Bloomberg Surveillance: Market Shifts, AI Hardware, and Geopolitical Tensions

Market Deleveraging and Rotation

• 💡 Deleveraging is a key theme, impacting precious metals, Bitcoin, and software stocks, partly driven by increased margin requirements.
• 🔄 The concept of "rotation is the new momentum trait" suggests a shift towards less obvious or "dull" assets as investors chase new opportunities.
• 📈 The broadening trade shows legs due to fundamental underpinnings, with earnings growth for the broader market (ex-Magnificent 7) showing a positive trajectory.
• 📉 While the Magnificent 7's earnings growth remains higher, its direction is downward, contrasting with the upward trend of the other 493 companies.

AI Hardware and Corporate Spending

• 🚀 Alphabet's planned capital expenditures of up to $185 billion in 2026, more than the previous three years combined, significantly benefits chip makers like Nvidia, AMD, and Broadcom.
• 💻 Broadcom is identified as a major beneficiary due to its supply of Google's custom AI chips (TPUs).
• 💰 Despite high spending, customers of semiconductor companies are beginning to monetize AI investments, providing confidence in continued spending.
• ⚠️ While Google's TPUs are efficient, Nvidia remains dominant due to its flexibility and software support, though Google is expanding TPU use to select customers.
• 🤝 Other tech giants like Meta and Amazon are also developing their own chips, posing a future competitive threat, with Amazon's Tranium chip being the closest competitor to Google's TPU.

Geopolitical Landscape and Trade

• 🇺🇸 US demands in negotiations with Iran are described as a high bar, including no reactivation of the nuclear program and cessation of support for proxy groups.
• 🎯 President Trump's approach to foreign policy favors "quick wins" with minimal US entanglement, a pattern observed in past actions.
• 🇨🇳 The US-China relationship, particularly between President Trump and Xi Jinping, aims to contain the relationship and avoid escalation, with a base case of managed engagement and potential tariff headlines used as negotiating tactics.
• 📈 Markets have shown resilience to geopolitical risks, partly due to an expectation of Trump's "escalate to deescalate" strategy, which allows for symbolic concessions without significant concessions.
• 📊 The semiconductor tariffs and tariffs on rare earth minerals were punted, indicating a desire to manage the relationship leading up to April meetings.