Here’s a preview of what we’ll cover this week: 

Macro: US Economy Is Resilient; The K-Shaped Economy; Inflation Is Misbehaving Again

Markets: This Rally Has Room To Run; JUNK RALLY; Our Choice in Animal Spirits; Prepare For The Rotation; IPOs Ahead; Nvidia Did What Nvidia Does; Electricity Is The Moat; Momentum: In Healthcare; Eli Lilly Is Saving Medicare Advantage

Lumida Curations: Palmer Luckey’s Case for Autonomous Defense; Gavin Baker On the AI Bubble Narrative; Jensen Huang On AI as a Digital Workforce

We are having a live webinar in the first week of June hosted by Robert Dewey, Founder of Exploring Prosperity and a Morgan Stanley veteran.

We’ll also be discussing Lumida’s plans to disrupt investing as we know it with AI.

Also, some big news. We launched the Lumida Invest app in the Apple app store. 

What makes this one different is that we'll be taking live questions from the audience. 

Here’s the link to sign up. You won't want to miss this one.

Happy Memorial Day weekend!

I am spending time with my family in Tangies this weekend. It played an unusual role in World War II – filled with spies and at a strategic chokepoint overlooking the Strait of Gibraltar.

Here are reflections on war and Memorial Day.

We have a K Shaped economy at the Consumer

AI is a knife that accelerates that at the Enterprise level.

Anthropic has added tens of billions of ARR in a matter of months. 

That revenue growth took software companies like Snowflake, Palantir, and Databricks ten years to generate.

The feast or famine is even sharper in the AI Lab ecosystem.

There are 63 AI Labs that have unicorn valuations that also have zero revenue.

Meanwhile, two of them are approaching trillion dollar valuations.

What started as a 'Winner take Most' market is shifting to a 'Winner Take All' market.

(And, for the ‘winners’, like OpenAI it’s not even clear whether they will generate the free cashflow to satisfy their $1 Tn in committed obligations.)

Markets have always exhibited power law return distributions.

AI is set to amplify the power law.

The feast is enormous, but reserved for very few. 

For everyone else, the famine arrives faster.

AI is not flattening the economy. 

It is steepening it. 

The biggest winners will look like monopolies before the market fully understands what happened. 

The rest will be expensive science projects seeking an M&A deal.

After the Cambrian explosion of AI startups passes, we should expect a shakeout and greater market concentration in a handful of names.

For investors, here are the implications:

(1) AI is not a sector bet.

It is a power-law bet.

The opportunity is not owning 'AI exposure.'

The danger is owning the expensive middle - cyclical companies with temporary AI narratives, unicorn marks, and no revenue.

(2) In a Winner Take All market, average is not safe.

Average is where capital goes to die.

(3) Own the bottlenecks.

The feast accrues to firms controlling truly scarce resources or IP. 

(4) Valuation discipline

The winners should deserve richer multiples.

The losers deserve zero. 

(5) Outside of the obvious picks and shovels, businesses and models that are beneficiaries of AI transformation.

We added a super quant to the Lumida team. It’s been fun working with him. 

In an alternate reality, I would enjoy waking up, enjoying an espresso, and developing quantitative strategies studying the market.

One of the main insights we have: It's a Retail Trader market.

Hedge funds and institutions are short or have de-grossed.

And, it’s easy to see that we are in the midst of a powerful junk rally.

Take a look at the table below.

The table below shows the factor returns from a portfolio of names owned by institutions (think quality stocks). The right hand side shows a portfolio of names under-owned by institutions (think junk stocks).

The green box is the summary statistic of the returns on each basket over various timeframes.

What we see across all time frames is under-owned names rally, while institutional favorites are lagging.

You can also see this in the AQR Market Neutral ETF ticker QMNIX.

It has a bias towards quality and a bias to short junk.

Notice quality stocks peaked in December.

Junk stocks tend to be small cap stocks, names that are typically unprofitable, or have high debt levels. They may be issuing shares.

Notably, we did see a Junk Stock rally last summer. What’s driving it this time? Our hypothesis:

Another aspect: Junk stocks have attracted Momentum. So, quants start following momentum.

We’re starting to do the same with a portion of our portfolio - a barbell approach. 

I know it sounds strange, but there’s a logic to it. 

The key is trying to find quality junk stocks.

It's just the factor return on this pool of stocks.

High quality stocks including various Mag 7 names, American Express and Nu Bank are down, for example, while animal spirit linked names or semiconductor small caps are rallying.

With rates coming down and IPO season coming soon, I don't see why this regime doesn't continue.

What might cause this trend to stop? A flood of new IPO issuance. A SoH escalation. 

More generally, it’s not wise to fight the trend and try to short junk stocks.

Many hedge funds are doing that and they are causing the rally to continue.

I am pleased to share that the Lumida Invest App is officially in the Apple app store.

Note: It’s still in Beta. But, you should download it and give it a whirl.

Be sure to search for: Lumida Invest, and get it for yourself.

We added Strategies a few days ago.

You can see how animal spirits, quality, momentum and other strategies are performing. 

The strategies show backtested returns (excluding transaction costs). You can click into a strategy to see what symbols the strategy is buying or selling.

These include strategies for momentum, mean reversion, and so forth. We still have to clean up the UX in this area quite a bit, and add more explanation.

We are also starting to test and incorporate the strategies that have good out-of-time forward-testing into our in-house processes.

Interestingly, the Animal Spirits strategy found LITE, CIEN, AAOI as momentum buys in out of time forward testing. 

Findings like that convince me AI will disrupt investing. 

I will say it again: this is the best app on the market.

The early reviews have been solid. 

The app has potential to disrupt traditional advisors, and the $140T industry that they address.

If you want to join as an early investor in our future, visit Lumida Tribe.

In a week or two, when I’m back in NYC, I will share a bit more about what we have planned in a live webinar.

Robinhood is worth over $60 Bn despite offering zero insight to investors.

There’s nothing AI native about it. There are no built-in strategies. 

Their true customer is Citadel, not the end investor.

And, what Lumida has accomplished in a few short years with one major financing is extraordinary.

Visit Lumida Tribe for all details including three years of audited financials.

Earnings season has unofficially ended this week with over 90% of companies having reported.

Overall, corporate results show the economy is on solid footing. 

The EPS beat rate came in at 73%. Revenue beats were stronger at 75%, almost the highest historical reading.

I have noted in recent weeks how earnings expectations for the S&P were at 19% for the year ahead.

After the current reporting season, earnings expectations are now 20 to 22%.

The hyperscalers and Nvidia are sand-bagging their numbers.

About 12% of companies raised forward guidance. That’s the top quintile historically, while only 2.7% cut it. 

What’s the bear case? The last time we saw meteoric earnings growth was in Q4 2021. That was a top of the cycle moment.

The difference? You had the last batch of trillion dollar stimulus issues and the Fed started to position towards rate hikes. That was an artificial sugar high.

That’s not the case today. Consumer confidence remains low (contrarian bullish).

You can also see improving corporate confidence in their hiring behavior. 

Private employers added an average of 42,250 jobs per week – a monthly pace of roughly 169,000 net new private sector jobs. 

These were consecutive weeks of strengthening growth after a hiring slump earlier this year.

What are the caution points?

Cash levels amongst money managers are once again running low.

We expect the resolution of all these various tensions is a rotation back to quality – perhaps after these IPOs launch or after the Animal Spirits seasonality ends in mid-July.

Overall, this is a strong and resilient bull market.

The S&P has priced in higher interest rates (set to lower), and stomached higher energy costs.

This week, two of the largest retailers in America reported earnings. 

Walmart and Target both delivered earnings beat— and both said the same thing about the American consumer: still spending but increasingly bifurcated (we are in a K-shaped economy).

Walmart CFO John Rainey: "Increasingly, [consumer strength] depends upon which consumer you're talking about. We see with our customers that the high income customer is spending with confidence into many categories, while the lower income consumer is more budget conscious and perhaps navigating financial distress."

The top half is fine. The bottom half is watching every dollar. 

Rainey gave a sharp data point to illustrate the stress at the lower end: "In the most recent period, the number of gallons that customers fill up with when they come to our fuel stations fell below 10 for the first time since 2022. That's an indication of stress."

Oil at $107 is a regressive tax. It hits the bottom half harder, and the bottom half is where Walmart over-indexes.

Target's read on the consumer was more optimistic, though equally clear-eyed. 

CEO Michael Fiddelke: "Top line growth was broad-based led by traffic. We saw broad-based strength across guest demographics and cohorts."

When comp growth is led by traffic, it means more people are actively choosing to show up. That's a healthy signal. 

Both Walmart and Target saw an increase of approximately 5-7% YoY in same-store sales above the inflation rate. Watch what consumers do rather than what they say on sentiment surveys.

The macro data confirms the strength we see in these transcripts.

The BoFA consumer checkpoint survey showed headline card spending rose 4.8% in April — the strongest monthly growth in three years. 

This is one of my favorite real-time economic indicator pulse checks.

Restaurant and travel transactions both increased year-over-year. The consumer is spending on discretionary services. Those stocks have been crushed recently due to higher energy and interest rates.

Same-store sales jumped 8.9% year-over-year — well above the 2025 full-year average of 5.8%, with the four-week moving average hitting 8.3%, its strongest reading since October 2022.

The loop is working: stable employment is driving solid spending, which is driving earnings beats.

At a stock level, we don’t like either Walmart or Target. The former is priced for perfection, while the latter has structural issues that are hard to overlook. 

But, their earnings insights are informative.

Now for the part where we ruin your morning.

Inflation is running hot. We've been flagging this since January. 

And, these hot inflation prints have implications for the markets.

Going back to 1934, every time CPI crossed 4%, the S&P 500 averaged -4% over the next 3 months and -7% over the next 6 months.

Will it be the same this time?

We’d argue that higher interest rates and inflation have already priced into many sectors, especially quality businesses that can efficiently pass on inflation.

The lifeboats to protect against rising inflation are already there, and the boarding costs are cheap.

Markets moved higher again this week, with small caps - led by Animal Spirits - gaining 2.8%.

Nvidia reported impressive earnings. The stock now has a forward PE of 21x which is extraordinary. The fastest growing company in the world is still priced cheap.

What’s holding Nvidia back is the bigger factor story we talked about earlier.

Nevertheless, the name is in a breakout and we continue to hold it as a top position.

The AAII bull-bear spread is sitting below -10 (bearish sentiment), while stocks are within 1% of all-time highs. 

This is contrarian bullish.

Those two conditions coexisting means markets are rallying despite investors not fully confident in the rally. 

This is something we saw in February and August last year. Markets were substantially higher in the next six months. 

If we look at historical data, every time the S&P 500 has been within 1% of its yearly high with a bearish reading on the indicator, the index has been higher six months later 86% of the time. 

The median return has been 5.85% in 6M and 12.87% in a year.

(The red entry in the table in 2021 had a Fed actively tightening into the wrong conditions. Today's Fed is on hold.)

And then there's the insider data suggesting the upside is intact. 

For the week ending May 15th, corporate insiders purchased $224 million worth of stock — nearly three times the pre-war weekly average of $86 million. 

The valuation data answers the concern.

The forward P/E for the S&P 500 Information Technology sector is currently 24.3x — only 3 points above the broader S&P 500 at 21.1x. 

During the Tech Bubble of the late 1990s, that spread was 20 points. Tech was trading at nearly three times the market multiple. 

Today it's trading at only a 15% premium.

The concentration argument also falls apart on earnings.

The IT and Communication Services sectors combined represent 48% of S&P 500 market cap — but they also account for 42.9% of forward earnings. 

During the late 1990s bubble, those same sectors had a 40% market-cap share while their forward earnings share was just 24%. 

The market cap was running miles ahead of the earnings. Today, the two are nearly in lockstep. 

If we go into specifics, we wrote last week on how MU’s 660% move is still behind its earnings growth of 768%. 

Interestingly, what we didn’t mention then was that Sandisk's earnings projections have been faster than the stock’s move of 3800% in the last 1Y. 

This is a rally driven by real earnings growth in the sector that is actually earning the most money. 

Where can we find quality animal spirits?

With Junk stocks working, we bought CPI Card Group (PMTS) in recent weeks - a 200M market cap company, with 600M in revenues. 

Now, before I tell you why we bought it, you should know the stock was up roughly 8% on Friday.

CPI makes the physical payment cards — debit, credit, prepaid — and the software that powers instant card issuance at bank branches.

The company reported 20% revenue growth in Q1, beating expectations. The core Secure Card business grew 35%. 

Free cash flow came in at $10 million for the quarter alone, and they brought leverage back below 3x after last year's acquisition.

See that FCF yield at ~26% – who says you can’t find quality in animal spirits. 

Forward P/E sits at 4.9x — near the lowest levels in the company's 3Y history. 

The stock is pricing in distress that the fundamentals simply don't support.

The earnings trajectory tells the real story. 

EBIT is expected to grow 17% this year and another 25% in 2027. Q4 is historically the biggest quarter, and this year is tracking the same way.

The catalyst is the Fiserv partnership — a referral agreement that opens CPI's instant issuance software to thousands of Fiserv bank customers. 

That’s the barbell approach I am talking about. Mix quality stocks together with quality junk.

I’d rather make money than be right!

Arguably the most important chart in the world now is the Ten Year.

My expectation is that it is topping here. There are too many people crowding into that going to 5%.

Kevin Warsh confirmation is the capitulatory event.

Interestingly, a bunch of names with loads and loads of long duration Free Cashflow have sold off as the ten-year has moved higher.

I mentioned Accenture (ACN) as one example. The name has moved higher this week and is showing signs of a ‘change in character’. That means the name has stopped selling off as it rallies into descending moving averages:

That’s a good development. The stock has an 11% free cashflow yield which is kind of bonkers.

Here is Accenture's Free Cashflow:

Also, there are many other high quality high free cashflow businesses like ACN. (We have discussed a few of them like Docusign, Broadridge, Go Daddy and others over the last few weeks.). 

Software stocks are out-running the S&P over the last month.

Not all quality stocks are exhibiting a ‘change in character’, but we are seeing movement from names like Accenture.

SpaceX filed its S-1 this week. OpenAI is pushing for an IPO as soon as September, and Anthropic’s IPO is on the horizon. 

Three of the most talked-about private companies in the world are lining up for public markets simultaneously.

And, they aren’t the only ones.

Annual US equity issuance is projected to hit roughly $600 billion in 2026 — a level not seen since the SPAC boom of 2021 and comparable to the peak of the late 1990s. 

SpaceX's $75 billion offering alone would essentially double the total equity issuance of the past three months. 

That's not only a large IPO. That's a market event.

The IPO ETF (FPX) has been in a steady uptrend for the past year and has delivered one of its historical best performances relative to the S&P 500 over the last two years. 

The IPO ETF looks a bit over-extended just as quality stocks are showing a change in character. Keep an eye on that dynamic.

On SpaceX specifically — we think it’s a private market bubble about to burst as it steps in public markets.

The $2 trillion market cap is liquidity for insiders, not an investment.

The S-1 confirmed our skepticism.

If SpaceX replicates its 15.7% revenue growth of Q126 in full year 2026, the Price to sales comes at ~93x. 

I remember someone rationalizing getting in on the SpaceX IPO as it can be the next Amazon.

Amazon went public at a sub-$500 MM market cap. Not $2 Tn. These are not the same.

Elon Musk has a genuinely extraordinary track record of creating wide gaps between financial reality and market valuation — Tesla at 343x earnings being the standing exhibit.

So could it pop on day one? Absolutely.

Is it an investment at $2 trillion? We don't think so.

(The rocket company may itself be the one thing in this IPO cycle that doesn't land cleanly.)

Be selective about which ducks you're feeding.

On IPOs, one of our pre-IPO deals Kraken has submitted its S-1, and is preparing for an IPO at a $20B valuation. 

We got in at ~$12B. This mark up gain comes in about a year for our investors. 

You need an eye to spot the alpha in private markets.

We do have some exciting opportunities in the pipeline. If you are an accredited investor, get on our private deals’ distribution list by signing up here. 

We are looking at a Datacenter Energy Compute deal with potential for IPO in early 2027. For qualified investors only. 

Nvidia reported earnings this week. The numbers were, of course, extraordinary.

Total revenue came in at $82 billion — up 85% year-over-year. 

Data center revenue hit $75 billion, up 92% year-over-year. 

Nvidia announced $80 billion additional share repurchase authorization. That’s $100B in buyback. 

(Funny, how this hasn’t gotten anyone excited, and rightly so, that’s 2% of NVDA’s valuation.)

Nvidia’s earnings call sets good expectations for what to expect in the next quarter from the semis complex.

Jensen’s remarks were bullish: "Demand has gone parabolic. The reason is simple. Agentic AI has arrived. AI can now do productive and valuable work. 

“Tokens are now profitable, so model makers are in a race to produce more. In the AI era, compute capacity is revenue, and profits." 

On the demand picture, Jensen restated hyperscaler CapEx is on track to exceed $1 trillion by 2027. 

Jensen has nailed his predictions. And if you’re following agentic AI, token proliferation is inevitable.

We remain overweight. The bull case has never been simpler: the world is building AI factories, and every factory runs on Nvidia.

A few years ago, I said Nvidia would be the largest market cap in the world. 

That’s done. 

The next step is the $10 Tn market cap. 

Could happen inside 2 years, and possibly sooner if Warsh cuts rates. 

Also, don’t be stupid and short semis.

This week, Leopold Aschenbrenner, founder of the Situational Awareness fund, was on a podcast with Matt Allen, talking about how compute needs are reshaping the demand for energy.

He remarked: "By 2030, a single AI training cluster could consume over 20% of all electricity generated in the US."

And that number doesn't include inference demand (the electricity consumed every time someone runs a query, spins up an agent, or asks an AI to do real work). 

Add that in, and the power math becomes almost incomprehensible.

The next bottleneck in AI is power. 

Which means the winners in the next leg of AI infrastructure won't be all of the compute providers — they'll be the compute providers who own their power supply. 

These companies will be able to provide compute at better margins than competitors relying on the grid.

We are actively looking at a private investment opportunity in this theme — a company operating at the intersection of off-grid energy production and datacenter compute. We know the team, and have invested with them earlier as well.

If you are an accredited investor, or qualified purchaser, and would like to to get in on this deal, write to [email protected] to learn more about it. 

Alternatively, you can also sign up at Lumida deals and receive all of our private deals related communications. 

Here is a chart looking at Humana, Astrana, and CVS against SPY.

What if I told you CVS is up about 57% in one year, while Humana is up 62% in 3 months.

These aren’t memory stocks.

The GLP1s may be saving American healthcare.

Medicare advantage stocks like CVS and HUM are showing very high momentum on short and longer-term timeframes.

The cost of care is declining as people shed weight. Insurers are benefitting.

Medical device technology firms are generally hurt as there is less need for surgery (although I think that sell-off is overblown as issues are kicked out into the future).

We also like Astrana Health – a healthcare provider which has strong earnings growth and momentum.

What’s one stock we have changed our mind on? Eli Lilly. 

It went from our short list to our long list in a span of 2 months. 

We turned bullish on Eli Lilly a few weeks ago when it was dancing around the 200-day moving average after being bearish on it when it was at $1T Mcap. 

The call worked, and it has been rallying from its lows.  

GLP-1s are driving the stock, and saving medicare simultaneously. 

Here’s what is driving the stock:

Across 12000+ patients and 7 tumor types, GLP-1 users had half the lung cancer metastasis rate compared to non-users — 10% versus 22%. 

Similarly, breast cancer risk was cut by 43%. Colon cancer five-year mortality also came in better amongst GLP1 users – 15.5% versus 37.1% in the control group.

GLP-1 is no longer just a weight loss drug. It has shown positive results in reducing risk of cancer, heart disease, kidney failure, sleep apnea, addiction, and liver disease. 

Biology keeps finding uses the designers never predicted.

This means Eli Lilly becomes the best at a drug with enormous demand, and newer use cases. Retatrutide expands the TAM further.

With midterms approaching, healthcare names tend to do well politically. 

Lilly sits at the intersection of the GLP-1 supercycle, a Medicare coverage expansion, and a pipeline that keeps delivering surprises in the clinic.

We are long.

Palmer Luckey argues that the U.S. military needs far more ships, fewer people per platform, and autonomy at scale because traditional manpower-heavy defense systems no longer work.

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Gavin Baker says that AI valuations are not absurd when compared with earlier software cycles, especially given the scale of demand, revenue growth, and capital efficiency behind companies like Anthropic and OpenAI.

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Jensen says agentic AI should be understood as a new digital workforce, not just software, and that scaling it will require massive physical infrastructure across compute, storage, memory, and networking.

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