Is this the top of the semiconductor market in your opinion or is this just some healthy digestion before we see a V-shaped recovery?
Well, there's a lots of different things in that one question, John. So, I'm going to just first of all jump to I do these quarterly outlooks and there are a couple of charts. It's funny that you picked Korea. You know, look, this was clearly there was a lot of froth in the second quarter. I tend to break up the world into quarters and then, you know, decades. And we actually sent out a note saying, "Look, this is probably not sustainable." I think the Korean market right now is around 6,000. Look, it went sideways for like 17 years and then exploded to the upside and, you know, obviously there's nothing dramatic that changed. So, clearly number one sign of froth. I would say Korea in particular because it's dominated by the memory chip companies was a sign of So, there's a whole AI ecosystem, obviously, and there's parts that I think are maybe softer and, you know, kind of stronger and more structural. I always ask the question, "If we're looking back in 5 or 10 years, which of these companies in the AI ecosystem have a competitive moat? Which are the survivors?" And there were two areas that I was sort of wary about coming into the end of Q2. One is these memory stock companies and the second one is the single model, if you will, companies just the frontier labs like Anthropic. Because both are just playing one role in the ecosystem, rather than having a front-to-back connectivity between customers and compute. So, the memory chip companies, just to answer the specific question, really benefited. Their profits went up because they upped prices. They weren't able to increase volume that much, John. It was really, "Hey, you need me. There's a shortage of compute, and I'm going to raise your prices." And that's okay for a 1-year or 2-year game in a corporate America or corporate world, but, you know, your customers are going to try to use less of your product. And secondly, you're going to have competitors. So, even within the last couple of weeks, a very large Chinese memory chip company came to market. It's now the largest cap in China or it was for a while. So, already this weak part of the market, even though it was a speculative excess, I think is being attacked in the ecosystem.
Just going to pause there for a second to point out that the market is showing signs of something kind of different happening. And our analysts at Milkroad Pro are all over it. They spent the last couple weeks making a lot of trades, getting out of some positions, and getting into a lot of new ones, getting ready for the next wave of robotic space, or even kind of picking some different AI winners. If you want to see what they have in their portfolios, what positions they're opening, it's just a dollar in Milkroad Pro at the link below.
Yeah, sure. Okay, so let's unpack this a little bit more. I'm curious your thoughts on the forward earnings of these companies, because a lot of the companies that have, you know, seen these crazy valuations, have seen them come based on the very strong forward earnings, but a lot of investors have questioned the quality of these earnings and how reliable these earnings projections are. Where do you land on this conversation? How do you like evaluate the projected earnings from these companies?
So, let's This is a little bit dated, but I have updated numbers. So, first of all, you can see that these are the big powerhouses of the equity markets, right? They're mega caps, and their earnings growth, I would call is justifying the market. Now, there are two caveats to that. One is that a lot of this profit growth in Q2, and I'll give you the adjusted Q12 numbers, but Q12 was driven by mark-to-market gains in their portfolios because, for example, Google was one of the biggest investors in Anthropic. So, this just shows earnings growth, but if you do adjusted so, just operating income that takes out these one-time portfolio gains that these companies, many of them do, you still had really impressive growth. So, Amazon's Q12 year-over-year operating income growth 43%. I mean, that is just incredible. Microsoft up 18% operating income, Google up 30%. Again, taking those investment gains out, John, and then Meta is down 8% year-over-year profit. They just were spending a lot of money. They also had some legal expenses that are worth noting, but their revenue they're still growing crazy amounts for a large company. They were growing 28%. So, there's two things we need to strip out if you're worried about earnings. One is that earnings driven by just portfolio gains, gains in investing in other parts of the ecosystem. And let's just double click on that one more time, which is you could imagine a quarter where let's say Anthropic's valuation goes down by half, the accountants, the auditors, the regulators will require these public companies to show that markdown in their earnings. So, I suggested investors prepare themselves in one future quarter. I mean, they're not going to go up court Anthropic's not going to go up every single quarter, right? So, one quarter we could have an earnings surprise, an overall earnings surprise because their portfolio holdings are down. I think if we start looking at just operating income, again the number is 43%, 18%, 30% growth in operating income for Amazon, Microsoft, and Google. Those are still very solid, you know, backward-looking albeit, but very solid operating income growth numbers. So, that's one thing that we need to do to kind of adjust this earning story. And the second is I just talked about the memory companies where they weren't growing unit volume as much as they just jacked up prices. And so, that's also something that, you know, we think is a shorter-term blip, but if you take the ecosystem as a whole, I think we're in really good shape.
Just going to pause there for a second to point out that the market is showing signs of something kind of different happening. And our analysts at Milkweed Pro are all over it. They spent the last couple weeks making a lot of trades, getting out of some positions, and getting into a lot of new ones, getting ready for the next wave of robotics, space, or even kind of picking some different AI winners. If you want to see what they have in their portfolios, what positions they're opening, it's just a dollar in Milkweed Pro at the link below.
