AI Passed The First Test
Earnings from Hypercalers, $CLS, $MXL, and charts!
We’re thrilled with Amazon’s Q2 ER, since we made it our largest holding in the TPO Portfolio. Amazon’s 17% gain more than offset the 6.5% decline in Meta, which happens to be our second largest in the portfolio. Plus, we took advantage of the AI panic this week, buying several of our highest-conviction names at levels we had been closely monitoring.
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The TPO Portfolio remains exceptionally resilient 💪, delivering YTD returns of 18.3%, outperforming both QQQ and AIQ. For the month of July, our portfolio declined just (3.5)%, compared to declines of (8)% and (13)% for QQQ and AIQ respectively.
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Let’s Set The Stage
Round #1 of the Q2 earnings season has come to an end, and the message from these companies, especially the hyperscalers (AI’s megaspenders), is loud and clear:
“The AI trade isn’t over.”
Hyperscalers led from the front, especially Amazon AMZN 0.00%↑, by not just raising capex for this year but by also elaborately detailing plans for where capex will be spent and when exactly they expect to break even on capex.
Then companies like Celestica CLS 0.00%↑, MaxLinear MXL 0.00%↑, Bloom Energy BE 0.00%↑ and Intel INTC 0.00%↑ further elaborated on which infrastructure segments will continue to become capex beneficiaries over the next few months.
This matters to The Pragmatic Optimist, as we own shares in all five companies mentioned above in the portfolio, with Amazon being the largest of them all at close to a 9% allocation.
Last week was also crucial as the AI selloff intensified, driven by a forced deleveraging cycle in Korea’s KOSPI Index, rising US Treasury yields to new 52-week highs, and the meltdown of former OpenAI researcher Leopold Aschenbrenner’s AI-focused hedge fund called Situational Awareness.
Through it all, we at The Pragmatic Optimist remained calm and assertive as we drew our cash position 💰 from 27% at the start of the week to 20% of the portfolio by the end of it. During this time, we invested in some of our highest conviction AI bottleneck names, like we said we would at key levels outlined in this post two weeks ago.
In this post we will share our post-earnings insights on the hyperscaler complex, Celestica, and MaxLinear and some of the key technical levels where we will consider expanding these positions for the portfolio.
📌On a YTD basis, The TPO Portfolio has delivered returns of 18.3% 💪, compared to 12% for QQQ QQQ 0.00%↑ and 15.7% for AIQ AIQ 0.00%↑ . Our portfolio remained exceptionally resilient during July, declining just (3.5)% compared to (8)% and (14)% for QQQ and AIQ, respectively.
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Hyperscalers Are Bullish AI…
…but the path to monetizing AI differs between hyperscalers.
Q2 CY26 was one of the most divisive quarterly earnings cycles that we can remember. That’s because Q2 clearly showed a stark delineation in investor reaction post-earnings, and that all comes down to how they monetize AI from here on. (That also was one of the reasons why we chose to make Amazon our largest holding, with nearly 9% of our capital allocated to AMZN).