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SUMMARY
Amit Kukreja provides in-depth analysis of the May 12th market open, focusing on the latest CPI print, the ongoing semiconductor rally, and the impact of geopolitical tensions on oil and equities. The session covers sector rotations, earnings results, macroeconomic data, and the shifting market narrative around AI infrastructure and capex cycles.
MAIN POINTS
- Markets show muted reaction to a hot CPI print, with oil spiking above $100 amid ongoing US-Iran tensions.
- Trump and Iran exchange threats, influencing oil prices and contributing to market volatility.
- Micron's recent dip is discussed in the context of memory demand and investment theses from major firms.
- Earnings from HIMS and ESTS disappoint, with both stocks declining due to weak growth and missed expectations.
- VG posts strong earnings and guidance, contrasting with broader market indifference to negative CPI data.
- GameStop volatility is linked to a hacked Roaring Kitty account and memecoin speculation.
- Consumer credit and delinquencies reach new highs, highlighting a disconnect between stock market performance and real-world consumer health.
- Sector performance diverges, with semiconductors vastly outperforming other sectors as capex-driven growth dominates.
- Optical communications and photonics are identified as critical bottlenecks for AI infrastructure, boosting related stocks.
- A new website, aibuildouts.com, is launched to track 250 companies involved in the AI industrial buildout.
- Major US business leaders prepare for a China trip with President Trump, while Tesla and other tech firms seek new deals.
- OpenAI renegotiates its revenue share with Microsoft, impacting valuations for related venture funds and ETFs.
- Major investors reduce exposure to legacy software companies, reflecting concerns over AI-driven commoditization.
- Market opens red across the board, with semiconductors and software both declining after the CPI release.
- Nvidia stands out as the only major semiconductor stock in the green, while others like Micron and Intel decline.
- The S&P 500's recent rally is noted as unprecedented outside of bear market recoveries, raising questions about sustainability.
- E Toro reports strong EPS growth, but broader market sentiment remains cautious ahead of key earnings and macro events.
- Fed futures begin to price in a potential rate hike in 2026, with little expectation for cuts before late 2027.
- Legacy companies like 3M announce moves into optical connectivity, reflecting surging demand for AI data center infrastructure.
- Networking stocks face uncertainty as Nvidia expands its own networking solutions, raising competitive concerns.
- Discussion of leveraged ETFs and options trading highlights risks and rewards in volatile semiconductor stocks.
- Elon's entry into data center infrastructure is analyzed, with skepticism about the near-term viability of space-based compute.
- Elon Musk emphasizes hardware and power constraints as the next major bottlenecks for AI and data center expansion.
- Non-AI thematic stocks are described as 'dead money' in the current market, with capital flowing to capex-driven plays.
- Micron and other memory stocks experience sharp declines, prompting speculation about institutional versus retail buying.
- Jamie Dimon and other leaders weigh in on oil, Middle East risks, and the resilience of US markets.
- BuzzFeed surges on news of a major investment and leadership change, while other small caps see outsized moves.
- NY Fed data shows consumer delinquencies at multi-year highs, raising concerns about credit stress amid rising oil prices.
- Bond yields surge to multi-year highs, with the 10-year above 4.5% and the 30-year above 5%, pressuring equities.
- CME Group announces the launch of compute futures, signaling the financialization of AI infrastructure capacity.
- Earnings growth remains concentrated in semiconductors and energy, but historical analysis suggests this is typical in early- and mid-cycle bull markets.
- Pakistan seeks a diplomatic role in US-Iran tensions, while Micron and semis continue to slide into the close.
DETAILED ANALYSIS
The trading session opened with heightened anticipation following the release of a hotter-than-expected Consumer Price Index (CPI) print. Headline CPI came in at 3.8% versus 3.6% expected, marking the highest reading since May 2023, while core CPI rose to 2.8%, the hottest since September 2025. Despite the negative inflation surprise, the equity markets exhibited a muted pre-market reaction, reflecting a growing narrative that the current bull market is driven less by macroeconomic data and more by sector-specific earnings and capex cycles, particularly in technology and AI infrastructure.
Oil prices surged above $100 per barrel, fueled by escalating tensions between the US and Iran. Diplomatic efforts appeared stalled, with both sides issuing combative statements and threats, contributing to volatility in energy markets. The spike in oil added to inflationary pressures but did not immediately trigger a broad market selloff, suggesting that investors remain focused on growth sectors insulated from consumer weakness, such as data center infrastructure and semiconductors.
Earnings results were mixed. HIMS and ESTS both reported disappointing quarters, with HIMS missing on both revenue growth and EPS, leading to a 15% decline in its stock price. ESTS also fell, as its results failed to excite investors despite meeting internal targets.
In contrast, VG delivered a strong beat on both EPS and revenue, raising guidance significantly and posting a 7% gain. However, the market's reaction to these results was overshadowed by the broader narrative of sector rotation and the resilience of AI-related plays.
Semiconductors, which have been the primary beneficiaries of the current bull market, began to show signs of exhaustion. Micron, after a remarkable run, experienced a sharp pullback from recent highs, prompting debate about whether the dip would be bought or signal the start of a broader correction. Institutional and retail flows into memory and AI infrastructure stocks have been robust, with major investment firms like CO2 Investment Management publicly declaring memory as the new bottleneck for AI, projecting a fivefold increase in demand.
This thesis has underpinned the relentless rally in names like Micron, but the session revealed the first meaningful profit-taking in weeks.
The disconnect between the stock market and the real economy was highlighted by data showing consumer credit and delinquencies at multi-year highs. Bloomberg reported record levels of auto and credit card delinquencies, while the NY Fed noted a nine-year high in 90+ day delinquencies. Despite these red flags, the S&P 500 and Nasdaq have remained buoyant, largely because the earnings growth is concentrated in sectors unaffected by consumer weakness—namely, the capex-fueled buildout of AI and data center infrastructure.
A key theme throughout the session was the critical role of optical communications and photonics in enabling AI growth. Companies like Corning, Coherent, and AAOI have seen renewed investor interest as the industry transitions from copper to fiber optics to meet the demands of high-speed, low-power data transmission. Nvidia’s investments in these areas, as well as the broader ecosystem of suppliers, have generated significant returns and further validated the picks-and-shovels approach to AI investing.
Amit Kukreja introduced a new resource, aibuildouts.com, aggregating 250 companies involved in the AI industrial buildout. The platform aims to provide investors with a comprehensive watchlist and financial data to identify under-the-radar opportunities across sectors such as data center construction, cooling, power storage, and rare earths. The emphasis is on due diligence and understanding business fundamentals, rather than chasing momentum in already overextended names.
Geopolitical developments continued to influence sentiment. President Trump’s upcoming trip to China, accompanied by major US business leaders, was seen as a potential catalyst for new deals, particularly for Tesla and semiconductor companies. However, the absence of Nvidia and AMD CEOs from the delegation raised questions about the administration’s negotiating strategy regarding chip exports.
Meanwhile, ongoing instability in the Middle East and the prospect of new tariffs added to the macro uncertainty.
OpenAI’s renegotiation of its revenue-sharing agreement with Microsoft, capping Microsoft’s share at $38 billion, was viewed as a positive for OpenAI’s private valuation and for venture funds with exposure to the company. This development, along with news of major investments in humanoid robotics and quantum computing, reinforced the market’s focus on frontier technologies.
The session also examined the shifting narrative around software stocks. Major investors, including Chris Hohn, have reduced exposure to legacy software companies, citing fears of commoditization by AI-native competitors. The market has increasingly favored hardware, infrastructure, and capex-driven plays over traditional software, with capital rotating into companies supplying the physical components of the AI buildout.
As the market opened, a broad selloff ensued, led by semiconductors and software. Nvidia was initially the only major semi to remain green, but eventually succumbed to selling pressure. The S&P 500’s recent six-week rally was noted as unprecedented outside of bear market recoveries, prompting concerns about sustainability and the risk of a sharp correction. Technical indicators such as RSI and moving averages suggested extreme overextension in several leading names.
Discussion of leveraged ETFs and options trading highlighted both the opportunities and risks in the current environment. While some traders have profited handsomely from aggressive bets on Micron and other semis, the inherent volatility and risk of NAV erosion in leveraged products were emphasized.
Elon Musk’s comments on the hardware constraints facing AI and data center expansion were a focal point. He underscored the challenges of scaling power generation and the specialized manufacturing required for turbine components, arguing that the next phase of AI growth will depend on overcoming these physical bottlenecks. This perspective has driven investor interest in companies supplying the “blades and bolts” of the AI infrastructure, often at the expense of traditional tech giants.
The session closed with a review of macro risks. Bond yields surged, with the 10-year Treasury climbing above 4.5% and the 30-year above 5%, putting additional pressure on equities. The CME Group’s announcement of compute futures signaled the growing financialization of AI infrastructure, potentially introducing new volatility as institutional capital seeks exposure to the “new oil” of compute capacity.
Historical analysis of earnings growth revealed that while gains are concentrated in semiconductors and energy, this pattern is typical of early- and mid-cycle bull markets. The risk of a midterm election year correction looms, as past cycles have seen significant drawdowns from May to October. However, the unprecedented pace of earnings revisions and the unique drivers of the current rally may challenge historical analogs.
In summary, the May 12th session encapsulated the tension between macroeconomic headwinds and sector-specific tailwinds. While inflation and consumer weakness remain concerns, the market’s focus has shifted decisively toward the capex cycle underpinning AI and data center growth. Investors are increasingly selective, rewarding companies that enable the next wave of technological infrastructure while punishing those perceived as laggards or exposed to commoditization.
The coming weeks, with key earnings, geopolitical developments, and potential shifts in monetary policy expectations, will test the durability of these trends.
LINKS
- Amit Kukreja's Twitter/X profile for market commentary and updates.
- Amit's Deep Dives Substack for in-depth research and analysis.
- Sign-up link for the Singapore meetup event.
- AI Buildouts: Aggregated watchlist and data for 250+ companies in the AI infrastructure ecosystem.