Last wk, oil +9% & ylds +11-26 bps across 2/30 curve w/ S&P/Nas/R2K -0.3%/-0.7%/-2.4%. This wk, I am watching reaction to 1) oil/rates, 2) calls to slow down AI development & 3) Fed on 9/16. I remain on the cautious side till US mid-terms on 11/3. This weekend, the CEO of Anthropic called for a slowing of frontier model development over safety concerns. This follows comments along similar lines by the CEO of OpenAI to employees last week if other companies were willing to do the same thing. The fundamental issues I have with this is 1) foreign adversaries would welcome the US slowing down AI development, 2) I view this as an attempt to slow down open-weight model development which would help the market dominance of OpenAI and Anthropic which are currently in the lead and 3) I do not see other companies agreeing to anything that slows down progress catching up to these two market leaders. Having said that, I could see 3rd party evaluators to limit liability risk going forward and some sort of executive order from the White House. But I hope the longer-term result of these actions is broadly distributed personal AI capabilities for all individuals versus having it become concentrated in the hands of a few companies. Along this vein of AI competition, after releasing their paid API of Muse Spark 1.3 two weeks ago with open-weight versions coming later, $Meta launched their personal AI agent Muse last week with the stock gaining 5%. With 3.6 billion daily active users, a hit product could yield large results. Meta is increasingly showing other ways they can monetize their AI capex spend. This should help the stock to re-rate from a 17x CY27 PE to a multiple closer to peers trading in the low 20s. Meta Connect on September 23–24 is another potential catalyst given their leading frontier model Watermelon should be coming at the latest by October. On the front of broadly distributed AI capabilities, $AAPL stock gained 4% last week on their new product launch. The foldable Duo will provide a personalized AI agent in your pocket with a 50% larger screen than a Pro Max. I continue to see a big upgrade cycle next year. The change from a 4” screen to 5.5” screen with the iPhone 6 drove revenue growth from 7% in FY14 to 28% in FY15. The Android ecosystem has had a foldable Samsung phone since 2019. As for the Fed on Wednesday, I believe Warsh will raise by 25 bps and echo his hawkish statements from Jackson Hole on August 28th that “Price stability is not self-executing… 65 months of sustained, elevated inflation sits squarely with the Central Bank.” The ECB statement last week when they hiked might provide some hints: “For inflation excluding energy and food, the baseline foresees 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028. Compared with June, the baseline projection for inflation in 2026 is unchanged, while it has been revised up for 2027 and 2028… The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth.” In summary, my caution between now and the US mid-terms on 11/3 remains for reasons I have fleshed out in prior posts including: 1. Don’t fight the Fed: The market historically under-performs during a hiking cycle with the bond market discounting 2 raises by year-end and 3.5 raises by mid-June of 2027. 2. Seasonal headwinds: September is down -0.5% on average and up only 48% of the time since 1957. 3. Historical volatility: S&P drawdowns of 10% between 7/31 and 11/9 have occurred in the lead-up to mid-terms since 1990. 4. Regulatory friction: There is bipartisan pushback against datacenter expansion that could hurt the AI buildout in the near-term. 5. Geopolitical risk: Despite US efforts to de-escalate, I believe Iran drags out hostilities at least through the 11/3 US mid-terms, keeping oil prices elevated. 6. Macroeconomic pressure: Long-term government bond yields are hitting multi-decade highs for several countries, slowing down growth and providing a reasonable alternative to stocks. I believe in not fighting the Fed, the bond market or seasonality. I like the odds stacked in my favor which should improve at least seasonally following the mid-terms.

Premarket movers: Mag 7 stocks are mostly lower: Nvidia (NVDA) climbs 0.9% after its board authorized an additional $150 billion under the company’s existing share repurchase program, increasing the total remaining amount authorized to $235 billion (Meta Platforms (META) -2.5%, Alphabet (GOOGL) -1%, Amazon (AMZN) -0.7%, Tesla (TSLA) -0.5%, Microsoft (MSFT) -0.5%, Apple (AAPL) -0.3%) Precious metals miners are broadly lower, following a drop in gold and silver prices as persistent tensions in the Middle East push up government bond yields and dent the appeal of non-yielding metals. Shares of oil majors rise. Kodiak Sciences (KOD) jumps 66% after saying the company has met key endpoints for both Zenkuda and tabirafusp-ted in the Phase 3 study in patients with wet age-related macular degeneration. NetEase ADRs (NTES) rise 4% after Morgan Stanley names it top pick among peers, expecting the firm’s new Ananta game to become a blockbuster launch and a core growth driver next year. SK Hynix ADRs (SKHY) drop 3% as reports of subsidiary Solidigm’s IPO plans trigger concerns over the rationale behind the move. Snowflake (SNOW), a maker of software that helps organize and analyze corporate data in the cloud, falls 4% as the company intends to offer $3.5 billion of convertible senior notes. Teleflex (TFX) inches 1.4% higher after BofA Global Research upgraded the medical device supplier to buy, citing upside to earnings.

On Final Transcript, MAI-Transcribe-2-Streaming achieves a 2.5% WER at 0.13s after end of speech, ranking #1# of 38 models on AA-WER Streaming. It is more accurate than Grok Voice Transcribe 2.0 at 2.7% WER and 0.49s, Muse Voice Transcribe at 3.1% WER and 0.16s, Cartesia Ink Preview with external endpoints at 3.1% WER and 0.11s, and ElevenLabs Scribe v2 Realtime at 3.6% WER and 0.14s, and faster than all of them except Cartesia Ink Preview. It sits at the low-error end of the Pareto frontier for accuracy against time to final transcript.

Microsoft AI has released MAI-Transcribe-2-Streaming, taking the #1# spot for Final Transcript accuracy and First Partial Transcript accuracy on AA-WER Streaming with 2.5% WER at 0.13s after end of speech MAI-Transcribe-2-Streaming is @MicrosoftAI's new streaming Speech to Text model, joining the non-streaming MAI-Transcribe-2. It leads streaming Final Transcript WER at 2.5%, ahead of the previous #1#, SpaceXAI's Grok Voice Transcribe 2.0 at 2.7%, and returns that transcript in 0.13s rather than 0.49s. It is available for streaming transcription at $0.54 per hour of audio, at the higher end of pricing among the leading streaming models. Key takeaways ➤ Final Transcript: MAI-Transcribe-2-Streaming achieves 2.5% WER at 0.13s after end of speech, ranking #1# of 38 models. It is more accurate and faster than Grok Voice Transcribe 2.0 at 2.7% and 0.49s, Muse Voice Transcribe at 3.1% and 0.16s, and ElevenLabs Scribe v2 Realtime at 3.6% and 0.14s. It is also more accurate, though slightly slower, than Cartesia Ink Preview (external endpoints) at 3.1% and 0.11s ➤ First Partial Transcript: The model achieves 2.5% WER at 0.12s, ahead of Grok Voice Transcribe 2.0 at 3.4% and 0.49s, and ahead of Muse Voice Transcribe and ElevenLabs Scribe v2 Realtime on accuracy, both at 3.6%, and slightly faster than both at 0.12s versus 0.13s. It is more accurate but slower than Cartesia Ink-2 (external endpoints) at 4.0% and 0.07s ➤ Price: MAI-Transcribe-2-Streaming costs $0.54 per hour for streaming, or $9.00 per 1,000 minutes. This puts it level with Gemini 3.5 Transcribe Live at $9, above the $6.50 charged for ElevenLabs Scribe v2 Realtime and Deepgram Flux, more than twice Cartesia Ink-2 at $4, and three times Muse Voice Transcribe at $3. Non-streaming transcription costs $0.10 per hour, or $1.67 per 1,000 minutes Congrats to the @MicrosoftAI team on the launch! See more details below

Last wk, S&P/Nas/Mag7 were +1.2%/+1.7%/+4.0% despite oil +4% & bond ylds +7bps on Iran flare-up. 2 days remain during this seasonally favorable time from the last 3 trading days of June through first 9 days of July. Earning season starts w/ big banks on Tuesday. As I first posted about on June 28th and reiterated on July 5th, the seasonality is historically very favorable from the last three trading days of June through the first nine trading days of July during which the S&P/Nasdaq have advanced 1.6%/2.5% and been up 78% of the time since 1985. The S&P/Nasdaq is up 3.0%/3.6% during the first 10 trading days of this time period in 2026 already. But for the heart of the AI trade, the Semiconductor (SOX) Index is down 7.0% during these last 10 trading days on fears of a “speed bump” that I have been posting about since 6/28. For the AI trade going forward, two separate thoughts with two different implications are beginning to coalesce in my mind. The first thought is that AI revenue growth for the leading LLM models is likely to hit a “speed bump” and slow in the September quarter. Last week, $SPCX and $META released new LLM models that both closed much of the gap with the leading edge models from OpenAI and Anthropic. But Meta plans to price their model at roughly 1/4th the cost of the two leaders with SpaceX aggressive as well. This is particularly relevant as companies switched from token maxing in March to token minimization in June. As an example, the CEO of Coinbase posted on June 26th, “How to keep AI spend flat while token usage grows exponentially... Putting this into practice has cut our AI spend nearly in half, while our token usage continues to grow.” Sam Altman on Thursday: “we have heard enterprises on their concerns about AI costs, and 5.6 sol is a huge step forward for dollars-per-task, as are terra and luna”. But on a positive note, two more public cloud providers have been recently added to the four that already existed of $AMZN, $GOOGL, $MSFT and $ORCL. SpaceX in the past month raised over $100B in equity plus debt and plans to spend hundreds of billions to attack the $28.5 trillion TAM they talked about in their IPO prospectus. News surrounding Meta last week seems to imply that they are launching a cloud offering not because they have excess compute but so 1) they can double their compute spend from 7 MegaWatts in 2026 to 14 MegaWatts in 2027 and 2) have capacity to sell their Muse Spark LLM. So in summary, with this seasonally favorable period of time for the overall market coming soon to a close, I believe cutting back excess exposure is prudent. Reaction by investors on Tuesday to bank earnings which should be strong, may give us a good tell as to the risk vs reward at current levels over the shorter-term. As for the AI trade, I believe selectivity is key as we work our way through the “speed bump” and the positive implications of 4 aggressive public cloud vendors now becoming six versus the negatives of token maxing in March turning to token minimization in June. All the best in the week ahead.

GPT-5.6 Luna survives the model launch storm — still #1# in the world based on OrcaRouter Composite Index 🐳 The frontier moved fast: Claude Opus 5. Kimi K3. GLM-5.3. Qwen3.8. Yet GPT-5.6 Luna still holds the crown on our Model Leaderboard. Current Top 10: 🥇 GPT-5.6 Luna — 75.0 🥈 Claude Opus 5 — 72.8 🥉 GPT-5.6 Sol — 72.0 #4# GPT-5.4 Pro — 71.7 #5# Kimi K3 — 70.9 #6# GLM-5.3 — 70.0 #7# GLM-5.2 — 69.9 #8# Qwen3.7 Max — 69.8 #9# GLM-5.3 Flash — 69.0 #10# Grok 4.6 — 67.4 This isn't another benchmark beauty contest. Orca Composite Index: 40% Human Preference 30% Independent Benchmarks 20% Production Evidence 10% Ecosystem Adoption Benchmarks measure models in the lab. We measure which models actually win. 🐳

Stocks and Bonds Rise After Tame US CPI US stocks and bonds gained after July inflation data came in line with expectations, reducing fears of an imminent Federal Reserve rate hike. Core CPI rose 0.2% month-over-month and 2.5% annually, while markets now price less than a 50% chance of a September rate increase. The S&P 500 rose 0.2%, while the Nasdaq 100 gained 0.7%, helped by strong AI-related companies. Treasury yields fell, with the 10-year yield down to 4.67%. Oil remained around $83 a barrel, keeping inflation risks elevated.