The AI Selloff, Anthropic’s Growth and Where I’m Looking Next
This week gave us a lot to work through. We got a closer look at Anthropic’s business, a wave of earnings across AI infrastructure and Physical AI, and a selloff that brought some of the companies I’ve wanted to own back into view. I’ve spent the weekend going through all of it and narrowing down where I want to put my attention next. Some of these are businesses I already like and want to buy at the right price. Others are names outside the AI buildout where the charts are starting to look interesting. Let’s get it started. TLDR + Contents This week’s research: A recap of my earnings and data-center articles and the biggest takeaways. The selloff: Where the selling hit hardest and how other sectors held up. AI economics: What Anthropic’s latest filing tells us about adoption, spending and profitability. The rotation: Where I’m seeing early signs of strength outside the AI trade. Power and cooling: A company I think is well positioned to meet the changing demands on data-center developers, and the price where I’d be more interested. Outside tech: Three companies I’m considering for a potential rotation, with the earnings, valuations and charts behind each setup. Software: A speculative recovery candidate with earnings approaching. Physical AI: Two companies with minimal data center exposure. I want to build larger positions in as machines become more capable. Networking: Two companies I think are well positioned for continued AI infrastructure spending. 24/5 trading: Two companies positioned to benefit as stock trading expands beyond regular market hours. This week’s research The earnings targets and hyperscaler spending questions heading into the week. I also dug into OpenAI’s reported fundraising plans and the newer spending data from Ramp and OpenRouter. The question was how much of the infrastructure already committed could be supported by customer revenue, and where financing delays could push supplier shipments further out. LITE, FN, AEHR, TSEM, LSCC and ON, plus the MRVL–LITE deal. Power, water and local approval requirements, including the different implications for operating facilities and projects awaiting permits. Texas represented roughly 32% of the tracked U.S. data-center capacity under construction in the Baxtel dataset, so the timing of new rules matters. I explored how tighter supply could increase the value of existing capacity while also leaving providers unable to serve the next customer. The week’s broader earnings coverage across networking and Physical AI. This brings eight company updates into one piece, so readers following several of these names can revisit them together. AAOI’s ramp timing and the other company updates, including INDI’s production progress and financing considerations. Community demands, the construction pipeline and a closer look at IREN’s funding and delivery schedules. I spent more time on the interviews and what developers are being asked to deliver around power, water and local approval. The selloff Well, that was a rough week. The S&P 500 finished down 2.7%, the Nasdaq fell 3.4%, and the Dow was down 0.9%. Small caps also struggled, with the Russell 2000 down 2.1%. Friday’s bounce helped, but it didn’t undo the damage from earlier in the week. And depending on what you owned, it probably felt a lot worse than those index numbers suggest. Semis in particular have taken a beating. Looking at this chart, I’m having a hard time getting too excited about one green day. There have been plenty of bounces along the way down. For now, I want to see support hold and some higher lows start to form before getting too aggressive. I’ll get into the levels I’m watching on the indexes later and how they’re influencing my plan for this week. Anthropic Since I wrote about Anthropic’s filing, we got another look at how quickly the business is growing. The Wall Street Journal reported that its annualized revenue run rate topped $80 billion at the end of October, citing a person familiar with the business. Anthropic generated $17 billion in revenue in Q3, but the cost of serving all that demand increased. For every dollar it spent on compute and infrastructure, it generated $1.72 in revenue. That was down from $2.08 in Q2. A big part of that was the roughly $5 billion it spent on short-term compute commitments. That capacity is more expensive than what it can secure through multiyear agreements. So demand is growing fast enough that Anthropic is paying up for capacity it can use now. As more contracted infrastructure comes online, it has an opportunity to move workloads onto cheaper capacity. That’s good for its margins and gives infrastructure providers a clearer picture of the demand they’re building to serve. Adjusted operating profit rose to $2.5 billion in Q3, but the margin fell from 19% to 15%. On a GAAP basis, it reported a $567 million operating loss, including $1.07 billion in stock compensation and $1.96 billion in noncash donation expense. We’ve already talked about the growth in its customer base and the drop in concentration. One major thing keeping an eye on now is how quickly Anthropic can bring the cost of serving those customers down as demand keeps growing. The rotation I’ve been talking for weeks about broadening my exposure to other industries. My concern now is that a lot of the strongest non-tech stocks have already had big runs. If money rotates back into technology, I could end up prioritizing new additions away from a trade as it gets cheaper and buying another after a big move. Last week showed how uneven the market has become. Technology fell 8.23%, while communication services, real estate, consumer discretionary, financials and consumer staples finished higher. That’s why I’ve spent so much time looking for stocks that are still building bases or starting early reversals. I want businesses I’m comfortable owning, with valuations that make sense and charts that give me a reasonable place to start. I’m not looking to abandon AI obviously. I still have so much exposure. I want to keep the companies I think are best positioned while adding businesses with different sources of demand. Below, I’ll get into the companies I’m considering and how I’m approaching each one, from power and cooling to non-tech, Physical AI, networking and longer trading hours. Financial Disclaimer This article is for informational and educational purposes only and is not personalized investment advice or a recommendation to buy or sell any security. The views expressed are my own and may change without notice. I may own positions in companies discussed and may buy or sell shares at any time. Investing involves risk, including the possible loss of principal. Do your own research and consider your personal financial situation before making investment decisions. Read more
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