Transitions in the Semiconductor Space

Key Takeaways

I want to take advantage of the timing, Michael. Last time you were on, we were talking about Elon Musk alienating himself from both political parties, if you remember. Now, this is an example of uh a leading American company, an individual Elon Musk doing a a big big deal over multiple years with a foreign technology company to onshore industry in this country. What do you make of that and the economic opportunity it presents? Well, I think this is actually the the tension that exists, right? Onshoring into America, particularly bringing back high value added tech tech manufacturing like chips that's not going to overly stress the labor force that has relatively low employment levels, but a large fiscal impact and a large economic impact. This is fantastic and it's exactly what we would hope to see under a Trump administration raising the costs of companies doing business abroad and shipping stuff to the United States. how successful it's going to be. As as was alluded to earlier, these are two companies that are both kind of struggling in their respective fields that have announced a major investment. Um, is it enough to, you know, bring both companies significantly higher? Clearly, the stock market thinks that it's helpful. I don't see how it's not. Um, but it still is something that remains to be seen in terms of its long-term impact. >> Of the contract manufacturers, we mentioned Samsung, TSMC, and Intel. Which do you like and why? >> Well, the quick answer is is that I'm a strategist. I don't spend as much time on the individual securities. It's very hard to argue with TSMC's overall technical lead in the space. They have managed to build an extraordinary business that has slowly taken out competitors like Intel and for that matter Samsung. Um, you know, they're all extremely capable. This is an industry with tremendous growth. But if you're putting bets on on change, you have to look at companies like Samsung, etc. to undercut or Tesla, the whole story effectively is is that increased competition is coming for both TSMC and Nvidia. I think that's probably the biggest takeaway on this. >> Give us the broader context here then as a strategist as well, Michael, as to how overexposed investors are at large on the semiconductor space, semiconductor equipment more broadly. I'm looking at how Goldman at the moment is saying the US prime book is really heavily weighted and overexposed to that and we've seen hedge funds in particular dial back ahead of earnings. >> Yeah, you you definitely have seen that and one of the factors that we've seen in this rally as it has extended off of the April lows has been extraordinary retail participation and dramatic increase in the quantity of margin that is being utilized and equally important a dramatic decline in the quantity of short interest. That's really what's hitting the hedge fund positioning because they tend to have that bias of being long the more quality oriented names short the shorted names that's causing distress in the hedge fund space that I think is causing them to take all exposures down as compared to isolating to particular risk for those leading companies. I think most people anticipate that this earnings report, this earnings season is going to be relatively favorable if for no other reason than the stocks are near all-time highs. That lowers the incentive to introduce special charges or anything else that you would you would classify. So, I I think most people are actually expecting a pretty good earnings season. >> It's just the market conditions are extraordinarily difficult for hedge funds right now. >> They got to be pretty perfect these earnings for us to live up to the hype in a way, Michael. But what's also so clear is that hedge funds have been underexposed to software to services. Does that change in the near term? >> Well, I think ultimately that hedge funds are going to follow whatever is working. So if it if we continue to see underperformance in the highquality uh hardware space or the um impressive performance that we're seeing from cyclicals right now versus defensives, you will see hedge funds ultimately rotate because they are more interested in making money than they are in being