I Correctly Predicted the AI Hardware Crash.. Here's What Happens Next.

I hope you guys realize just how weird this situation is with the markets right now. And specifically what I'm referencing is AI stocks with a South Korean market basically imploding with the Situational Awareness Fund literally imploding, Citadel buying all of those assets for pennies on the dollar. Let me ask the obvious question here. What actually happened? What changed? Can you tell me? What caused this? No, there's there's no obvious answer. So, I'm going to break this down into a little bit more depth because over the past month and a half or so, when AI hardware stocks were hitting new highs, I was out there warning every single day to stay away from AI hardware. We were early to this. But, I was only half correct. And I'll talk about that in this video, which is kind of alarming to me. Now, we also have some other weird news like Nvidia providing backstops for OpenAI. Yeah. That's a red flag. And keep in mind, we do have more earnings to go for this earning season. We are in the pre-midterm election volatility period. So, what does all of this mean for AI stocks, AI hardware stocks? Is it time to buy some of them? Maybe. And I'll share some of the ones that I like. But, I want to give you guys the game plan in my head for the rest of this year and for next year. Where is the real opportunity in this market right now? If you're watching this video and you're trying to 5x your portfolio in the next 12 months, how do you do that? That's what we're going to talk about in this video. So, ladies and gentlemen, the only thing that I ask you to do is to hit the like button to help push this video out to more people that need to hear it. Okay, so before we get into any of the weird [ __ ] going on with AI right now, I want to circle back to the question that I just asked you a minute or two ago. What actually happened? Like, we know the situational awareness fund blew up. That was largely because of margin calls in South Korea. But what actually caused any of that? I'm going to tell you in just a moment or at least my best understanding of what happened. But let me circle back to what I was saying a month, month and a half or so ago as AI hardware stocks were the talk of the town as there was FOMO everywhere. I was giving a warning. You guys You guys are going to This is going to bring bring some of you guys back if you've been with us for a while. I was saying there's two reasons why I was bearish on AI hardware. Okay? Number one, we were heading into earning season and I expected CapEx to go up, but not enough to cause AI stocks to go up even more. You had already kind of priced that in. Okay? So that kind of happened to a certain extent or it's we're in the process of that right now. But the other part of it is I believe there is an air pocket coming. I believe there's a compute air pocket coming. The fact of the matter is enterprises they don't adopt new technology quickly. The internet, the birthday of the internet, a lot of people say is January 1st of 1983. Well, it didn't become standard practice to have a website for your company until 1995. Like it took a very long time for companies to actually adopt new technology. AI is going to move a lot faster than that. But where are the major compute needs going to actually come from? They're going to come from two areas. Two areas really only. They're going to come from enterprise adoption like agents and things like this. It's going to take some time for that to happen. We're running at about 50 million agents being used right now in 2026. Next year that number's going to jump to about 100 million. By 2028 that number's going to jump to 500 million. By 2030 that number's going to jump to 2.5 trillion billion. Very high number. It it it like goes up 60% then it you know, goes up 350% then it goes up 500% right? It's exponential. I think it's 2.5 billion. Um not trillion. But you get the idea. Enterprises they don't actually mass adopt AI really until the second half of next year. And really 2028 through 2030. That's where a lot of the compute demands are going to come from. On the other side of that where's the other extent of compute going to come from? Robots and real world you know, applications of AI. You could even say like wearables, right? That's going to take even longer than enterprise AI adoption. You're not going to have serious compute needs from robots for a long time. So what actually happened here? Why did AI stocks, AI hardware stocks just all the sudden begin to collapse? And you started to see margin calls and the situational awareness fund blowing up. And now Nvidia providing a $250 billion backstop to open AI because they do not have a investor credit rating. So, it's very hard for them to raise capital. Why did all of this happen? What what caused the decline? Nobody can give a good answer for that. Nobody. It wasn't just, "Oh my gosh, everyone got margin called at the same time." You have to understand, again, you have no edge in markets. The only edge that you have on Wall Street is you're not chasing quarterly profit returns for your clients. You can buy and hold stocks for a long time. That's the only edge that you have as a retail investor, and it's a powerful one if you use it correctly. But, what actually happened here in my view was Anthropic and open AI. Their revenue, we haven't got reports of what their revenue looks like in the last couple of months. But, Anthropic went from like 2 billion in annualized uh revenue run rates at the end of 2025 to like 55 billion. Well, the law of large numbers would state that that's going to slow down. Think about that in context to the compute air pocket that we're seeing. A lot of companies are like, "Doesn't make sense to pay for all these tokens and blah blah blah blah blah, right? I don't need to rehash all of that for you." There is a slowdown in AI um the AI spending spree from enterprises. Maybe you're seeing some very unimpressive underlying growth metrics from the two largest AI spenders, Anthropic and open AI. And the problem is they're not spending free cash flow. They are, but they're raising a a of debt. Open AI is projected to burn $57 billion next year. Anthropic is projected to burn approximately $5 billion next year. Anthropic expects to be to achieve positive free cash flow by 2028, whereas OpenAI does not expect to become free cash flow positive until 2030. Let alone even like SpaceX, right? People think they're going to have to raise 70-80 billion dollars per year until like 2035 before they're even free cash flow positive. It this only works when growth is impressive. And yeah, if Anthropic goes from 2 billion in revenue to 55 billion in revenue in 4 months, that's awesome. If Anthropic goes from 55 billion to 75 billion in revenue in the next 4 months, that looks great. Like, why would we complain about that? But it is a slowdown of growth. And no matter what the reason is for a slowdown in growth, that's never treated well. So So look, basically what I'm saying here is there is probably a slowdown in the underlying growth rates of Anthropic and OpenAI that we just haven't heard about yet. Because big money, they know these things. Citadel knows these things. JP Morgan knows these things. They're all interconnected. Retail investors are never going to know before big money does. That's the best understanding I have to what caused these margin calls. What caused this massive decline in AI hardware stock. Now, this was all just made worse by the leverage problem, specifically the leverage blow up in South Korea. This It says here acted as the first domino and ground zero for the collapse of the situational awareness fund. The disaster was fueled by an unsustainable combination of new government-backed financial tools, hyper-aggressive retail margin trading, and concentrated hedge fund leverage, which collectively triggered a historic liquidation spiral. But, I would make the argument that you don't go from FOMO to margin calls for no reason. Something has to happen. Something has to shift. And again, I would say it's probably this air pocket, this this revenue slowing down from OpenAI and Anthropic, your two largest spenders from you know, AI. They're the companies buying all the compute right now. And you know, that's that's a problem. Again, especially because they are not free cash flow positive, they need to raise a lot of debt. And that becomes very difficult to do so as you are actively in margin calls and so on and so forth. In fact, that's why Nvidia is now in talks to provide a financial backstop of roughly 250 billion to help OpenAI lease and build a massive 10 gigawatt data center campus in southern Ohio. Nvidia doesn't have a choice. They don't have a choice in this. Do you think Nvidia wants to lend their credit, you know, uh basically credit lines to OpenAI? No. But, if they don't and OpenAI runs out of money and goes bankrupt, the whole AI trade is over. So, yeah, major red flag. And I just simply asked, is this a red flag for the AI trade? And it says, yes, the broader market is treating this negotiation as a major red flag for the AI trade. Prominent market observers, including short seller Jim uh Chanos and the big short investor Michael Burry, have criticized the deal, sparking a tech sell-off that erased roughly 250 billion from Nvidia's market value. Now, I just want to be clear. I am very bullish on AI long-term. And I'm even very bullish on the capabilities of what AI will bring for companies. But I think this is a repeat of the internet cycle over again. Not in the sense of you're going to have some kind of 80% decline on the Nasdaq. That's not what I'm saying. I think well well yes, right? Open AI and Anthropic, they are very important companies today. You know, Nvidia, the chips, the hardware trades, sure. That's all important to actually enabling AI. But the biggest winners from AI, they're not going to be any of these companies. And that's where if you're trying to 5 or 10x your portfolio in the next couple of years, make literally life-changing amounts of money for a lot of you, you're not going to do that in these kind of stocks. Now, again, I will admit there are some stocks that I do like within the AI trade that I think can become trillion-dollar market caps one day, like Marvell, you know? Marvell, well, it's like a $150 billion market cap, something like that at this point. I think that looks attractive, falling from 330 down to 185. You know, Marvell could be could be good. Qualcomm, you know, Qualcomm, 85% market share in wearables, like devices. That stock has fallen from 258 down to 147. I think if AI is going to be successful, Qualcomm is going to be successful as well because you need wearables to be at least semi-successful. I don't think you can have AI actually pay off in a big enough way without consumer wearables getting adopted. And I think Qualcomm is the company to enable that. AMD If AMD continues to execute, there's a lot of room to take market share from Nvidia. AMD could be a multi-trillion-dollar market cap one day. So, it's not like I'm bearish on all AI hardware at this point. I think some have fallen enough where the risk-reward makes sense. But, what I am highlighting here is this whole sell-off for AI hardware stocks did not just happen because there's leverage in South Korea or there's the situational awareness fund, as we now know, that blew up. It happened because of something else, and I think it comes back to the two largest AI spenders, where their growth is probably slowing down, which naturally is going to happen because of the law of large numbers. But, that's never treated as a good thing. I don't care I don't care why growth is slowing down. If growth slows down, it's never good. Now, again, keep in mind, it is a midterm election year. So, you do tend to see midterm elections um around this time, around August, September, you tend to get some volatility. You do tend to bottom in early October, and then rally into the midterms, little bit of a sell-off before the midterms, and then you tend to you know, literally just go vertical after that point. And it's not just vertical for 2 months, you know, you don't just have a strong Santa Claus rally. You tend to have a strong like 9 months following that. And I think this is what we need to be positioning for at this moment. This rally here. And again, while I do like some AI hardware stocks, it's more about the ones that independently execute. A Marvell that takes market share. A a Qualcomm you know, Qualcomm that continues to dominate in wearables. AMD that continues to execute and take share from Nvidia. You're I don't think you're going back into a FOMO-like market for AI stocks again. But that begs the question of where is the real opportunity then in this market? And unfortunately, not a lot of people are going to like me for saying this. It's in software. It's in cyclicals. It's in healthcare and financials and industrials. Something very unshockingly happens when there's a wave of FOMO in the markets. I I've seen it probably a dozen times at this point. You know, when when there's one sector that is in ultra favor by investors, they tend to just forget about everything else. Well, that's kind of what we've seen. Recently, that has started That's kind of stopped a little bit. You've started to see a rotation um into other areas. But where you're going to make a lot of money is the stocks that you know, benefit from the rotation obviously. But really benefit from AI itself. Software. Software's a big one here. The SAS-pocalypse fears never existed to begin with. As AI hardware slows down, software picks up. That's why it's kind of really strange what happened to the Situational Awareness Fund because they were all in on AI hardware stocks. But they were shorting the [ __ ] out of software at the same time. As a quote unquote hedge. That's not a hedge. That's just leverage for the same trade, right? Like you're all in on hardware continuing to go up at that point and software falling. Very very strange. That's like an amateur move. If anything, you would have wanted to be long AI hardware and long software. Not short software. Long software. Cuz if hardware fails, then software is going to do well. That's a hedge, right? So, just that whole situation's kind of weird to me. Like amateur move 101. That's why I think you need to learn some of these mistakes at at a small level before you make them at a big level because that's a perfect example of maybe somebody made too much money too quickly and didn't learn the skills capable to actually manage it. Topic for another video. But software, you know, some of your hyperscalers that are executing well. Amazon clearly one of them. Microsoft clearly one of them. Google's in the middle plus or minus. Meta's definitely a minus. So, Google maybe. Amazon for sure. Microsoft for sure for now. Okay? Apple, yeah. They they got their own problems going on. So, that's kind of what I really like right now. Outside of that, cyclicals, if you want something that I think is very good risk reward. Um not a lot of downside here in my view, but a lot of upside when the Fed is less hawkish than expected. You know, I don't think we're going to get rate hikes this year. I think the consumer could get stronger. I think inflation will continue to come down. So, along those you know, logics, cyclicals and financials and areas of industrials and even health care, these are going to be out performers over the next 12 to 24 months. Again, are cyclical stocks going to 5 or 10x? Is Uber going to 5 or 10x in the next 12 months, 24 months? No, absolutely not. I think software can. So, I even think taking like a barbell approach to having some, you know, high upside potential software stocks mixed with some cyclicals that could maybe double or so in the next 12 months makes a lot of sense to me at this point. I don't think this is a market environment where you have to be all in on one market theme to do very well. I mean, we are more than 4x outperforming the S&P this year and completely missed the AI hardware wave, right? Which uh I don't want to say missed it because we were buying these stocks, you know, a year and a half ago significantly lower than where they even are today. Um like we were very early to AI hardware in the grand scheme of things. We just sold out like at the start of this year. So um you know, we were able to position into other areas that have 4 5x outperform the S&P this year, right? And I think that is going to get even more dramatic into the end of this year as we get through, you know, the midterm election. And again, I think hardware can rally as well towards the end of this year, but it's not going to be the FOMO like rally. I think I think software is going to do a lot better, a lot better than AI hardware. I think again, cyclicals, industrials, financials, even health care. If we realize, oh wait, the Fed's not going to be hiking rates. These are going to be areas that also do exceptionally well. And I know I talk about Stanley Drucken Druckenmiller all the time um on this channel, some of the quotes that he says. Um but again, I just want to highlight this one for you as well. You basically always have to disregard what's happening in the current market environment. Um which means unfortunately you can't chase hype. You can't chase the common narratives on Wall Street. You have to find where Wall Street is wrong to make a lot of money. And that's why I like software so much right now because collectively most of Wall Street is bearish on software. And most of software will actually be big winners from AI. There's a massive disconnect there. Right? Stanley Druckenmiller says that investors must visualize the future landscape and determine how fundamentals will differ from conventional wisdom. And that's where I think, you know, with most of Wall Street expecting rate hikes. If we don't get rate hikes a lot of upside there for cyclicals, industrials, financials. Nobody really thinks the consumer is going to be stronger. You know, if the consumer picks up a bit real estate picks up a bit potentially, if inflation comes down, which really nobody expects that to happen. That's all going to benefit financials, industrials cyclicals. All right, small caps. Um again, software, everyone thinks software is a victim from AI. I don't think so. I think over the next 18 to 24 months people are going to realize software is a big winner from AI. AI makes software better, more functional stickier. Right? Um driving better use cases and and and more use cases for enterprises. Enterprises vibe coding their own software solutions never existed in the first place. That's not that's not a thing. Right? That's not going to happen. At least from my perspective. It would make zero financial sense to pay more for a already good product. See, I feel like Cintas is a very good example to this. Some of you guys might not know what Cintas is, but um I you know, um in the restaurant industry. And basically what they do is they bring you towels, they take your old towels, they wash them, bring you new ones, right? That's to for the most part what they do. Um could a restaurant wash their own freaking towels? Yeah. Does it make sense to? Not really. Like just pay Cintas to bring you some [ __ ] towels, dude, right? That's kind of a similar argument to software and why enterprises they're not going to vibe code their own solutions. So none of this SaaS apocalypse even existed in the first place. Just part of the reason that software is done poorly is because everyone has been focused on hardware. And I think this is why this is the trade of our lifetime. Now again, I also love physical real-world AI and robotic something like Tesla. It's just going to take a little bit longer for Wall Street to get on board with that. I think next year that'll happen. I I can't tell you exactly when though. But I do think software right now into the end of this year is in a prime position to do very well. So let me know your thoughts on this down below in the comment section. Hit the like button as well as subscribe to the channel. If you guys want to come trade and invest alongside of us, that link is down below in the description of today's episode. Have a fantastic rest of your day and I will see you in the next one.