AI Trade Under Stress: Supermicro, Oil, and Tariff Shock

Grant Calloway

So, I am, uh, I'm looking at the terminal right now, and the pre-market action is... well, it is a bit of a circus. We have Supermicro--SMCI--just exploding. Up sixteen percent, touching twenty-nine dollars and sixty-one cents. And, er, the reason is this massive business update they just threw at the street. They are projecting fourth-quarter gross margins at fifteen to seventeen percent. Now, to put that in perspective, their previous guidance was eight point two to eight point four percent. So they're claiming margins are, what, basically doubling? Plus they are boasting about a sixty billion dollar backlog. Sixty billion. But-but-but let's hold the phone here. I’ve seen this movie before, back in the late nineties, and again in '08. A backlog is not cash in the bank. It is an expression of interest until the check clears. When you see margin revisions of this scale overnight, it-it-it smells less like organic, sustainable growth and more like some very aggressive, late-cycle accounting adjustments to squeeze every drop of juice out of the AI trade before the music stops.

Grant Calloway

Now, you have to look at the broader picture here because today is the ultimate test. We have the big boys, the Magnificent Two, if you want to call them that, dropping after the close--Alphabet and Tesla. Everyone is going to be staring at Alphabet's capital expenditure guidance because that is the, uh, the actual scoreboard for how long this AI buildout can last. If they signal even a tiny slowdown in server buying, companies like Supermicro are going to feel it instantly. And then you have Tesla. I mean, Elon Musk is out there talking about robotaxis and these "Optimus" humanoid robots. It’s a tactical valuation distraction. That's all it is. He is trying to get Wall Street to look at sci-fi so they don't look at the collapsing auto margins and the relentless competitive pressure from cheap imports. It's a classic sleight of hand. Can these tech giants actually keep funding this level of infrastructure? Some people look at SMCI's sixty billion dollar backlog and say, "See? The physical demand is growing." I don't buy it. These capital budgets are highly cyclical vanity projects. The second consumer discretionary numbers or regional banks show more wear and tear, these tech budgets are going to get slashed faster than you can say 'liquid liquidation.'

Grant Calloway

Speaking of keeping track of all these rapid corporate adjustments, you really need high-fidelity, concise updates. You can bypass all the noise out there and go to jellypod.com. They deliver custom, daily audio briefings straight to your ears so you actually know what's happening before the bell rings. It's a clean way to stay sharp.

Grant Calloway

But look beyond tech, because the macro picture is getting ugly. As we speak, S&P futures are down zero point two two percent, and Nasdaq futures are slipping half a percent. The real pain is in the commodity pits. Brent crude is soaring to ninety-four dollars and sixteen cents--up nearly three and a half percent--and WTI is hitting eighty-seven twenty-nine. This comes as the US launched its eleventh consecutive night of airstrikes against Iran. And the fiscal cost is starting to leak out. Defense Secretary Pete Hegseth just disclosed to Congress that we've already burned through thirty-seven point five billion dollars on this conflict alone. Thirty-seven point five billion. I-I-I remember the oil shocks on the floor in seventy-three and again in ninety. When crude pushes toward ninety-five dollars, it acts as an immediate, regressive tax on every single consumer. There is no Fed rate cut in the world that can cure supply-side energy inflation. It just eats purchasing power raw.

Grant Calloway

And if that's not enough of an inflation threat, we had a bombshell overnight. President Trump posted on Truth Social proposing a one hundred percent tariff on imported generic drugs starting in August of twenty-eight, which then jumps to two hundred percent in twenty-nine. The goal is to force companies to bring manufacturing back to the US. Now, this is going to absolutely devastate foreign generic giants like India's Aurobindo and Sun Pharma. Meanwhile, the domestic behemoths like Eli Lilly and Pfizer are already, er, they're busy carving out special tariff-exemption deals by promising to build local facilities. But don't let the corporate PR fool you. This protectionist wave is a guaranteed driver of long-term, structural inflation. It's going to keep the ten-year Treasury yield pinned right where it is, or higher, currently sitting at four point six three four percent. You can't rebuild global supply chains on a whim without paying a massive premium at the pharmacy and the pump.

Grant Calloway

As we get closer to the opening bell, we also have to watch the economic data. The MBA Mortgage Applications index just came in, showing a previous fall of two point seven percent, and we've got pre-market earnings from AT&T and Philip Morris to wade through. It is a highly treacherous tape. My advice? Keep your position sizes small. You are fighting a war-risk supply chain and sticky, high interest rates at the exact same time. You know, there’s an old floor-trader aphorism: when the wind blows, even turkeys fly. But today? Today the wind is shifting. Anyway, just a quick reminder, this podcast is for educational purposes only and does not constitute investment advice. Keep your head on a swivel out there, and we'll talk to you before the bell tomorrow.