chollida1

There is no one reason for the tech route lately. But there are several causes as I see it:

1) Stocks priced for perfection. This applies mostly to Google that was priced to beat estimates. They did not and alot of people took that to mean Google was incorrectly priced and should have a multiple shift down.

2) worry about capital expenditures. Google was also guilty here as the market is starting to get worried about these companies getting over their skiis on cap ex. Microsoft did guide their capex lower but Google doubled down and said they'd spend even more. The market punished them for that.

to this point MSFT is only slightly down due more to the sector than the company as they did announce capex cuts for next year.

3) Intel just flat out failed to hit targets on their earnings that the market felt it should have been easy to do in this economy. And they got punished for it.

4) Most hedge funds and other large money managers have had decent allocations to the Mag7 and related companies as if you didn't have any tech exposure you would almost certainly outperform in the past 2-3 years.

This year we're starting to see a slow down or resetting of expectations for tech companies, Anthropic and Open AI seeing their IPO valuations get cut down is one large sign of this.

We've seen a large transition of hedge funds out of tech in the past 6 months that really accelerated with this earnings season.

5) Earnings capture. We're nearing the end of the year and alot of long/short funds are just starting to realize gains to lock them in for the year. Tech has had a good run and if you think that its going to get worse into the end of the year, you realize your gains here, or you get the sell side to write you a bespoke option at the price you want to realize your gains at if you don't want to realize it for tax purposes and then they go and sell the stock to hedge, which has the same effect of pushing down the stock as it would as if you just sold None of this is to say that AI or the tech sector is going away. its more of a changing allocation of money out of this sector due to their valuations getting ahead of their economics.

The US media using the abbreviation Reps to mean representatives and Republicans at the same time is very confusing.

I'd expect given all the counter party risk you are taking on that you should be paid a small rate to take on a perpetual future or tokenized stock.

Otherwise when the market goes bankrupt you'll be left with nothing and you won't have gotten compensated for the risk of holding the perpetual future or tokenized share.

> Yeah, it's rarely not fixed, and a lot was tied to the historic expectation of the investment being at most ~5-7 years.

You've got it reversed, the debt BDC's and PC firms write is usually floating rate based off SOFR. That' s why they do so well in rising rate environments.

Now they often borrow at fixed rates by issuing bonds or preferred shares that pay a fixed rate so falling rates has to opposite effect on them.

One interesting knock on from the hyperscaler growth we've seen is that the Mag7 have issued so much debt that they are crowding out other companies who would otherwise have no trouble issuing debt.

The private equity and private credit crowd is one of these groups that are currently running into this issue.

There is no way a growing company($15M to $500M in yearly sales is the sweet spot for these private credit companies) can compete with Google on debt terms so they have to raise their rates to compete suddenly, not because of all rates rising but strictly because we've just seen a huge debt issuance from some very solid credit companies.

We haven't seen a shock like this in 20+ years I've followed the credit market where a small group of companies issue so much high quality debt in such a short period of time, note there is also a lot of less high quality debt issued in this same time:)

So much has been issued that credit funds have run out of appetite to acquire Lowe middle market debt at their current spreads. This is just the way markets work so no one is crying in the casino but it is a big shock to the credit markets.

heck there was concern that the US government may have trouble issuing 5-10Y debt at rates they are used to because of the amount of GOOG, META,etc debt that is available at better terms.

Its a wrinkle to the markets that no one really predicted as a knock on effect of AI's growth.

This is all the back drop for BDC(Business Development Companies) and other private credit issuers who normally loan money for 5-7 year terms.

Those cheap 2021 loans to these small private companies are now coming due into this market with the additional head wind that the largest single sector that issued debt was venture backed software companies, who now face the head winds of the macro factors described above and the additional factor of AI commoditizing alot of hte software that these companies are building.

Private credit and equity are going to have a rough couple of years.

Things to watch out for are lack of IPO's and exist from venture/PE backed companies and a proliferation of continuation funds that kick the can down the road.

On the plus side, its a great time to be a credit trader, but not necessarily a credit issuer:)

The big loser in this might be the NHL and the NHLPA(Players association). The NHL salary cap has gone up alot in the past few years and TV is a big driver of that.

It seems like 50% of commercials are for gambling. If this goes away then the networks TV revenue will almost certainly go down and that has the potential to make the NHL TV rights less valuable to the networks.

The NHL wouldn't be alone here but of hte big 4 north American sports it the most exposed here.

Interesting:

- Elon's got SPCX today and TSLA tomorrow, can't remember that ever happening before:)

- the biggest driver of Elons net worth and wealth

- he could become a trillionaire if this goes well

- politicians pointing out the conflict of interest “SpaceX got almost $6 BILLION in taxpayer-funded defense contracts last fiscal year,” Van Hollen wrote. “Meanwhile, SpaceX CEO, Elon Musk, has spent over $360 MILLION in our elections this cycle. This should be illegal — but it isn’t. I’ll be introducing a bill to close the loophole that allows it.”

- SPCX refers to AI as AI and SI in different places so the SI term hasn't taken off yet:)

- will they address a TSLA SPCX merger

- earnings call livestreamed on X

- company is roughly flat since its IPO, this seems like it will be the new win for companies that go public with such large valuations, very hard to grow from a $2T market cap.

- if SPCX is worth $2T, it will be very hard for Anthropic and OpenAI to claim they are worth as much with worse prospects, especailly if the rumours of an $80B loss for Anthropic is correct

- Elon says they will have between $500B adn $1T of reocurring revenu by next year, press X to doubt, but its Elon so...

Starlink:

- radio frequency spectrum aquisition shoudl close 27Q2

- subscriber growth was less than expected, but offset by customers paying more

- now at 13.5M subscribers

- will they address the headlines that now claim Elon was personally responsible for the Ukraine Starlink shutdown(wall street journal reporting so likely correct)

- expect to have 100,000 starlink satalites in space by 2029

- looking to do a midspace refuel in H1 next year

- satellite network is contracted for 12,000 planes

Cursor & AI:

- contributed $608M in revenue, for the current AI market boom this is surprisingly low number, like really low, like cursor employees should be concerned about their jobs

- operating profit of $431M on the quarter, pretty darn good

- still up from $1.2B last quarter

- now larger than space in terms of revenue

- hve 1.7GW of compute now, but Elon says he's spending 4-5 days a week in Memphis working to bring on 3GW by the end of the year and 14GW by the end of next year

- named dropped Nvidia Vera Rubin as the main chip they'll be using

- Elon says he expects Grok Bot to be the biggest use of computer/AI from grok users

Finacials

- expected $92B in cash, but only have $51B huge discrenency here, *offset by $38B in securities, so still off but not too far off

- quarterly profit of $0.35/share

- 3Q Net Income $4.40B, Est. $1.88B

- 3Q Rev. $14.58B, Est. $12.87B

- 3Q Adj. Ebitda $8.81B, Est. $6.59B

- 3Q Capex $19.59B, Est. $19.6B

- Space capex is $1.6B, who would have thought that the space program is really cheap to run vs a software business:)

- $4.3B in NASA contracts

- Numbers are good but expectations were sky high so stock could easily fall at the open

- net income got a boost from $1B of other income and $400M of tax benefits, so operating income was $2.8B(vs $2.2B expected)

Starship:

- expenses (R&D and Launches) were up $367M YOY, shows launches are up as is development

- Elon saying they'll fly weekly starting Q2 next year!!!!!, though last earnings he said it woudl be daily by the same period so maybe bet on a launch a month to keep this on Elon time

-

Well I'd agree the size of these deals are far larger than any debt deals I can remember in the past 10 years.

But that has nothing to do with the scare tactic headline that says banks are trying tot offload debt. As I said this is exactly how banks work and how they treat all debt they underwrite.

Yep i'd say your comment fully agrees with me.

> Adjusting for inflation, though, things also can happen faster now than, say, thirty years ago, and there's more centralization in quite a few industries.

Not sure its just related to centralization, probably more so that information can flow more freely now, but I fully agree.

> My mortgage has been sold almost a half dozen times already.

Sure that could be true, but that has nothing to do with the public debt we're talking about.

Completely different markets.

That's like me saying the condo Market in Miami is hot and you rebutting that single family homes in HOA's in Phoenix are not hot right now.

Both can be true at the same time as they are completely different market that are only very tangentially relate.

Different markets, that is public debt the op was talking about private credit.

I agree with JPM that now is a good time to invest in public debt.

> The CDOs on some loans are getting to the point where it’s too expensive to even bet that the loans will fail as the CDO market seems to have concluded the loans will fail.

Did you mean CDS? As your sentence doens't make sense as its written.

> It feels like each bubble gets bigger.

Well you would expect that given that the market keeps getting bigger and the money in circulation keeps getting bigger.

Inflation alone means each bubble should be bigger than the last all other things being equal.