Why does the Texas election matter for semiconductors?

  • Ahead of the election, the Nasdaq 100 ETF QQQ rose 0.62%, and semiconductors gained 2.5%, retreating from an intraday gain of 4.2%; semiconductors rose another roughly 2% after hours following better-than-expected earnings from AMD and Arista.
  • About one-third of planned US data centers are located in Texas. Governor Abbott has paused new grid connection applications pending a grid audit in December; challenger Hinojosa has proposed pausing new data centers until the state legislature passes new rules.
  • The report says some trading desks believe a defeat for Abbott could trigger a high-single-digit percentage pullback in semiconductors. Meanwhile, UBS PB semiconductor net exposure cited in the report has fallen from about 24% in early October to about 13%, and investors hope lower positioning, better earnings and the election result will together support a rebound.

Why might interest rates limit the AI trade?

  • US job openings in September stood at 7.52 million, above expectations of about 7.16 million; the 10-year Treasury yield rose 6 basis points to about 4.95%, and the probability of a rate hike in December rose to about 75%–79%.
  • Citing trading discussions, the report says the AI trade has been highly correlated with yield movements since Anthropic’s annual recurring revenue for September came in below expectations; if that relationship continues, rising yields could limit gains in the AI sector.

How have software companies’ growth and orders diverged?

  • Palantir bulls are optimistic about accelerating growth, believing its guidance implies a growth rate of over 90%; but the CFO cautioned against expecting a significant fourth-quarter earnings beat.
  • Bears are focused on weak orders: total US commercial contract value rose 11% year over year and fell 31% quarter over quarter, remaining performance obligations were flat sequentially, and duration-adjusted bookings were roughly flat year over year. Management attributed this to several sovereign AI deals worth tens of millions of dollars with terms of less than 12 months.
  • Dynatrace fell 14.7% as net new annual recurring revenue missed expectations and net revenue retention declined; management said the weakness came from delays in customer expansions, not lost renewals.

Why are Apple’s profit expectations under pressure despite stronger revenue?

  • Apple reported stronger revenue, but its gross margin guidance for the quarter ending in December was 45%–46%, with the midpoint about 120 basis points below Wall Street expectations. Management expects memory prices to keep rising beyond the next quarter.
  • The company guided to services growth of 8%–9%, below Wall Street’s expectation of about 11.5%. In the report’s scenario extending that gross margin guidance through 2027, earnings per share would be about $9.26, below Wall Street’s forecast of $9.90 but within the buy-side expected range of approximately $9.25–$9.45.