AI Semis Trade: From Arousal to Reality The past few weeks have been painful for AI semi investors. One of our mistakes early in the month was not realizing how much of an impact Anthropic’s ARR print would have on the AI trade, and not “sussing” out the set up heading in: lower distillation revs, OpenAI taking share in September, & META/MSFT off-ramps. These were all things that were reported on; if this was an earnings print, we wouldn’t have wanted to be long in the weeks heading into it. In hindsight — knowing what we know now, it was a perfect set up to reduce exposure into it. The upside of whiffing on that trade and the market’s renewed focus on Lab ARRs and financing? It has forced me (and other investors) to sharpen our pencils and better understand the different moving pieces of the trade, and how they play off each other. Let’s rewind a bit before diving into where we are now: For the first three years of the AI semi trade, and especially during the May/June go-go days, investors were in the throes of the honeymoon phase: maximum arousal, minimum scrutiny. Every piece of news was looked at with rose-colored-glasses. It’s just like the beginning of a new relationship when the infatuation is so strong that your partner can do no wrong. Even when she tells you she believes in an "open-source relationship," you somehow hand-wave it away and convince yourself it’s just going to soak up more of the frontier labs' excess demand. When your level-headed friends pull you aside to point out glaring red flags, like the fact that she’s running a shadowy circular-financing scheme with her roommates, you don’t listen; you just stop inviting them to parties. Before you know it, you’ve turned on Gavin Baker’s X notifications and forward SemiAnalysis to anyone who thinks you’re moving too fast, the ultimate wingmen who never stop hyping her up and telling you what you want to hear. “It’s way bigger than just coding, bro. She’s going to replace the entire global labor force.” Before long, the endorphins and dopamine completely take the wheel. Even if you carry the scars from past relationships — whether the early 2000s, GFC, 2019 SaaS, or the 2020–2022 Covid binge — the blinders go right back on. Those exes weren’t real supercycles and everyone knows there’s no dark fiber in GPUs, you tell yourself as you stare at GPU rental prices. You’ve even picked out baby names: Bel if it’s a girl; Claude if it’s a boy. But eventually the dopamine wears off, and you have to get to know the person you’ve been telling everyone is perfect. You begin to see the flaws and start asking practical questions about spending habits, expectations, whose money is actually paying the bills. Can we afford this lifestyle on those lab ARRs, or are we just annualizing the honeymoon and assuming the capital stays cheap forever? And is there enough power in ’28 to keep the spark alive? Things suddenly feel a lot more complicated, and we feel some investors longing for the simpler, more intoxicating days of May and June. But we see the end of the honeymoon as a chance for the relationship to mature. That means accepting where we are, adjusting expectations, and focusing our attention on where the strengths are rather than the flaws...