1. Strategic Actions and Decisions
* Reduce Exposure to Semiconductors Ahead of Hyperscaler Earnings: The AI trade is “completely splintered.” While semis are winning, the hyperscalers (Meta, Google) spending on them face deteriorating cash flows. If these companies announce they are “just maintaining” rather than increasing CapEx this week, it will be a “catalyst to sell off the semis.” [01:36]
* Delay Any Investment in Small Modular Reactors (SMRs): Despite data center companies hinting at building their own power, “there is still not a single licensed small modular reactor design in the United States.” It remains “illegal to build any of them for power generation,” and NRC approval moves at the “speed of continental drift.” [04:02]
* Prepare for a 60-70% Downside in Specific Semiconductor Names: One speaker explicitly states he expects his clients’ holdings in names like “Sanders” to “fall by 60, 70% before this is all over.” The cyclical nature of semis guarantees a major bust following the current boom. [13:00]
* Rotate into Energy and Commodities on Pullbacks: Even if the Middle East war ends, “85 is the new 65” for oil. Global hoarding to refill strategic reserves and rework supply chains will create a “multi-year” bid under commodities. One speaker specifically likes “noble the driller and some natural gas companies.” [26:31]
* Do Not Assume a V-Shaped Recovery or Fed Rescue: The post-GFC playbook of buying every dip is broken because central banks are in an inflationary world. Their “hands are tied” preventing the ability to cut rates or use QE to create a “V bottom” like in previous downturns. [01:00:17]
2. Executive Summary
In this recording, my guests and I broke down a market that is completely nonsensical right now. Peter explained how the AI tech trade has splintered, with semis exhibiting “1999-type behavior” while software falls through the floor. We warned that this is an extraordinarily cyclical group—big booms are always followed by major busts. Jack brought a critical on-the-ground reality check, highlighting how states like Wisconsin are forcing data centers to pay for their own grid upgrades, and noted that up to 40% of planned builds are already delayed. Geoff backed this up with short interest data showing semis at all-time highs with no covering pressure. Ross reinforced our commodity thesis, arguing that even if the war ends, oil’s floor is now $85. The through-line was clear: valuations don’t matter until they do, and the post-2008 “buy the dip” playbook is broken in today’s inflationary world.
3. Key Takeaways and Practical Lessons
1. The “V-Bottom” Playbook is Obsolete in an Inflationary Regime: Investors trained to buy every dip assume infinite Fed stimulus. That era is over because central banks cannot cut rates or restart QE meaningfully with current inflation.
* Practical Lesson: Do not assume a quick recovery in tech drawdowns. Supply-driven shocks require patience, not dip-buying heroics.
2. Price-to-Sales Matters More Than P/E in Cyclical Peaks: Valuing a semi-company on one year of inflated earnings is a “mistake.” When gross margins are elevated but unsustainable, price-to-sales provides a clearer picture of risk.
* Practical Lesson: Before buying a stock trading at 6x book, calculate its price-to-sales and compare it to historical norms, not just its low P/E ratio.
3. Watch the Back End of the Oil Curve, Not the Front Month: Oil stocks did not rally as much as front-month crude because markets trade on long-term futures. The real move comes when back-end prices rise.
* Practical Lesson:To enter a commodity trade, monitor the 12-36 month futures curve. A rising back end signals a structural shift, not just a geopolitical spike.
4. Construction Logistics Are the Leading Indicator for Semis: The AI bottleneck is no longer chips; it is transformers, aluminum, and permits. Up to 40% of planned data centers are delayed for these reasons.
* Practical Lesson: Monitor industrial construction metrics (transformer lead times, permitting rulings in states like Wisconsin) as the true leading indicator for semiconductor demand.
5. Separate Technological Miracles from Business Viability: SpaceX is “freaking incredible” technologically, but its IPO valuation relies on a “self-referential” $28 trillion TAM cited by Elon Musk without evidence.
* Practical Lesson: When evaluating IPOs like SpaceX, ignore the engineering superlatives and demand audited financials. If the TAM is self-reported by the CEO, treat it as marketing, not data
Follow Peter on X here - @pboockvar
Follow Jack on X here - @JG_Nuke
Follow Geoff on X here - @bullet86
Follow Ross on X here - @Ross__Hendricks
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