AI Momentum, Shutdown Drama & Bank Earnings Ahead

Good Morning Investors,

Markets pulled back modestly Thursday with the S&P 500 ($SPY ( ▲ 0.65% )) declining 0.3%, Nasdaq ($QQQ ( ▲ 0.83% )) falling 0.1%, and Dow ($DIA ( ▲ 0.41% )) retreating 0.5%, though Nvidia's advance to fresh record highs on UAE export license approval demonstrated continued AI infrastructure momentum. Gold ($GLD ( ▲ 1.93% )) dipped below $4,000 while the government shutdown enters its tenth day with no resolution in sight, creating the brief consolidation period I've anticipated.

Futures trade flat Friday with S&P 500 and Nasdaq futures up 0.1% as investors await University of Michigan consumer sentiment data, the only significant economic release amid continued government shutdown. Despite Thursday's pullback, the S&P 500 and Nasdaq track weekly gains of 0.3% and 1.1% respectively, while the Dow paces for 0.9% decline.

Earnings season accelerates next week with major bank reports from JPMorgan, Citigroup, and others providing critical validation of corporate profit growth supporting current valuations.

Nvidia ($NVDA ( ▲ 0.81% )) establishing fresh record highs Thursday following Commerce Department approval to export AI chips to UAE represents significant milestone under Trump administration. This marks the first export license granted for Nvidia's advanced processors, with the deal backed by reciprocal UAE investment commitments on American soil supporting domestic AI infrastructure.

Cantor Fitzgerald raising price target from $240 to $300 explicitly stating "this is not a bubble" reinforces bullish sentiment. CEO Jensen Huang's characterization of current moment as "a new industrial revolution" beginning rather than maturing validates hyperscaler demand for hundreds of billions annually.

While China remains the ultimate export prize, Huang calling it potential "bonus" acknowledges geopolitical realities. Middle Eastern markets including UAE and Saudi Arabia emerging as viable alternatives for massive AI infrastructure investments, reducing Nvidia's reliance on single-market access.

Navitas Semiconductor ($NVTS ( ▼ 3.34% )) represents a compelling AI infrastructure opportunity that the market hasn't fully appreciated. The stock is testing a critical downtrend line, and a technical breakout could propel shares toward $10 as the company's Nvidia partnership validates its gallium nitride (GaN) and silicon carbide (SiC) power semiconductor positioning.

The May 2025 Nvidia collaboration selecting Navitas for next-generation 800-volt HVDC data center architecture represents transformational catalyst. The system converting grid AC power to 800-volt DC at perimeter, then stepping down to lower voltages for GPU and IT racks using Navitas chips, addresses fundamental power delivery challenges as data centers scale for AI workloads.

Nvidia's architecture rollout beginning 2027 creates multibillion-dollar infrastructure buildout opportunity with Navitas positioned centrally. The partnership drove shares 83.5% higher in first half 2025, though execution challenges remain given $83.3 million full-year 2024 revenue and continued unprofitability.

September's appointment of Chris Allexandre as CEO signals commitment to scaling commercial production. Allexandre's semiconductor veteran credentials running Renesas Electronics' $2.5 billion power management business and leading Transphorm GaN acquisition provide operational expertise critical for capturing this opportunity.

I view Navitas as buy ahead of potential technical breakout, with the Nvidia 800-volt architecture adoption creating long-term value despite near-term execution risk. The power infrastructure angle remains underappreciated relative to headline AI semiconductor names.

Applied Digital's ($APLD ( ▼ 8.25% )) Q3 beat validates my bullish thesis on AI data center infrastructure. Revenue of $64.2 million versus $55 million expected (17.6% beat) combined with adjusted EPS loss of $0.03 versus $0.16 expected (81% beat) demonstrates execution improving despite massive capital deployment.

The critical catalyst: securing third major CoreWeave lease for additional 150MW at Polaris Forge 1, bringing total anticipated contracted revenue to approximately $11 billion. CEO Wes Cummins correctly characterizes this as positioning Applied Digital "as trusted strategic partner to world's largest technology companies."

Yes, the company burns cash ($331 million FCF in Q3) scaling infrastructure. Yes, operating margins remain negative. But this represents the playbook for high-growth infrastructure providers making massive CapEx investments capturing AI data center demand at inflection point.

With 262% revenue CAGR over three years and analysts projecting 54% growth over next 12 months, demand trajectory validates the transformation from crypto mining to legitimate AI infrastructure player. I maintain my $40 price target, recognizing execution risk but viewing the opportunity as massive.

Levi's ($LEVI ( ▲ 2.56% )) Q3 beat demonstrates strategic pricing power exists even in tariff-heavy environment. Revenue of $1.54 billion versus $1.50 billion expected (3% beat) and adjusted EPS of $0.34 versus $0.31 expected (10% beat) came alongside net income surging to $218 million from $20.7 million year-ago.

The margin story: gross margin of 61.7% versus 60.7% expected and 60.6% year-ago validates CEO Michelle Gass's "surgical, thoughtful approach" to pricing without demand destruction. The company raised full-year guidance despite navigating 30% China tariffs and 20% rest-of-world duties, returning to original gross margin outlook that didn't factor tariffs.

Strategic drivers include direct-to-consumer revenue advancing 11% (higher margins versus wholesale), women's momentum at 9% growth, and category expansion with non-denim tops now 40% of business. When brand equity meets quality execution, pricing power prevails.

Shares declining 4% after-hours despite beat reflects 42% year-to-date gain entering earnings, natural profit-taking rather than fundamental concern.

Novo's ($NVO ( ▼ 2.04% )) acquisition of Akero Therapeutics for up to $5.2 billion ($54 per share upfront plus $6 upon full U.S. approval by mid-2031) represents bold strategic pivot under new CEO Mike Doustdar. Securing efruxifermin, late-stage candidate treating MASH (metabolic dysfunction-associated steatohepatitis), advances metabolic disease focus rather than chasing adjacent therapeutic domains.

The strategic context: Wegovy facing looming patent cliffs in India and China creates urgency for pipeline expansion. Efruxifermin showing promise reversing liver scarring in disease with few effective options positions Novo competitively against Roche and GSK in metabolic space.

Financing through debt and expected year-end close demonstrates leadership willing to bet big rather than nibble margins. For investors questioning Novo's lagging stock performance, this bold statement addresses growth trajectory concerns by expanding beyond obesity into ancillary metabolic and liver disease assets.

Delta's ($DAL ( ▲ 3.12% )) Q3 results lifting shares 4% underscore the K-shaped economy thesis I've consistently emphasized. Premium travel revenue surging 9% to $5.8 billion while main cabin declining 4% to $6.0 billion demonstrates bifurcation between affluent and price-conscious consumers.

President Glen Hauenstein's guidance that "most of our growth, if not almost all of it, will be in premium sectors" with premium products now highest-margin versus historical loss leaders validates premiumization strategy. Loyalty revenue from SkyMiles advancing 9% and Amex credit card partnership generating $2 billion (up 12%) reinforces affluent consumer strength.

Retention rates in mid-80% range for premium customers suggests once accustomed to upgraded travel, downgrading proves difficult. This "attainable luxury" positioning creates sustainable moat as Delta targets premium comprising majority of business by 2027.

United Airlines rising 3% on Delta's results demonstrates sector-wide benefit from capacity rationalization and premium focus, themes extending beyond single carrier.

Qualcomm ($QCOM ( ▲ 1.35% )) shares falling 3% pre-market Friday following China's antitrust investigation into Autotalks acquisition ramps geopolitical tensions ahead of Trump-Xi meeting at APEC forum late October. The State Administration of Market Regulation alleging anti-monopoly law violations in June-closed acquisition follows similar September probe into Nvidia over Mellanox deal.

China's tightened rare earths export controls this week combined with discouraging local firms from buying Nvidia chips demonstrates Beijing using regulatory tools pressuring U.S. tech companies before bilateral negotiations. The timing appears strategic rather than coincidental.

Senate's seventh failed vote Thursday attempting to end shutdown creates GDP drag estimated at 0.15 percentage points weekly. Republican resolve cracking as Democrat folding hasn't materialized, with various defections fueling hope for renewed negotiations over Affordable Care Act subsidies. However, concrete progress remains absent.

The data blackout continues elevating corporate earnings as primary fundamental catalyst, with today's University of Michigan consumer sentiment providing rare glimpse into economic conditions. Major bank earnings next week become critical for market sustainability given limited alternative data sources.

Fed Governor Michael Barr's Thursday caution about stubborn inflation and skepticism regarding tariffs as transitory contrasts sharply with New York Fed President John Williams emphasizing labor market concerns. This division suggests October FOMC meeting features meaningful debate rather than consensus accommodation.

In data absence, committee members rely on pre-shutdown indicators and anecdotal evidence, potentially amplifying individual perspectives over collective assessment. The uncertainty creates complexity for policy trajectory beyond year-end.

Next week's major bank earnings from JPMorgan, Citigroup, and others provide the fundamental validation I've emphasized as essential for supporting current valuations. Early Q3 results from Delta, PepsiCo, Applied Digital, and Levi Strauss demonstrate corporate resilience navigating macro headwinds, setting positive tone.

I maintain my 6,800 year-end target while using October volatility strategically. Thursday's modest pullback following eight wins in nine days represents healthy consolidation rather than trend reversal, exactly the tactical opportunity creating better entry points.

Markets demonstrate resilience with S&P 500 and Nasdaq tracking weekly gains despite Thursday's pullback and ten-day government shutdown. Nvidia's record high on UAE export license and Applied Digital's infrastructure validation underscore AI buildout sustainability.

Delta's premium focus and Levi's pricing power vindicate the K-shaped economy thesis, with affluent consumers driving corporate profit growth despite broader economic uncertainty. Novo's bold Akero acquisition demonstrates pharmaceutical sector willing to deploy capital aggressively securing growth pipelines.

Major bank earnings next week provide critical test for market sustainability, though early Q3 results suggest corporate America delivering profit growth justifying current valuations. I expect brief October consolidation creating opportunities before year-end strength toward my 6,800 target. I believe bank earnings will be strong, and could provide a catalyst.

Dan Sheehan

[email protected]

This newsletter is for informational purposes only and should not be considered investment advice. Please consult with your financial advisor regarding your specific situation.