Good morning investors,
Veterans Day delivered a split decision as the Dow hit records while tech wobbled on SoftBank's $5.8 billion Nvidia exit and CoreWeave's guidance cut. The rotation into value continues with Walmart and Home Depot leading while AI darlings face valuation scrutiny. But with AMD projecting 35% annual growth driven by "insatiable" AI demand and UBS calling for S&P 7,500 next year, the bull case remains intact despite November's necessary chop.
Opening Bell: Tech Rebounds
Dow ($DIA ( ▲ 1.36% )) futures rise 79 points with S&P ($SPY ( ▲ 0.23% )) futures up 0.3% and Nasdaq ($QQQ ( ▼ 0.32% )) futures gaining 0.6% as tech attempts recovery. Nvidia ($NVDA ( ▼ 1.55% )) jumps 1% premarket after supplier Foxconn reported 17% earnings growth driven by AI server demand. AMD ($AMD ( ▲ 0.01% )) surges 5% following its analyst day promise of capturing double-digit AI chip market share within five years.
Tuesday's tale of two markets saw the Dow surge 550 points to records while the Nasdaq fell 0.3%. Consumer defensives like Walmart, McDonald's, and Home Depot led as investors rotated from stretched tech valuations into overlooked value plays. Healthcare topped sectors with Eli Lilly and J&J strength. This breadth expansion is exactly what healthy markets need.
AMD's "Insatiable" AI Demand
AMD CEO Lisa Su projected 35% annual revenue growth over the next 3-5 years, with AI data center business growing 80% annually to "tens of billions" by 2027. The company targets double-digit market share in AI chips, directly challenging Nvidia's 90%+ dominance.
The OpenAI partnership worth billions starting in 2026, plus deals with Oracle and Meta, validates AMD as the legitimate Nvidia alternative. At 55-58% gross margins ahead of expectations, AMD proves pricing power exists beyond Nvidia. The stock's near-doubling in 2025 looks justified given these growth trajectories.
Foxconn's AI Server Boom
Nvidia supplier Foxconn crushed Q3 with net profit of NT$57.67 billion versus NT$50.41 billion expected, up 17% year-over-year on AI server rack strength. The company expects continued growth driven by AI infrastructure demand while partnering with Nvidia, Stellantis, and Uber on Level 4 autonomous vehicles.
Foxconn's pivot from consumer electronics to high-margin AI servers mirrors the broader tech transformation. As analyst Ivan Lam notes, it's a "follow the cash" strategy that's "clearly paying off." When your key suppliers are crushing earnings, the underlying demand story remains intact.
GM's China Supply Chain Exit
General Motors directed thousands of suppliers to eliminate Chinese parts by 2027, reflecting growing geopolitical supply chain risks. The automaker frames it as improving "resiliency" but the message is clear: decouple from China before tariffs or restrictions force the issue.
This accelerates the reshoring theme I've been highlighting. Companies aren't waiting for policy - they're proactively restructuring supply chains. Beneficiaries include Mexico manufacturers, U.S. industrial companies, and logistics providers facilitating the shift.
Nuclear Power's Reality Check
Oklo shares fell after reporting a wider Q3 loss of 20 cents versus 13 cents expected, despite being up 390% year-to-date. The company targets 2027 for its first commercial Aurora reactor deployment, positioning for AI data center power demand.
The nuclear renaissance narrative remains compelling but execution timelines matter. With 2027 still two years away, investors are right to question near-term catalysts. The theme is real but stock selection within it becomes critical.
With that being said, I do think there are major winners in this space. I think opportunities exist as there will be an excess demand for Nuclear power to supply the AI build out and data centers.
Paycheck-to-Paycheck Reality
Bank of America data shows 25% of households living paycheck-to-paycheck, up slightly year-over-year with lower-income earners driving the increase. This K-shaped recovery continues with higher earners thriving while others struggle despite headline strength.
The divergence explains rotation from tech to consumer staples. Walmart and McDonald's benefit from trading down while luxury struggles. This isn't recessionary - it's bifurcated. Position accordingly with barbell exposure to both discount retailers and premium tech.
UBS's 7,500 Target
UBS projects S&P 500 reaching 7,500 in 2026 on 14.4% earnings growth, with half from tech. They acknowledge it's "essentially one big bet on AI" but see broad participation beyond mega-caps. Their bullishness assumes continued capex cycles and productivity gains materializing.
My 7,000 target by mid-2026 looks conservative against this backdrop. With AI capex accelerating, Fed cuts coming, and potential stimulus from tariff refunds or tax cuts, multiple expansion could surprise. Small caps breaking out would confirm broad participation. I do see upside to their target as the AI story broadens. It's often hard to see it in this moment as you are having to go through 100 articles a day of negative articles on AI valuations or bubble talk, but that will quickly change if earnings continue at the expected rate.
The UBS earnings growth number above is in alignment with the 14% number I discussed recently with a reporter.
Final Thought
November chop continues but dips keep getting bought. SoftBank selling Nvidia isn't neccessarily bearish, given their track record for selling Nvidia at the wrong time in the past. The rotation from tech to value is healthy rebalancing, not trend reversal, and displays traits of a braodening rally which is needed to hit higher levels.
AMD's 35% growth projection on "insatiable" demand validates the AI supercycle. Foxconn's 17% earnings beat confirms infrastructure build acceleration. Even GM's China exit creates opportunities in reshoring beneficiaries. Every headline that seems negative actually reinforces structural trends.
With the government reopening imminent, economic data returning, and Nvidia earnings November 19, catalysts align for year-end strength. The Dow at records while tech consolidates is textbook healthy rotation. Breadth expansion into healthcare, consumer staples, and industrials sets up the next leg higher.
I maintain we could see 7,000 on the S&P 500 by year-end and see small caps break out. The setup includes seasonality, AI investment cycle, and potential policy stimulus. Use remaining November volatility to position in quality. Focus on quality at reasonable prices, both in tech and rotating sectors.
The fearful AI headlines create opportunity for those who understand the structural story remains intact. Stay long, stay patient, and let the weak hands sell to you.
As always, feel free to reach out with questions about navigating November's crosscurrents.
Best regards,
Dan Sheehan
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.