Good morning, investors. The momentum in markets just took a pause and plenty of bears claimed victory on Tuesday, but the fundamental story remains intact.
Today we’re breaking down two charts that tell the story of just how early the AI trade could be right now.
Cheap tech
Talking about an AI bubble doesn’t make sense when tech stocks are actually getting cheaper.
A new analysis from ProCap Insights shows earnings for the S&P 500 technology sector grew 50% in the first quarter while stock prices “only” rose about 15%, pulling down the multiples for some of the most popular names in the market.
In one sense, that means the bears were in fact right about stocks getting cheaper.
It just happened to be because of improving cash flows rather than declining share prices.
The forward 12-month P/E for the S&P 500 tech sector now sits at 23.6, down from its peak above 30 last fall. Meanwhile, the S&P 500 trades at roughly 21.0x.
Wall Street’s outlook for the year ahead continues to improve, too.
Analysts continue to raise forward earnings estimates, which isn’t exactly what happens right before a bubble bursts.
Now, this doesn’t mean that the technology sector, propped up by a runaway AI boom, can’t see a correction.
Investors already got a taste of a pullback with Tuesday’s trading session.
It’s also true that companies will face higher and higher bars to beat with quarterly earnings as the cycle continues.
But at this point, falling valuations seem convincing enough that it’s not yet time to call the top of the AI trade.
Market snapshot
Elsewhere
📊 Core inflation came in hotter than expected. April CPI hit 3.8% year-over-year, the largest increase in 3 years. The jump in consumer prices lined up with rising energy costs across gas and jet fuel, as well as higher food prices. (Yahoo Finance)
🚀 Retail investors are getting more aggressive in markets. Everyday traders are buying calls in Cboe’s Big Tech stocks at the heaviest clip since 2021, according to a new report from the exchange: “Hedgers have thrown in the towel.” (CNBC)
⚡ The US could offer utilities billions for nuclear projects. The Department of Energy is reportedly considering a plan to help with financing parts for nuclear reactors in an effort to reduce the time it takes to build large plants. (Reuters)
Rapid-fire
The Senate confirmed Kevin Warsh to the Federal Reserve Board of Governors (Yahoo Finance)
AI enthusiasm is making old-school industrial stocks behave like chip stocks (Bloomberg)
US credit card debt dipped slightly to $1.25 trillion in the latest quarter (CNBC)
eBay rejected GameStop and Ryan Cohen’s $56 billion takeover proposal (WSJ)
Kalshi hired a veteran former regulator as scrutiny of prediction markets continues to build (Barron’s)
2 under-the-radar AI stocks where insiders are holding instead of selling (ProCap Insights)
Semiconductor stocks trade with froth dot-com prices and strong AI fundamentals (Opening Bell Daily)
Interview
Investors are buying semiconductors and leveraged ETFs at a historic pace, so I sat down with Todd Sohn, chief ETF strategist at Strategas, to unpack the chip mania, winning and losing sectors, record ETF flows, the rise in space funds, and how to hedge against the AI trade.
Tune in on Spotify, Apple Podcasts, or YouTube.
On this day
🗓 May 13, 2025: The S&P 500 turned positive for the year after the US and China announced a 90-day pause on most reciprocal tariffs.
Last thing
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