Niles Sees AI Surge Continuing

Dan Niles on X Last wk, the AI surge post Situational Awareness resolution continued.

S&P/NAS/SOX was +3.6%/+5.2%/+9.2%.

WTI -8% with 10Y bond ylds -9bps helped.

I wrote on 7/29, "we could have seen at least a short-term bottom today with a strong rally ahead of us in the sectors most caught in the latest speedbump." I thought forced liquidations of both retail accounts and hedge funds were creating a bottom.

The next day, Situational Awareness had a forced sale of all its public equity positions.

The Morgan Stanely Momentum Index is now up a whopping 14% in just 7 trading days from July 29th following the 38% drawdown from June 22nd to July 29th.

The more concentrated TMT Index is up 25% from 7/29 following the 54% decline from 6/22-7/29.

The S&P/Nasdaq/SOX (Semiconductor Index) is up 6.0%/9.2%/18.3% since 7/29.

To end the week, the less than expected jobs report on Friday encouraged equity and bond markets that had been worrying about rate hikes.

I still believe hikes are less likely than current fears given Kevin Warsh was appointed as Fed Chairman for his belief in AI being deflationary.

The CPI report on Wednesday will be important for this thesis.

It was encouraging to see the semiconductor sector rally 9.2% last week despite the acid test of lackluster results from $AMD and the memory names which have been the tip of the spear in the semiconductor trade. $AMD had both revs and EPS edge up low single digits for Q3 but this was disappointing compared to $INTC EPS going up ~40% for Q3.

AMD's stock was up 2% for the entire week despite declining 7% in reaction to results the next day. $SNDK was flat for the entire week despite declining 7% the next day in reaction to guiding CQ3 revenues 2% below consensus. $WDC was down 20% last week after guiding EPS just 4% above consensus for CQ3 which was disappointing relative to $STX results where CQ3 moved up 25%.

In the near-term, I continue not to be a fan of the memory sector relative to other AI infrastructure names given I remain concerned about US companies like $AAPL getting approval to use Chinese memory & recent moves by $NVDA to lessen memory requirements.

Nvidia is evaluating shipping the Rubin Ultra with as little as 192 GB of HBM vs the original roadmap of 1 Terabyte.

But this would be good for Nvidia that reports earnings later this month given they could ship a lot more GPUs for a given amount of memory.

Also Elon Musk stated last week, "Going forward, we have decided to build exclusively on Nvidia, because we think the Vera Rubin architecture is the best architecture." This is a powerful statement given the many companies trying to push the benefits of their ASIC accelerators.

Nvidia is also a value and growth play at the same time with just a 25x CY26 PE for over 80% revenue growth.

Revenue growth for Nvidia has also accelerated for every quarter from July 2025 at 56% y/y to expectations of 96% for July of 2026.

In support of this growth, the six big hyperscalers saw capex growth accelerate from 84% y/y in the March quarter to 92% in the June qtr with forecasts of nearly 100% growth in the September quarter.

Each quarter of 2026 is showing higher y/y capex growth than at any time during this AI buildout.

In summary, I believe the near-term pain trade is higher in equity markets.

For those funds that got punished in July and were forced to de-gross near the bottom, FOMO and performance chasing is now kicking in.

None of my technical indicators are flashing overbought yet given the severe drawdowns prior to the current rally.

The evolving situation in Iran is obviously the wildcard.

Best of luck in the week ahead.

Dan Niles