The Artificial Intelligence (AI) trade stumbled yesterday, resulting in Utilities (XLU), Technology (XLK), and Communication Services (XLC) bringing down the S&P 500 (SPX)—nothing catastrophic, but a signal of bumpiness ahead.

The biggest winners changed hands at valuation metrics that made purists scream.

Small Came Up Big

I know there have been so many small-cap head fakes, but I like the bounce off key moving averages, but there is more work to do.

The Institute of Supply Management (ISM) Services PMI is still in expansion, but the number was troubling. 

Exports and imports slowed to contraction, while prices are climbing faster.

The Treasury auction was sloppy.

And tariffs on Switzerland caught them and the market off guard.

Earnings Landmine

Earnings misses have been severely punished, and the beating went on after the close.

Slammed:

• Super Micro Computer (SMCI)
• Advanced Micro Devices (AMD)
• Upstart Holdings (UPST)
• Rivian Automotive (RIVN)
• Snap (SNAP)
• LifeMD (LFMD)

The thing about these initial reactions when the market is trading at specific valuations and individual names are much higher is that it might just be the chance for investors to take some chips off the table. Still, it can also be red flags, which is the case with SMCI and AMD.

Not the end of the world, but time to reassess.

Today’s Session

The data center build-out race is on and it’s moving at breakneck speed.

The question is, why are two darlings of the AI world under pressure after posting quarterly financial results?

SMCI

Management is pointing to margin pressure from larger deals and tariff issues but expressed optimism over the new DCBBS rollout.

Only one firm on the street has lowered their rating, which is very interesting. Most firms raised their targets, but they were below yesterday’s closing level.

The reaction in the share price, coupled with past issues with management and reporting delays, makes us leery.

Technically $46.00 must hold or there could be a lot more damage.

AMD

Data center revenue -13.5% from the prior quarter and is now down in back-to-back quarters.  On a year-to-year basis, it went up only 14% versus last June quarter when data center revenue climbed 115%.

This has become everyone’s favorite AI play of late.  The CEO gets the benefit of the doubt, so let’s see if buyers show up. Of course, I will be watching Dell Technologies Inc. (DELL) and Nvidia (NVDA) as well.

Utilities (XLU) are looking great following Centrus Energy (LEU) results.

Earnings are getting pretty good outside of tech.

McDonald's Corporation (MCD) rocketed on the same international store growth.

Uber Technologies, Inc. (UBER) wasn’t earthshattering, but another rah-rah interview with the CEO that helped to alleviate slight downward pressure.

The Walt Disney Company (DIS) is getting more attention from acquisition news than its financial results.

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