AU Trading Journal 🩵😈

Ahead of today's Alphabet earnings, the market is clearly positioning defensively. Both Alphabet and semiconductor storage names have sold off. My base case is that Alphabet's CapEx will at least be maintained and is more likely to be raised. If CapEx is only maintained instead of increased, the market will probably view that as a negative. Alphabet is not going to leave the AI race early. As long as the hyperscalers' cash flow and debt capacity, including debt to FCF and CDS, remain healthy, this spending cycle will continue. The AI infrastructure CapEx cycle will only reach its peak when the leading cloud service providers can no longer raise capital easily and their debt burden becomes unsustainable. TSMC's significant increase in capital spending is also an indirect signal that orders from the MAG7 and AI companies are increasing, which implies that their own capital spending is expanding as well. For SOX to move higher, I think three conditions need to be met. Alphabet needs to raise CapEx. AI and Google Cloud revenue need to meet expectations. Remaining performance obligations need to increase. If any one of these falls short, semiconductor stocks are likely to sell off. For Alphabet itself, the market will likely demand a clean beat across the board, but I think that is unlikely. For now, I'm staying in cash and continuing to enjoy my trip.