Contents:
The ARTAIS AI Model: Overview
Current Rotation
The Risk Is Not AI
Using Credit Markets to Help Identify Market Risk
How I Handle the Data
Pass/Fail Screen for AI Universe
The AI Model: Overview
At ARTAIS Capital, I manage a model that is based on the AI theme. Last week, I discussed where we are in the AI cycle and how it compares to the internet/tech cycle of the 1990s.
This week, I will be discussing the current rotation of the theme, the outside/non-AI themes that can temporarily disrupt the cycle, and some of the tools I use to manage this risk.
The ARTAIS AI Universe
To be included in this universe, the following must be true (a full list of the individual names and the pass/fail results of the screen is found below in the ARTAIS AI Universe Screen section):
A documented, primary role in the AI value chain. A company qualifies when there is dated public evidence that a meaningful part of its business supplies, houses, powers, or delivers AI computing: chips and accelerators, foundry and memory, semiconductor equipment and advanced packaging, servers, storage, networking and optical, data centers, cooling and electrical systems, power generation and grid equipment, the metals and materials those require, hyperscale and AI-cloud hosting, chip-design tools, AI-enabled software and data platforms, security software, and IT services that implement enterprise AI. The evidence has to be specific — a product line, contract, partnership, or segment inflection — not a press-release mention of “AI.”
Liquidity. To be eligible in a given quarter, a member must show a median daily dollar volume of at least $25 million over the prior 63 trading days, an unadjusted share price above $5, and at least 63 days of trading history. The $25 million floor is derived from a sizing rule: a 5% position in a $50 million portfolio, traded at no more than 10% of a day’s volume.
U.S. listing. All members trade on U.S. exchanges, including ADRs.
From this list, I have organized the stocks into categories that align with their purpose within the AI theme. For example, companies that provide power and cooling equipment to data centers, or semiconductor manufacturers.
ARTAIS AI Universe Categories
Current Rotation
The current rotation within the ARTAIS AI Universe shows that the leadership names within the AI theme are being led by Semiconductors, Semiconductor Equipment and Materials, and Server Storage & Hardware.
These three categories have the strongest positive momentum and relative strength compared to the S&P 500 index:
After a weak summer for the AI theme, the majority of the AI categories have been outperforming the S&P 500 since the start of September:
September Performance of categories within the ARTAIS AI Universe vs the S&P 500 Index (thick black line)
This outperformance is being driven by investors moving into high-beta areas of the market, like the technology sector, which has been showing rising positive momentum and relative strength vs the S&P 500:
The Risk Is Not AI
