Skip links

Inside Markets — Rotation

Rotation

January 29, 2025

Monday’s sell-off in AI themes resulted in the third largest decline for the momentum factor in 40 years.  Ultimately, the rotation out of momentum stocks could be a healthy thing for the broad market given extremely crowded positioning.  Unfortunately, the combination of Monday’s sharp decline and yesterday’s ‘buy the dip’ reaction only took short-term positioning metrics for the momentum factor to levels we’d characterize as elevated rather than extreme.  In our opinion, one shouldn’t ‘buy the dip’ without clear evidence of de-risking.

The Philadelphia Semiconductor Index (SOX) and many of its AI-themed constituents broke technical support on Monday and remain vulnerable to more downside unless/until they regain those levels.  For the SOX, that level is roughly 5100, which is ~4% above current pricing.

DeepSeek’s novel approach to training AI models (deliberately skips certain parts of supervised training) using accessible silicon (H-800s) has raised questions around the previously assumed competitive moat for AI models and the need for ever-increasing GPU density.  It’s logical to assume that wider adoption of DeepSeek’s training methodology would result in lower total training costs and associated acceleration in AI inferencing/larger addressable market.  In our view, this type of outcome would give some legacy server and storage companies a relative advantage or at least, a seat at the table.

Read more