AI’s power infrastructure trade is breaking down.
Wall Street is abandoning yesterday’s market leaders.
The entire AI trade could be next.
Everywhere you look.. people are talking about how semiconductors, memory, and neocloud stocks are getting destroyed.
And I get it. They’re some of the biggest winners of this bull market cycle and they’re getting hammered right now.
But while Serenity over on X is serenading his 1 million followers with stories of memory supply being booked out until 2030, something way more important is happening behind the scenes.
The companies response for powering the AI revolution are breaking down.
And guess what. No one is talking about it.
I’m not talking about speculative shit stocks that FinTwit is tweeting about every day. Or your favorite newsletter writer on Substack is pumping to their $30/mo subscription group.
I’m talking about the meat and potatoes of the AI revolution. The long forgotten true bottleneck trade. I’m talking about the companies building the electrical infrastructure that makes the entire AI revolution possible.
Because here’s something everybody seems to forget.. you can’t build a multi trillion dollar economy based around AI without electricity.
And Wall Street is starting to send us a pretty serious warning, folks.
The AI Trade Has a Power Problem
The first stock that caught my attention today wasn’t the continued downside move in semiconductors.
As a matter of fact.. I wrote last week about how the weakness in semiconductors was probably just getting started.. and to buckle up for an extended move to the downside (The Semiconductor Selloff Is Getting Harder to Ignore).
The stock that really stood out this morning was something that you probably have never heard of.. a little known company by the name of GE Vernova (GEV).
You see.. GEV is positioned to be one of the major beneficiaries of the billions of dollars going into power generation and electrical infrastructure.
But look at what’s happening to its stock.
After an enormous push higher after IPOing in 2024, GEV has spent months building what looks like a classic Stage 3 distribution pattern.
And now price is breaking below the neckline.
That’s the exact opposite of what you want to see in a market leader.
A sustained breakdown could introduce a Stage 4 decline.
But here’s where things start to get super interesting..
It’s not just GEV.
I went looking through the rest of the AI energy trade and found the same kind of breakdowns developing across the market.
Just look at VOLT.. an electrification ETF.
This isn’t just GEV having a bad day in a weak market. This is potentially an entire thematic trade within the AI sphere losing its uptrend.
And that’s a very bad thing.
I Always Follow The Money
If you’ve been reading my newsletter for awhile, you already understand what I look for.
I don’t care about what the next revolutionary technology is supposed to be.
I care about where the largest financial institutions are placing their bets.
And right now.. the Capital Footprint across the AI power infrastructure trade is getting ugly.
Take a look at this..
These six stocks represent a majority of the AI energy trade.. and every single one of them has underperformed QQQ over the past 60 trading days.
Five just made new 60 day relative strength lows.
All six are trading below their 50 day relative strength averages.
And the weakness is spreading.. fast.
Eaton (ETN) and Quanta Services (PWR), which were holding up relatively well all things considered, have now joined the breakdown.
Meanwhile.. the utilities sector is outperforming QQQ.
So are broad industrials.
Which means.. in no certain terms.. that Wall Street is not abandoning everything related to energy or infrastructure.
They’re getting the hell out of anything specifically tied to the AI buildout.
This Could Be The Biggest Unwind In The AI Trade
Think about what this means for a second.
The entire AI investment thesis depends on a ridiculous amount of infrastructure spending..
Data centers need a LOT of power.
And power requires generation, transmission, equipment, construction, etc.
The companies expected to benefit from all that spending are breaking down and, at least for now, heading lower.
Does this mean the AI buildout is over? Of course not.
But it does tell me what the largest financial institutions are becoming less willing to own the stocks expected to benefit from it.
And when that happens.. I pay attention. Especially when the entire group of them breaks down.
This really could be one of the biggest warning signs I’ve seen for the AI trade this cycle.
What I’m Watching
As always.. I want to see these breakdowns stick.
If GEV, VOLT and other infrastructure leaders continue falling below their multi month support levels, the odds of a more serious decline across the entire AI trade increases. A lot.
But there’s another possibility.
A sharp reversal back above those broken necklines could create a powerful failed breakdown setup.
From failed moves come fast moves. That’s how I learned it.
And we’ve seen that plenty of times during this bull market.
For now, though, I’m not interested in trying to catch falling knives.
There are still stocks showing strength elsewhere in the market.
And I’d rather follow the money into those leaders than keep buying yesterday’s winners.
That’s a great way to end up posting something like this:
There is no nobility in willingly losing millions of dollars. Leave that shit for the birds.
That’s why I follow the money.
Hamilton
Founder, The Trading Initiative
P.S. Do you think the AI power trade is giving us an early warning about the broader AI market, or is this another buying opportunity? Let me know in the comments.