit to the portfolio driven by software, I expect the latest additions in the GLP-1 and consumer boom to post a recovery while the AI vs software rotation begins again.
Last week, I pointed out that the drawdown in software could impact the portfolio and even create further DCA opportunities. Now that Google’s earnings are out of the way, that scenario becomes more likely (though not just yet.)
The portfolio holdings remain relatively strong in this tug-of-war between rotation into HALO and concentration into AI and tech.
Which is why I’m comfortable keeping 52% cash holdings while we continue to push back to - and above - a 5% performance threshold.
Keep in mind, we are still under two full months of operation, so I want to take advantage of a strong start.
I am releasing my research soon on what I think is the cheapest growth asset class you can buy in today’s market.
The best part? It remains largely ignored and free of retail hype.
Coming to Offside Premium members.
And don’t forget to get caught up on Google’s earnings from last night.
Here’s the positioning update for today’s premium members:
Subscribe to our premium content to read the rest.
Become a paying subscriber to get access to this post and other subscriber-only content.
Upgrade