Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Tuesday, May 21. The Bottom Line segment of today’s podcast starts at (3:46) for listeners who want to skip ahead.
State of Play
Things were quiet yesterday as expected. The Nasdaq did close at fresh all-time highs on the back of another rally by Nvidia (NVDA 0.00%↑). As we look at our board of indicators at 0645 things are a bit all over the place, though cryptos are rallying:
Stock index futures are flat as a board with the exception of small caps, which are down. The Russell 2000 is off about 0.3%;
Commodities are giving back some gains. WTI crude oil is down 1% to trade around $78/barrel. Gold and silver are dropping. Copper is unchanged;
Cryptos are rallying. Bitcoin is up 6% to trade north of $71,000. That’s almost within striking distance of the all time high of $73,741. Ethereum is up 20%, presumably on news of a spot ETF receiving regulatory approval;
Bonds are unchanged. The 2-year yields 4.83% whilst the 10-year yields 4.43%.
Today’s Known Events
Lowe’s (LOW 0.00%↑) just reported earnings, beating top- and bottom-line estimates and crucially reaffirming guidance. The stock is up 3% in the pre-market at the time of this writing.
Macy’s (M 0.00%↑) and AutoZone (AZO 0.00%↑) are up intermittently.
After the close we’ll hear from housing developer Toll Brothers (TOL 0.00%↑) and another retailer, Urban Outfitters (URBN 0.00%↑).
There are some Fed speakers today as well but these are all the usual suspects who have already spoken multiple times in the last week or two. As such, they can be safely ignored. If the Fed is going to use these guys to signal a change in policy (itself highly unlikely. Usually that’s the domain of the Fed chair), it will not do so after they’ve been shooting off their mouths for weeks already.
The Bottom Line©️
Friendly reminder that cryptos have been a leading indicator for stocks — especially tech stocks — going back more than a year now. There may be a clear catalyst for this with the Ethereum spot ETF, but that doesn’t mean investors aren’t risk happy.
Indeed it seems investors can’t wait until Nvidia (NVDA 0.00%↑) earnings tomorrow to bid up AI chip names. Marvell Technology (MRVL 0.00%↑) was one of the biggest winners on the day. Smaller AI names like Soundhound AI (SOUN 0.00%↑) also put in strong rallies as did the usual suspects AMD (AMD 0.00%↑), Super Micro Computer (SMCI 0.00%↑), Broadcom (AVGO 0.00%↑), and Taiwan Semiconductor (TSM 0.00%↑).
‘Undiscovered’ AI Chip Stocks
Here’s an idea for an ETF: small AI hardware names. Limit it at, say $5 billion market cap companies. The focus on hardware would (presumably) allow for a margin of safety. It would also weed out names like the aforementioned Soundhound, C3.ai (AI 0.00%↑), FARO Technologies (FARO 0.00%↑), and others including companies that just plaster the term ‘AI’ all over their marketing materials to attract attention.
Unfortunately, this doesn’t leave much. The Contrarian did a preliminary search and found just a few companies, almost all of them suppliers to the semiconductor industry:
Names include ACM Research (ACMR 0.00%↑), Camtek (CAMT 0.00%↑), FormFactor (FORM 0.00%↑), Ichor Holdings (ICHR 0.00%↑), Kulicke and Soffa Industries (KLIC 0.00%↑), Photronics (PLAB 0.00%↑), Ultra Clean Holdings (UCTT 0.00%↑), and Veeco Instruments (VECO 0.00%↑).
It’s likely the AI hype story is already priced in to these stocks (didn’t check). But it may be worth putting these names in an index to track them, to the extent that somebody hasn’t done it yet. If nothing else this could give us an idea of stocks to buy when (if) there is a pullback in AI chip names.
There are obviously private companies as well, including Anthropic (OpenAI rival), Graphcore, Cerebras, SambaNova, Groq.
The Contrarian does not hold any of these stocks.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Earnings, the Search for ‘Undiscovered’ AI Chip Stocks