The Wrap – NoMo FOMO (For Now)
Also, updates on Vital, Super Group, Erie, Nordson, and new ideas in process, including one that is "Off Everybody's Radar."
Special thanks to FinTool, Tenzing MEMO, and Fiscal.ai, which were used as part of this research.
Something for everybody…
▶I don’t need charts or technical indicators to tell me the tone of this market is exactly opposite of where it was six months ago…
What was FOMO is now FOLYA… or fear of losing your ass.
Just as individual stocks were rising by an unhinged 10%, 20%, 30% or even more on a single AI-or crypto-related headline – in what I called a throw-a-dart-market – we’re now at that point where they’re now falling just as much on earnings misses, poor guidance or merely the reality that they never deserved to be as high as they were. Look at Sunrun RUN 0.00%↑, my very first Red Flag Alert from May 9, 2023… plunging 35% Friday on guidance. As the chart below shows, it’s down 20% since my first salvo, though at one point it was off by nearly 70%.
But for the AI bubble, the velocity of hubris reached its peak in September, the day Oracle’s ORCL 0.00%↑stock spiked an unimaginable 35% on AI-related news. (Unimaginable, that is, for a company that large.)
The CoreWeave ‘Tell’
At about the same time, in what I had tagged as a harbinger of how silly things had become, CoreWeave CRWV 0.00%↑ announced the launch of CoreWeave Ventures, to start funding other money-losing companies it believes would be “the future of AI.” Its stock was up on the news that its new VC fund already had nine portfolio companies. There’s even a CoreWeave Ventures website. For what then was an eight-year-old company with no earnings, no free cash flow, and colossal levels of net debt, that made and makes zero sense, of course. I wrote as much in my “Why CoreWeave Is So Important to Watch” report, with this description of the rollout of the VC angle.
This is hardly a canary-like moment, but it’s one you shouldn’t ignore...
With CoreWeave’s stock tumbling nearly 20% Friday on a bigger-than-expected loss (who woulda thunk?!), analysts and investors finally appear to be growing antsy over the CoreWeave story, especially whether the company is overspending on its financial commitments to build even more data center capacity.
Think of It This Way…
Investor enthusiasm over AI has turned so sharply that Amazon AMZN 0.00%↑, whose stock is back to where it was a year ago, could barely muster a 1% gain after announcing it was investing $50 billion into OpenAI, or roughly half the amount OpenAI is hoping to raise.
Time was, not that long ago, such an announcement would have been a launchpad for its stock, as was the case for Microsoft MSFT 0.00%↑ after OpenAI was first rolled out in late 2022. That was followed less than two months later by reports that Amazon was investing $10 billion into the company. That news lifted all boats, including Amazon. Today, one seems more desperate than the other…
The quiet part out loud, of course, is that all of these big deals involve companies engaged in so many circular AI infrastructure transactions that they have no choice but to continue investing. If one stops, well, Jenga, anyone?
Your move.
New Ideas Plus Updates on VITL, SGHC, ERIE, NDSN
▶Off Everybody’s Radar – If you missed it, Off Everybody’s Radar is where I stash possible new long ideas. I do them sparingly, and you can find all of them by clicking this button at the top of my home page. While I’m still not 100% there, rather than hold off, in the spirit of keeping you in the loop on some things I’m working on… Trust me when I say: With its stock down 76% over the past five years, having been a Covid