Mean reversion algorithmic trading resumed last week on the perception that Asia would take the AI lead from the U.S. (This is a false narrative, since we are still in the early stages of the AI build-out.) For evidence of this mean reversion, here is a review of the trading trends in the first half of July. This Bespoke Investment Group chart illustrates exactly how these mean reversion algorithms impacted the Russell 1000:
Currently, AI growth is constrained by memory and computing restrictions, as the backlog to build more data centers is still growing. OpenAI, Anthropic, Grok, and other AI developers have hit a wall, for now.
Here are the most important developments recently and what they mean:
- The nasty short seller community has been spreading a rumor that Chinese AI will undercut American AI, so OpenAI, Anthropic (Claude), Grok, etc. will be undercut in the upcoming months and years. Furthermore, these unscrupulous short sellers have also been spreading rumors that DeepSeek is gearing up to defeat American AI and has built a massive data center in Mongolia to conquer America. If you remember, the initial DeepSeek rumors over a year ago that the Chinese AI was better than ChatGPT were a false narrative. It is imperative that we do not listen to the fake news.
- Speaking of fake news, Palantir Technologies (PLTR) has been down this year due to the false narrative that AI would replace all the software companies. Well, Palantir Technologies’ second quarter revenue surged 93.5% to $1.935 billion compared to $1 billion in the same quarter a year ago. The company also raised its guidance above analyst estimates. Palantir Technologies’ revenue from U.S. commercial sales rose 149.7% and got many investors excited. This was the third quarter of perfect results and guidance from Palantir Technologies, so it appears the investors that shorted Palantir Technologies, like Michael Burry, have run for cover.
- One good sign that GDP growth is accelerating is that the Institute of Supply Management (ISM) announced that its manufacturing index surged to 55.6% in July, up from 53.3 in June. The ISM manufacturing index has risen for seven consecutive months and is now at a four-year high (since May 2022). Also encouraging is that the backlog of orders component rose to 55 in July (up from 50.5 in June). Fully, 15 of the 16 manufacturing industries that ISM surveyed reported an expansion in July.
- Trump Media has officially launched Truth API, a business-to-business data feed that provides customers with faster access to posts from prominent Truth Social accounts. Although Trump Media has not publicly disclosed how much the service costs, Reuters cited an anonymous source familiar with the matter that Truth API would charge up to $100,000 a month or $60,000 a month as part of a three-year plan. This is an example how President Trump is systematically striving to replace the mainstream media. The first post was apparently the news that the fighting with Iran has stopped, new negotiations with Iran were underway, and that the Strait of Hormuz would be reopened. Frankly, if Truth API remains primarily a news outlet to feed other news media, I suspect that the criticism that Truth API could be used for insider trading will fall short, especially if financial matters that impact markets are announced after the stock and commodity markets are closed. However, if Truth API blasts information during market hours, then that is a whole different story, unless it is almost simultaneously blasted out via other news outlets.
Overall, AI has hit a computing wall until OpenAI, Anthropic (Claude), Grok, and other AI software applications can get more computing power. Technology profits for semiconductor and memory companies are still accelerating, and technology imports from Asia are expected to remain high due to the AI boom that is underway. America is an oasis for the world. Immigrants flock here, and many now dominate our billionaire class. The U.S. dollar has also been appreciating this year, since the U.S. is viewed as an oasis.
