As Anthropic rushes to takes its shares public, the AI trade is showing cracks, and they are not confined to fringe players.
We recently wrote about CoreWeave, which fell 15.5% on Oct. 14 as yields on its 2032 notes touched 15%, and its default-swap spreads nearly doubled in October. IREN is down more than 20% this year. Last Thursday, the contagion reached chipmakers, which makes sense since much of CRWV and IREN's spending is going there. AMD dropped 8.1% as Meta's financing plans and a supply warning from Lam Research exacerbated data-center fears about the pace of AI spending.
Because when you screen for factors that demonstrably generate outperformance over time, the list narrows quickly. My screen: price above the 200-day moving average; revenue growing at least as fast as the S&P 500 (5%+ per annum); EPS growing at least as fast (7%+); rating upgrades; a PEG below 3; and ROE and ROIC of at least 12%. Of the names reporting in the next two weeks, AMD is effectively the only one that makes the list. Yes, you can (and arguably should, as our staples article described) position your portfolio with slightly less tech exposure than the broad indices provide, but we can't ignore the market's biggest and most transformative sector entirely.
Especially because the growth in this case doesn't just meet my criteria; it blows past them. Consensus for Q3 calls for EPS of $1.94 on revenue of $13.06 billion, versus $1.20 and $9.25 billion a year ago. That's YoY growth of nearly 62% and 41%, respectively. The recent drawdown came from a sector selloff, not anything AMD reported, but it shows that if some names in the space get hit, even the larger players are likely to feel it. On Oct. 6, Lisa Su said AMD would substantially increase supply in 2027 because AI orders keep outrunning capacity.
So how do you balance factors we know work for a fast-growing company against a backdrop of cracks in the AI trade? Options.