Rare is the occasion that Mag7 stumbled upon their earnings reports. 

Experience from a long bull has taught investors to expect only three things from Mag7: Earnings outperformance, newfangled technology and mammoth share buybacks. 

Alas, those good ol’ days are gone, possibly for quite some time. 

Last week saw Google (GOOG) and Amazon (AMZN) slumped by 12% and 3% respectively after their Q3 reports. Intel (INTC) also chipped in with a 40% crash. 

This week, Apple (AAPL) and Palantir (PLTR) too joined in the post-earnings bungee jump, falling by 4% and 8% respectively.

What is happening here? Shouldn’t Anthropic’s impending IPO fuel some bullish feelings in the stock market?

In last week’s Macro, I raised a few reasons why Anthropic may not be the Microsoft of our generation. In its latest amended S-1 filings, Anthropic has further clarified its recent financial health. Its nine-month revenue (to September) exceeded $33 billion. Its Net Loss? $104 billion! That’s 400% higher than the previous year's.

Through ANT’s data-rich prospectus, it is indisputable that AI is burning the pockets of every major tech player, from hyperscalers to LLM. 

In the past few quarters, an estimated $500 billion of debt were raised to invest in AI infrastructure. But these days investors are realising that AI revenue is not catching up fast enough. 

How will these debt ever be paid back? Nobody really knows. 

Unless AI revenue grows tremendously - soon - to service this massive debt load, AI funding will become more expensive.

Even Anthropic’s bond is potentially rated ‘junk’ post IPO. 

Moreover, AI is impacting a host of other industries. Listen to what the Reddit CEO has to say about AI on Google search (29 Oct): “AI Mode does not drive traffic. Not for us, and not to anybody, as far as I know.”

As a result of AI summaries, traffic to Reddit dropped by a staggering 1 million a week. Immediately after this stunning revelation, Reddit’s stock plunged by a fifth.

Elevated inflation expectations weighing on gold and Bitcoin

While the AI malaise is deepening, gold, silver and a host of pure asset plays like Bitcoin are struggling too. 

Gold just lost its $4,000 technical support; while silver struggles to stay north of the $50 level.

Falling precious metal prices are dragging the entire mining industry lower. And as long as gold stays weak, sentiment here will be poor. 

Technically, many miners are on the cusp of falling into new 52-week lows. This naturally will lead to more momentum selling, especially those smaller miners (see VanEck Junior Miners ETF, ticker: GDXJ)

As for Bitcoin, some crypto firms are sitting on key support levels. 

Here I highlight Coinbase’s (COIN) chart. Prices are testing the multi-year support at around $140. If broken, expected a medium-term fall into the round number level at $100. (Chart 3)

But not all stocks are all gloom and doom. Visa (V) and Mastercard (MA) are two financial stocks that are outperforming the tech sector by a huge margin. As market volatility these days is high, stop adjustments must be done and respected.

Conclusion

The AI trade is entering into a very turbulent phase. 

Excited by a ‘new invention’, significant capital had rushed into the sector in the past 18 months. The big bill for this euphoric speculation is coming due. Where is the cash to satisfy creditors, run equipment and buy those exorbitant power?

Even the big guys are not immune to this reckoning. Every earnings report risks turning into a 'make or break' session, especially if their free cash flow turns red. This makes the investing process much harder.

Better to have some firepower on the sidelines to take advantage of this immense volatility.