Hello there.

AI is threatening to take out software companies, or at least, Wall Street seems to think that it is. Also, house flipping doesn’t seem to be going so well lately.

Looking like a doozy today:

Let’s get started.

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The AI conversation is often gazing into supposed futures, but it’s been hitting a little closer to home recently. Goldman Sachs data shows short selling of single stocks hit the highest level since 2016 last week, with funds dumping shares at roughly a 2:1 ratio compared to buying. That's the fourth straight week of net selling, and the pace hasn't been this aggressive since Trump's first trade war with China.

The trigger was Anthropic’s cheeky little legal automation tool, which sent shivers through every software company still charging subscription fees. A basket of 164 companies across software, financial services, and asset management collectively lost $611 billion in market value in a single week. Information technology took 75% of the net outflows, but that still left over $150 billion in pain for the rest of the market. Silicon Valley may be ground zero, but the fallout will hit more than just the tech bros.

We’re living in ironic times. AI stocks powered the market higher for three years, and now AI advancement is the reason hedge funds are running for the exits. The Nasdaq 100 just posted its worst week of the year while retail investors kept buying the dip. Morgan Stanley's Michael Wilson thinks this is just a normal pullback in a major investment cycle. Hedge funds clearly disagree. Someone is going to be very wrong.

Private credit swooped into real estate like a friendly neighborhood loan shark, and now there’s blood in the water. Firms backed by giants like KKR started offering house flippers and small-time builders loans at 90% of after-repair value with 8% interest and basically zero experience required. They called it "democratizing real estate investing." Turns out they were just democratizing terrible decisions.

The old hard money game was brutal: 40-50% down, 13% interest, two points up front. Those terms filtered out amateurs. You had to nail the purchase, the rehab, and the exit, or you simply didn't do the deal. The new system flipped that entirely. Easy capital flooded the market with inexperienced buyers, compressed margins to nothing, and left zero room for error. In Cape Coral, Florida, private lenders have started foreclosures on 7.4% of properties they financed in 2023. Normal mortgages default at less than 2%.

The lesson here is as old as the sea: cheaper capital doesn't make better deals. It just removes the margin for error and postpones the pain. When borrowers have minimal skin in the game, lenders end up managing the fallout. And right now, the fallout is piling up across sunbelt cities where rookie flippers thought real estate was a new coat of paint away from easy money.

A lot can happen in a week!

Let’s take a quick look at who struck gold and who struck out since our last issue:

Taiwan Semiconductor (TSM): +6.58%
Broadcom Inc. (AVGO): +3.53%
NVIDIA Corporation (NVDA): +2.03%
Apple Inc. (AAPL): +1.42%
Tesla, Inc. (TSLA): +0.65%

Alphabet Inc. (GOOG): -7.52%
Microsoft Corporation (MSFT): -1.64%
Amazon.com, Inc. (AMZN): -14.30%
Meta Platforms, Inc. (META): -4.93%
Eli Lilly and Company (LLY): -1.01%

Analysis provided by ​altindex.com​.

Remember to always DYOR.

Quanta Services, Inc. stands as a prominent player in the specialized contracting services space. The company offers a comprehensive range of infrastructure solutions for the electric power and oil and gas industries. Their services span from electric power infrastructure like transmission and distribution projects to pipeline services, including natural gas, liquid pipelines, and related infrastructure. As the industry leans towards increased renewable energy projects and critical infrastructure upgrades, Quanta Services is strategically positioned to benefit from these trends.

Current price: $529.44
Target price: $605.62

That’s all for today. Write us and let us know your thoughts on the market, the newsletter, or the weather—we’d just love to hear from you.

Till next time,
— Brandon and Blake of Invested Inc.