We have Penguin saying no hike, then we have Pikachu @ren_stocks say we hike. Let me give my analysis. @JonkooTrades states that the FED would be making a mistake by hiking because the inflation we're saying is induced by a supply-side shock. I agree that it is induced by a supply-side shock. But I don't agree that the FED can't control inflation through the rates (demand-side). Let me illustrate this using a simple supply/demand chart that we all should be familiar with with Econ 101. I will also be sharing what I will happen to the markets depending on what the FED does below. On the FED controlling inflation through demand-side tools despite inflation coming from a supply shock A = the starting line This was the pre-war equilibrium. Aggregate demand and aggregate supply crossing where they'd settled. Prices stable, output where it should be. A → B = the oil shock Then the US Iran war took a chunk of oil supply offline. Oil is an input cost to almost everything, so when it gets scarce and expensive, producers can only offer the same output at a higher price. That's the red line: aggregate supply shifting left and up. The new equilibrium at B is the nasty kind. Price level jumps AND quantity falls at the same time. The textbook name for this is stagflation. This is the inflation print we're all looking at right now, and it did not come from too much demand. It came from too little supply. B → C = the FED's move Now the Fed has a problem. Its tools work on demand. A hike makes borrowing dearer so households and firms spend less. That's the blue line: aggregate demand shifting left. New equilibrium at C. Notice two things: 1. Price comes back down, roughly toward where we started (this depends on how dramatic the move is, but the idea is there) 2. Quantity falls again, now well below A So the FED can buy price stability, but the bill is paid in output and jobs. It's the trade off baked into the framework. Why this is still the reasonable play: The AS/AD model says a supply shock forces a choice. Accommodate (hold or cut) and you keep output but let the price level run, and the real risk is that expectations un-anchor and one shock becomes a wage price spiral. The 1970s are the cautionary tale here. Lean against it (hike) and you eat a recession but keep inflation credibility intact. What the FED is probably contemplating on: > The FED's mandate and its scar tissue from 2022 point to them eating a recession but keeping inflation in check. > At the same time, from Warsh's comments, it seems like he wants to wait for more data to come in before deciding on a move. Moreover, there may be underlying political pressure to not hike rates (although he may state otherwise) What I think will happen in the 3 scenarios: FED hikes: In my opinion, from what Ren has shared in the quoted post, it seems like this has already been priced in. From what I see, the consensus is a 50-75bps hike and if the FED really does this, the markets probably won't react much. In any case, it just reduces uncertainty and the markets will probably grind upwards FED holds: This will be a bullish case since the FED hiking is already a "base case". Markets will like this move. But at the same time, they can just continue to defy what the FED is doing (as we can see from the recent increases in 10Y and 30Y bond yields) FED cuts: Extremely unlikely given the recent comments on needing to keep inflation in check during the Jackson Hole meeting. I actually think the FED will hold rates where they are until they gather more data through the numerous task forces that has been set up, unless they have done so by the next FED meeting. Let's see what happens then. Thanks for reading!

This is very similar to memory right now because of the supply constraints. Compute is in extremely high demand, and when customers are willing to pay these prices, it gives me a pretty clear signal that the ROI is there. That's exactly why I see $NBIS as one of the most lucrative stocks in the market right now.

The GPU market right now is pure financial engineering. You can't get them on demand. So you sign a 3-year contract. But to get that contract, you need to put 30% down upfront. Most companies can't do that. So they find someone who can. - that person puts down your 30% - you sign the 3 year contract - your payments cover the entire cost of the GPU plus some - the person who put down your deposit owns the gpu outright So basically they took on zero hardware risk, got paid back entirely through your contract, and even kept the asset at the end. It's not a chip shortage anymore. Everywhere I see it's a capital access problem. If you have the 30% money, you're literally printing it right now. If you don't, you can't even get in the door.

One of the comments regarding my conviction in Broadcom was: “That’s what people catching falling knives tell themselves to feel better.” I obviously disagree. It’s an easy comment to make about someone buying a falling stock. I’d be more interested in hearing which assumptions in my analysis are wrong. Here’s my case for $AVGO. I bought around $390 and thought I was getting a good deal. It has kept falling since, which is frustrating but part of the game. I would obviously have preferred buying cheaper. I keep on adding at lower levels. My investment horizon is at least two years, though, and the latest report gave me plenty of reasons to remain confident about what Broadcom can earn over that period. Q3 AI semiconductor revenue reached $16.7B, up 221% year over year and 54% sequentially. Management guided Q4 to $21.7B, implying another roughly 30% increase from one quarter to the next. Broadcom also generated $13.7B in quarterly free cash flow, equivalent to 46% of revenue. That gives the company considerable room to fund development and pay down debt as the AI business expands. Management now expects approximately $115B in AI revenue for FY2027 and $230B for FY2028. Hock Tan tied those figures to secured supply and customer deployment plans. Getting the data centers ready will influence when that revenue arrives, so I expect some uneven quarters along the way. The economics behind custom chips make sense to me. These customers spend enormous amounts running their models. A lower cost per workload can justify billions in chip development, particularly when they expect to run those workloads at increasing scale for years. Broadcom has spent years helping customers develop and produce those chips. Each successful generation gives the customer another reason to continue the relationship. Moving work elsewhere takes engineering resources and introduces execution risk, even when the customer has the money to do it. Google bringing in $MRVL has understandably raised questions. I own Marvell too, and I think the opportunity is very attractive for them. I also think people are too quick to assume that Broadcom must suffer proportionally from every dollar Marvell wins. Google’s demand can grow fast enough to support several suppliers and still leave Broadcom with a much larger business. My reading is that Google wants more capacity and less dependence on any individual partner. It also gains negotiating power. We should account for that in Broadcom’s future margins, but I don’t see a reason to assume the relationship is falling apart. Google and Broadcom have a long-term agreement covering future TPU generations, alongside a supply agreement for networking and other rack components through up to 2031. Google is clearly still planning around Broadcom. I’m comfortable with Broadcom losing some percentage share if its revenue and profit continue growing at anything close to the rates we’re discussing. The size of the market makes an enormous difference here. So does the profitability of the business it keeps. The same applies to customers building internal chip teams. Google already designs its own TPUs and works with Broadcom. A customer can take more control over the architecture while continuing to pay an external partner for the engineering and production work needed to deliver it. Anthropic has announced multiple gigawatts of additional TPU capacity through Google and Broadcom, expected to start coming online in 2027. That gives us actual business to analyse. I have included no revenue from an unannounced Broadcom contract for an Anthropic-designed processor in my case. Broadcom also sells the networking needed to connect these increasingly large clusters. AI networking revenue grew more than 2.5 times year over year in Q3. I like having that exposure alongside the custom processors, particularly as customers spend more to keep all that expensive compute working efficiently. Then there’s the valuation, which is why I keep buying. My updated model came out at roughly $30 in adjusted EPS for FY2028. At my $390 purchase price, I paid approximately 13 times that estimate. A 22× multiple would put the shares around $660 in FY2028. I find that attractive. It gives me substantial potential upside using a multiple I’m comfortable underwriting, provided Broadcom delivers the earnings. I also ran a delay case with roughly $23.5 in EPS and an 18× multiple, giving a value around $424. My more severe case came out around $17.2 in EPS at 15×, or roughly $258. Execution problems combined with a lower valuation could clearly hurt. Those scenarios help me judge how much I’m willing to own and what I’m willing to pay. There are details in the accounts I’ll keep watching closely. The growing memory content in custom accelerators dilutes gross margins, and Broadcom’s involvement in customer financing can include residual-value guarantees. Those guarantees create financial exposure that deserves scrutiny as the arrangements grow. I want the additional sales to produce enough profit and cash per share to justify that exposure. Lower gross margins can be perfectly acceptable if operating profit grows strongly and cash conversion holds up. Revenue growth becomes much less appealing if Broadcom has to absorb increasing risk to secure it. So far, the results support my earnings expectations, and I think the potential return is well worth taking those risks. Broadcom remains one of my highest-conviction holdings. I’ll change my estimates if the business gives me a reason to. For now, I’m still adding when I can.

The next name on my list is $META, and the main reason is Muse. Meta just launched Muse, a personal AI agent with its own secure virtual computer and browser. It can manage emails, make reservations, complete purchases and handles tasks with multiple steps. It remembers your goals, suggests what to do next and keeps working after you close the app. Early feedback on the App Store has been strong. Muse has a 4.9/5 rating from around 3,400 US App Store ratings with users describing it as fast, efficient and surprisingly useful. This is the clearest look yet at what Meta's massive AI spending is producing. Meta expects $130B to $145B in capex this year, and providing every Muse user with a secure cloud computer will be expensive. Even with that spending, $META trades at roughly 20x forward earnings. The opportunity in my eyes is huge. Muse is free for most uses, with paid subscriptions for heavier users. It can also complete purchases through Stripe's Link, potentially placing Meta between user intent and the transaction. Meta already owns one of the world’s strongest advertising businesses. Muse could become an entirely new growth engine alongside it. I really believe that with their distribution, they can be one of the biggest AI application layer winners. That is why $META is my second great R/R pick.

I don't like calling anything "free money" in the stock market. There is no free money. Generally, no risk means no reward. But I can give you a few ideas that, in my eyes, are about as close as it gets from a risk/reward perspective. I'm going to make this into separate posts because I hate threads. My first pick is... Broadcom ($AVGO), which I talked about in the last few days. Let me explain: First, I think $AVGO is increasingly being priced as if meaningful market share loss is inevitable. The bear case(the opportunity) is that $MRVL, MediaTek and others will take share from Broadcom in custom silicon. Hyperscalers and AI labs are spending hundreds of billions building infra and they want chips designed specifically for their own use. Broadcom doesn't need 100% market share to win massively and it's not just custom XPUs. Their numbers are hard to believe for a company at this size: Broadcom reported $16.7B in quarterly AI semiconductor revenue, up 221% YoY. Next quarter, it expects $21.7B. Management sees AI revenues doubling two years in a row: $58B in FY26 $115B in FY27 $230B in FY28 It's already one of the most profitable semiconductor companies in the world, they sit deep inside the AI infrastructure buildout, with huge visibility into future demand. $MRVL and MediaTek WILL take some market share but if Broadcom can lose some share while its AI business still doubles, I'm not sure that's the bear case people think it is. $AVGO is my first pick in this series of great R/R picks.