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Improving Profitability Helped AI Users and Buildout Names Outperformed Yesterday

Published on August 4, 2026

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Dennis DeBusschere

Kevin Brocks

Sophia Wang

DAILY STRATEGY: Service companies who use AI (including Software) AND AI buildout baskets (Liquid Cooling, AI Power, Semis) both performed well yesterday, a 1-day break in the recent negative correlation between AI Services and AI Goods. Going forward, the two baskets can both outperform if AI is improving profitability for all companies, and if there is less of a threat to the application layer from frontier labs training on their data then using that data to put service companies out of business (see HERE). The current trends of increasing margins across market caps, strong beat rates and positive EPS revisions across both AI Goods and Services, and strong compute demand, alongside open-source models gaining popularity, support that view (HERE).

As we noted yesterday (HERE), after 12 weeks of a Risk Averse market regime (AI unwind, oil prices higher and UST yields hitting 4.74% over that period), which was associated with Risk-off factors outperforming Risk-On Factors, we expect Risk-on Factors to outperform. Strong earnings, AI demand trends remaining robust (HERE) and some relief in UST yields are the driver of that call. We have a tradable swap with Morgan Stanley (MS22RISK Index on Bloomberg) to take advantage of being long stocks that make up the Risk-On factor baskets vs short stocks that make up Risk-Off factors.

Insurance Trade Idea AIG: Each earnings season the 22V quant team ranks companies due to report, identifying companies that could see outsized moves (both higher and lower) based on positive or negative earnings quality and sentiment. Stocks with a lower Earnings Turbulence ranking, higher Earnings Quality ranking and Earnings Sentiment score have better fundamental readings and are more likely to beat earnings, and vice versa. Lists in the chart section below. These lend themselves to options plays. Jeff Jacobson, 22V’s Derivatives specialist, likes the set up to hedge AIG the best. FYI, reach out to JJ for structures for any of the other names.

Trade:
Buy AIG Aug 7^th 77/72 put spread for ~ $0.90 (AIG 78.55 price ref)

The beat list…

The miss list…

From JJ…

“One name highlighted by the 22V quant team as a possible earnings “turbulence” name that I think lines up with a downside option trade is AIG. What concerns me about AIG is that with the entire insurance sector having had a sharp rally off the June lows, AIG has been a noticeable laggard. Since June 3^rd, AIG has managed to rally ~ 9%, while the main insurance sector ETF (KIE) is up 19%+ (more than double). While some could argue that AIG could play catch-up after this large period of underperformance, perhaps this indicates there has been real selling into the sector rally by the current holders?

What I also like about owning downside weekly structures in AIG here for their earnings on 8/6 is that options are currently pricing in a 4.2% move, and the stock has had realized moves of 4.6% or higher on the last three reports. While no guarantee, this likely means we should expect another decent move when they report, thus justifying the higher weekly implied volatility.”

Trade:
Buy AIG Aug 7^th 77/72 put spread for ~ $0.90 (AIG 78.55 price ref)

Trade Details:

Buying the weekly put spread following 9% rally off the June lows and ahead of earnings on 8/6
AIG has been a noticeable laggard to the insurance sector (perhaps signaling something is “off”)
Have seen AG move by at least 4.6% over the last three reports
Put spread starts 2% lower and is capped to the downside at/near the June lows
Trade offers a 4.5x to 1 max payoff on the limited-risk structure
The 22V quant team has identified AIG as a possible earnings’ “turbulence” name with downside risks when they report
Recent ideas in LUV and CVNA both performed well as stocks sold off when they reported (the quant team identified both of those names ahead of earnings as well)

More charts…

The AI Service basket is not just Software. It’s a mix of Media, Software, IT, Insurance, Health Care Services, and Logistics providers. A downloadable excel of the constituents can be found HERE. We have both Services and Goods available as tradeable swaps through Morgan Stanley: MS22AISV Index and MS22AIGD Index on Bloomberg, respectively.

Goods and Services both working together, like yesterday, would be a significant break in trend. We think this is increasingly likely following earnings trends from 2Q.

AI Service and AI Goods revisions are BOTH stronger than normal.

The margin story seems to favor AI Services for now too. Implementing AI is an advantage, and investors are getting more concerned about the buildout. FYI, ultimately, both baskets can work together if AI proves to be a profitability enhancer.

A graph of a service

AI-generated content may be incorrect.

We have a tradable swap with Morgan Stanley (MS22RISK Index on Bloomberg) to take advantage of being long stocks that make up the Risk-On factor baskets vs short stocks that make up Risk-Off factors.

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