Mrak Rcussni, CAP📈💰💵

Every great industrial revolution has had overinvestment due to the potential for riches for the last companies standing. Eventually this ends in a bust. AI I believe is no different. But I believe the current “speedbump” is not the beginning of that ultimate bust. On Saturday June 20th, I laid out my near-term concerns of an AI “speedbump” due to: 1) Token minimization 2) Competitive low cost open-sourced LLM models 3) Rising semiconductor cost impact on Q3 guidance Monday June 22nd in hindsight turned out to be the short-term top for the semiconductor index and the momentum trade. Token maximation in March turned into token minimization by June with the most extreme example being the $COIN CEO on June 26th posting how they cut their token spend by nearly 50% by largely routing AI queries to cheaper models. In the near-term, the question becomes can token usage by the other 99% of firms go up fast enough to offset the top 1% of firms like Coinbase cutting their AI bills. Numerous cheaper LLMs have been introduced recently. Last week the introduction of Moonshot’s Kimi K3 (China-based) challenged the performance of the most advanced US models. Profitable AI native revenue growth that is ROIC positive is what is needed to keep the whole ecosystem functioning. $GOOGL reporting this Wednesday will provide the first major datapoint on the trade-offs between cheaper tokens and more token production. Google Cloud Platform has seen revenue growth year-over-year accelerate from 34% in Q3:24 to 48% in Q4 and 63% in Q1:25. This growth rate should accelerate further in Q2 due to token maximization. While I expect forward Rev/EPS to move higher post results due to their core business, comments on GCP growth are likely to drive the stock reaction. While $GOOGL is my favorite consumer AI play given they have the complete AI stack, I am not sure they are immune from the leading 1% of companies trying to cut their AI bills. Uber for example that blew their entire AI budget for the year in the first four months has GCP as their primary supplier. $INTC which reports on Thursday provides multiple ways to win at the AI infrastructure layer which I am more bullish on than the increasingly commoditizing LLM model layer: 1) Agentic AI is driving a surge in demand for server CPUs which are a new bottleneck, 2) their advanced packaging has already attracted several hyper-scalers and 3) their foundry business (our national champion with an investment by the US government) continues to improve and attract new customers. As for the current AI “speedbump” in stocks, the Morgan Stanley Momentum Index (MOMO) which subtracts the Long Index from the Short Index fell 28% since June 22nd through July 16th in just 24 days with a slight reprieve of 1.6% on Friday. Historical corrections of over 10% since 1996 have averaged 20% from peak to trough but have taken 48 days on average to bottom. But the rally of the MOMO index of 40% from the March 30th stock market bottom through June 22nd was also much sharper than historical precedents. In my opinion, investing is about the risk versus reward. On June 20th, it was not good with increasing examples of token minimization. From a technical basis, MOMO is still not oversold given the RSI only reached 35 on 7/16 and on average it bottoms at 31. But the risk vs reward is more favorable today with sentiment having fallen further following: 1) the negative pre-announcement by $IBM which declined 26% last week despite prior claims of being an AI beneficiary, 2) the 3% drop in $ASML and 8% decline in $TSM last week despite positive earnings and 3) the 10% decline in both the Semiconductor Index and MOMO last week. Finally, I believe the advent of Agentic AI which arguably started on January 30th of 2026 with the formalization of OpenClaw requires 10-100x more tokens vs Chat-based AI. As a result, I believe it is prudent to start adding back some exposure in the AI related infrastructure names. But I believe this needs to be balanced with prudence at the public cloud layer given the near-term focus on AI bills needing to be controlled by the top 1% of corporations.

My internal plan is as follows ⬇️