GS Peter Callahan US TMT Today

Coming off one of the lower volume days of the year, Futures bid up (Nasd +95bps) as a benign CPI print (Sept WIRP odds of a hike now 'just' 40%) and better earnings across the AI complex are boosting sentiment and driving early Tech outperformance globally [.. namely .. CRWV +18% on better margins and LITE +9% on beat/raise with CPO commentary .. which gives way to CSCO, COHR & AMAT in the next ~48 hrs] … which .. in turn .. appears to be driving a soggier start for Software (e.g. MDB, WDAY, HUBS, CRM, NOW down 1-2% in pre’ on lighter volumes)

Top inbounds yesterday (.. much lighter day..) .. one-off weakness questions (DELL -4%, ALAB -7% this wk, CDNS -2%) .. this volatile DDOG action? .. AXON up 7%? MDB up 10%? EXPE up 3%? .. earnings set-ups (CSCO, AMAT) .. thoughts on Memory v Optical? What’s the better play here? … action in AMZN? (while still near highs, stock is lower on 4 of 6 sessions) ..

Amidst a noticeable uptick in investor focus on Software lately (esp the ‘inference economy’ names – data infra, tooling, security) with some element of “new-ness” or “discovery value” seemingly attracting investors to these names (vs just re-visiting the ‘buy the pullback’ names in AI HW or Semis) .. at this point, worth taking stock of where we are: …

… the following stocks in Software / Services are ‘overbought’ (per 14-day RSIs) .. Unity, SNOW, AMPL, TEAM, PAYC, VEEV, MSFT, PCOR, TWLO, ESTC, PATH, GTLB, MDB, WK, SAP, RNG, ZETA, PLTR, RBRK, PTC, FSLY, CCC, QLYS, S, RPD, ZS, CTSH, ACN ..

.. whereas .. the following Semis / AI / HW stocks are ‘overbought’ (per 14-day RSIs) … OLED, ZBRA, GRMN, P, NTNX, BDC - - no, no real large-cap, AI ‘pure-plays’ on this list..

So, against this backdrop – arguably a more technically demanding (tactical) backdrop for Software > Semis for the first time in a while… going to re-focus on HW + Semis below:

CRWV earnings call ... soundbites form the earnings call that illustrate the backdrop we are in … source: bloomberg transcript .. ‘In Q2, the customer contracts we signed came with contribution margins we expect to be 5 to 10 percentage points above those

added in recent quarters‘ + ‘We see that breadth in our backlog, in the new commitments we have signed and in the utilization and pricing environment across our platform’ + ‘Pricing and margins for our Blackwell and Vera Rubin SKUs are setting new highs, while pricing for prior generation SKUs is at or above where it was years ago’ + 'we recently signed an A100 contract that extends into 2029 at an attractive price. As a reminder, this SKU was introduced in 2020.'

NVDA preview .. stock reports later this month (8/26) … Nvidia’s multiple has continued to compress – now trading at ~14.4X GIR’s CY27E EPS est - as investors debate the long-term durability of growth and margins at this scale (GSe ~$635bn of revenues in F28 / ~CY27 – a decidedly larger revenue base than other mega-cap peers like MSFT, AAPL, MSFT) .. Into the print, GIR expects a solid quarter with meaningful upside to guidance supported by tight GPU supply/demand trends, though, notes the bar for the stock is elevated given its +12% move in two weeks. Key focus points on the call: shape of the Rubin product ramp in 2H + potential upside from agentic AI to CPUs + future gross margin trends, see Jim / GIR preview here.

.. this one jumped out at me.. you have to go back to May’24 (>2 years ago) for the last meaningful, T+1 ‘alpha’ move on earnings