(0:10) My recurring theme is a “renaissance” in semiconductors, and, I'm gonna say it once again: it's all about the chips — still.

(0:40) Consider that one of the best performing things this year is the Philadelphia Semiconductor Index, the “SOX,” the benchmark index of chip stocks, up 63% this year.

(0:50) The chip-heavy TL20 group of stocks to consider, curated by yours truly, is only up 53% through Monday, though I’m not complaining.

(1:24) An important recent example of the chips: I took a trip last week to Silicon Valley to see the newest offering from Cerebras Systems, which competes with Nvidia in AI chips. 

(3:01) The Cerebras “Wafer-Scale Engine” is a chip the size of an entire semiconductor wafer. They also build entire computer systems around that chip.

After all that’s happened with Nvidia in ninety days — offering its own balance sheet to back OpenAI’s dreams; inducing financial types to “securitize” the sale of AI chips; SpaceX saying that it will commit to Nvidia as its sole AI chip supplier;   continued raging demand for all chips; and CEO Jensen Huang touting his favorite stocks such as Marvell — this Wednesday evening brings another earnings installment from the company.

The question, once again, with Nvidia, is whether even very favorable results can do anything for a stock stuck in neutral.

Nvidia shares closed down three points Monday, at $208.48, now declining seven days in a row. The stock has gained just under 13% for the year, basically tracking the market despite continued positive reports from the company. 

Elon Musk has achieved a reputation as making the impossible come true. However, the larger his ambition, the more his promises seem to be pushed far out into the future.

There are no “Optimus” robots selling to customers, and the world is not filled with Tesla robo-taxies, despite high expectations for both.

Therefore, it’s reasonable to cast a skeptical eye on the latest outsized promise from Musk, the contention his Starlink broadband service inside of SpaceX will become the U.S.’s fourth largest cell phone operator next year.

To date, Starlink is a constellation of “low-earth-orbit” satellites that deliver either broadband connections to a customer premise, or a mobile service that fills in dead spots around the world — specifically, 7.4 million mobile users in thirty countries as of the end of June.

The question mark is Musk’s ambition to go way beyond that nascent mobile service.

I’ve been on the road a few days, and have finally had a chance to settle back into the corporate earnings groove. Thankfully, this is a less-intense week of reports. (See the chart down below.)

Two TL20 names, Analog Devices and Keysight, delivered excellent reports but their stocks fizzled. This is the equivalent of a Broadway show or a box office feature that gets rave reviews from the critics but fails to catch on with the general audience. However, both stocks have performed very well this year, so, it’s perhaps not a surprise that they didn’t get a pop their numbers.

Alibaba, the Chinese e-commerce giant, is an important read on the AI trade because Alibaba’s cloud computing division is such a large and fast-growing part of the business and it includes many offerings that are linked to AI. Chinese AI models have been increasingly competitive with the top U.S. offerings for several years now.

The company reported June-quarter results Thursday morning.

Monday and Tuesday, I was in San Francisco attending the unveiling of a new AI computer by Cerebras Systems, a company that has fascinated me for almost a decade.

I had a chance to meet with CEO and co-founder Andrew Feldman and his team on Monday in a small group press session, and Tuesday was the general reception for media, customers, partners and others. I heard there were three thousand RSVPs for the festivities, which took place at The Midway, a concert venue on the San Francisco Bay waterfront. At Tuesday’s event, there was a line around the block to get in hours before the start, which is a nice indicator of the momentum the company has.

The big challenge for Cerebras for its next computer was to maintain its edge in speed against The Leading Brand, Nvidia’s GPUs. It seems to me they accomplished that, and also set themselves up for meaningful improvement in profitability by boosting the economics of their products.

Things keep getting weirder in the artificial intelligence market. 

Following Nvidia’s announcement last week that they are partnering with BlackRock and other financial firms to securitize AI chip rentals, the company on Monday announced it will underwrite a portion of a massive data center in Ohio that is to be used by OpenAI.

This is a rather astounding push by Nvidia to leverage its balance sheet — over $120 billion in cash and equivalents — to both drive chip sales and to create more distance between itself and competitors. Is it worth gambling with investors’ money to encourage future chip sales? I have my doubts.

According to Nvidia, the main obstacle to AI’s growth these days is “land, power and shell,” or, LPS, as CEO Jensen Huang refers to it in his blog post accompanying the announcement. (The shell is the physical structure of a data center, the building itself.) Huang aims to be the one to resolve that impasse.

(0:41) It's been two weeks since the last podcast because I needed that much time to reflect on the two biggest weeks of earnings season, with 274 companies of note having reported thus far.

(1:14) During this earnings season, we have also gotten more evidence of the tenuous nature of the artificial intelligence trade even though AI-linked stocks have rebounded. 

(1:46) The AI-heavy TL20 group of stocks to consider is up 14% for the month of August after a sell-off of about 10% in July, with a rise of 7% this past week ended August 14th. That’s a 64% gain for the year. 

Software maker Procore Technologies, which sells programs that help general contractors manage the construction business, is looking to transform itself after twenty-four years in business.

The person charged with the financial part of that transformation is chief financial officer Rachel Pyles, who took over from Howard Fu in April and is committed to making Procore “best in class” in software. A key first step in that direction is taking the company’s adjusted (non-GAAP) operating profit margin from 19% this year to 25% next year.

“That 25% still isn’t best in class, it’s just a meaningful step forward in getting there,” Pyles tells me in a conversation we had following the company’s earnings report July 29th.

Pyles has a ways to go to reach best-in-class: Microsoft, for example, which reported the same day as Procore, has an operating margin of 45%. Pyles tells me 25% is merely a “milestone,” a way to frame things because “I get a lot of interest from investors,” she says, who are asking her, “’Hey, we hear you, you can get to these best-in-class margins, but, when are you going to get there? How are you going to get there?’”

Shares of both Cisco Systems and Cerebras Systems are sharply lower Thursday in spite of upbeat results and outlook in their Wednesday evening reports.

Cerebras shares are down 13% at $228.92, still below the first-day close of its May 14th initial public offering of $311.07. Cisco shares are down 9% at $113.26 after what had been a 61% rise this year heading into Wednesday evening’s report.

I had originally thought the sell-off was merely about expectations being too high for both. In a sense, that is true, but the deeper concern is that global shortages of everything are constraining what the companies can deliver.

This was only Cerebras’s second quarter since coming public. The results were again strong, with sales of $210 million ten percent higher than expected and the net loss 74% smaller than expected. The outlook for this quarter is stronger as well, and the company teased that it will be able to triple its revenue next year.

But, Cerebras clearly could have sold more in the quarter if not for data center and chip-production limits.

As explained by Cerebras’s CFO, Bob Komin, the company faces constraints in a number of areas.

Oh, they just keep coming, the earnings reports, with another eighty or so worth consideration this week. 

The headline report from Tuesday evening is that of CoreWeave, whose shares are higher by 18% on Wednesday at $107.25, after the company comfortably beat expectations and raised its annual forecast for revenue as its backlog of AI hosting soared once again. (See the table at the bottom of the post for this week’s reports so far.)

CoreWeave is pushing up just about everything that’s AI-linked today. The AI-heavy TL20 group of stocks to consider is up 4% this morning, lead by big gains in Bloom Energy, Sandisk, Seagate, Lumentum, and Micron Technology.

The numbers from CoreWeave were better than expected, but nothing astounding: Revenue came in a percent ahead of expectations, the smallest revenue upside since CoreWeave started reporting in May of last year. The company mildly raised its revenue outlook for the year.

But, the huge jump today is not about reported upside, it’s about the fact the business continues to grow, defying the fear that had been circulating last month about Meta Platforms entering the GPU rental market and crushing CoreWeave

Nvidia shares ended fractionally lower on Tuesday at $217.50 after the company announced an agreement in principle with multiple financial partners, including BlackRock, to raise $500 billion in debt to fund the deployment of chips, including purchases of Nvidia’s GPUs.

Much as I love Nvidia as a company and investment, my hope is that this speculative effort fails to find many takers and fizzles.

I had the same reaction when chairman Masayoshi Son of SoftBank Group announced a half-trillion-dollar fund for AI data centers in January of last year, called Stargate. I called it “mainly a photo op” for U.S. president Donald Trump, Son, and his partners in the deal, principally Oracle chairman Larry Ellison, and OpenAI CEO Sam Altman.

Nobody talks much about Stargate these days. The effort ran into trouble quickly after being announced last year, and the Financial Times’s Tim Bradshaw and colleagues related in May that the initiative has basically faded away. 

Thank goodness for that. 

Dear reader, how well I remember walking the streets of New York City on July 3rd, reporting on the many who waited hours or even days in line at an Apple Store or an AT&T shop to be the first to have the first iPhone. 

Honestly, I had forgotten that it has been almost twenty years. And, apparently, the anniversary next July could be an unhappy one for Apple’s stock, according to Jefferies & Co.’s  Edison Lee, who Monday cut his rating on Apple stock to Underperform from Hold. 

Keep in mind, predicting disasters for Apple’s forthcoming products has proven very tricky for analysts.

Lee’s focus is the rumored “all-glass” iPhone model expected next year as a twentieth-anniversary celebration.

In case you have been under a rock, Bloomberg’s Mark Gurmanreported a year ago, and MacRumors’s Hartley Charltonstudiously summarized last week from that reporting, a description of an iPhone made of glass that “wraps around” all four sides of the device, something that sounds like a kind of “infinity pool” of a screen.

I’ve thought a lot this year about what happens if all the plans for artificial intelligence investment fail to show up. What if the financing doesn’t come through as expected? What do AI companies do if they build data centers and they can’t sell all the capacity? What happens to the chip makers if they suddenly find orders being cancelled?

It’s refreshing to talk with Paddy Srinivasan, CEO of software maker DigitalOcean. He’s contemplated the negative scenarios as well, and he admits there are “known unknowns.”

“There will be a 1999,” Srinivasan observed in a chat he and I had via video last week. “Now, how do we survive that?” He was alluding to the plunge in the Nasdaq Composite as the DotCom bubble burst. (Actually in March of 2000, but the reference is clear.)

“Are we in 1998 today or are we in 1996? Nobody knows, right?”

Rather than “party like it’s 1999,” Srinivasan has been performing what amounts to a delicate balancing act. He is both courting the whales, such as software startup Courser (in the process of being acquired by SpaceX for $60 billion), while also avoiding being dependent on them by building an enduring base of smaller customers who come for continually increasing capabilities in AI.

Thursday evening was a good one for multiple software names, mostly of the programming tool or infrastructure sorts, as you can see from the table at the bottom of this post, in which I’ve highlighted the software stocks in blue. The average return of software names following their report this week is 9%, better than the 6% average for all stocks reporting.

Bear in mind, I’m still tabulating!

Among names surging Friday morning are Twilio, whose CEO I interviewed last night; and JFrog, which sells tools to check the quality of programming code, is one of the vendors that was hit the hardest back in February when Anthropic’s Claude Code Security debuted and seemed like it would mean the end of all traditional coding tools.

Shares of software maker Twilio are surging by 16% in late trading Thursday, at $225, as the company once again hit milestones in CEO Khozema Shipchandler’s pledge to boost the company’s growth and profitability.

Revenue growth keeps rising, up 22% last quarter versus 13% growth a year ago, the company reported this evening. And the free cash flow margin continues to expand, reaching 24% last quarter versus 21% a year earlier.

Shipchandler was kind enough to talk with me following the report as he has done six times previously. (See the sidebar.)

What’s clear to me is that Shipchandler has an opportunity to expand the company’s offerings in artificial intelligence now that he has stabilized and vastly improved the company’s financials.

“It’s very early days that, you know, but we have aspirations in governance and observability” of AI programs, says Shipchandler.

The AI “token” disaster I wrote about in May is hitting companies hard — specifically, hitting their budgets really hard, according to Yamini Rangan, the CEO of front-office software maker Hubspot.

Her company’s stock is plummeting Thursday morning after the company’s Wednesday evening earnings report came up short because companies are trying to control runaway AI budgets and getting pickier as they do so.

This is one of the biggest concerns I’ve had about the software group: not that they would be made obsolete but that so much distraction would emerge from the whole AI push inside of corporations that it would destabilize the traditional commercial software market. We’re seeing that play out now.

WHY SANDISK WILL BE OKAY

Among the AI-linked names, few have had as rich a year as Sandisk, makers of NAND flash memory chips, whose stock is up 469% this year at Wednesday’s close of $1,350.50. However, the shares are down 11% this morning after the company’s revenue forecast Wednesday evening came up shy of consensus at $10.55 billion versus $10.8 billion. This is the first time the company has disappointed with its revenue outlook since it came public in February of last year as a spin-off of Western Digital.

In addition to SpaceX’s very mixed report Tuesday evening, earnings results overnight featured continued strength from Advanced Micro Devices and Arista Networks, and some surprising positives for the software group, including Shopify, Kaltura, Dynatrace, while other software makers that have already been under pressure, such as Criteo and CS Disco plummeted.

Dynatrace, one of the tools vendors in “DevOps” that I highlighted in this week’s podcast, is having a better time today than back in May.

With Dynatrace, we now have two of the five names I mentioned on the podcast, including DigitalOcean, yesterday, delivering positive results.

AMD shares are down six points at $487.30 despite a very strong report. The shares had been up 142% since the start of the year, so, I regard this really as profit-taking and nothing to do with any issues in AMD’s business, which continues to get stronger and stronger.

Tuesday, the day of SpaceX’s first quarterly report as a public company, was a funny trading day. The stock gained 9% in regular trading, lifted by the overall positive attitude about all things AI, to about $125. But then it gave up 8% in after-hours as the report came out, retreating to $115 and change and continuing to trail the offer price of $135 of the June initial public offering. 

The stock continued to fall this morning, down 11% at $111.07.

The headline is that the company beat expectations. The key element, however, for many, is capital spending that came in a lot hotter than expected, and looks set to go much higher from here.

Palantir shares are seeing the biggest after-hours/pre-market gain since February of last year, up 15% at $144.45 following on Monday evening’s report, and estimates and prices targets are likely headed higher Tuesday.

The company beat on every metric that mattered to the bullish types, results that are unique in the software industry.

My sense is Palantir is being helped as investors trade out of AI competitor SpaceX, whose shares have lost a third of their value since the IPO in June. SpaceX was likely direct competition for Palantir shares, and the movement of money into SpaceX stock doubtless contributed to a 29% drop in Palantir leading up to this afternoon’s report. I sense the curse of SpaceX has now lifted from Palantir, allowing investors to focus on the fundamentals.

We’re past the heaviest two weeks of earnings, but we have tons more reports to come. The cloud giants, Amazon, Microsoft, and Alphabet, have signaled continued spending even as their backlog swells, providing support for the AI trade. Software companies have turned in a very mixed performance, with cyber-security being the one bright spot. This week features the traditionally most expensive stocks in tech such as Palantir and Astera Labs, but also the tools makers that are riding the AI wave such as Datadog and Digital Ocean. And, special mention of AXT, whose wafer sales are a remarkable new chapter in its forty-year history.

Thursday evening’s earnings have prompted a jump in late trading of 11% in shares of Amazon and a drop of 8% for Apple, which is not surprising as I see Amazon one of the best positioned Mega Caps for AI along with Alphabet’s Google, while Apple has a mess on its hands with the rising cost of memory chips affecting iPhone and Mac costs and pricing, an issue that I expect to linger.

The evening also contained some interesting surprises that tend to reinforce the AI trade.

The biggest gainer after-hours is forty-year-old semiconductor company AXT of Fremont, California, up 37% in early Friday trading at $65.25

AXT makes the wafers that are used to make chips.

Tonight’s revenue upside of 39%, $48 million against a Street forecast for $34 million, is the biggest upside in at least five years, according to FactSet

The New York Times’s Rob Copelandon Thursday reported that hedge fund Situational Awareness has suffered a massive collapse in its AI-linked investments and had to be rescued by hedge fund Citadel, which swooped in to buy $10 billion of Situational’s stock holdings at “a substantial discount,” citing multiple unnamed parties.

The move was apparently prompted by gigantic declines of stocks held by Situational. The fund had enormous leverage, Copeland relates, so that the stock drops were amplified, prompting margin calls the firm couldn’t meet.

I never actually looked into Aschenbrenner’s investments. These are not, in my mind, the most promising firms to own in AI. They are mostly in the commodity business of renting GPUs to all comers.

On Wednesday evening’s conference call with Microsoft CEO Satya Nadella, we learned that Nadella has been reading one of the noteworthy business books of the year, “1873,” by Liaquat Ahamed. The book is about the speculative railroad building of the 1800s, and it’s very timely as it talks about excesses, credit bubbles, and what happens when it all comes crashing down — the very issues that hang over the artificial intelligence boom in which Microsoft is participating along with other tech giants.

Nadella brought up the book in response to a question by Bernstein analyst Mark Moerdler, who wanted to know “How does Microsoft protect itself if there really is overcapacity and overbuilding of data centers or overbuilding of chips?”

Said Nadella, “All of us are reading this 1873 as the book to be read,” said Nadella. What he’s learned, however, from the book, seems to miss Ahamed’s point, and didn’t really answer Moerdler’s question. “You’ve got to run an efficient railroad,” said Nadella, which is not really the point of the book. The point is the entire world inefficiently allocated capital for a period of 25 years. “I think you've got to get the product shape right,” added Nadella, which is what a product manager says when they have no answer for a really big question.

Tuesday evening was another very mixed bag for the AI trade, with shares of chip equipment maker KLA down 6% in late trading, and data center power supplier Vertiv down 12% in early Wednesday trading. But two other TL20 stocks to consider did very nicely, Seagate and Bloom Energy, their shares surging after-hours.

If I had to sum it up, I would say that the very focused product portfolios of Bloom and Seagate — a fuel cell, a hard drive — make for very clean reports, while the diversity of the businesses at KLA and Vertiv mean there are more “moving parts” every quarter, if you will, which makes it harder for the results to always satisfy the Street.

Bloom, maker of fuel cells that convert hydrogen and natural gas into energy to power data centers, continues to be a runaway train of sorts. The company’s reported revenue for the quarter came in 29% above consensus, at $1.07 billion,  the seventh quarter in a row of higher-than-expected sales.

• We continue to be in the unwind of the artificial intelligence trade. There’s no fundamental reason other than the stocks had “gone parabolic” from April through June, and it was time for them to come back to earth.

• The TL20 group of stocks to consider is a good barometer of that AI trade with names such as Vertiv and Micron Technology.

• The most interesting question coming out of last week’s reports is, Are investors rotating in a meaningful way from chips into software stocks.

The first batch of earnings are in for the week, and the result is punishment for stocks that had risen sharply this year and have failed to meet high expectations, including glass and fiber-optics giant Corning, down 16% at $116.32, and chip maker Amkor, down 24% at $46.35.

What you’re seeing with today’s losers is that revenue expectations had gotten ahead of reality based on exuberance about the current business environment, and now that’s being corrected. Business is still fundamentally healthy for these companies, but not always as big as some would like.

You’re also seeing the continued unwind of the AI trade given substantial investor anxiety about how much is sustainable in massive data center build-outs.

I have been skeptical of artificial intelligence being successful in the enterprise because of the enormous complexity of using AI to engineer something that is of acceptable quality. On Monday, analyst Rishi Jaluria of RBC Capital provided some excellent data that reinforces my skepticism.

It’s a delightful piece of work, one of the most enjoyable I’ve come across in a while. I don’t know if it will change investors’ minds, but it’s worth pondering.

Jaluria offers a “model,” or, as he puts it, a “formal framework, which investors can scrutinize and battle-test,” which incorporates the typical cost of commercial software and the hypothetical cost to build stuff with AI to equal or replace the commercial stuff.

Jaluria compared what it costs to build an AI app versus buying one from Hubspot, Microsoft and other established software vendors. His conclusion is that the “total cost of ownership,” TCO, of making something from AI is not worth it.

The week ahead is ferociously busy for earnings with Apple, Meta, Amazon and Microsoft and other tech giants, but also interesting for a host of lesser-known companies.  

The table at the bottom of the post features ninety-one companies — ninety-one! — reporting earnings this week. Hey, if they ever change the rules for quarterly disclosure, this might be one of your last times to pig out on such a buffet. 

I expect to hear bad news from Apple, Amazon, Microsoft and Meta. Apple is grappling with the rising cost of DRAM, with its attempts to secure the U.S.’s approval of purchase of DRAM chips from China’s CXMT still very much in the headlines. Microsoft and Meta will likely, similar to Alphabet last week, be in the penalty box for their skyrocketing capital spending plans.

For others, such as Reddit and Coursera, the story will be a mixed bag of whether they can survive the erosion of AI of their content business. Reddit reports Thursday evening.

Consider instead several of the more interesting names, most under a trillion dollars in market cap.

This first full week of earnings reports showed what looks like a turn away from the semiconductor beneficiaries of the artificial intelligence trade and toward the beleaguered software group. 

Shares of TE Connectivity, Texas Instruments, MaxLinear, Intel, and BE Semiconductor, all of which had very favorable reports, sold off hard. All three had been up by a huge amount this year prior to their reports, as you can see from the table below. 

Google also sold off hard despite robust results reported Wednesday evening. 

Conversely, software makers SAP, RingCentral, VeriSign and Wex all had significant gains after trailing the market this year. 

Thursday was a banner day for followers of the microprocessor trade, with Intel reporting results after market close and Advanced Micro Devices holding what has become an annual affair in San Francisco, its update on its artificial intelligence chips.

Intel initially spiked double-digits in late trading, but gave up some gains but is up just 2% in early Friday trading, at $102.87. AMD shares traded down two points during Thursday’s regular session.

The key for Intel still is the “foundry” business, bringing in outside customers to use Intel’s factories.

The song remains the same at Intel, in a sense: Going back in time to the Gelsinger days, Intel has always had interested parties, and never found a large customer. In years past, the PDK simply didn’t deliver the goods. Hopefully, with Tan’s rigor, and the sense of opportunity, this 14A will be the real deal. We may know in October.