Rising yields and oil prices put stocks under pressure this week, while another bout of volatility in the AI trade tested investors’ conviction in the market’s biggest growth theme. The S&P 500 and tech-heavy Nasdaq Composite snapped their three-week winning streaks, down roughly 1.43% and 2.05%, respectively. Meanwhile, the Dow Jones Industrial Average slipped 0.85%.
Much of the pressure came from the bond market, where long-term yields surged to levels not seen in nearly two decades as tensions with Iran pushed oil prices higher and revived concerns about persistent inflation. The Treasury Department stepped in Wednesday morning with an unusual announcement, saying it would more than double the size of its buybacks of longer-dated government debt. Yields initially fell and stocks rallied on the disclosure, which Jim characterized as an effort to preserve the stock market rally.
But the relief proved short-lived, with yields climbing again Thursday and Friday as higher oil prices kept inflation worries alive.
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Political pushback on data centers
The AI trade also had a rocky week, and a series of headlines on political backlash to data centers may have played a role. That includes Pennsylvania Gov. Josh Shapiro’s executive order on Tuesday, which imposes tough standards on any developments in his state. On Friday, Jim questioned whether these restrictions on data center development would materially slow the buildout, or amount mostly to election-year rhetoric.
The uncertainty hit infrastructure names particularly hard, with GE Vernova and Eaton down 10% and 7.2%, respectively, for the week. We used the weakness to buy more GE Vernova on Tuesday, though shares continued to drift lower from there. The drop in these industrial names offers a stark contrast to the volatility seen in pure-play chipmakers, where competition is heating up and financing structures are shifting.
Competition among chipmakers intensified when Broadcom shares fell 4% Wednesday after its chief rival, Marvell Technology, announced an expansive partnership with Alphabet’s Google, its flagship custom-chip customer. Broadcom has long co-designed Google’s tensor processing unit (TPU). Now, Marvell has a deal to supply a variety of technology tied to Google’s TPU ecosystem. The deal validated concerns that Google will increasingly diversify its suppliers. We would have preferred Broadcom to win the business, but we’re not abandoning the stock. It does, however, reinforce why Jim ranked Nvidia, Intel, and Micron ahead of Broadcom among our chip holdings at last week’s Monthly Meeting.
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Broadcom was in the news again Friday, with Bloomberg reporting the company is in talks to raise more than $60 billion in debt for an AI financing deal. The arrangement would involve the creation of a special-purpose vehicle that uses the borrowed money to buy Broadcom chips, which are then leased out to a tenant, such as Anthropic, according to Bloomberg. The increased reliance on debt financing to fund the AI buildout warrants scrutiny, but the enormous sum also speaks to the level of demand for AI infrastructure. Broadcom shares rose Friday, but remained on track for a roughly 6.2% weekly decline.
Buying opportunities in semiconductors
Elsewhere in semiconductors, on Thursday we added Cadence Design Systems to the Bullpen following CEO Anirudh Devgan’s appearance on “Mad Money.” Cadence provides software and other tools used to design semiconductors. The company works closely with Club holdings Nvidia and Broadcom, while its relationship with Intel is expanding under CEO Lip-Bu Tan, who previously led Cadence.
