AI's next canary in the coal mine: Is it OpenAI, memory, or something else?
Wall Street Skinny co-founders Jen Saarbach and Kristen Kelly talk with experts on the Market Hang panel about what might be the next warning sign for AI.
Today's panel includes Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets; Kevin Mahn, chief investment officer at Hennion & Walsh; and Drew Pettit, chief investment strategist at Roundhill Investments.
I've shared the warning signs I'm watching. Before we started this morning, our producer wanted to know what warning signs each of you is watching. Kristen, what warning sign are you looking at that might help predict what will shape how investors feel about this sector?
I think it will be very interesting when we see Anthropic's S-1 filing. I want to see how much money Anthropic is actually making, or whether it is losing money. The same will be true for OpenAI later. We still won't know whether these companies can turn their growing revenue into real profits and cash flow. That is what I am most interested in over the longer term. But I'm curious, Amy, what do you think is the warning sign?
My background is in derivatives, so I may naturally be a little more negative about the market. I have to recognize my own bias. But one important change in the market, especially the S&P 500, is that stocks are moving in very different ways. What do I mean? The VIX, which measures expected stock market volatility, has stayed very low, even though individual stocks have moved in very different directions and have had very little connection to one another.
This matters because we have been lucky. When some stocks go up and others go down, those moves can cancel each other out in the overall index. That keeps measured volatility low. But if stocks start moving more in the same direction, that can change quickly.
I've been worried about this for a while. In our market, people take advantage of these conditions. When they see that stocks are moving independently and volatility is low, they often sell volatility-related contracts and keep making similar trades. They continue until the market suddenly changes. Then everyone is scrambling to get out, like people trying to find a chair when the music stops in musical chairs.
Absolutely. What about you, Kevin? What do you think?
Can I give two possible warning signs?
Please do. Let's hear them.
I'll give you a whole birdcage full of them.
Exactly.
My first warning sign concerns the market as a whole. I think investors are not fully considering the possibility that the Strait of Hormuz could stay closed well beyond the midterm elections.
If it stays closed and oil prices remain above $100 a barrel, or even above $110, after the midterm elections, will the Federal Reserve decide it needs to raise interest rates? Could it raise them twice, rather than just once? And how would those rate increases bring oil prices down?
That's my first warning sign. My second, which relates to AI investments, is memory chips. I think Micron will tell us a lot about how much demand it has waiting to be filled for memory chips. This matters especially for Nvidia, more than for most companies, because Micron is a leading supplier of high-bandwidth memory chips.