In this week’s video, the market continues to rally despite the Iran War and the look of an “AI bubble” because the underlying earnings story is still accelerating. AI is no longer just lifting a handful of tech stocks; it is driving GDP growth, EPS revisions, margins, semiconductor demand, industrial backlogs, hyperscaler cloud commitments, and the next leg of capital spending. The key point is that the old consumer/industrial business cycle framework is no longer the right lens. Instead, the market is moving through a new AI business cycle: early cycle is semiconductors, advanced packaging, optical fiber, and rack infrastructure; midcycle is power, data centers, chemicals, energy, and physical buildout; late cycle is applications, agents, humanoids, and broader productivity gains.
At the same time, the the rally is not risk-free and is sending some warning signals to watch. Inflation signals are rising through oil, gasoline, diesel, crop prices, prices paid indexes, inflation swaps, and global bond yields. Market breadth is weak, financials remain under pressure, software continues to lag, and the turbulence model has issued its first warning sign, though not yet a full trigger. The portfolio implication is “benchmark arbitrage”: traditional benchmarks are still overweight the winners of the last cycle, especially software and consumer-led growth, while underweight the physical AI buildout winners in semis, power, chemicals, optics, and infrastructure. Bitcoin and Ethereum are framed as additional growth assets that may benefit if inflation runs hot, the Fed stays constrained, and programmable money gains traction.
Timestamps
- (00:00–03:13) Setup: markets rally despite “AI bubble” talk in LA/DC; AI driving earnings, revisions, margins, and GDP higher but warning signs emerging (turbulence model’s first cross-asset signal, financials still below 200DMA, software/PE near YTD lows). Benchmarks built for the old cycle are wrong for the AI world.
- (03:13–06:30) S&P, NASDAQ, and small caps at all-time highs, one of the best months in 25 years; forward EPS accelerating without a prior draw-down (unique vs. mid-90s and dot-com); analysts revising estimates up after 15 years of averaging -2%; capital goods exploding year-over-year, PMI close to 60 in regional surveys.
- (06:30–10:40) Caterpillar’s $62B backlog and 3x power-generation sales forecast through 2030; PE at 36x next year while Nvidia trades at a 10-year low on forward PE; the three hyperscalers (Amazon, Google, Microsoft) sit on $1.3T in cloud backlog they can’t fulfill due to capacity shortages.
- (10:40–15:50) Inflation warning signs: unleaded gas futures break out and back months rise (inflation persistence); September gas at $87; Goldman models show global oil inventories hitting all-time lows by mid-year if the Strait stays closed; Chevron unchanged from before the war = lower-beta entry; PMI prices paid at stratosphere levels last seen pre-2008.
- (15:50–19:30) China exporters raising prices, crop/fertilizer breakouts, El Niño forecast — the 1970s analog (nominal GDP up, inflation up, no jobs); inflation swaps rising, 30Y UK gilts and 10Y JGB yields at new highs; breath narrowing, median S&P stock 13% below 52-week high, 50% down YTD, financials still below 200DMA.
- (19:30–23:00) Semis are now the largest Level-2 GICS in the S&P at $10T (Nvidia ~half and a relative laggard); “your margin is my opportunity” of the last 15 years has been replaced by “your capex is my opportunity”; $90T five-layer cake; the AI business cycle has new phases — early (semis), mid (power, data centers), late (humanoids).
- (23:00–26:30) Five-layer cake breakdown: rack / advanced packaging / optical fiber (early); chemicals (mid); power (late). Meta’s $6B Corning fiber deal and Jensen’s deals with Coherent, Lumentum, Marvell. Software killed by Opus 4.5, the agentic AI inflection, while the thematic basket has gone parabolic and the S&P is dragged down by software weighting.
- (26:30–30:30) Compute shortage is real: Anthropic at a $30B run rate forecasting $50–100B by year-end; OpenAI says there isn’t enough compute in the world; White House officials worried Anthropic can’t get compute; cost of compute is now greater than cost of employees (Nvidia exec); the “efficiency gains will save the day” argument is wrong, gains have been ongoing for three years and are driving the demand acceleration.
- (30:30–35:00) Three end-results for advanced semis (Intel, Samsung, TSMC); Elon’s Samsung buyout and terafab build because catching up isn’t possible; White House Section 303 Defense Production Act for the grid; US power plant equipment spend forecast to triple through 2030; power semis broke out to a 5-year high; chemicals overlaid with Texas Instruments show the same pattern.
- (35:00–39:10) Chemical layer report, 17 names with exposure scoring across advanced packaging, fiber tubing, and polymers; Integris bought after earnings drawdown; Camores up ~50%. Adam Parker on Compound & Friends: software sequence is multiples compress → earnings miss → sales miss; analysts still assume 80% gross margins through 2028–29, too static for an AI-disrupted world. Naval Ravikant says the same about Apple’s terminal value.
- (39:10–43:38) Bitcoin MACD weekly trying to break out, up 33% from the $60K lows to $80K but losing relative interest as Korea/Asia trades AI; trigger remains CPI above 3-month yields; MicroStrategy calls bought into year-end. Ethereum is the main story for the rest of the year if the Clarity Act passes, programmable money, the Door Dash stablecoin decision, Ethereum’s 200-week MA at 2456 is the level (need two closes above).
