Leveraged ETFs and AI trade reassessment (with Speaker1)

Asks Cameron Price to identify the biggest source of the week's volatility in tech markets.

Speaker1

Cameron Price

Leveraged ETFs were the largest driver of price action, amplifying volatility through forced buying on up days and forced selling on down days; on Wednesday they contributed an estimated $45 billion of selling into the close.

This is reminiscent of the 2018 volatility-based ETN blow-up. The AI trade has driven AUM in these products to explode, and when the market rolls over, the mechanical flows become very substantial.

Asks about SpaceX joining Nasdaq in July and its IPO price falling back to the starting point.

Speaker1

Cameron Price

SpaceX's IPO fade was not surprising; paying 100x revenues is not a typical path to success. It's reminiscent of Facebook's 2012 IPO which face-planted for a year before recovering.

Anyone who got allocation and wasn't locked up had an immediate windfall on something they knew was expensive, so there was a temptation to lock in gains. This happened in the broader context of a rough week for tech and people starting to reevaluate breathless AI narratives.

Cameron Price

SK Hynix announced plans to raise ~$29 billion on NYSE, and both SK Hynix and Samsung are talking about huge CapEx plans. Chipmakers have been raking in cash while hyperscaler stocks have fallen in aggregate. If chipmakers now have to deploy significant CapEx to maintain capacity, the investment prospects look less rosy than a week ago.

The beauty of the cycle is that hyperscaler CapEx-heavy stocks fell as chipmakers soared. Now chipmakers are at the part of the cycle where they too must spend, which changes the narrative.

Asks about OpenAI considering delaying its IPO until next year, in light of SpaceX's experience.

Speaker1

Cameron Price

OpenAI's IPO delay is likely more about its own financials than SpaceX. There are legitimate questions about revenue relative to cost, and whether demand destruction is already starting from price rises (Anthropic raised prices this month).

More broadly, technology is now a driver of inflation rather than disinflation. Apple's stock got crushed because raising prices substantially (to pass on chip costs) leads to lower aggregate demand. No one delays an IPO because they're making too much money.

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