Semiconductors are ripping, trillion-dollar valuations are becoming the norm, and now the most hyped IPO in years is looming. So… is this the moment everything peaks? On this episode of In the Money with Amber Kanwar, Mark Sebastian, Founder of Option Pit, returns with a view of a market that’s moving faster—and getting more crowded—by the day. From Micron’s explosive run to Nvidia’s “vampire trade” losing steam, Mark explains how capital is rotating across semis in real time—and why he’s not shorting this market, even as signs of froth start to build.
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I’ve been out two nights in a row and am scheduled for a third dinner this evening. And when I say “out” I mean I’ve been home by 11pm after pounding mocktails. They might as well have been double shots of whisky because I don’t know I have it in me for this third night (which to be a clear is just a 7pm dinner with two mom friends). A fall from grace for this Western graduate who used to have a bar for every night of the week.
Here are five things to know:
Waiting for Iran: A possible truce with Iran is still the carrot driving this market forward. The S&P 500 has rallied for six sessions in a row to hit another record high (yawn!). Meanwhile the TSX has been yanked around by whipsawing commodity prices and bank earnings which failed to be an upside driver. Good earnings were met with a shrug, imperfect earnings pressured the stock. Yesterday, CIBC was the add man out falling 5% on lower perceived earnings quality. Stocks are indicating a pretty tepid open which is interesting because you’ve got AI stocks flying under the hood. More on that below.
Technically speaking: Canada unexpectedly dipped into a technical recession for the first time since 2020 with two back-to-back quarters of contracting GDP. This was a big surprise to the market with economists expecting 1.5% GDP growth and instead getting 0.1% contraction. It will also be a surprise to the Bank of Canada which penciled in 1.5% growth for Q1 GDP. The Canadian dollar plunged following the report as expectations for a rate hike (yes that is still the bias, tho not fully priced in) were pared back following the print. The weakness came from lower government spending and another drop in business investment. “This marks the fifth drop in business investment in a row, as trade uncertainty continues to weigh on activity,” wrote CIBC’s Katherine Judge. Residential investment was also down sharply. I keep thinking about the upbeat tone from bank CEOs this earning season about the future prospects, and while GDP is backward looking it does suggest an economy on its knees. Having said that the advance reading for April suggest the economy was off to a stronger start for Q2 with a 0.4% rebound.
Never dull: Shares of Dell are exploding 34% (!!) after knockout earnings and the stock is poised to hit a new record. All the more impressive when you consider it has rallied 180% over the past year. Total revenue jumped 88% from last year thanks to demand for AI servers, this was 24% higher than analyst expectations. The forecast also shot the lights out with sales and profit targets 30-40% higher than consensus. The bottom line is that hyperscalers are buying Dell servers hand over fist for their data centres. Dell says they’ll do $60 billion in AI server sales this year. Last year that number was $25 billion. All this and the stock trades at 23x earnings. The lone sell on the stock is licking his wounds this morning. “An incredibly impressive quarter,” wrote Erik Woodring of Morgan Stanley, “Eating our humble pie.” Woodring had been concerned that all this growth was just pull forward demand, but the strong forecast is “thesis changing.” He didn’t upgrade the stock but says everything is under review.
Portion control: Costco is dipping pre-market as membership growth slowed to a 10-year low. Costco has been offsetting that by current members upgrading to enhanced membership (you’re looking at a Costco Executive Member, no big deal). Honestly, it is kind of nitpicking because Costco demonstrated resilient sales and higher fuel related revenue as people made more frequent trips to the gas station to avoid the sticker shock of a full tank. But at 48x forward earnings this is what happens. This is double the S&P 500 and even high for Costco. Morgan Stanley says the multiple is warranted “given the company’s consistent execution and increasingly favorable medium-term earnings growth profile.” (Sorry to reference them twice, but it’s a good note!). One interesting nugget from the call on consumer behaviour: apparently there was a 50% increase in saunas and massage chairs. Maybe this is the new generation’s way of coping with stress!
To infinity: SpaceX may be trying to push the outer limits of human consciousness through the universe, but they appear to be having a tough time getting a valuation that’s out of orbit. Bloomberg is reporting that SpaceX is currently targeting a valuation of *just* $1.8 trillion which is below their ambition of pricing above $2 trillion. In total, SpaceX is seeking to raise an additional $75 billion through its IPO. A small Danish pension fund is on the tape calling the IPO “grossly overvalued” which could be echoing the sentiment driving the lower valuation. Space stocks have run up ahead of the IPO and on the podcast Mark Sebastian said investors should take their profits two days before SpaceX IPO. This morning shares of MDA Space (-2%), Intuitive Machines (-6%), and Rocket Lab (-4%) are giving back some gains on the news.
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