Good morning, investors. Between the Fed’s first rate hike in three years and the nonstop uncertainty stemming from the Iran conflict, stocks held up relatively well last week.

My sense is that will continue as investors return focus to consistently strong earnings and the lopsided demand cycle for semiconductors.

Every AI chip shipped today gets deployed the moment it arrives.

That’s the simplest reason why the current infrastructure buildout is different from the dot-com cycle, according to Nick Frasse, VanEck’s product manager on SMH, the largest US-listed semiconductor ETF at more than $70 billion in assets.

“There’s not a single GPU that’s not lit up like a Christmas tree,” Frasse told me on Full Signal on Thursday. “They can’t build them fast enough.”

The 2000s left behind dark fiber, billions of dollars worth of cable laid out before companies knew how to use it.

Meanwhile, AI adoption is starting from a point where the majority of people are already using advanced technology in their everyday lives. Tech startups in the 1990s had to figure out how to get the entire population online for the first time.

“Everybody is digital native, already using this technology to a very high extent,” Frasse said. “The genie is out of the bottle.”

While an AI infrastructure overbuild is not impossible, he said, and model efficiencies could eventually outpace compute demand, the bear case is difficult to see in the near-term.

A data center takes two or three years to stand up, and demand will likely moderate before it’s fully operational.

That lag, in Frasse’s view, acts as an inherent governor to the industry. It keeps compute scarce enough to stop construction from getting ahead of itself.

Plus, hyperscalers like Amazon, Alphabet, and Meta have committed to a funding cycle that is set to extend across five to ten years, as opposed to chasing a product cycle tied to quarterly results.

The semiconductor ecosystem itself reinforces the bull case for the entire AI stack.

Fabless designers like Nvidia outsource to TSMC, for example, which in turn buys supplies from ASML. While critics call out circular financing, the upside is that each layer relies on one another and supports competitors to be successful.

It’s true that Frasse helps manage the very fund that profits from the bull case playing out.

He did acknowledge that restrictive regulations out of Washington could curtail the AI boom, but because of the competition with China he doesn’t see that as likely.

And specifically to concerns of overbuilding, his argument rests on physical realities than mere optimism.

"I think as humans we look for a binary outcome of one or zero,” he said. “Like we're either going to overbuild or we're not, but it usually lands somewhere in the middle."

SMH has gained 78% over the last 12 months. It’s more than quadrupled the S&P 500 since ChatGPT launched in November 2022.

You can tune in to my full interview with Nick Frasse on Spotify, Apple Podcasts, or YouTube.

🏦 Warren Buffett handed off the Berkshire chair after six decades. Buffett, 96, becomes chairman emeritus while son Howard takes the board role and CEO Greg Abel keeps operational control of the $1.1 trillion conglomerate. (Axios)

🎯 President Trump struck a deal for US access to Greenland's rare-earth and shipping corridors. The agreement gives the US preferred terms on critical-minerals extraction and Arctic port rights, capping a diplomatic push that started with Trump's return-to-office overtures. (Yahoo Finance)

🏦 Fed official Neel Kashkari argued the economy still has room to run before inflation forces the Fed's hand. Markets are already pricing a 55% probability of another move on October 28 following the Fed’s first hike in 3 years. (Reuters)

🗓 September 21, 2008: The Federal Reserve approved Goldman Sachs and Morgan Stanley's conversion into bank holding companies, ending the era of the pure-play US investment bank six days after Lehman filed for bankruptcy.

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