Weekly Stock Market Update & SPY Technical Analysis
The first of the Magnificent 7 stocks report earnings this week, those names being Tesla and Meta. As you can imagine, this is a very critical earnings report for both companies and the technology industry as a whole because it’s coming at a time when tech stock valuations are under pressure. The pressure is coming from the excessive borrowing that much of the MAG7 have been doing in the AI buildout. It’s not that investors have fully shifted their stance on AI, it’s more of a systematic issue rather. The market is facing higher interest rates, fueled by an explosion in government spending, higher oil prices, persistent inflation, and overall geopolitical uncertainty.
Is the AI Trade Over?
The AI trade is still very strong, earnings from Taiwan Semiconductor Manufacturing Co. and ASML just showed this. Both names exceeded expectations and showed no signs of slowing in semiconductor demand; however, growth stocks have historically reacted negatively to a higher rate environment. Investors didn’t expect the war with Iran to last this long, nor did they expect long term Bond Yields to grow to levels not seen since 2002.
With that in mind…think of OpenAI and Anthropic…beyond the companies that supply the picks and shovels to the AI buildout, these two companies are arguably the most prominent AI names, but even they had to delay their IPO plans because of the market environment isn’t strongly supporting IPOs right now. Nonetheless, these companies just released their revenue forecasts, and the numbers are astonishing given how young both companies are. OpenAI 2027 revenue is expected to come in at $70 billion, and Anthropic at $100 billion annual run rate.
Moreover, AI itself is expected to be transformative. Companies are spending money to integrate AI in their existing businesses to enhance output and reduce costs. Results of this have already been proven by financial companies, retail giants, and large cap tech. So, not only should the market be excited about OpenAI and Anthropic going public, but the efficiency and potential of AI itself enhancing businesses is something to consider too. We can all agree that computers transformed the way we do business, speeding up communications, sharpening our skills through the internet, expanding our worldviews…etc. AI has the same potential, giving business, individuals, creators, researchers, scientists, and more, an opportunity to speed up their process.
We understand that sounds optimistic, and we don’t mean to sound sound dogmatic, so let’s address the idea that perhaps none of this happens and AI implodes…or worse, it’s used for the wrong reasons. You best believe that hackers and “enemies of the state” already using AI for financial crimes, military operations, and other infamous activities. That reinforces our bullish position on cybersecurity firms in the long term. We have to account for both the benefits of AI and the cons of it…investing in cybersecurity is a good hedge against the worst case scenario.
SPY Technical Analysis
SPY posted a nasty pullback last week as money left tech, semiconductor, memory, and AI buildout stocks. The selling pressure as strong enough to force SPY to close below its week over week trend, meaning bears are in control this week unless SPY closes above 779.40 by this Friday. We’ll monitor and update key levels as needed throughout the week.