There is a new category of companies who have gotten good at implementing AI tools and solutions and these companies are starting to outperform. This is the promise of the new technology finally being realized. In early June, Sean and I were writing and speaking about Travelers at around $300.

We wrote it up for CNBC Pro and then I did a TV segment explaining the story which you can watch (or rewatch) here. I think this is the key to the second half for investors.

Two weeks ago we gave you an update on TRV shares at $327 right here at DTJB. The stock is up another fifty points since then, reporting another monster quarter this week and rallying 10% on Friday. Look at this move, it’s like a work of art:

Capturing the upside of these stocks starts with knowing where to find them. There are AI beneficiaries in every sector of the stock market and in every industry group. While the AI capex darlings have been melting down, these names have been rising. Wall Street is about to start falling in love with the most effective AI users, rather than the facilitators. It just doesn’t know it yet.

But you know it because we’ve been talking about it incessantly. And at the top of our list of AI beneficiaries is Apple, a stock I have been pounding the table on for months. We titled a recent episode of What Are Your Thoughts “Why Apple is Going to $400” and laid out the case for why Apple wins no matter which hyperscaler spends the most. The bottom line is that Apple hasn’t spent a trillion dollars building data centers or developing its own LLM. I think they realized early on that they could simply ride on top of the infrastructure expenditures of Microsoft, Amazon, Oracle and Alphabet by virtue of the fact that they own the consumer’s relationship to the apps on their phones. No matter which LLM a person uses, it’s going to have to be compatible with the Apple App Store. No matter who is supplying the compute, Apple’s installed base of 2.5 billion devices worldwide would be the front door for the consumer and the toll booth for the provider.

Agentic Siri is not here yet but everyone knows it’s coming. Apple users are going to be able to assign it tasks and allow it to work across their apps to get things done. Imagine telling your phone to lock down concert seats, switch your flight from morning to afternoon, check in on a friend, notify a coworker, fix a photo, secure a dinner reservation, rebalance your portfolio and pay a bill. Less time looking at your screen, more tasks being completed in the background while you live your life.

Again, The Street is just beginning to catch on. Here’s Apple grinding to a new all-time high this week while tech stocks involved in the data center theme sold off. In a short amount of time, Apple could unseat Nvidia as the largest market cap stock in the world. It’s just shy of $5 trillion. If they can deliver what they say they’re working on this fall, Apple will have become the biggest of the AI beneficiary stocks I have been writing about.

Here’s Apple’s summer so far compared to the chip stocks (SMH) everyone had fallen in love with this June:

We had an expanded conversation about this and other subjects with our guest Jonathan Thomas, Chairman and CEO of the $300 billion asset management giant American Century for this week’s The Compound and Friends. Jonathan believes, as I do, that some of the biggest AI winners will be among the users rather than the sellers of this technology by the time all is said and done.

Links to the show at the bottom of this note.

Sean and I will be paying particularly close attention to the companies on our list of The Best Stocks in the Market as they report their earnings in the weeks to come. We’re specifically listening for commentary about AI investments they’re making that are finally starting to pay off in the form of earnings beats and higher guidance. We’ll keep you posted on what we hear.

The best way to stay in the loop directly is get started with Porterhouse, our separately managed account strategy that incorporates this research. When I look at the list of holdings, I see lots of companies that could end up becoming obvious AI beneficiaries as this theme plays out.

This week we did our monthly portfolio recap for clients, The Prime, highlighting the stocks we bought and sold in the Porterhouse Portfolio.

One position that got 86’d from the menu was ROKU. Here’s how Sean explained the sale:

Roku (ROKU) left our model for the best possible reason. Fox (FOXA) is acquiring it in
a roughly $22 billion deal announced June 15. At the June rebalance, the model had sold Fox (FOXA) and bought Roku (ROKU), a textbook case of the market discounting
improving fundamentals before they showed up in the headlines. Once a takeover is
announced, a stock trades on deal math rather than momentum, so the model kicks it out.

As a reminder, nothing you read here should be considered investment advice or a solicitation to buy or sell any securities. Read the full terms and conditions here.

To get started with a Porterhouse allocation and learn more about what it’s like to become a client of Ritholtz, go here.

The most important thing about the current stage of the bull market is to stop being so thirsty about it. Thirst will get you killed in this tape. The median semiconductor stock is now more than 22% below its recent highs and the index itself is close to a statistical bear market. Micron is in a 32% drawdown over the last month. Western Digital and Sandisk are down more than 40% each. These were the glamour stocks that everyone thought they had to own. How many people top-ticked these names in June because they simply couldn’t stand watching them rally anymore? Long-time holders are still up a lot. New buyers are, well, not.

SpaceX is another example of thirst getting people into trouble. You have to understand that I talk to financial advisors all over New York City and all over the country. I have heard stories about investors moving multi-million dollar accounts from one firm to another just because a broker promised them a SpaceX IPO allocation. How f***ing dumb does that look now?

We had to talk a lot of people out of doing dumb stuff in the run-up to the initial public offering and, fortunately, people listened for the most part. Now you can buy as much SpaceX as you want, below the offering price, just a couple of weeks later.

For those keeping track, SPCX was sold to the IPO investors at $135, which was a made-up number from Elon in the first place and bore no resemblance to anything even approaching a scientific valuation. He told the banks “we’re selling it at $135” and they said “Yes, boss” because it was one of the all-time greatest fee-generating bonanzas in Wall Street history. Great for Goldman and Morgan and the other forty banks on the cover. Not so great for the thirstiest investors who were willing to sell a kidney to get an allocation.

SpaceX may have a brilliant future ahead of it but that is not the same thing as saying its shares were a great investment when they came public. It has now lost over a trillion dollars in market cap since its intra-day peak at $225 and a couple hundred billion dollars since the day it launched. Even though we’re all desensitized to the numbers, let me assure you that this is still a lot of money.

Friday's close was a fresh all-time low. The stock is now trading ten points below its $135 IPO price, and right now only 3% of shares outstanding are in the float. In August, we're going to see the first wave of insider selling. If you’ve been patiently waiting for an opportunity to buy or you’re just in the mood to make fun of your friends who paid $200, here’s what’s about to happen…

The first lock-up expiry hits on the second trading day after SpaceX publishes its Q2 earnings report, expected in late July or early August (it’s also insane that we don’t have an actual reporting date yet but this is Elonland, what are you gonna do?). Anyway, whenever they report, that unlocks 911.5 million shares worth roughly $123 billion at today’s price. Not a typo - $123 billion worth of potential supply. The eligible sellers are rank-and-file employees and early shareholders who have been locked up for years. Ask yourself: in the aggregate, do you think they're more likely to hold or sell?

The float roughly quadruples, from 3% today to around 12%. And that's just the first wave. From there, 7% tranches unlock every two to three weeks on five separate dates running from August 21 through October 25. By December 8, the entire remaining 180-day block expires and the float reaches roughly 40%.

There was a kicker in the original lockup structure. An additional 10% would have released early alongside the Q2 earnings unlock if the stock closed at least 30% above the IPO price, meaning $175.50, on at least 5 of the 10 trading days heading into that date. That trigger is dead but I’m giving you the complete picture of what is and has been at stake.

So, to sum up, thirsty behavior has been a tremendous liability this summer and it will continue to be barring some sort of low-quality, mind-eraser melt-up a la 2021 that I just do not see coming. And nowhere has this liability been more on display than in the 45% peak-to-trough decline we’ve seen in SpaceX shares over the last few weeks. What an absolute shitshow. The less thirsty you are, the better off you’ll be for now. The next time you feel compelled to jump at something shiny your friends are all talking about, go take a shower instead.

One more thing to understand about the supply picture: Elon's approximately 6.4 billion shares are on an entirely separate 366-day lockup with zero early release provisions. His shares don't move until mid-2027. Everything above is just the employee and early investor float coming online. The real supply event hasn't even started yet. I can’t imagine him being a large seller because in no way, shape or form does he need access to the cash and the Tesla merger (which, of course, is inevitable) hasn’t even begun yet.

Sidebar: I bet you’d love to get a list of the guys who bent over backwards, severed existing relationships, transferred accounts and did other tricks and treats for a gameday allocation. You could sell these people anything. SPACs, coins, whatever. These are the Glengarry leads.

THE COMPOUND & FRIENDS

Sean Russo⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ are joined by Jonathan Thomas, CEO of American Century Investments, to discuss: the remarkable rise of Avantis Investors, why active ETFs are gaining ground, what it takes to build investment products that can outperform without taking excessive risk, whether AI is creating an earnings bubble, why the market is broadening beyond the Magnificent Seven, and where the biggest long-term opportunities in AI may emerge.