To The Moon

Hello. In the last piece Nvidia was out raising up to US$500 billion for AI infrastructure and the market had started asking where the money would come from. Last night we got half an answer: the money is there, but the people putting it up and the people spending it went in opposite directions.

The providers all rose: KKR up 6.88 per cent, Apollo 6.26 per cent, Brookfield 4.77 per cent, Blackstone 3.89 per cent and BlackRock 1.54 per cent.

The spenders fell for a second day: Alphabet down 3.61 per cent, its fourth decline in five sessions; $Amazon.com(AMZN)$ down 2.09 per cent, $Broadcom(AVGO)$ 1.5 per cent, $Apple(AAPL)$ 1.09 per cent and $Microsoft(MSFT)$ 0.44 per cent. $NVIDIA(NVDA)$ itself fell 0.02 per cent, which is to say it didn't move.

Someone at KKR explained the delight in one line: "think of it as a revenue stream, then securitise it." Six institutions are each building a compute-financing platform, Nvidia brings the customers, and it may choose to take a guarantee exposure of up to 25 per cent on each loan. For firms that manage money for a living, this is a new pipe that pays fees for decades.

The bull case is real: a one-gigawatt data centre costs about US$50 billion, and a buyer like OpenAI does not even have an investment-grade rating yet, so that gap has to be bridged by something like this. BlackRock's Larry Fink compared it to first encountering mortgage-backed securities in the 1970s.

The bear case is equally real, and it points at one thing: what the collateral is worth when the loan matures. Chip generations have gone from every two years to every year, and each new one marks down the last. The model has not been through a full cycle. And what was signed is a memorandum — no borrowers, rates, sites or start dates have been disclosed.

One place is already flashing. Five-year credit default swaps on Nvidia are up about 90 per cent this year and, even after narrowing 5 basis points to 72.11 last night, sit near their highs. The share price didn't budge; the cost of insuring it has nearly doubled.

In the last piece I wrote that the names due to report this week had been sold in advance. They were sold early: all three turned around, and all three in the same way.

$CoreWeave, Inc.(CRWV)$ rose 2.42 per cent in the session and jumped 15.37 per cent after hours. Revenue of US$2.575 billion came in US$36 million below the US$2.611 billion expected, but it was up 112 per cent year on year, the loss of US$1.03 a share beat the US$1.24 expected, and — the part that mattered — the order backlog passed US$100 billion, at about US$104 billion.

$SUPER MICRO COMPUTER INC(SMCI)$ rose just 0.45 per cent in the session and 7.72 per cent after hours. Revenue of US$11.12 billion missed the US$11.782 billion expected by more than US$600 million, yet earnings of US$1.70 a share came in well above the US$0.98 expected, with more than US$60 billion of new orders alongside.

$Lumentum(LITE)$ rose 0.87 per cent in the session and 3.56 per cent after hours. Revenue was US$1.01 billion, up 109 per cent, and guidance for the current quarter has a midpoint of about US$1.255 billion, some 8 per cent above expectations. The same statement carried a GAAP net loss of nearly US$7.2 billion — a one-off, non-cash charge from converting part of its convertible notes into equity, not a business turning bad.

Two of the three missed on revenue and the third only just beat. All three went up anyway, on the order book and the guidance.

What can be securitised was never how much was sold last quarter; it is the part signed on paper and not yet delivered. Compute is turning from selling equipment into signing long contracts, and a long contract is the thing you can take to a lender. On the same day, Anthropic and the miner Riot agreed a 20-year compute purchase: a base contract of about US$9.1 billion locking in 191 megawatts, rising to as much as US$16.1 billion if all extension options are exercised. Riot rose 4.33 per cent.

One name was the exception. Sea rose 14.56 per cent on neither an order book nor guidance, but on the quarter itself: pre-market revenue of US$7.805 billion beat the US$7.275 billion expected, and earnings of US$0.86 a share beat US$0.79. Among last night's results, it was the only one that did not have to talk about what it will collect later.

Memory is going the same way. $SK hynix(SKHY)$ rose 4.70 per cent, $SanDisk Corp.(SNDK)$ 2.68 per cent, $Micron Technology(MU)$ 0.87 per cent and $Direxion Daily Semiconductors Bull 3x Shares(SOXL)$ 2.31 per cent, clawing back part of the previous day's losses, with long-term memory contracts reported to be spreading from the leaders down to second- and third-tier makers. At the same time, Korean brokers cut their targets on Samsung and SK Hynix, the deepest by 30 per cent. Upstream conditions keep getting confirmed and the shares keep going sideways, and this is what is missing: nobody can say how long those contracts hold.

A batch of 13F filings also landed, putting the other half of the question — where the money is going — on the table. Berkshire bought about US$23.5 billion of listed stock in the second quarter against US$3.7 billion of selling, close to US$20 billion net, ending 14 straight quarters of net selling: the most conservative money in the market has started buying again. The successor has started to leave a mark too, with three new positions already about US$1.2 billion in the money. Citi's holdings passed US$300 billion, with notable additions in Micron and AMD. The share price did not play along: Berkshire's B shares fell 2.46 per cent.

Space cooled off, with $SpaceX(SPCX)$ down 3.93 per cent and one broker calling Rocket Lab's roughly 36 times forward sales a valuation trap. The indices went on hugging their highs: the S&P 500 fell 0.32 per cent and the Nasdaq-100 ETF (QQQ) 0.34 per cent.

July CPI comes at 20:30 Singapore time tonight. The Dow Jones survey of economists looks for 3.4 per cent year on year, down from 3.5 per cent, and 2.5 per cent for the core, down from 2.6 per cent. The same evening, Nebius reports pre-market and Coherent after the close.

Last night the market accepted the order book. Tonight the question is whether inflation plays along.

A note on sources: the moves for KKR, Apollo, Brookfield, Blackstone, BlackRock, Amazon and Broadcom, and the Nvidia CDS quote, are cited from market reports rather than this piece's own price feed; Lumentum's US$7.2 billion loss is a one-off, non-cash item. The above is personal analysis, not investment advice.

💬 【Talking Point】

Berkshire just ended 14 straight quarters of net selling. Is the most conservative money in the market early, or late?

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