Big Picture

💡 Burry, Buybacks, and AI Squeeze. So many signals.

Happy Sunday. I wanted to wait for Friday close to occur to ensure we did not get more info post market close Friday after US Treasury bought back bonds + Yen intervention…

A lot happened this past week and more is coming next week with Nvidia reporting. Everything seems to connect given AI and financing are aligned, and yields tie to both. We heard Bessent went back on the mic last week reinforcing what has become a very clear playbook. Stability in yields matters a lot, and sometimes more than the absolute level, both on the yen side and for the US long bond (30 year). Buyers of bonds just want to know prices won’t fluctuate all that much, and if you zoom out, yields have actually been fairly range-bound over the last four years. We’re still sitting in that range.

The reason stability matters so much right now is what’s happening on the spending ledger. Net interest continues to move up the ladder of federal spending categories, which means steady to lower yields is critical to keeping the fiscal math in a good spot. But you have two forces pulling opposite ways. Capital gains tax cuts on the revenue side, a war occupying and increasing outlays on the spending side. Both are pressuring the balance, while the interest cost line itself is also pressuring yields.

On AI, the data this week was interesting. Adoption is growing, something we believe in and something we have clear evidence on. And we are seeing IT budgets grow not shrink or simply AI replacing spend, which is key to the software working story. Also open weights are now inside the frontier pack, Microsoft entered the model board with its own silicon, and the memory names are lining up buybacks instead of reinvesting, which makes me hmmmm.

But before all of that, one visual. Here you go.

[1] Burry brings up Etched. We already brought this up…

Michael Burry surfaced Etched this week, and the reaction has been a lot of “wait, what is this.” We’ve been talking about Etched for months.

The point isn’t that Burry is right or wrong…

The point is that disaggregating the current compute stack, breaking apart the layers that are backed up and expensive, is a real signal, and it’s closer than the market probably thinks. We learned during COVID that barriers break. What usually took a decade took months. I know it’s a soft topic for some, but I’m referring back to vaccines, which the world condensed the production time frame on as supply and demand were out of whack.

For AI, historically it takes about three-six years to build a fab that can compete. Given the money flowing into this space and the demand and supply imbalance, that timeline is likely shrinking. Something we’ve been explicit about.

Key to put this in the back of mind as it can impact margins everywhere.

[2] Domestic private is now the biggest holder of Treasuries.

Bessent hhas called himself the “primary caretaker of the Treasury market,” and his recent actions are starting to make that framing pretty clear.

Whether it’s intervention around the yen or, more recently, attention on the long end of the U.S. curve, the message has been fairly consistent: policymakers seem much more concerned with disorderly moves and volatility than with defending any specific level of yields. Bond buyers can live with higher yields. What becomes more problematic is when the market starts moving violently and price discovery feels unstable. And despite all the noise over the last several years, if you zoom out, Treasury yields have actually remained within a relatively defined range. We’re still sitting inside that range today.

What has changed much more dramatically is who owns the market.

Domestic private investors now hold roughly 54% of the U.S. Treasury market, up from around 30% for much of the last decade. Meanwhile, foreign official ownership has fallen to roughly 14%.

That is a very different buyer base than the Treasury market was accustomed to historically.

It also helps explain why Bessent appears increasingly focused on maintaining liquidity, orderly markets and confidence in the long end.

[3] Net interest is now the second largest federal spending line.

This is why stability and eventual direction of yields matter so much.

Net interest ran at $827B through June of FY26 and is now the #2 spending category, ahead of Medicare and Defense, sitting only behind Social Security.

Steady to lower yields is very critical to keeping the fiscal math in a good spot. But you have two forces at play. The revenue side is hinting at capital gains tax cuts, which the administration has floated over the last several weeks. And on the spending side, a war is occupying and increasing outlays.

Two sides of the ledger going in opposite directions, which we think is impacting yields as well. Tough job for Bessent with that in store, so proactively showing support I think is important.

[4] AI is already a real line item in the IT budget.

Now back to AI.

A study showed that 34% of organizations already spend 10% or more of their IT budget on AI.

The mode is 5-10%, at 32% of respondents.

Only 6% are still under 1%.

So we are making progress on real use cases here and it is showing in budgets.

[5] AI eats crappy software, but IT budgets are growing.

Now then the question that matters for investors is where is that AI spend coming from.

66% say they’re reallocating from existing software.

54% say they’re increasing the overall IT budget.

Both of those things are true at the same time. AI is eating the simple software categories, the ones that lack defensibility, regulatory burden, or governance burden. Some of those tools are being replicated and live-coded for single-purpose solutions.

Others are being absorbed by vendors that are expanding horizontally. But the biggest takeaway is that overall IT budgets are growing, not shrinking, because of AI.

We think entrenched software with APIs, MCPs, and headless architecture, like what Salesforce announced, benefits from this. Additional IT dollars will continue to flow to current software vendors that can absorb the new workload. We have been saying this for a while now.

[6] AI spend is concentrated at the top, and AI-heavy companies are moving faster.

Ramp data is pretty good here.

The median company using Ramp is now spending $11.95 per employee per month on AI, up from $2.32 a year ago. That’s a 5x increase.

The top 10% are at $650, and…

the top 1% are at $7,400 per employee per month.

That’s a massive gap between who’s using it at scale and who’s not. Some of that has to do with coding versus non-coding companies. But there’s a second story here. AI-heavy companies are also moving faster.

Block is a great example. AI-pilled in a good way, as we haven’t seen product velocity like this from them since their early days. It’s showing up in the data and it’s showing up in their roadmap.

This ties to the last data point on the survey of IT spend.

[7] Anthropic has held its lead over OpenAI.

We also got an update on spending by model provider.

Anthropic passed OpenAI on Ramp’s AI Index in May 2026, and now sitting at 43.5% versus OpenAI’s 39.7%. That’s a ~4 point lead, and from what we know, it’s held over the last several months.

The bigger point is what’s happening below.

[8] Microsoft took the crown on image editing.

Microsoft has entered the frontier.

MAI-Image-2.5-Pro sits at #1 on the Artificial Analysis Image Arena with an Elo of 1272, ahead of Reve 2.1, GPT Image 2, Qwen, Nano Banana, and Seedream.

This was self-built on their MAIA silicon (their own chip). That is key because Microsoft is now competing at the top of the model board with hardware they own end-to-end.

[9] Open weights are now inside the frontier pack.

So that last datapoint was closed source and built by the cloud vendor.

Now Kimi K3 from Moonshot scored 60 on the Artificial Analysis Intelligence Index. That puts it inside the top tier, behind only Claude Opus 5 and Claude Fable 5 and comparable to GPT-5.6 Sol.

This is the other side coming at AI labs.

This is the first open-weights model to get here. This is critical. If the compute and open layer keeps pushing up the leaderboards, that further squeezes the model labs.

Margin compression from above and below is now a real force in the model layer.

[10] OpenRouter usage keeps expanding.

Now this data also shows that demand in general remains. Not survey data, but token volume. The overall routed model volume continues to climb, and the mix keeps rotating. What’s interesting is not any single model win but the shape of the market.

Applications are increasingly agnostic about which model sits behind them and are optimizing for cost, latency, and task fit. That’s another data point suggesting the model labs face pricing pressure from every side, not just from the top.

[11] Nvidia reports next week. History says the bogey is 3-5%.

Nvidia has beat revenue estimates in every quarter of the last several years.

The last four quarters averaged a 5.2% beat, with a range of 3.5% to 8.5%. Historical average across 22 quarters is closer to 10%.

The market bogey is somewhere in the 3-5% range now, and the second question is how much they beat their own guide by. Guide magnitude matters as much as the print itself for Nvidia who’s stock really has not done much post 2024.

[12] Samsung is planning up to $79B in shareholder returns.

Samsung reportedly plans to announce a shareholder return package worth as much as 110 trillion won, or roughly $79B. That’s a massive number.

Business is running well. Cash generation is following. And the answer isn’t more capacity or more M&A. It’s returning cash to shareholders.

Makes me wonder. If the AI investment opportunity was so big and the returns would last for a long time, you’d think these companies would reinvest back in the business rather than tee up capital returns after their stocks have soared.

That combined with Burry surfacing Etched, and with what we know about the disaggregation of the compute stack, is worth pausing and thinking about.

[13] SK Hynix is buying back $29B. Hmmm.

Same story as Samsung. SK Hynix announced a $29B buyback after this run.

If AI is truly the greatest infrastructure boom of our time, and memory is sold out through 2026, again why aren’t they investing aggressively into more capacity or acquiring companies within the stack to strengthen their position?

Net Net

Busy week overall as we saw influx of important info. Some signal and some facts. But lead with Burry showing Etched, but honestly we were already first to that earlier this year. At the same time, yields increasingly need to stay contained because net interest is now the second-largest federal spending line. That puts real pressure on policymakers to avoid another sustained move higher in the long end. Meanwhile, AI is clearly real. IT budgets are growing, not shrinking, and companies leaning into AI, like Block, are moving faster both in product and in how they compete.

But the picture underneath that is getting more complicated. Adoption is still top-heavy. The model layer is getting squeezed by open-weight models from below. Microsoft is pushing further into the stack with its own frontier models and silicon. And after a massive run, some of the memory names are talking about buybacks instead of pouring every available dollar back into capacity So it it interesting. Next week we get Nvidia, I will have a podcast session on this so STAY TUNED!

That’s all for this week!

About Avory & Co.

Investing Forward.

www.avory.xyz

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

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Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.

Big Picture

💡 Inflation cooled, interesting AI signals.

Are you tired of talking about inflation concerns? I am, but we continue. This week both inflation prints came in soft. CPI which is what consumers see came in at 3.4% Y/Y, PPI which is a input to future CPI came in at 4.7% Y/Y, and both landed below expectations for the second month in a row. We think this pushes the next rate hike further out and gives Warsh room at Jackson Hole to sound patient. One more inflation report lands before the Fed meets in September so not totally in the clear, but good news.

On the AI side, the story we’ve been running with keeps showing up in different ways. First news broke that Anthropic is reportedly getting bid at $2T. That is interesting on standalone basis, but then add in some chaos signals coming from OpenAI, the AI debate is quite interesting.

To top if off labor is entering its seasonal slow period, another good thing for Fed doves, energy is calm (for now), and Meta got a call out.

This week is a little different. Showing not only do we use data, but you have to add a layer of qualitative info to help build your investing mosaic.

Here we go…

[1] Inflation cooled on both sides of the print. Here is inflation section.

Let's kick it off with Consumer Price Index. Of course.

CPI came in at 3.4% Y/Y, down from 3.5%. Producer Price Index or PPI came in at 4.7%, down from 5.5%.

Both measures of inflation and both at or below expectations, and… both moderating for the second month in a row after peaking in the spring. Something we've been talking about since the tariff pass-through started showing up in the goods line a year ago. So underlying inflation is not a concern overall. The main reason we are talking about it is due to the war, which led to oil prices surging which drove headline prices. The Fed historically looks through one off bursts like energy, and Warsh sounds patient so far.

Above we annualize all the key measures of inflation using 1-3-6-12 month figures. The takeaway? All continue to migrate lower with some speed bumps along the way.

Lastly on inflation and I think this is a cool index, so for my stat data nerds, you will like this. Here we split the inflation line items into rate sensitive and non rate sensitive. The point? To figure out whether raising or lowering rates would impact underlying inflation. For example if you raise rates will that stop health insurance prices from going up… probably not. Will it impact credit card spending on consumer items? Yes. Right now rate rate INSENSITIVE (ie energy and insurance) are higher than rate sensitive. Meaning nothing to do from the Fed.

[2] Anthropic reportedly gets bid at $2T.

Ok now we get into some cooler items. The FT is reporting Anthropic is in early talks for a round that would value the company around $2T. WOW.

That’s a step change from the last mark and it puts the frontier model race squarely in the trillion-dollar bucket. Money keeps chasing the frontier, but the compute bill keeps growing right alongside it.

This has two implications.

1. Everyone was all in on OpenAi just 12 months ago. To me calling a winner in such a transformative moment is dangerous. So much capital is flowing here that the winner will likely keep changing, especially as the way to shift from one vendor to the other can literally take 10 minutes.

2. We have exposure to Anthropic. More on this later but if you follow our work, there are interesting ways to get exposure to arguably current most important company in the world today.

[3] Polymarket odds keep shifting on the frontier.

If prediction markets say so, then it must be true right? That is me being facetious, but Polymarket has been a decent real-time read on what the market thinks about who leads next in AI. The odds keep moving as new models drop. We watch this the same way we’d watch positioning data. Not a signal on its own, but useful context when it moves fast. It says Anthropics valuation keeps moving up.

[4] Zoom is getting a sum-of-parts read.

We’ve broke out Zoom into pieces. Core video, contact center, phone, and now the AI-native workflows. That is its core business. Then you have cash. Then you have… drum roll… Anthropic stake. At $2T for Anthropic stake, that squarely puts Zoom’s stake probably somewhere near $6-10B. Some other companies have stakes too, so not the only way to play it, but as a percent of market cap, Zoom is right at the top. Do your own research.

[5] Chaos at OpenAI? COO Brad Lightcap leaving…

Brad Lightcap COO at OpenAI is leaving. He has equity, he knows what is going on there, he knows running frontier is expensive, exhausting, and the returns from each new model are getting harder to earn.

Now some will say hey he is moving on and he made enough money already.

My view is simple: Doesn’t Sam Altman keep saying we are hitting AGI by 2030. Same thing said at Google, and said at Anthropic.

Well if that is true. Who in their right mind would leave the #1/#2 leader up to AGI?

My take: AGI is either not 2030… or OpenAI is not in position to lead. Both can be true. Or maybe yeah he wanted a break. Signal to me.

[6] Then we have the Chief Revenue Officer.

And then this. Whatever OpenAI is going through internally, it’s not a company acting like everything is smooth. The CRO who just took over 8 months ago is leaving also.

More signal. Take it how you want.

[7] Bessent on Meta Muse.

This one is interesting and a signal the other way. Treasury Secretary Bessent flagging Meta Muse this week is not a small thing. When policy voices start naming specific AI products, it’s a signal that the surface area of AI is getting bigger, not just in the market but in DC too. Meta is spending like they know this.

Again interesting since I do not think Bessent is one who would tweet/x things on a fly.

[8] Suhail on the switching cost.

Suhail, one of the youngest YC members ever, had an interesting take. His take on switching between frontier models is worth reading. The cost of moving between them is dropping toward zero (as we have been saying for a while), which is exactly why the value in AI is moving up the stack toward workflow and distribution. Again this is a thesis we’ve been running with for a while now.

[9] ADP weekly hiring pulse stays soft.

Now some jobs data. ADP’s weekly hiring read keeps trending below where we were a year ago. Not falling off a cliff, but clearly cooling. That fits with the inflation prints and gives the Fed room to sit still. We’re watching this weekly, not monthly, because that’s where the real turn will show up first.

[10] Avory at BARR team event.

A great night with the BARR team this past week. Real relationships still matter in this business. We’re grateful for the partnerships and the people showing up in person. We laid out our views of the state of the markets, our views on ai, all data driven. If you want to go through the piece with us, let us know!

Net Net

Inflation is cooling, labor is hitting seasonal slowdown, and the AI dollars keep chasing the frontier while the value seems to be moving up the stack. We stay long the names that turn AI into cash, and we stay patient on the Fed. One more inflation report before Jackson Hole. Chairman Warsh gets his shot to set the tone. Let’s see.

That’s all for this week!

About Avory & Co.

Investing Forward.

www.avory.xyz

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

Speak to us:

Schedule a Brief Zoom Meeting

Send us an email: Team@avoryco.com

Want to invest? We are on most platforms.

Want More

🎥 Avory YouTube: Channel

🎙️ Avory: Podcast

Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.

Big Picture

💡 The jobs market was out this am, tariff refunds are quietly funding the consumer, and our companies keep executing (but volatile).

The July jobs number just hit and the print was actually negative for the month, on the surface not great but private sector hiring came in at +30k, inline with month prior. As always for us, the way that data gets calculated matters a lot. It takes a single reference week and roughly 25K jobs got impacted this month due to weather among some other nuances. We tend to look at data sources like Revelio that take a combination of various inputs to calculate the labor picture and they’ve proven to be fairly accurate once the eventual revisions hit. Our read is that the labor market is stable overall, not boom or bust. Good news is it likely keeps Federal Reserve more balanced.

Also, tariff refunds continue to be an interesting driver for the economy this year. That boost combined with tax refunds has completely offset any impact that elevated oil prices would have made, which is something we’ve been discussing for some time. It’s showing up in the data.

On the company side, Meta’s superintelligence team came out with a new model and it is impressing folks. Meta is climbing up the intelligence ladders and getting closer and closer to closed-source frontier models. Not only are they catching up in terms of intelligence, but the cost per token is impressive, and ultimately given their size and scale they are in a position where they can put financial strain on competitors that don’t have the cash machine that Meta has to help fund development.

Then the earnings, our favorite time of year. We saw lots of validating information in the quarter. Category leaders keep executing. Block, Paycom, Atlassian, First Watch, Xometry, Zillow, Airbnb, Clear Secure, Duolingo. Price reactions differed, with some strong moves higher and some not so much, but fundamentals will drive return overtime. We remain long some of those operators (not all). Lets dig in.

[1] Seems like category and foundational leaders are winning across the board.

The through-line this quarter is that the operators keep executing. Nine names we tracked and same financial outcome. Software, restaurants, marketplaces, real estate, travel, identity, education, payments. All accelerating or holding the line while the broader market worries about AI, housing, and the consumer. This is what we mean when we say category leaders keep executing.

[2] July jobs printed negative, Revelio tells a different story.

The BLS print for July came in at -23K jobs and revisions took May and June down another 103K combined. This is the first negative payroll month outside of the pandemic. But the methodology here matters. BLS uses a single reference week that includes the 12th of the month, and roughly 25K jobs got dinged from weather and other nuances that show up on that single week. Private payrolls grew +30k which is a better figure for what’s taking place outside of government. We tend to look at Revelio’s data because they pull from a wider set of inputs, and once BLS revisions eventually roll in Revelio has proven to be fairly accurate. Their July read shows Manufacturing +20.7K on the strong end, Leisure -9.8K on the weak end. Market for jobs remains pretty stable overall.

[3] Tariff refunds keep offsetting oil.

$71B of the $166B in tariffs collected has been refunded to companies so far, and Apple alone is sitting on $2.2B of refunds. Combined with tax refunds, this has completely offset the impact of elevated oil prices this year. This is something we’ve been talking about for a while now, and it’s showing up in consumer resilience across the data we track. We think it is only starting and will likely help companies and consumers throughout the rest of 2026.

[4] Meta is back in the AI game.

Now onto Meta. Meta’s superintelligence team just released a new model and our take was straightforward. They are climbing up the intelligence ladders and closing in on closed-source frontier models. Muse Spark 1.2 sits at #6 on the Artificial Analysis intelligence index with a score of 57, shoulder-to-shoulder with GPT-5.6 Terra and just behind Claude Opus 5, Fable 5, and GPT-5.6 Sol. The more interesting read is on the right panel. Muse Spark 1.1 lands squarely in the most attractive quadrant, delivering an intelligence score of 54 for $1.43 per task while Claude Opus and Fable are running $8 to $12 for a similar or slightly higher score. Given Meta’s size and scale, they are in a position where they can put real financial strain on competitors that don’t have the cash generation to fund development at this pace. We’ve been explicit about our thesis on Meta and this is exactly why.

[5] Block accelerated across the board.

Block put up a really strong quarter accelerating in many parts of their business. They beat and raised their guidance for the full year. They’re seeing efficiency gains driven by AI adoption, most of which has been built organically. They launched two open source projects within the last 6 months or so, Goose and Buzz, both of which have been met with real excitement. These may not be monetization drivers by any stretch, but one way to look at it is the internal talent inside Block that’s building the systems and tools, which is driving both internal efficiency and product velocity as we continue to see newer products.

The investor community is focused on Neighborhoods, which is really their method of connecting their ecosystem. Something they’ve talked about for nearly a decade. The disclosures they provided gave us a little bit of positivity on the fact that Neighborhoods has reached product market fit, and they provided various data points to support that in terms of payment volume flowing through neighborhoods and followers of certain stores. They’re iterating their way through this.

Which is why we think Block is much healthier and stronger than maybe even bulls expect. Everything they’re doing is very vertical, from Square Financial and their charter bank, to their hardware team building multiple hardware products. That’s only really possible if you have the talent inside. They own the consumer relationship and the merchant relationship, they have self-onboarding, and they’re also leaning into field sales. This is becoming a much more mature company on the sales and product side, but in many ways they still operate like a startup through product velocity and cadence. That keeps us excited.

[6] Paycom spiked 25% on record profits.

Paycom hit a record 44.2% adjusted EBITDA margin in Q2 26, and the stock ripped nearly 25% on the print. The company is finding ways to accelerate growth again, and AI is giving them a real tailwind to launch new products and modules that are driving results. Automation from Beti and GONE keeps compressing operating cost per client, which is exactly what you want to see in a software business at scale.

[7] Atlassian is proving the AI-impairment thesis wrong.

We called Atlassian out last time as one of the bullseyes for the “AI is going to kill this business” narrative, at least that’s what the street was implying by the drastic move in the stock over the course of the last year. Now they’re two of four quarters in a row proving they’re finding ways to re-accelerate growth.

RPO growth hit +44% Y/Y in Q4 FY26. We have our own views on stock-based compensation and some other factors inherent in the business, but from a pure revenue standpoint they seem to be doing just fine four and a half years after ChatGPT launched. There’s certain platforms out there that stand to benefit in a world of AI, and Atlassian is proving that now.

[8] First Watch keeps outpacing the industry.

First Watch continues to execute well in a market where investors remain on edge about the consumer. Q2 26 same-restaurant sales came in at +3.4% and the two-year stack is +6.9%, both outpacing their own guidance and outperforming peers again. This quarter should help alleviate any concerns about how they’re going to fund their future growth. On the call they echoed that they plan to fund future growth from organic cash generation and committed to opening around 50 stores a year. That’s the kind of self-funded discipline we look for and part of the original thesis.

[9] Xometry marketplace accelerated for the fourth quarter in a row.

Xometry’s marketplace revenue grew +45% Y/Y in Q2 26, extending the acceleration to four consecutive quarters at +26%, +33%, +40%, +45%. Guidance for the full year got raised to +33-34%. This is a name that has been quietly building a network effect between buyers and sellers of custom parts, and every quarter the flywheel gets more obvious. Reshoring, AI-driven design, and small-batch manufacturing are all tailwinds that fall right into their model. Valuations are getting up there though, as a source of caution.

[10] Zillow put up +18% revenue in a flat housing market.

Zillow continues to execute well in a housing market that’s essentially flat to negative, something we’ve also been discussing for quite some time.

Existing home sales TTM are running at just +6% while Zillow put up +18% revenue growth along with margin expansion.

Despite a housing market that is virtually seeing little to no activity, they’re growing three times faster than the underlying market. They have a couple of changes they’re making to drive the combination of rentals, for sale residential, and mortgages, and they are now a top 25 mortgage lender in the country. The model keeps working.

[11] Airbnb GBV kept accelerating.

Airbnb also continues to execute well. Bookings are growing and accelerating across the board, with Q2 26 GBV up +16% Y/Y and $27.2B in bookings for the quarter. Their newer categories like experiences and services are attaching to their existing base.

Brian Chesky articulated it well across the different phases they’re executing here. People come there for staying at homes, then they lean into experiences, and now hotels as a category is driving additional traction. Ultimately this is heading toward a platform that has AI infused in it, both inside the product and as the means of putting together your vacation travels in an AI-first way. If there’s anyone that can do it, Brian seems like one that can execute here, and the fact that their inventory is inherently much different than anybody else makes it interesting.

[12] Clear Secure hit a record margin on accelerating bookings.

Clear Secure reported $295.9M in Q2 26 bookings, up +33% Y/Y, and adjusted EBITDA margin hit a record 36.4%. That’s the first time the margin has run above the 35% target they laid out at IPO.

Bookings and margins accelerating together is the ideal combo, and it’s happening at a company that owns identity infrastructure across airports, and now moving that identity platform into other parts of business like healthcare and financial services.

[13] Duolingo DAU growth reaccelerated.

Duolingo is a name we’ve done well in in the past but sold on valuation exuberance, and since then it has gotten hit pretty hard. We still watch it closely. There are fears around AI and what it could do to the education and learning side, plus translation both across the internet and voice. I think those fears are generally overblown. Duolingo continues to prove recently that they can drive daily user growth and re-accelerate that number, which is key to the durability story.

Q2 26 DAUs grew +23% Y/Y to 58.7M, up from +21% in Q1 26.

Net Net

Big week with lots of earnings. Tariffs plus tax refunds are acting as a tailwind, and that likely continues throughout 2026. Jobs are stable enough, but not too strong, which still gives the Fed some pause on hikes. Meta keeps climbing the intelligence ladder in a way that could change the competitive shape of the entire AI stack. Time will tell what the strategy is with some of these models and how it all comes together. And the operators we own or watch kept doing what they do. Block, Paycom, Atlassian, First Watch, Xometry, Zillow, Airbnb, Clear Secure, and Duolingo all executed. We have some portfolio changes coming over the next week or so. More on that soon!

That’s all for this week!

About Avory & Co.

Investing Forward.

www.avory.xyz

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

Speak to us:

Schedule a Brief Zoom Meeting

Send us an email: Team@avoryco.com

Want to invest? We are on most platforms.

Want More

🎥 Avory YouTube: Channel

🎙️ Avory: Podcast

Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.

Big Picture

💡 The AI names shook out, the Fed stood pat, hyperscalers delivered, Buffett was right.

This was a very interesting week. From AI funds blowing up, to earnings, to the Fed.

The gyrations across AI names finally started to show their hand. It was tough watching random stocks rise 100% in a month simply because of AI exuberance, but being disciplined means not chasing short-term returns and instead asking what is sustainable.

If 1999 is any guide, most of the perceived AI winners will ultimately be losers, while the smaller group of real winners becomes clearer over time.

We are starting to see that with the hyperscalers. Amazon and Meta (which we own), along with Microsoft and Google, are already benefiting from AI. They are ALL designing their own chips, building their own data centers, using the compute internally and selling excess capacity to others at a premium. Not bad.

Meanwhile, many AI names fell 30% to 50% in two weeks, and a prominent hedge fund reportedly blew up, forcing Citadel to step in and take over the portfolio. It was 4x levered, what did you expect. Those are not normal market conditions. It reinforces the point we have made for a while: leverage and speculation were helping drive many AI-related stocks higher.

Again to be clear, we believe deeply in AI and have investments tied to what it is today and what it can become. But this was another reminder of what happens when speculation gets too far ahead of fundamentals.

Couple other aspects this week. The Fed also held rates steady. There had been some discussion of a surprise hike, but we did not think one was warranted or that surprising the market would have been productive. Holding rates was the right decision.

Then we got hyperscaler earnings, which were constructive across the board. Advertising remained strong, Amazon’s retail business grew at one of its fastest rates since COVID, and the consumer continues to look healthy. Enterprise demand through Microsoft and Apple was also solid, with little evidence that AI is eating away at core software spending.

One point we made on X received more than 300,000 views. Hyperscalers increased capex, but nowhere near the increase we are seeing in memory prices. Makes you think.

Memory prices are up 2x to 3x. If those increases were fully flowing through to the cost of the buildout, capex growth should be closer to 20% to 40%. Instead, it got moved up by roughly flat to up 8%. May be time and place, or it may be signal. Either unit demand is slowing at the margin, hyperscalers are finding ways around the cost increase, or someone else in the supply chain is absorbing it. Given hyperscaler margins are still rising, you can draw your own conclusion.

Lastly, the labor market remains stable. Initial claims are holding up, while the alternative data we track and apptopia data continues to show improvement in both blue-collar and white-collar hiring.

Let’s get into the data!

[1] This was a wild week. A $45B AI fund got washed out.

Ok lets start here. Yikes…

Situational Awareness, the AI fund founded by former OpenAI researcher Leopold Aschenbrenner, was 4x levered to the AI trade. Doing so with tens of billions of dollars was part of what drove up AI names in the first place.

That leverage and speculation is exactly what led to the fund being washed out this week and taken out at a discount by Citadel.

This is what we mean when we talk about speculation running ahead of the fundamentals, and it’s the setup for everything else in this weeks issue.

Remember this quote we shared just 2 weeks ago… Good ole Warren dropping truth bombs

[2] Hyperscaler capex is nowhere near the +20-40% memory pass-through implies

Now after getting the earnings this week and knowing price of memory we wanted to make some hypothetical assumptions…

Here you can see the disconnect that’s shaping our read of the entire quarter.

Memory is 20 to 40% of the cost of an AI buildout, and prices are up 2 to 3x. If hyperscalers were passing that fully through and holding unit growth flat, capex should be up +20 to +40%. Instead Alphabet is +8%, Amazon +10%, Meta +2%, and Microsoft actually cut guidance -8% (accounting change).

Either the impulse in unit demand is fading, or the hyperscalers are eating a lot of the memory cost themselves. Something we’re going to be watching closely but their margins are not getting worse while memory names have 80-90% margins.

[3] DRAM prices are ripping, with 2026 up +245% Y/Y in the forecast.

Here is the evidence.

The Y/Y price change in DRAM is the memory story in one chart.

After -19% in 2022 and -41% in 2023, prices flipped hard in 2024, and the current outlook has 2026 up +245% Y/Y with another +36% in 2027 before rolling over. The 2027 is an estimate from Nomura, but still.

[4] AWS growth is holding, another sign the enterprise is in good shape.

Now to earnings.

AWS is clearly winning. It delivered another strong quarter, and the read-through for enterprise demand remains constructive.

Growth is very strong for a business of this size, and margins remain healthy.

AWS is also winning in AI for a simple reason: AI is difficult to implement. At the compute layer, companies need access to infrastructure powerful enough to run these workloads. AWS and the other hyperscalers take much of that complexity off the customer’s plate.

Then you have the model layer. Amazon Bedrock allows companies to run AI workloads on AWS, choose between Amazon’s own chips or hardware from Nvidia, AMD and others, and use the model that best fits their needs.

This allows businesses to focus on what they do best rather than managing compute infrastructure, model deployment and delivery.

We call this orchestration, and Amazon is winning.

[5] Meta’s ad engine keeps compounding.

Meta’s earnings showed the advertising business continues to run very well.

Revenue grew 28%, and the company guided to roughly 22% growth in Q3, despite facing its most difficult Y/Y comparison.

The read through is that the consumer remains healthy enough for advertisers to keep spending.

Meta also saw both impressions and price grow at double-digit rates. To us, that suggests the AI story is working for them. Engagement is improving, while advertisers are generating strong enough returns to support higher pricing. Sounds good to me.

Is Meta actually using AI? Yes. The company said Instagram Reels recommendations are now entirely powered by large language models. More than 50% of recommended feed content is also less than one day old, more than double the level from last year.

AI is not a side project for Meta. It is increasingly what runs the core platform.

There is still plenty of noise around Meta’s AI spending, but the actual capex numbers were more measured than what I keep reading. Meta seems to always be punching bag despite strong growth and profits.

Here’s some math… Capex came in $3 billion below expectations this quarter and was guided $1.5 billion above expectations next quarter. On a two-quarter basis, that is still $1.5 billion below what the Street had expected.

Meta also increased its full-year capex guide by only 1.9%, one of its smallest increases.

[6] Tariff refund payouts are running well above the prior run-rate.

Now to some other news.

Economy is getting a boost.

The refund bucket keeps expanding, and the pace is a good marker for what’s actually flowing back into corporate P&Ls.

Tariff refunds are happening. We heard it from Starbucks and many others this week in their earnings calls. We tracked BofA data to small businesses, and the story is same. Money back to economy.

[7] White-collar hiring is turning back up, now +5% Y/Y.

Now to jobs.

The Bullhorn Professional Index has been in a two year drawdown since the 2022 peak, and it’s now running +5% Y/Y for the four-week trailing.

This is the cohort that everyone has been worried about on the AI-displacement narrative, and the data is so counter to the narrative. Hiring is coming back you just have to look at data not feelings.

[8] Blue-collar staffing is accelerating, +10% Y/Y.

Another datapoint.

The Commercial Index is running +10% Y/Y and accelerating hard off the 2023-2024 lows.

Combined with white-collar turning up, this is a very clean signal that the labor market impulse is picking up on both sides. Good read for the consumer and for the broader economy.

[9] The consumer is shopping smart across four different app categories. Apptopia Data.

This is a cool dashboard.

We like to bring in Apptopia download and engagement data to check consumer intent, and this week the reads are mostly constructive.

Deal apps accelerating to +35% Y/Y , most of this coming from one app DealSeek. So consumers looking for deals, nothing new but something to watch.

Job apps back positive in July after two negative months.

Gig Worker apps off the highs but slightly re-accelerating.

And Gas apps decelerating hard as the fear of a gas spike comes out of the system.

Most moves are in constructive directions but cool way for us to measure real-time consumer health… (IF YOU LIKE THIS DASHBOARD, LET US KNOW IN COMMENTS, WILL ADD MORE OFTEN)

[10] Kimi had a viral moment in July, briefly surpassing DeepSeek.

Now you may or may not have heard of Kimi. So we looked at the data.

Kimi went from ~37K daily downloads to a peak of 218K in about two weeks. Impressive trial spike, and it briefly took over DeepSeek. But context matters. Kimi is still well behind Grok, and both are miles behind where ChatGPT and Claude sit on the consumer side.

Our read is that the consumer AI market remains ChatGPT and Claude territory, and the interesting battle for Kimi and the challengers is on the enterprise side, not consumer.

[11] Snap’s fastest-growing cohort is Age 46+, nine straight positive quarters.

We were looking at data this week and we came across this. Asking ourselves whether Snap is aging up, and the data says yes. Time spent per DAU for the 46+ cohort has been positive Y/Y for nine consecutive quarters, with Q2’26 running +17.9%. The 4Q average sits at +9.2%. Snap’s platform is broadening its user base into the older cohort, and that’s a durable shift, not a one-quarter print. Lets see how it shows in Snap earnings coming up…

[12] Venezuelan crude is flooding back in.

The 2026 annualized run rate for US imports of Venezuelan crude is 111M barrels, up from 51M in 2025 and 48M in 2023.

It’s another data point that adds supply into the global energy picture, and it’s part of why energy has stayed calmer than the war headlines would suggest. We continue to see evidence that neither side truly wants to escalate. If they did, we’d have already gone further by now.

Net Net

The AI shakeout was overdue, and the leverage that got flushed this week was a healthy reset. The Fed did the right thing by staying put. Hyperscalers delivered, and their earnings tell you the consumer and the enterprise are both in good shape. But the one thing we keep coming back to is the move in memory prices. Memory prices are up 2 to 3x, and capex is up single digits. Something has to give, and forsure that will be the read we’re watching into next quarter.

That’s all for this week!

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About Avory & Co.

Investing Forward.

www.avory.xyz

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

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Big Picture

💡 Earnings reviews for Tesla and Google. Earnings previews for next week. And software is starting to fragment winners from losers.

Happy Friday! This week we got earnings from the likes of Google and Tesla, along with ServiceNow. You’ll hear more about one of these names in a week or so. But overall the conclusion was that earnings in software are proving winners and losers in the AI era. Also Google suggested that the economy is healthy while AI spend continues. Tesla was a different story as the stock is now down -14% over the last ~5 years.

At the same time, the macro backdrop is back in flux, not making this easy. Oil ripped ~30% off the recent low. The 10Y sits at the top of a four-year range. But then jobless claims fell to 187K, a new cycle low, and Jensen keeps saying AI creates jobs. So the “AI is job destroying” narrative isn’t quite lining up with the tape yet. That’s the Avory view, and we’ve been leaning into it. Question remaining is when do we actually stop this war so that the rotation we saw can continue.

Meta reports next week and Tesla already gave us the reminder that scale without a working narrative doesn’t buy you much. So let’s see what they share. We breakdown some previews using data, on Roblox, Lemonade, and Duolingo.

Let’s get into it…

Before That: If not already sign up to our podcast Avory Around the Desk: Spotify, Apple, YouTube.

[1] Google delivered. Cloud is the story now.

Google’s quarter checked every box we cared about. Search revenue grew +17% Y/Y, YouTube ads up +13%, and Cloud came in at +82% with an operating margin over 20%. Cloud is the story here. It’s now big enough and profitable enough to matter, and it’s growing faster than any other segment. Impressive. Someone asked is it cheap now? Our view if you assume they get back to $100B in free cash flow by 2030, they are then trading at 37x that out year number. Not exactly cheap. But great asset, one we have owned before, but valuation matters to us.

But we have been in the Google camp for a while now. Regular readers won’t be surprised by this. The AI overhang was overdone, and the earnings continue to settle it.

[2] AI Mode isn’t killing Search. It seems to be boosting it.

More on Google.

Search revenue grew +17% Y/Y in Q2, the fifth straight quarter of teens growth. That doesn’t happen if AI were cannibalizing the core.

If anything, more searches, more queries, more monetization surface. The bear case on Google Search has been that AI would eat it. The data says the opposite so far and don’t forget this is year 4 of AI.

That’s the read from our desk. Off the Q1 high but still very healthy. The story here is durability and that’s good for Google but good for economic views also.

[3] ServiceNow: scaled software thesis in one chart.

Subscription revenue +21% Y/Y.

Free cash flow margin north of 30%.

Current RPO growing +25%.

This is what a scaled software business looks like in an AI world. AI while easy to use, isn’t easy to implement especially at scale. Soooo yes you lean on trusted, innovative, and full spectrum platforms.

NOW is not a story stock anymore. It’s a cash machine that happens to be growing 20%+ and is embedding AI into every workflow it touches.

We’ve been beating this drum for a while, not just for them but broadly in certain software names.

read somewhere this week “what if after all this software is the biggest beneficiary of AI”

my views is yes. But who…

[4] Duolingo: AI power users churn far less.

So we are heading into some earnings this week.

Duolingo being one. Here’s a name we owned in the past. A successful investment, and got out on valuation. Now the name has fallen from graces on AI fears plus some social media issues.

But Apptopia data we track is helping inform us of some interesting trends.

The chart tells the story. Users who engage with AI-powered features churn at roughly half the rate of the rest of the base. Read that again.

That’s a big deal for a subscription business. It means AI isn’t just a feature, it’s a retention mechanism.

This is why we care about which companies can actually operationalize AI inside their product. It’s more of a loop.

If we can see users pick up, and their AI-native products increase retention and avg revenue per sub, then the story gets going again…

[5] Lemonade downloads are reaccelerating.

Now onto Lemonade. A name we have covered in the past, spoke with management several times. General theme here is that insurance will continue to move closer and closer to the end users. Listen to our Prediction Markets Meets Insurance Podcast Episode.

So back to Lemonade.

Monthly downloads using Apptopia data for Lemonade are running well above last year. Y/Y growth turned back positive after a rough stretch, and the reaccelerating is clean. Small sample still, but worth flagging. Insurance is one of those categories where AI-native players get to compound for years before it shows up in the headlines really.

This shows top of funnel for Lemonade is working again. Heading into the quarter, this feels constructive.

[6] Roblox: the 17 to 25 cohort is going deeper.

Now onto Roblox.

They have been treated like a kid’s game for years. Every earnings we want to know when and will they move up market.

The data keeps saying yes here.

Weekly active penetration in the 17 to 25 age group is climbing steadily, and it’s now well past where the 9 to 12 cohort was a few years back. The platform is aging up, not aging out. This should support future ads monetization and also assist and create larger market for more developed game formats.

This is one we own, yes, newer position this year.

Nothing new from us here, we’ve said it before, but the data keeps supporting the thesis of aging up, cleaning up the legacy issues around child safety, new game formats, AI allowing for more creation not less, ads monetization, and new platforms.

This quarter may not be an inflection point as they work through their verification process which impacts engagement, but that will ultimately prove to allow a safer more monetizable platform to exist.

[7] Tesla holders are down 14% over five years.

Crazy but if you bought TSLA 5 years ago, you are down 14%. Also every EV maker is down 95% or more. So reminder, cool ideas does not equal nice returns. Stay disciplined when hot stocks or hot ideas pop up.

They reported this week and the company continues to look more like traditional automotive than anything else. With gross margins around 16%, street was at 18%, this peaked at high 20’s%.

The multiple is still well above traditional automotive tho so the robotaxi story has to actually show up in the numbers eventually, or holders keep grinding. We shared last week how Amazons Zoox is not in the autonomous game and taking download share. Waymo we know exists and doing well, plus some others are coming to market soon. Optimus is cool idea, will come to market at some point. We will probably see SpaceX combo with Tesla here soon enough.

Actually, and I just wrote about this. There’s a weird incentive for Tesla shares to go lower so that SpaceX can merge or acquire Tesla, which will then provide them with in-house AI and compute to help assist in the robotics side, along with their energy business. Musk wins either way tho…

Time will tell.

[8] Meta preview: capex, AICAAS, and user growth all matter.

Meta reports 7/30. Four things we’re watching:

Capex. The Street is at ~$33B for Q2, more than double last year. That’s a huge step-up and the market wants to see the payoff cadence.

Daily Actives growth. We want to see stabilization or reacceleration, not further deceleration.

ARPP. Consensus is $16.70, which would be +22% Y/Y. This is where AI-driven ad monetization has to show up. Another move higher says AI working.

Revenue and capex Y/Y. The gap between top-line growth and capex growth is interesting. Consensus has revenue at +27% and capex at +100%. That’s fine for one quarter. It’s not fine forever. But in 2 quarters from now the Q/Q increase in CAPEX will be surpassed by the Q/Q increase in revenue, an important cross over.

This one has our attention.

[9] Oil ripped ~30%, and the market shrugged.

WTI bottomed near $54 in December and touched $119 in March on the Iran spike. Today we’re back around $90. That’s a ~30% move off the low, and equities moved lower especially in macro and consumer areas. But not as bad as back in Feb / March. That’s welcomed news.

We’re watching this one, but not repositioning around it as we think all this subsides at some-point here as incentives are for both to have oil flow. One wants oil to flow for profits, other wants it for consumers and politics.

Let’s see but we saw what happens when yields and oil and inflation expectations fall, consumer and macro names rip.

[10] The 10Y is sitting at the top of a four-year range.

Continued from last chart. The 10Y is at ~4.8%, right at the top of the range it’s been carving for four years now. Not a breakout, not a breakdown. Just sitting up there. This is the level where the equity market gets nervous historically, but so far the tape is holding.

Bottom line: rates are elevated, but they’ve been elevated. Nothing new here. Same story, different week. All tied to oil and inflation concerns. Plus some deficit talks due to war $.

watching closely.

[11] Claims fell to 187K. Jensen says AI creates jobs.

All of the prior was market moves. But jobs, ie macro, are looking good. Something we called for heading into 2026, was a pick up in jobs activity. Its showing.

Initial jobless claims fell to 187K, a new cycle low. Not what you’d expect if AI were destroying jobs at scale. Jensen said it again this week: AI is creating jobs, not killing them, and the data isn’t disagreeing with him yet. He said “ai will add millions of jobs”. All these AI-native companies, do we think humans don’t work there?

We’ve been in that camp for a while. The doomer narrative on labor doesn’t square with the facts on the ground, again we are in year 4 of AI. Something to keep watching, but for now the ground truth is what it is.

Net Net

Scaled software is starting to separate itself, and this week made it obvious. Google and ServiceNow showed what happens when AI shows up in the numbers. Meta gets its turn next week and Tesla already showed the counterexample. On the macro side, oil is higher and rates are elevated, but claims at a cycle low keep the labor market off the table as a bear case for now.

That’s all for this week!

About Avory & Co.

Investing Forward.

www.avory.xyz

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

Speak to us:

Schedule a Brief Zoom Meeting

Send us an email: Team@avoryco.com

Want to invest? We are on most platforms.

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🎥 Avory YouTube: Channel

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Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.

Big Picture

💡 Earnings season kicked off this week and the market is doing exactly what we’ve been calling for.

Happy Friday! On a plane here so wrapping up some of the data. This week was packed with info. My view remains pretty simple. We’re constructive on what’s been taking place. The rotation we’ve been talking about is happening, driven by a healthier macro views and people becoming less concerned about the Middle East. Oil isn’t responding as aggressively as it was. That can change, but it doesn’t change our view that the economy can withstand it either way.

Also if you look around, there have been a large swath of companies treading water for 6, 12, 18, even 24 months while continuing to grow revenues and bottom lines. That is opportunity. The banks reported this week and delivered clean prints. Always look at banks to give you a sense of economic activity. For the banks, net interest income and margins were positive across the board, deposit and lending growth were constructive, and the messaging on the economy and consumer was uniformly healthy. That is good and coincides with our new bank sentiment reading. See below.

A few other things caught our eye this week. The autonomous space is getting interesting. Amazon’s Zoox is gaining, literally have not heard anyone put Zoox in the same category as Waymo or Tesla, but I think they should start, see the data, we are. Venmo as an asset remains interesting, and ironically PayPal was reportedly bid for by Stripe, Block and Advent. That is a big deal and I suspect the offer goes higher after speaking around, but something to watch as it relates to competition for other fintechs. Credit card data below shows the consumer is fine, and the Venmo engagement data speaks to why the asset remains attractive.

Lots to share, let’s get into it.

[1] Netflix engagement data down sequentially. Data we tracked flagged this ahead of time.

Netflix reported last night and first it is great to have earnings season back. Love it.

What we saw was generally healthy top line and bottom line. However, viewing hours per member fell sequentially for the first time in five quarters. On the earnings call Netflix’s answer was a constructive counter, not every hour is the same. Live shows and ad-supported content pull in more ad dollars per hour even if the time spent is lower, different from the traditional binge format of old.

We have been looking at Netflix for a while here as it is down 50% from highs, but Apptopia data was showing time spent per DAU falling Q/Q. So again great way to manage fundamental risk. We will be looking for a rebound, and Netflix may get interesting…

Under the hood, older cohorts actually moved higher, 36-45 hit 87 hours and 46+ hit 84 hours. The under-35 cohorts pulled the aggregate lower. Could that be social + YouTube? Not a large concern until it is, but again likely why the stock is down ~50% from highs.

[2] Quality Factor is doing what it’s supposed to do.

The Quality Factor long/short has been on a run, and this is the setup we’ve been positioned for. Not for a trade, but for an investment in specific names that have been “placed” in that factor.

Rotation into quality is happening because the macro is healthier and has stayed that way. Also feels like middle east risk premiums are compressing, which is a positive, and rates fell over the last week or so on lower CPI + PPI falling

So again a thesis we’ve been explicit about. When Quality outperforms it usually says the market is rewarding earnings power, not just multiple expansion for high flying momentum names, and that lines up cleanly with what the banks showed also.

[3] Banks came in clean across the board.

Consumer comments

Economy Comments

Let’s dig into that for a second. The big banks reported this week and the message was clear. Net interest income and margins were positive across the majority of them. Deposit growth and lending growth were both healthy. Each has their own nuances so we won’t get lost in the weeds.

The cleanest take is that the banks that control the majority of deposits and loans in the U.S. all delivered clean messaging on the economy and the consumer. All of them said the same thing. Hard to find any negative tilts.

[4] Our bank sentiment reading keeps perking up.

We now track CEO/CFO sentiment reading across the big banks. Every quarter we pull their earnings commentary and score whether their views on the consumer and the economy skewed positive or negative relative to the prior print.

This quarter’s reading continues to perk up.

Both the Economy and Consumer heatmaps are green across the board, and the quotes panels underneath show exactly why. Also read the main quotes, very constructive read as the messaging is remarkably consistent across the biggest banks in the country. In aggregate, many things are healthy, spending is fine, credit is holding, and there’s no sign of imminent stress in the underlying data. Good news.

[5 ] Financial Index, XLF just posted six consecutive up days.

On top of that, Signal 42 flagged XLF for six consecutive up days into 7/16. Financials leading the markets is never a bad signal. We have only seen this 3 times over the last 20 years where financials were up 6 days in a row while consumer discretionary was up 3 days in a row, and the market 12 months later has been up 100% of the time with an average return of +20%.

[6] Investors haven’t been this bearish on consumer in 20 years.

Then looking at the Fund Manager Survey that shows net allocation to consumer stocks (staples + discretionary) is at the lowest level since May 2006. Investors haven’t been this under-exposed to consumer names in 20 years. People are getting less concerned about the economy and rate hikes, and more concerned about AI. That leaves a real contrarian setup here. But again, this echoes our ongoing view that this area is ripe for activity.

[7] Real consumer data says the “consumer is cracking” story is wrong.

We have two charts here that are essentially saying the same thing, but differently. BofA’s card spending data by income group shows spending accelerating across every tier.

Higher income +5.8%

Middle +4.8%

Lower +4.8% Y/Y as of Jun ‘26.

Same pace, all three moving together. Then their after-tax wage growth chart shows the same convergence. Higher +4.2%, Lower +4.2%, Middle +3.5%.

When you tax-adjust, wage growth across income tiers is essentially running at the same rate. Real wages are positive across the board despite what others suggest, we shared in prior pieces. This is the data the underweight consumer positioning is missing.

[8] Business formations and AI adoption both say the underlying economy is healthy.

Business formations continue to run at elevated levels. We have pointed to this for a while now. That’s a leading indicator of economic activity. Underneath that, AI adoption is broadening out.

Small firms adopt AI at lower rates than large firms, but when they do adopt they use it more intensively. AI is a net positive for the economy in the way it’s diffusing, and it shows up in the productivity of businesses that are actually deploying it.

[9] Even Buffett noticed the speculation. We agree.

Warren Buffett said this week that it’s tough to find value when everyone is gambling. We agree. There is speculation in the markets right now, and it’s real. But it’s in pockets, not the whole market. Really around AI, Space, Chips etc. There are still names to own in those areas where the fundamentals are compounding and the multiple hasn’t gotten silly. That’s where our attention sits. Speculation somewhere doesn’t mean overvaluation everywhere. So good to separate those two views clearly.

[10] Robotaxi share is shifting fast.

Robotaxi is one of the pockets where actual operator progress is showing up in the data. Apptopia data shows that Zoox is taking share from Waymo faster than most people appreciate.

Pay attention…

[11] Venmo engagement is re-accelerating.

PayPal, which owns Venmo, was offered this week to be taken private. Suitors are a consortium of Stripe, Block and Advent. Now why? One part is their Braintree processing business, another part is their PayPal branded business. Lastly is Venmo, their consumer engagement layer.

Now how is Venmo doing?

Apptopia data shows that Venmo’s engagement metrics are re-accelerating after a stretch of flat reads.

[12] Semis are the crowded pocket. Etched shows competition is coming.

More data on investment positioning. Long Mag 7 and AI semis came in as the most crowded trade globally. Probably why, when there is some selling pressure, we see exaggerated moves. But there are some things to think about within the AI trade. A company like Etched just showed their Frontier Inference Clusters, purpose-built inference silicon designed to run transformers faster and cheaper than general-purpose GPUs. This is what we’ve been saying about the inference layer. As models stabilize, margins show up in the infra layer. Companies will look to either create their own silicon to sell, or use custom silicon. This does not mean that it kills companies like Nvidia, but it does re-shape the margin structure over time. Something to keep tabs on.

Net Net

So earnings season is back and the first reads are constructive. Banks are healthy, the consumer is spending, wages are positive after tax, and the economy underneath continues to form new businesses and adopt AI. Positioning in consumer is washed out at 20-year lows, which is exactly the setup we’d want to see for a contrarian move. Speculation is happening in certain pockets, we agree with Buffett there, but the broader market is doing what we’ve been calling for. Rotation into quality, financials leading, and the companies that have been treading water while growing are starting to work. That’s the story of this week.

That’s all for this week!

About Avory & Co.

Investing Forward.

www.avory.xyz

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

Speak to us:

Schedule a Brief Zoom Meeting

Send us an email: Team@avoryco.com

Want to invest? We are on most platforms.

Want More

🎥 Avory YouTube: Channel

🎙️ Avory: Podcast

Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.

Big Picture

💡 The rotation we have been calling is starting to show up.

We’ve been talking for months about how the market has been an “AI or nothing” story at the index level, and how underneath that surface there’s a lot of durable, cash flowing business getting left on sale. This week the data builds on that view, plus some other company data points worth looking at.

For one, non-AI earnings are accelerating. Cash App just put up two of the three biggest 2-week engagement gains ever, back-to-back. Prediction markets pulled clear separation from the legacy sportsbooks. And Consumer Discretionary on an equal-weight basis is sitting near great financial crisis relative lows despite the sentiment recovery. That’s a nice setup.

Over the last 10 days we’ve seen the rotation start to move. The ceasefire question creates a little bit of headwind, but the magnitude of that as of today looks less impactful than it did a couple weeks back. This market has been very different, momentum driven so lets dig in.

[1] Cash App may be finding its mojo back.

The wand?

Cash App launched the wand, an interesting looking way to pay.

We went back and looked at the history of Cash App engagement, and the two-week window around the Pay Wand launch on June 4 was arguably the strongest engagement move we’ve seen in over a year.

Using Apptopia data which allows us to get pretty granular, the two-week move was roughly 45% bigger than the same window last summer, and it’s the largest 2-week absolute move in the entire 16-month dataset we looked at.

This is important since Cash App has historically been well known for its ability to create energy and demand off of their social tactics, almost like growth hacking, and the Wand, which is a payment solution that has a cool look for the right individual, seems to have hit. We expect another hardware drop here shortly as Cash App employees on X continue to hint at it.

[2] Kalshi and Polymarket pulled away from the sportsbooks.

More data from Apptopia to help inform us on the prediction markets.

We just had our podcast on prediction markets (Prediction Markets Aren’t Really About Betting… Maybe) , click that link to listen.

But with that we wanted to dig into the data, so this is what we learned.

Since June 1, Kalshi is +185% and Polymarket is +180% on US mobile daily active users, both accelerating after the World Cup started on June 11. That is massive.

DraftKings is +65% and FanDuel is +22% over the same window, both fading after their peak. Now to be fair, Kalshi specifically is spending a massive amount on sales and marketing, so yes, that’s creating real demand for the platforms. But ultimately they’ve opened up the door for something bigger as we express in the pod. Since we use their data ALOT here, they were kind enough to provide 30 days free to anyone out there that wants to cut up their data too.

[3] Meta Muse ranks #2 and #3 on the model leaderboards and Muse Spark 1.1 Leading in Many Categories.

Meta just launched a couple of new models. Muse Image ranks #2 on the Arena text-to-image leaderboard with a 1,280 score, sitting behind only GPT Image 2. Muse Video ranks #3 on text-to-video at 1,459, above Sora 2 Pro and every Veo variant Google has out. It just shows you Meta is back in the game as it relates to model delivery, and these models are going to be built inside of their apps specifically.

Good timing as it relates to people questioning Meta’s AI story. We had our podcast on this recently along with the Pitch to the PM session, worth a listen if you want the deeper view.

[4] Corporate priorities are lining up with our identity thesis.

Two data points, same thread. On the agentic AI side, 57% of respondents say agents acting outside intended context or policy is their top identity concern, and 56% cite over-privileged agents.

On the info security budget side, Identity Security is the #1 priority for the next 12 months at 68, up from 64.

AI-focused Security jumped from 49 to 58, the biggest mover on the board. If you’ve followed our work, this is further evidence of how we’re playing artificial intelligence outside of chips and energy and infrastructure.

The explosion of artificial creation of people, voices, and agents is going to require a massive amount of verification layers sitting between agents and agents, agents and humans, avatars and humans. We’re seeing that with Okta and Clear. This is corporations telling us the same thing.

[5] AI is an accelerator of jobs, not a replacement.

Firms that adopt AI with high intensity grow headcount 10% over the two years following adoption. Low-intensity firms see no difference from the control group.

There will be companies and industries where AI is a clear replacement, but our view has been that AI is more of an adjacent enhancer of productivity inside of a firm.

Productivity per person rises as they’re able to do more, which means less potential hiring for that specific role. But eventually that same person, who is now multiples more productive, runs into their own bottleneck. The lower bar of what you’re able to do rises. The upper bar of what you’re capable of rises. But eventually you still run into a productivity gap and you need more people. Long-time readers know we’ve been on this for a while.

[6] The S&P Equal Weight vs S&P 500 correlation is at 78%, lowest since 1991.

The 1-year rolling correlation between the equal-weight S&P and the cap-weighted S&P 500 just printed 78%. Long-run average is 96%. This is further evidence that this has been a one-way highway for the index.

Reference last week’s newsletter where we had our quarterly investment letter and our investment podcast session with Luis, my partner here at Avory, walking through the major themes. Over the last 10 days we’ve seen a pretty significant shift and the rotation we’ve been talking about start to show up.

Does it hold? We hope/think so. Now you have the ceasefire question, so maybe that creates a little bit of headwind, but the setup is there.

[7] Consumer Discretionary equal-weight is back at cycle lows.

This one is wild.

On a relative basis, discretionary equal-weight sits back near great financial crisis lows despite the economy doing good enough. This is further evidence of what we’ve been talking about for the last couple of years. The market has been pretty fearful of what’s happening in inflation and the economy, and yet inflation and the economy have gone counter to those negative views.

Our read has been fairly constructive. To us as long-term investors, we see opportunity here from a valuation perspective and a quality perspective, and we continue to be long certain pockets of it.

Since the ceasefire took place, discretionary started to levitate. While the ceasefire is somewhat in question, the magnitude of the implications look less impactful today, and we should start to see the broadening trade continue, including discretionary.

[8] Non-AI earnings are accelerating.

Why broaden? well.

AI earnings growth is still running well above the rest of the index, no argument there. But the story here is the other bar. Ex-AI earnings growth has been accelerating for four straight quarters and has flipped clearly positive. That underpins the broadening trade, and it’s probably a big part of why we’re seeing the transition. Doesn’t guarantee it, but the setup is in place. Same story, different week.

[9] The AI complex is now roughly a third of the S&P.

This one pairs directly with the last chart. From January 2 to June 30, the AI complex ex-hyperscalers grew from 23.8% to 31.1% of the S&P 500’s market cap. Semis and semicap alone went from 13.3% to 18.0%. Hyperscalers ticked slightly lower, from 19.9% to 16.9%. Other S&P, which includes Apple, dropped from 54.2% to 49.5%. So if non-AI earnings are accelerating, and AI dominates the index, then the question becomes: should you be considering the non-index? Or a little of both. That’s where our head is at.

[10] Good example of dislocation.

Someone asked me the other day, “what does dislocation mean?” Here you go.

This is a really clean reflection of how you can have a detachment between a company’s fundamentals and its stock price.

Roblox bookings are up 220% since Q1 21, a 26.2% CAGR. Stock is -27% over the same window. Part of it is nuances specific to the Roblox story, but this is less about Roblox directly and more about the idea that over the last year you’ve had people questioning what AI is going to do to certain digital assets, and questioning what’s going to happen in the economy.

These things tend to resolve favorably if the fundamentals continue to persist in a constructive way.

There are a bunch of these divergences out there right now.

[11] From Signal 42… Oil surged 7.2% in a single day.

Oil moved 6% to 7% roughly Wednesday. Signal 42 pulled the history of 1-day moves of 7.2% or more going back to 1986, and typically when you get these type of large moves they mark transitions from one period to another.

We saw the rise in oil during the conflict, and now we’re simply seeing moves on the way down as people question what’s happening in the Middle East. Overall, if you look over the last 5 years, oil prices have pretty much stayed in this range. In theory, if you weren’t concerned about $70 or $80 oil 5 years ago, you shouldn’t be all that concerned today either.

Net Net

Rotation is showing up. Non-AI earnings are accelerating, real-time engagement data at Cash App and the prediction markets is running hot, corporate identity spend is validating the Okta and Clear thesis, and Consumer Discretionary is sitting at relative lows even as economic conditions have remained steady. That is opportunity. Meta is back in the model game. Roblox is one of many examples of fundamentals detaching from price. That tends to resolve favorably over time.

That’s all for this week!

About Avory & Co.

Investing Forward.

www.avory.xyz

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

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Three things:

1. Listen to our quarterly Q&A here: Click platform of your choosing: [YouTube or Spotify or, Apple]

2. Avory Letter = contributors + detractors + companies we are watching: Read Here

   

   Here are some additional charts we wanted to share as we head in 2nd half of 2026.

AI is driving markets, but rotation is happening. Markets have gone through two very disruptive phases over the last 18 months. The first was tariffs. The fear was straightforward: tariffs would push inflation higher, the Fed would stay tighter for longer, economic conditions would weaken, and the consumer would crack. We did not fully buy that view. Our view was that tariffs were disruptive, but the way they were structured and phased in would not create the same inflation pulse the market was pricing in.

This image is in the letter but I want to reemphasize it because it speaks more to opportunity then anything else.

Every is focused on AI infrastructure for good reasons, but below shows where value accrued during mobile / internet cycle. We went from infrastructure to applications. That is where value is created. How you use it, not how you build it.

We highlighted Okta in our podcast and the letter. It was +73% in the quarter which helped as their Agent Identity backlog is growing. Again value accruing to applications. They will not be the only ones.

Just a reminder that consumer spending should remain supported by positive real wage growth. The broader backdrop is still constructive. If the administration can reduce the uncertainty it has been creating globally, that would likely provide an added tailwind for consumers, businesses, and markets.

That could also help names like First Watch finally get some sun shining on them. The company had a good quarter, and momentum appeared to improve toward the very end as ceasefire discussions and announcements helped ease some of the broader macro anxiety.

And if we take energy futures curves and roll them forward, the setup increasingly supports the idea that we have already seen peak inflation pressure. That matters because easing inflation pressure helps support real wages, lowers the fear of additional rate hikes, and improves the backdrop for consumers, businesses, and markets.

That ties directly into what we discussed above. Positive real wage growth plus easing inflation risk creates a much more constructive setup for consumer-facing names. More on that in the full letter.

Software wants to jump. On one side people are nervous, on the other side people see opportunity.

This isn’t our weekly newsletter piece, so stay tuned for that later this week.

Have a great Fourth of July! In the meantime, check out our latest podcast episode and read the letter.

Again here you go!

1. Listen to our quarterly Q&A here: Click platform of your choosing

[YouTube or Spotify or, Apple]

2. Avory Letter = contributors + detractors + companies we are watching: Read Here

Know another investor who'd find this useful? Forward it along or share on your page!

About Avory & Co.

Investing Forward.

www.avory.xyz

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

Speak to us:

Schedule a Brief Zoom Meeting

Send us an email: Team@avoryco.com

Want to invest? We are on most platforms.

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🎙️ Avory: Podcast

Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.

Big Picture

💡 This week we got a tiny glimpse of what we think happens over time. The rotation seems to be starting.

This week we saw two back-to-back days where the Nasdaq was down 3% and then 2%, and our book was up over 1% on each of them. Even today as I click send, we are up 2.7% roughly as we head into closing bell, and market down. It is truly striking market behavior but indications of what we have expressed.

Over the last 24 months with political and geopolitical events like tariffs and war the market has shunned large pockets of the market. Bill Ackman this week said it best in an interview I heard…

We agree with that and we saw emerging signals that investors I mean TRADERS are on edge of the AI trade as Microsoft pushes towards open source models, Open AI delays their IPO, and Uber is gating AI token usage. This is good news.

Now it would also help to finally be done with political ping pongs so that inflation and growth concerns can normalize. Given our positioning today, that is the catalyst.

The way we generate returns is a company takes a significant portion of the cash they generate and reinvests it into the business. The investor’s ultimate outcome depends on the long-term residual value of the company. Which means it is the cash flow over the next 3-5-7 years that matters which eventually drives that stock price. That has been the lifeblood of markets for a hundred years.

This week we continued to see oil prices drop. Good news. Let’s see if that holds, seems more likely than not.

Everything about Uber and Microsoft and OpenAI chips away at the AI or nothing narrative. What you get instead is a rotation into durable, sometimes economically sensitive names that in many cases have better underlying economic stories than the AI leaders, and they are finally getting their day in the sun. It is still 6am in that day tho…

We think this keeps building as war gets pushed to the background, inflation continues heading back in the proper direction over the next several months as it should, and we work through more earnings from the companies we own and watch. AI is very real. We are looking for companies we would be happy to own for the next ten years if we were forced to hold. Most of the AI darlings today do not fit that test. Some do and we own them. If the market had to stay closed for the next 10 years would you really feel comfortable owning Micron at over $1T valuation? Not so sure about that. I feel comfortable about Block, Meta, Amazon, Omnicell and others though.

We also got more confirmation on consumer this week, which has been a constructive view of ours for a while now. The savings rate got revised up again. Q1 GDP was also revised up from 1.6% to 2.1% annualized. Same pattern we keep seeing. Government data shows one thing on release, then quietly revises in the direction of a healthier consumer and a better economy. This is now 18 months of the market fearing a consumer that, in our work, keeps showing up in better shape than the headlines suggest. Another piece of evidence behind why we keep leaning into the durable, economically sensitive names.

This week we also share a little on memory over-earning by close to a factor of 10, how Cerebras shows there is another path that does not require HBM for inference, and the fact that three of our companies use Cerebras. Then a few notes on how Meta is benefiting from AI directly. That is the tone this week. Patient, second-order, and getting a small preview of where we think this market is heading.

Here’s Latest Podcast on Meta: “6 Questions on Meta: Burden Today, Moat Tomorrow” Listen on YouTube, Spotify, Apple.

[1] It has been an AI or nothing trade.

The S&P has added over $6T in market cap this year but AI is doing almost all of the lifting (green). Energy is a small slug but that is evaporating as I write this as energy names are now being hammered as the war trade is degrossing. Two months ago it felt like you should own energy, now it’s the opposite with oil collapsing 30%. Is that trading or investing? The real take here is that the rest of the index is below zero. There’s lots of non-AI opportunities. That is the market we are in. We’ve been beating this drum for a while.

[2] You think Micron margins can stay like this? I don’t.

Micron is running 85% gross margin. That is above every Mag 7 name. Hardware has never sustained margins like this for long. Apple is closer to 30-40%. You really think Micron can hold 85% or even half that? I suspect not over time. Nvidia has averaged 60% over cycles. We think the memory complex is over-earning by close to 10x. Yes, 10x. Good for Micron, but man that is going to be such an ugly pop at some point. Revisit in a year. The cycle always shows up. Not a name we would want to own for ten years, and I will share more in a second.

[3] Is that sustainable investing, or market timing? Like flipping homes in 2007. Don’t be the bag holder.

Here’s some numbers just to see. Bernstein models Samsung, SK Hynix, and Micron EPS peaking in 2027 and cutting roughly in half by 2028. So basically going from $500 in earnings to $20,000, then down to $1,000 over time. So the stock would essentially be up 10x on earnings that 10x’d, that looks normal. But then what happens when that drops back 70% as shown? If you are buying these here, you are timing a cycle. That is fine. Just call it what it is. We would rather compound into a business than try to nail the top tick.

[4] Cerebras runs inference without touching HBM. Nobody is talking about this.

This one is so key. And frankly not enough people are talking about it.

The memory trade is built entirely on HBM scarcity. It is scarce no doubt, Micron revenue and margins show this.

Cerebras CS-3 is wafer-scale and uses none. You heard that. None. No DRAM/HBM. Which means inference is possible without it. Hmmmm. Also 15x faster inference at the same time. If inference really is the order-of-magnitude opportunity, that bottleneck cracks open. Another reason we’d take the cash flow from the memory names today rather than the multiple tomorrow.

[5] Cerebras counts AWS, Meta, and Block as customers. We own all three.

Three of our companies seem to be playing this right. They were named as customers of Cerebras for best in class inference and no HBM bottleneck.

[6] Meta is best in class on basically everything.

Now to AI and Meta. We have said they are the best way to play AI and there’s lots of reasons to believe this. I find it hard that most don’t understand this. Again, maybe because the beneficiaries are being left behind. Bespoke actually has an AI applications basket and it’s down 17%, these are supposed to be the AI beneficiaries, but still the AI builders are seeing the interest. Logically doesn’t make sense, but it may just be the short-termness of this market. For Meta: engagement, ad load, revenue per user. Meta keeps showing up at the top of every chart that matters. AI is making each of these levers better, not replacing them. This is the kind of name we are happy to hold for the next ten years.

[7] 45% of all genAI ad spend is going to Meta.

Every AI company that wants users has to advertise to find them. They are all spending on Meta. Roughly 45% of genAI ad dollars are landing there. Meta is quietly selling the shovels and the market is not pricing it that way. This is the second-order AI exposure we want.

[8] Meta AI surfaces are scaling fast.

Meta AI is now showing up across the family of apps at scale. They are their own biggest AI customer. The distribution advantage is enormous and it is compounding quietly while everyone watches the chip names.

[9] meta.ai traffic is up roughly 4x since January.

Standalone meta.ai web traffic is up around 4x since the start of the year. Nobody talks about Meta as an AI consumer product. The chart says they probably should. Another example of how Meta is winning at AI while the headlines look elsewhere.

Looking Ahead

• Rotation. Watching whether the down-Nasdaq-up-us days from this week become a pattern as oil settles and inflation cooperates.

• Memory cycle. When the HBM print starts to mean-revert, that is the tell on whether the cycle names get repriced.

• Meta print. Next earnings will test the AI ad spend story and the meta.ai user numbers.

That’s all for this week!

Know another investor who'd find this useful? Forward it along or share on your page!

About Avory & Co.

Investing Forward.

www.avory.xyz

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

Speak to us:

Schedule a Brief Zoom Meeting

Send us an email: Team@avoryco.com

Want to invest? We are on most platforms.

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🎙️ Avory: Podcast

Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.

💡 Warsh seems to be re-writing the playbook. Real-time data, real rates, real wages. Music to our ears. If you follow our work then you know this!

This was the most important Fed meeting in three and a half years, full stop. Kevin Warsh delivered his first statement at 130 words. Powell’s last one ran 341. Yellen’s peak was 895. Warsh dropped forward guidance, skipped his own dot, and stood up five task forces on communication, balance sheet, real-time data, productivity, and the inflation framework. That is the Fed moving toward real-time data. We have been beating this drum for years.

We have been on this for 3.5 years now. The lagged-data Fed has been our single biggest critique of this cycle and the source of most of the policy-mistake fear that has whipsawed markets. The way I see it, that fear just got removed. We are not there yet. This was commentary and action is on the way. But when you are a firm focused on the data, the data says things are ok, and markets are on edge due to legacy data, the mental outcome is one of confidence in the future.

Underneath the headlines the data is doing the same thing it has been doing. Real wages are still positive using the real-time inflation data. Retail sales printed +0.9% M/M in May with the control group +0.7%. 5Y breakevens are at 2.31%, below the 10Y at 2.26%, which tells us the market is more worried about a near-term policy error than long-run inflation. Real rates are +1.89%. Restrictive. Anchored.

On the AI side, we are watching open source close in on the frontier in real time. GLM-5.2 hits 74% on agentic coding at max effort against Claude Opus 4.8 at 78%. Token economics at the model layer are not sustainable. Value moves to orchestration. How can enterprises and consumers actually use AI with ease. That is where we are spending time. This has been our view since day one on AI and we think this thesis is starting to show its colors.

And today’s headline confirms a thesis we wrote about in March and April when we made our Amazon investment as it fell sharply. Amazon is opening Trainium to outside data centers. Amazon is the king of taking margin out of high-margin, high-capex businesses. Retail, logistics, cloud, and now frontier silicon. That’s my view.

[1] Warsh’s first statement ran 130 words. Powell’s last one ran 341.

This is what a Fed pivot looks like in literal word count ha. Greenspan’s January 2002 statement was 128 words. Yellen peaked at 895 in September 2014. Powell averaged 400 to 500. Warsh came in at 130. He dropped forward guidance entirely. He skipped his own dot. He stood up five task forces. The Committee moves to real-time data, at least that is what he said during a 2 min stretch during his press conference. We have said this for quite some time here at Avory and this is very very very welcomed news.

Here’s our post from 2022, just to show how long we have said this! Fed was using legacy data tools, therefore market pricing in policy mistakes

.

[2] Retail continues to defy economists. Matches our view though if you read this weekly!

May retail sales came in at +0.9% M/M versus +0.6% expected. Control group +0.7%. Ex-autos +0.6%. Restaurants and bars +0.8%. The control group feeds directly into GDP and it just printed the strongest read in months. The consumer can keep spending because the consumer is still ahead. Same story, different week. You heard it here first and why we remain confident in our view that you want to own consumer and macro oriented names despite them lagging…

[3] Real wages remain positive on the real-time cut. They have been all along.

Not the first time we show this, but critical. Nominal wages +3.5% Y/Y. CPI-adjusted real wages -0.7% Y/Y because energy is doing damage at the pump. But on real-time basis, our preferred real-time inflation read, real wages are +1.3% Y/Y. The consumer is roughly running behind prices on the headline read and clearly ahead on the real-time cleaner read. This is why spending holds. This is why retail sales were positive, this is why the FED needs to focus on real-time data, and this is why we are happy post FED meeting.

[4] Real-time inflation today once again ahead of CPI. Real-time data telling a much different story.

Not to beat the same idea but real-time inflation is once again deviating from CPI. That is the gap Warsh just acknowledged. Not the exact number, the idea. The Fed needs real-time data, not lagged surveys. The 30-day real-time read keeps running below CPI which says the official series is still overstating the moment. Funny thing is it has ticked down mostly all year long despite energy surges. This is core reading.

[5] 5Y breakeven 2.31%. 10Y 2.26%. Market more worried about a Fed mistake than long-term inflation.

More on inflation as the market can provide signals. 5Y breakeven sits at 2.31%. 10Y at 2.26%. This is what market is pricing in as inflation today. The 5Y above the 10Y tells us the market is pricing more risk in the near-term policy path than the long-run inflation outcome. Anchored regime. The 5Y5Y forward at 2.21% is consistent with the Fed’s 2% target. The bond market is saying inflation expectations are not the problem. That’s the data. Yes a moving target but everything else I just wrote also says the same…

[6] Real rates are +1.89%. The Fed is still restrictive.

Then we have 2Y yield 4.20%. 5Y breakeven 2.31%. This means real rate +1.89%. That is restrictive. The Fed is still leaning against the cycle and the cycle is absorbing it. This is exactly the setup we have been writing about. Trust the data, not the dots. But it means over time we should get some reprieve if the FED actually leans to real-time.

[7] Yields followed oil. Oil is rolling. Yields should follow.

Now this is pretty important. USO, which is a proxy for oil pricing in markets, is at $111.87 and the UST 10Y is at 4.45%. YTD they have moved in near lockstep. Oil leads, yields follow. With Iran tensions easing and the energy curve in backwardation, oil is rolling. The yield should follow. Music to our ears for the long-duration names and a catalyst to what we saw the first month of the year. An economy running nicely, consumer names working, restaurant stocks working, yet the war threw a nice wrench into that. Oil down should equal yields lower, which should be a catalyst.

[8] June dot plot raised the 2026 median to 3.75% from 3.375%. Warsh skipped his own dot.

L

18 of 19 dots submitted. Warsh abstained. Median 2026 fed funds 3.75%, up from 3.375% in March. 2027 median 3.63%. 2028 median 3.38%. Longer-run 3.13%. Core PCE 2026 revised up to 3.3% from 2.7%. GDP 2026 cut to 2.2% from 2.4%. It is the first meeting and the dots are a forecast not a commitment. Yes hawkish at first glance, but the press conference for us was a little less hawkish and opened the door for flexibility and the ability to change course given Warsh is putting some of the burden on these committees and task forces.

[9] Zoom keeps executing. Top-right of the Frost Radar again.

One day this will get back to more fundamentals over macro. But the FED has historically liked to make comments almost weekly, everyone has become a FED watcher, but how about the companies. This week we got the Frost & Sullivan report. They put Zoom at the top-right corner of the 2026 UCaaS (Unified Communication as a Service) Frost Radar. Highest on both Growth and Innovation. Past Microsoft, RingCentral, Cisco on both axes. They keep executing. This is one we own. More to come in another piece.

[10] Amazon opens Trainium to outside buyers. Confirms our thesis around our investment made several months back during SaaS Apocalypse.

This is the headline of the week if you are in AI land. Amazon is in talks to sell Trainium AI chips directly to outside data centers (Bloomberg).

Peter DeSantis, AWS SVP of AI, confirmed the talks. AMZN +2.55%. MRVL, the primary Trainium design partner, +7.27%. The scale is real and the ecosystem should be worried. Over $225B in Trainium contracted commitments. Custom silicon at $20B annual run rate, $50B if it stood alone. Trainium 2 sold out, Trainium 3 nearly fully subscribed, Trainium 4 already heavily reserved. We wrote about this in our SaaS Apocalypse pieces in March and April. Amazon is the king of taking margin out of high-margin, high-capex businesses. Retail, logistics, cloud, and now frontier silicon. This is why we own it.

[11] Open source is catching the frontier. Fast.

GLM-5.2 hits 74% on agentic coding at max effort. Claude Opus 4.8 sits at 78%. The gap is tiny and the cost curve is collapsing.

We are going from expensive closed models to cheap open ones and the token economics at the model layer are not sustainable if you draw this out over the coming decade. At least that’s the view right now.

The value moves to orchestration. How enterprises and consumers use AI with ease. That is where the moat is. Reinforces our long-standing thesis that frontier will lead and open source is a fast follow.

[12] Real estate portals like Zillow see little AI search impact. Most traffic is still direct.

GenAI web traffic share. This is good news for real estate portals. REA 0.48%. Z 0.33%. HEM 0.30%. Some categories are getting reorganized by AI search. Real estate is not one of them yet. Most traffic still arrives direct. Direct means you still control brand, economics, and can drive AI-based outcomes on platform. Worth flagging because the narrative says AI search disrupts everything. The data says it depends and as of right now, not so much.

Net Net

Ok so that was a lot but Warsh is the story and the data is the support here. The Fed just moved from a backward-looking, forward-guidance-heavy regime to a real-time, data-driven one in a single 130-word statement and a presser that was clear to us. We think this removes the policy-mistake fear that has been the biggest risk every cycle, all while underneath the headlines the data confirms our view. Real wages positive, retail sales strong, real-time inflation slower than CPI, breakevens anchored, real rates restrictive at +1.89%, oil rolling, yields should follow. On the AI side the frontier is no longer alone. Open source is right there (again), the model layer is important but fragile to say the least, and the value is likely in the orchestration. And today’s Amazon news helps solidify the loop on a call we made in March and April. Amazon is the king of taking margin out of high-margin, high-capex businesses, and Trainium is the next chapter. We’re staying with the data.

That’s all for this week!

Know another investor who'd find this useful? Forward it along or share on your page!

About Avory & Co.

Investing Forward.

www.avory.xyz

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

Speak to us:

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Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.

Big Picture

💡 Is this an inflationary cycle or just energy spike? Frustrated GARP investors.

Happy Friday! So this week CPI came in at +4.2% Y/Y in May, the hottest print in over a year. But energy alone added 1.50pp of that. More than double its normal run rate. Strip energy and core was +0.2% M/M, +2.9% Y/Y, the softest core read in three quarters. So the surface number looks bad and the underlying number is fine.

Here’s the way we think about it. It started with tariffs a year ago or so. The narrative has been the conversation ever since and once that got pushed to the back, then came war. Almost the same exact reaction, which has impacted some of our names sensitive to economic factors despite a strong economy. Something we have gotten right over and over if you read this. Regardless market likes to the ride the waves of narratives versus data. So with Iran war making noise, then the faster that resolves, the faster the “war equals inflation” framing falls off. The longer it drags, the more it embeds. Either way, real-time inflation has actually moved lower over the last two weeks and real wages on the Truflation cut are still positive at +1.3% Y/Y. The consumer can keep spending because the consumer is still ahead. That’s why we’re not changing the underlying view.

The other story this week is software. Anthropic launched Fable, a fork of Mythos, and the SaaS apocalypse trade ran again. We continue to look for the evidence in the actual financials. We’re four years in from ChatGPT, the build out is massive, and the names are reaccelerating. Adobe reaccelerated. The top 50 cloud software names just put up the best aggregate net new ARR in five years. Meta keeps taking ad budget. meta.ai traffic +260% Y/Y. The disruption narrative and the tape are not telling the same story. Sucks, but market likes narratives, and its going against those areas. Small side note, apparently Fable is the most deceptive model yet, producing false info more than others, so tread lightly.

One more worth flagging. Cash App launched Cash App Mobile this week. $40 a month for unlimited 5G on AT&T. They are turning the phone bill into a Cash App product. Something we are excited about. It creates a recurring non financial product embedded…

[1] Like it or not, real wages remain nicely positive. They have been all along.

So nominal wages are +3.5% Y/Y. On the CPI print, which is what most economists anchor to, real wages are -0.7% Y/Y. Energy is doing real damage at the pump and that’s pulling the CPI-adjusted line negative. But on Truflation, our preferred real-time inflation read, real wages are +1.3% Y/Y.

Either way the consumer is roughly running in line with prices, and on the cleaner read the consumer is still ahead. That’s why we keep saying the spending side can hold, and it has.

[2] CPI +4.2% Y/Y. Energy is the print.

Look at the green. Lots of it.

Headline accelerated from +3.7% to +4.2% Y/Y in May. Energy contributed 1.50pp of that, up from roughly 0.4pp at the start of the year. Core services held around 2.1pp. Core goods barely moved at 0.21pp. This isn’t broad-based reinflation. This is gasoline at $4 and a diesel curve that’s been ripping since Iran. Strip energy and the print is +2.7% Y/Y. Basically where were year ago.

[3] Energy futures suggest the headline has peaked.

This one is little much but important.

Here you can see the energy contribution to headline CPI plus what NYMEX futures are pricing for the next two years.

The current curve takes the energy contribution from +1.50pp today back down to roughly +0.10pp by mid-2028. If the curve is right, the headline inflation reading mechanically rolls back into the low 2s.

Obviously this assumes no further escalation. But it’s the market’s best guess and worth respecting.

[4] Food prices are cooling, not embedding.

Big for a name we hold First Watch. Go get your BEC from them if you can. Now… the Bloomberg Bacon-Egg-Cheese plus Coffee index. $2.58 per serving in May 2026, down from a peak of $3.30 in October 2024. Bacon is the biggest line at $1.01, coffee $0.48, cheese $0.46, eggs $0.36, bread $0.27.

Worth flagging that the food side of the inflation story has been quietly resolving for almost two years now, even with all the tariff and trade noise.

Nobody is talking about this on food side.

[5] Cloud software net new ARR re-accelerating.

So you are telling me AI is killing software? Then why does this look liek this…

The aggregate top 50 cloud software net new ARR grew +127% Y/Y in Q1 FY26. Best print in five years. YEAH YOU READ THAT RIGHT. The chart was below zero for most of 2022 and 2023, hovering through 2024, and then this. So again where’s the evidence that AI is taking down SaaS in the financials? We don’t see it. We see the opposite. The big names are reaccelerating, not rolling over.

Ugh frustrating

[6] Adobe is re-accelerating into the AI cycle.

Adobe reported Q2 FY26 revenue at $6.62B, +13% Y/Y. Up from +12% last quarter and +10.8% the quarter before. Y/Y has accelerated three quarters in a row, not decelerated. AI-first ARR, the metric they’re using to track Firefly and Express monetization, tripled Y/Y and now exceeds $500M.

So one of the names that should be most exposed to AI disruption, the creative software incumbent, is putting up the best growth rate it’s seen since 2022.

Again frustrating and we are AI pilled over here.

[7] Meta now 54.6% of measured ad budget.

Now looking at ad spending. For the week of May 31 to June 7, Meta is now 54.6% of all measured ad budget, up +1.32pp W/W. Google 18.82%, down -0.26pp. TikTok 4.82%. YouTube 3.14%. And here’s the part. CAC on Meta fell -2.4% W/W and CTR rose +3.7%. They aren’t just taking share, they’re getting cheaper and more engaging at the same time. Something we’ve been explicit about in terms of our thesis on who wins the AI ad cycle.

[8] meta.ai traffic +260% Y/Y. Scaling fast.

Then we got meta.ai pulled in 27M visits in May 2026, up from roughly 7M a year ago.

That’s +260% Y/Y in a category that nobody is paying attention to relative to ChatGPT and Gemini. Meta isn’t just integrating AI into the ad stack. The consumer surface is scaling too. They aren’t the only ones running this playbook, but they are running it well.

[9] AI spend per employee. 680x gap from top to median.

Looking at some Ramp data, the top 1% of companies are now spending $7,500 per employee per month on AI. Top 10% at $611. Median at $11.38. That’s a 680x gap from the top cohort to the median.

Two reads.

First, the AI spend story is real but it’s heavily concentrated in a small group of frontier adopters. When you hear “every company is spending on AI” be careful about who you mean. Second, the median number is still rising, which means diffusion is happening. Just slowly.

[10] Cash App embeds deeper into daily life.

Cash App launched Cash App Mobile this week. $40 per month for unlimited 5G on AT&T, taxes and fees included, no contracts. Powered by Gigs on the backend, integrated directly into the Cash App ecosystem.

The setup here is to turn the phone bill, one of the most predictable monthly bills the consumer has, into a Cash App product. Embed deeper into Modern Earner habits. Block is an investment of ours and this is exactly the consumer-finance operating system thesis we’ve been talking about. Worth flagging.

Net Net

So zooming out. Energy did the work on CPI, not a inflation cycle yet. Real wages still positive which means that only read that matters. Software is reaccelerating, not rolling over, even four years into the AI build. Meta keeps compounding ad share and consumer surface at the same time. Block is quietly turning the phone bill into a Cash App product (different). And the food side of inflation, that nobody is talking about, is back to where it was almost two years ago. Market wants to ride the narratives again, it is frustrating for fundamental investors looking for compounders and not riding waves. Overall though the data keeps telling us something positive. We’re staying with the data.

That’s all for this week!

Know another investor who'd find this useful? Forward it along or share on your page!

About Avory & Co.

Investing Forward.

www.avory.xyz

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

Speak to us:

Schedule a Brief Zoom Meeting

Send us an email: Team@avoryco.com

Want to invest? We are on most platforms.

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Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.

Big Picture

💡 Here come the IPOs. History says be patient.

Anthropic just filed for IPO, and this is just after raising a series H (moving down the alphabet). A $65B round at a $965B valuation, OpenAI is on deck, and the AI IPO calendar is loading up fast as they see the window.

Side note, our strategy when you do look through exposure to OpenAi + Anthropic, its roughly 5-10% weight (depends on dilution at IPO) into those two combined.

Overall we are constructive on the cycle beyond AI, but the data from the last IPO cycle is hard to ignore, specifically for the companies that IPO.

Now Berkshire just deployed roughly $20B into acquiring housing company Taylor Morrison, and putting $10B into Google. So hard to get too worried when one of the more prudent allocators is putting significant amounts of capital to work at this time. Keep in mind they have underperformed by about 30% over the last 12-18 months similar to other GARPy investors.

Back to IPOs, we saw a chart floating around showing 29 IPOs from the 2019-2021, what’s crazy is that wave averaged a -55% max drawdown in Year 1. Median was -54%. Only 43% of them were positive at the 12-month mark. So the AI names eventually coming public will need to be priced into a market that already remembers that math. Maybe it’s a known known so market does opposite. But these will have $1T + starting points.

Now the macro underlying data remain stable. We are seeing software become less binary. Late last week IGV, the software index printed the most overbought reading we've seen since early in the year and historically that setup has been bullish, not bearish.

Also covered this week is how Meta is taking share inside the genAI ad economy at a pace nobody else can match. ChatGPT hit 1B MAUs in three years which is the fastest any consumer app has ever scaled. The Revelio labor tracker bounced for the first time in six months. we got a lot to go over.

[1] IPO basket averaged a -55% drawdown in Year 1. History rhymes.

29 names tracked from the 2019-2021 IPO window.

Robinhood was -90% in Year 1. Rivian -88%. Lyft -79%. Even names that recovered (Airbnb, Snowflake) carved out -32% and -45% intra-year before they did.

Average max drawdown -55%, median -54%, and only 43% of the basket was positive at 12 months.

So when Anthropic files at a $1T or more valuation and OpenAI lines up behind them, you can be constructive on the underlying businesses and still believe the printed prices need time.

We've also got Alphabet running an $80B equity raise around this same window, which says a lot about how much capital this AI cycle wants.

[2] IGV 99th percentile overbought. Historically that's bullish.

IGV +5.3% last Friday was great to see. First close above the 200-DMA since January 7. RSI above 80, more than 3 standard deviations above the 50-DMA. On the surface that reads too far too fast. Likely true but the historical setup after IGV closes above the 200-DMA with RSI >80 following a multi-month drawdown averages a +23.5% forward 12-month return versus +10% all-period baseline.

Software is one of those moves where the overbought reading after a long drawdown has been the entry, not the exit.

[3] Waymo downloads +94% Y/Y in 2025. 13% of the rideshare cohort.

We continue to track autonomous vehicles as it’s the future.

Waymo download growth was +569% in 2023, +192% in 2024, and +94% Y/Y in 2025.

The base is bigger now so the rate moderates, but the absolute share is interesting. 13% of the rideshare cohort downloaded Waymo in 3Q25. Uber downloads +6% Y/Y, Lyft averaged -3%. Feels like autonomy went from a science project to a measurable slice of the rideshare cohort in 24 months. Worth tracking against the autonomy thesis we've been carrying.

[4] Meta now 45% of all genAI ad spend. Up from 28%.

Meta's share of genAI ad spend went from 28% in 1Q24 to 45% in 1Q26. Google held roughly flat at 25%. Mobile ad networks lost 13 percentage points. Total genAI ad spend +230% Y/Y, averaging +50% Q/Q across the eight-quarter window.

We're seeing the same thing in the traditional advertiser data: CAC compression on Meta, ROAS expansion on Meta, share consolidation on Meta.

The franchise quality on a platform like Meta is showing up in the AI economy in real time. We remain confident that Meta is big AI winner.

[5] ChatGPT hit 1B MAUs in three years. Fastest ever.

Different times as things get faster but Google Maps took 5 years. Chrome took 6. YouTube took 7. Facebook and WhatsApp took 8. Google Photos took 11.

ChatGPT did it in 3.

And ChatGPT now has more users than Gemini, Doubao, DeepSeek, Meta AI, Claude, Grok, Perplexity, and Copilot combined. That's a crazy adoption curve for the “number 2” in AI right now.

Whatever you think the right narrative is around AI, the user count is growing.

[6] AI app downloads +36% Y/Y, time +40% Y/Y, spend +145% Y/Y in 2025.

The 3 numbers tell a pretty big story. ~1.9B downloads in 2025, ~12B hours spent, ~$3B in consumer spend. Vs 2023 the multiples are +630%, 50x, and 20x respectively.

Spend is key tho. Consumers will pay for AI apps and they're doing it at a rate nothing in consumer tech has ever matched in a 24-month stretch.

We have also shared in the past that retention in AI is pretty bad early on, but cohorts as they mature get better.

[7] Labor tracker +123.7K in May. First clean bounce in six months.

Revelio is the alt-data labor tracker we follow ahead of NFP. It combines private payroll signals with ADP-style inputs. The last six months printed flat-to-negative reads (-12K, +8K, -22K, +14K, -5K, +24K) which was part of why people were worried about the labor cycle cracking. May printed +123.7K. NFP itself drops / dropped today depending on when you read this. (Actually just dropped before I press post, and 172k jobs for NFP, and private payrolls 120k right where our data said)

[8] ISM Manufacturing PMI 55.1. Cycle high.

PMI revised from a 55.3 flash to 55.1 final but still the cycle high. Two-year arc went from sub-50 contraction through last year to a clean expansion regime now.

We've been tracking this against the soft-landing thesis and the manufacturing side keeps confirming it.

Growth is holding up where you'd expect to see weakness first if things were getting worse.

[9] U Mich consumer sentiment 44.8. 48-year divergence vs SPX.

All detail is like to share. SPX near all-time highs. U Mich at 44.8. The gap between sentiment and the markets is the widest reading in 48 years. We've spoken about this in our last two editions and it keeps getting wider. We think this is more of a survey problem than an economic problem. A trend we have come to know across many of the key datasets people historically track.

Net Net

We remain constructive. The cycle data on labor, manufacturing, and consumer spend is stable enough. The corporate side is healthy, Meta is taking share inside the AI economy at a pace that's hard to ignore if you are looking at the right metrics, on top of their 30% growth, IGV's overbought setup is historically a buy not a sell, and ChatGPT just printed the fastest adoption curve in consumer tech. The asterisk is the IPO supply lining up behind Anthropic and OpenAI. History says those baskets average -55% drawdowns in Year 1. So we keep the thesis intact, watch the IPO names get repriced post-listing instead of chasing them at the open, and stay long the franchises that keep executing.

Looking Ahead

• NFP today (June 5). Revelio bounced. Now we see what the official print says. 172k jobs added.

• AI IPO calendar. Anthropic filed, OpenAI on deck. Pricing and float will matter.

• Industry guides coming. AI infra, data centers, semis, energy. Get ready.

That’s all for this week!

Know another investor who'd find this useful? Forward it along or share on your page!

About Avory & Co.

Investing Forward.

www.avory.xyz

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

Speak to us:

Schedule a Brief Zoom Meeting

Send us an email: Team@avoryco.com

Want to invest? We are on most platforms.

Want More

🎥 Avory YouTube”: Channel

🎙️ Avory: Podcast

Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.

Big Picture

💡 Pay attention to software, we are starting to see the inflections.

AI value creation is starting to flow up the stack. It’s moving from the infrastructure layer, the semis, the data centers, the networking buildout, into the software and application layer. Two companies reported earnings for us this week and Okta mainly was a standout. We think both are early indications of that transition.

Here’s the way we think about it. Okta is a big beneficiary of what’s to come in AI, specifically around identity and access management and workflow orchestration. Every agent out there is going to require access to the tools that enterprises already use. Those enterprises are going to partner with organizations that help them orchestrate and govern the AI that’s happening inside the organization. That’s exactly where Okta and a company like UiPath sit in the stack.

An important distinction we’ve been thinking about. Today’s AI models are probabilistic. They create probabilities on what’s next. Deterministic workflows are not AI at all. They’re process automation. The combination is powerful tho and can also help reduce costs. When you route tasks through deterministic logic, you increase the success rate of those tasks and you reduce compute and token usage because outcomes aren’t dependent on probabilities running in a loop. They run through a logic tree. That’s the unlock. Okta governs who and what can access the enterprise, a big deal in a world where AI breaks down trust. We think this is one of the more interesting setups in software right now.

[1] The mobile internet playbook says software is next.

A16Z put out a great chart that maps the history of value creation during a major technology transformation, specifically the mobile internet cycle from 2010 to 2016.

The pattern was semis first, then infrastructure and devices, then software.

By the end of that cycle, software had outperformed semis by roughly 1.85x to 1.00x. We think this chart is the right structural lens for what’s happening in AI right now.

The infrastructure buildout, semiconductors, data centers, power, networking, has been the dominant story for the last two years. The software layer is starting to catch up. You can see that on the next few charts.

[2] Okta crosses $1.9B ARR. NRR ticks higher for the first time in 11 quarters.

Okta reported Q1 FY27 results after the close yesterday. This is a new position for us over last two months.

Subscription revenue came in at $750 million, up +11.3% Y/Y.

That’s twelve quarters of grinding growth with Y/Y holding in the low double digits.

ARR also crossed $1.9 billion, up +12.3% Y/Y.

Okta customers with annual contract value above $100K now sit at 5,180. The number we were really watching was net revenue retention, which ticked back to 107%.

That’s the first uptick in 11 consecutive quarters.

To us that’s the tell as it relates to AI.

Identity and access management is the gating layer for every agent that runs inside an enterprise. You don’t let an agent touch your systems without knowing who or what it is and what it’s authorized to do.

They also launched Auth0 for AI Agents and Okta for AI Agents this quarter. Two SKU families, one identity fabric. Builders and IT now both have an Okta-native path.

Still early days on this, but the net revenue retention inflection paired with the new agent SKUs is worth watching closely.

[3] UiPath ARR also crosses $1.9B. Deterministic plus probabilistic is the combination.

UiPath ARR crossed $1.9 billion this quarter as well, hitting $1,901M and growing +12.3% Y/Y.

That’s almost exactly the same scale as Okta.

The reason deterministic automation and probabilistic AI are a powerful combination is straightforward. When you route a task through logic trees instead of asking a model to re-infer the answer every time, you get higher task completion rates and you use fewer tokens. The model handles the ambiguous judgment calls. The automation handles the repeatable steps.

So UiPath is the layer that orchestrates that routing inside the enterprise. They’ve been building this out for years and the AI cycle is now the tailwind. Something we’ve been explicit about in terms of our thesis.

[4] Stripe Atlas is incorporating a company every 12 minutes.

We have shown other data points on prior newsletters, but this is same takeaway. Stripe Atlas is now incorporating a company every 12 minutes. Think about that.

In 2017 that number was 295 minutes per company, so we’ve seen a 25x compression in the time it takes to spin up a new legal entity over the last nine years. We think this is another indication of how infrastructure is enabling a new wave of software creation. As new businesses form faster, they immediately start requiring software to run those businesses. Data management, identity, orchestration, productivity.

Value starts to accrue to the software application layer the moment those companies are alive.

[5] The S&P 500 is near highs yet consumer sentiment is at a 48-year low.

The S&P 500 is near all time high while the final University of Michigan Consumer Sentiment reading for May came in at 44.8. That’s the widest divergence between equity prices and consumer confidence in 48 years of data.

I think this is exactly the deviation you’re also seeing inside the market, where consumer-related names aren’t participating as aggressively and software names are in a similar position. But I think both will come to fruition. Businesses are doing fine. The macro economy is doing fine. Valuations are very cheap in some of those areas.

[6] Used car prices are up +7.52% in 90 days. Tesla is up +14.83%.

This one is interesting.

CarGurus Used Vehicle Price Index is up +7.52% over the last 90 days, with the average used car now at $29,034 and Y/Y growth at +2.88%. Tesla is leading the move at +14.83% in 90 days and +12.5% Y/Y. The move is broad-based across body styles and makes, which is what makes this an important indicator rather than an anomaly.

As you know we are tracking real-time data on used vehicles closely as it relates to inflation.

This isn’t 2021. We’re not seeing demand completely overwhelm supply. But rising used car prices feed into the services inflation print, and that’s a data point we’re watching closely.

[7] Hedge fund shorts are at a fresh 10-year high.

This data point has been floating around.

Goldman Sachs Prime data shows hedge fund short exposure at 12.8% of US gross, a fresh 10-year high that has now passed the 2021 peak.

Historically that doesn’t specifically lead to tops in markets. There are certain instances where it does, but as a rule it’s not a reliable sell signal.

What it is an indication of is how markets can be at all-time highs while professional capital is positioned for the opposite. Generally if you go back multiple decades you see the reverse configuration at market tops. We’ve been saying for quite some time here at Avory that the defensive positioning across institutional capital is a feature for patient long-side investors, not a warning. This data point reinforces that read.

Net Net

Value is starting to flow up the stack. Okta and UiPath both crossed $1.9B in ARR with growth holding in the low double digits, and Okta's net revenue retention ticked higher for the first time in 11 quarters. The mobile internet playbook from 2010 to 2016 is the right structural lens in our view. Semis first, then infrastructure, then software, and we're very early in that third leg. Meanwhile the S&P pushing higher, consumer sentiment is at a 48-year low, hedge fund shorts are at a fresh 10-year high, and used car prices are rising but nothing like 2021. Professional capital is defensive, sentiment is washed out, the consumer is steady, and the fundamentals are doing fine.

Looking Ahead

• NFP (June 5). Initial claims are at 209K and the ADP pulse held at 35,750 jobs per week through early May. The payrolls print will tell us whether the labor market is holding its footing or starting to slow. We want a number that keeps the Fed patient without reopening the wage conversation.

• US-Iran deal progress. Let’s see here.

• Software earnings follow-through. Okta and UiPath set the frame this week. The question heading into June is whether the rest of the enterprise software layer starts to show the same NRR inflection. That’s the signal we’re watching for the AI value-up-the-stack thesis.

That’s all for this week.

Know another investor who'd find this useful? Forward it along or share on your page!

Investing with Data:

Investing with Data.

The week in markets, told through the charts that actually matter. From Sean Emory, CIO of Avory & Co.

By Sean D. Emory

About Avory & Co.

Investing Forward.

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

Speak to us:

Schedule a Brief Zoom Meeting

Send us an email: Team@avoryco.com

Want to invest? We are on most platforms.

Want More

🎥 Avory YouTube”: Channel

🎙️ Avory: Podcast

Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.

Ticker Tags:

Here is our take at Avory. If you want to read the actual piece in PDF format, see it here… Avory’s Analysis on on CAPEX CYCLE.

So lets start… This is an empirical analysis of the AI infrastructure buildout, updated with NVIDIA’s Q1 FY27 results released May 20, 2026. We look to test the prevailing market assumption / confusion that 2026’s roughly $700B in hyperscaler capex represents a new steady-state baseline. The data points to peak buildout still ahead, with implications for NVIDIA, the Big 4 hyperscalers, and Meta’s free cash flow trajectory as a sole example. We are investors in Meta for disclosure purposes, and anything in this research piece is not investment advice.

Abstract

Summary of findings

What the data shows.

This working paper addresses where the hyperscaler accelerated compute buildout stands within its overall cycle. We have witnessed many market participants treating 2026’s roughly $700 billion in Big 4 hyperscaler capex (Amazon, Google, Meta, Microsoft) as a permanent annual baseline. The empirical evidence suggests this is a misreading. Yes, capex is massive, but we think the market needs more clarity on what this spend represents. Here is our version of clarity.

Using verified SEC filings, the latest NVIDIA Q1 FY27 results (released May 20, 2026), and a system-level replacement multiple methodology, we estimate the Big 4 are approximately 45 to 55 percent through the accelerated compute cycle on a dollar basis as of year-end 2026. The cycle is more advanced than chip-only models suggest because hyperscaler spending captures both silicon and supporting infrastructure (power, cooling, networking, buildings).

Peak Big 4 capex is most likely in 2027 to 2028 at $700 to $800 billion, with normalization to a steady-state run rate of $380 to $800 billion annually depending on refresh-rate assumptions. Even the most conservative scenario implies capex never returns to pre-AI levels. For Meta specifically, all three scenarios produce a 2032 EV/FCF multiple between 9.9x and 12.6x at the current $1.54T enterprise value, well below the S&P 500 average of ~25x.

KEY TAKEAWAY

The 2026 capex figure represents an acceleration of likely future capex, not a permanent baseline. The hyperscalers are replacing legacy general-purpose infrastructure with accelerated compute. The $700B isn’t the future; it is the cost of getting to the future.

1.The framing problem

The mistake we think people are making.

The same misreading keeps appearing in analyst notes and X threads. Analysts are taking the roughly $700 billion in 2026 hyperscaler capex and assuming that number persists annually into the future. Underwriting to that as if $700 billion is the new normal forever. The framing we think is wrong, and it leads to bad conclusions on both directions of the trade. The right way to think about this: capex spending right now is an acceleration of likely future capex, because the hyperscalers are replacing all of their current general-purpose infrastructure with accelerated compute. Their entire stacks need to run on accelerated compute eventually. The $700 billion isn’t the future, it is the cost of getting to the future.

METHODOLOGY

3 structural components of cycle need

We tried to build a model grounded in logic, knowing the future is unknowable. But history gives us clues. The goal is not to be perfectly accurate, but to think probabilistically, stay disciplined, and maintain a margin of safety. This is where we landed…

A / Replacement of pre-AI installed base

Cumulative Big 4 capex from 2015 to 2022 totaled approximately $475 billion, of which roughly 70 percent went to data center infrastructure. That puts the pre-AI installed base at around $330 billion in original cost basis. Replacement at 4-6x system multiple equals $1.3 to $2.0T.

B / Net new inference and training capacity

Token consumption is genuinely additive demand with no historical analog. Estimated 30 to 40 percent of current capex is net new capacity. This bucket scales with usage and has no natural terminal point.

C / Refresh of accelerated compute itself

Hidden compounding factor. With Amazon back to 5-year schedules and NVIDIA shipping new architectures every 18-24 months, a meaningful share of even recent GPU capex will need refresh inside this decade.

2. New data, released May 20, 2026

We have been tracking this thesis over the last year and we wanted to update and publish it. The latest report was May 20^th. Nvidia revenue $81.6B (+85% YoY) vs $78.8B consensus. Data center revenue $75.2B (+92% YoY, +21% QoQ) vs $73B consensus. Q2 FY27 guide: $91B +/- 2% (vs $86.8B consensus), with no China DC revenue assumed. Hyperscale customers remain ~50% of data center revenue. Free cash flow $48.6B for the quarter. Gross margin held at 75%. This sets the tone...

WHAT THIS CHANGES.

The Q1 print and Q2 guide reinforced the structural thesis. Hyperscale customers continued to represent ~50% of data center revenue, meaning the buildout is being absorbed by the Big 4 plus Oracle, not redistributed to enterprise or sovereign customers (yet). Networking revenue of $14.8B in Q1 (up 199% YoY) suggests system-level capex is scaling proportionally with chip capex, validating the 2x silicon-to-system multiplier. So net net, we are still on track in terms of where we think we are relative to various points of views out there.

3. Where we stand in the cycle.

So starting, the big 4 cumulative system-level accelerated capex through end of 2026 is approximately $960B. A 4-year stacked total (2023 + 2024 + 2025 + 2026E), not a single-year figure. Cycle progress depends on what we believe total need is. The replacement multiple is the most sensitive input.

KEY OBSERVATION HERE.

If we are 48% through with $960B deployed, the remaining ~$1.04T needs to be spent over 2027-2030. That means annual accelerated capex must remain at $250-300B per year through 2030 to absorb cycle need.

4. Annual capex projections.

What annual spend actually looks like across scenarios

PEAK CAPEX BY SCENARIO

5. Meta deep dive (EXAMPLE)

Base case · 14% revenue CAGR · 5-year refresh · $1.54T EV anchor

Now for many reasons we wanted to put this into practice so one can see how CAPEX flows through PnL. $META is the cleanest test case for the refresh-rate thesis because it has no external cloud business to monetize the GPUs. Every dollar of accelerated capex must be justified by internal product improvement or new product revenue. We actually like that dynamic given their distribution and product velocity.

BASE CASE TAKEAWAY

If Meta trades flat at $1.54T EV through 2032, the multiple compresses to 10.8x EV/FCF. The S&P 500 trades at ~25x. Quality compounders trade 18-25x. The implication: either the stock re-rates higher as the path becomes clear, or FCF generation runs ahead of expectations.

Meta - Conservative Case

11% revenue CAGR · 6-year refresh · slower capex normalization

This assumes Meta’s AI investments hit diminishing returns by 2027-2028. Revenue growth slows to ad-market-plus modest share gains. Meta is forced (or chooses) to slow refresh cadence. Capex normalizes faster, but at the cost of competitive positioning.

COUNTERINTUITIVE INSIGHT

The conservative case for AI capex is paradoxically the best near-term outcome for Meta’s FCF. FCF crosses back to positive by 2028 and reaches $77B by 2030, exceeding the 2024 baseline. The risk: if AI revenue underperforms, the EV may compress before the multiple does.

5. Synthesis of Meta Example

EV/FCF multiple paths converge by 2032

VIEW OF THE TABLE ABOVE

The terminal multiple range (9.9-12.6x) is remarkably tight despite very different scenario assumptions. The long-term math is more robust than the near-term volatility implies. For the sake of your time, we did not show the aggressive case example drawn out.

POSITIONING IMPLICATIONS

1.NVIDIA base case has accelerated capex growing through 2027, then declining in 2028, the timing window where the multiple is most at risk.

2.Cloud businesses on top of infrastructure (AWS, Azure, GCP) are the durability trade. Their economics depend on installed base utilization and pricing, not capex growth rates. But implication is they will normalize around 2x that of prior in aggregate.

3. Meta, as an example is uniquely positioned because it has no external cloud business. Some have seen as a negative, but makes no sense, as they are currently outgrowing their hyperscaler peers. Every dollar of capex must be justified by internal product improvement or new product revenue, the cleanest refresh-rate test case.

4. Power infrastructure, data center REITs, and electrical equipment makers benefit today and the steady-state floor has lifted, however, there will be a MASSIVE air pocket at the end of this as their refresh cycles are likely much longer than Nvidia.

Watch points & conclusion.

Variables that move the answer.

NEAR-TERM CATALYSTS (NEXT 12 MONTHS)

2027 hyperscaler capex guides (Jan-Feb 2027).

The most important data point. Aggregate Big 4 above $750B keeps base case alive. Below $700B activates bear case. Above $850B validates bull thesis.

NVIDIA Q2 FY27 results (August 2026).

Confirmation of the $91B guide vs actual. Sustained 70%+ YoY DC growth into Q2 would push the cycle math further toward bull.

Meta 2027 expense guide.

Expense growth driven by infrastructure costs, depreciation, infrastructure operating expenses. The 2027 guide implies the refresh cadence Meta is committing to. Also some color of flow through economics.

Custom silicon ramp at AMZN, GOOG, MSFT, META.

Trainium 3, TPU v6, MAIA, MTIA. Faster ramp = lower NVIDIA capture rate = different math on cycle progress allocation. This is Nvidia story, less so a accelerated compute story.

CONCLUSION.

The cycle is not what it appears.

The prevailing market narrative that 2026’s $700B in hyperscaler capex represents a permanent annual baseline is empirically wrong. Some understand this, but many do not, they see revenue and assume recurring. The data points to 2026 being near, but not at, peak buildout. Peak is most likely 2027 to 2028 at $700 to $800B, followed by normalization to a steady-state run rate of $380 to $800B annually. If you are an investor(as we are) then this should help you underwrite the next 3-5-7 years. If you are momentum trading then this is not about whether the cycle ends. It is about the slope of the descent and where the new floor settles. Position accordingly.

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About Avory & Co.

Investing Forward.

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

Speak to us:

Schedule a Brief Zoom Meeting

Send us an email: Team@avoryco.com

Want to invest? We are on most platforms.

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Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.

Sources & methodology

Working paper appendix

PRIMARY SOURCES

Bloomberg Data for earnings, revenue, consensus

NVIDIA Q1 FY27 earnings release and CFO commentary (sec.gov 8-K, May 20, 2026)

NVIDIA Q4 FY26 / Full Year FY26 earnings release (February 25, 2026)

Meta Q4 2024, Q4 2025, and Q1 2026 earnings releases

Platformonomics CAPEX Retrospective 2025 (Charles Fitzgerald, February 2026)

Epoch AI hyperscaler capex tracker (SEC EDGAR, Q1 2022 to Q4 2025)

Bloomberg projections

Methodology

All hyperscaler capex figures include finance leases where disclosed. Pre-AI baseline excludes Amazon retail capex using AWS-specific breakouts where available. Replacement multiple range (3x to 7x) captures the difference between like-for-like server swap and full system replacement (HBM, NVLink/InfiniBand, liquid cooling, power delivery). Hyperscaler share of NVIDIA DC revenue blended at 47% based on CSP commentary. The Q1 FY27 CFO commentary stated hyperscale customers remained ~50% of data center revenue. Custom silicon estimate (TPU, Trainium, MAIA, MTIA) carries the widest margin of error. Silicon-to-system multiplier of ~2x reflects that full hyperscaler accelerated capex includes the chip plus the buildings, power, cooling, and networking around it.

DISCLAIMER · Avory & Co. internal research working paper. Not investment advice. Distribution to clients and prospects of Avory & Co. only. Past performance not indicative of future results. Forward-looking projections subject to material revision as new data becomes available.

Big Picture

💡 Markets remain on edge for consumer and inflation, yet both still suggest things remain stable.

I have seen a lot of charts and commentary on inflation and growth this week, and the story still depends heavily on which data set you are looking at. Of all things this week, just look at chart 3 below.

Official inflation data suggests inflation is running around 3.8% Y/Y, while consumer sentiment data says consumers are about as negative as ever. But, and this may sound familiar to anyone who has read our Avory newsletter since 2022, we continue to believe the real-time read on inflation matters more. Today, that figure is closer to 1.95%, creating roughly a 185 basis-point gap versus the official print. It is not rocket science to figure out that this has been a better predictor, as the economy has been stable enough over the last 3 years despite the seesaw of the rhetoric.

Now, the market seems to be treating the cyclical AI buildout as one of the few places to hide. AI is clearly a structural theme, but the current spending cycle is very much happening now. It has been relatively insulated from whatever macro narrative the market wants to run with on any given day. More importantly, the underlying spend keeps showing up in the data, including Ramp activity, CapEx plans, and the share-take patterns we are tracking.

Underneath all of this, the key question is simple: is wage growth running ahead of the inflation rate consumers are actually experiencing?

Using real-time inflation, real wages are running around +1.8%. Yes positive despite the charts flying around this week. Using the official CPI basis, they are roughly -0.1%. Those are two very different realities.

The other point worth highlighting is the disconnect between consumer sentiment and actual consumer behavior. Sentiment keeps printing near all-time lows, while spending continues to print near all-time highs. Credit card data though shows consumer spending up +3.2% year over year, with strength still showing up in travel, restaurants, and leisure.

We already knew energy was going to perk up in CPI, but shelter continues to do some of the heavy lifting in the official inflation print, but market rents tell a different story. Apartment List data shows rents running -1.7% year over year. The issue is the well-known 12 to 18 month lag in how shelter flows through CPI, something we have been discussing for years. Net net, real wages are positive, so consumer will spend, and they are spending, and check my article this past week for more color on it!

[1] Real-time inflation is already below 2%.

So lets start here… Truflation’s real-time read is sitting at 1.95% with CPI Y/Y at 3.8%.The real-time price data pulls across millions of items, CPI is largely survey-driven with lagged shelter. Obviously this suggests inflation in the real economy has already done what the Fed has been waiting on for two years. That’s our read atleast. If it was not for energy spike, I actually think we would be talking deflation right now, which is much more concerning…

[2] Shelter is the largest CPI component and it lags by 12-18 months.

Apartment List has rents running -1.7% Y/Y, well off the +17.8% peak from Jan ‘22. The problem is BLS still counts shelter heavy in the basket, and the methodology lags real-time rents by 12-18 months.

Something we’ve been talking about for years now. If you strip out the lag and use what’s actually happening in housing today, the official inflation print drops meaningfully closer to the real-time number.

[3] Real wages depend on which inflation print you trust.

This is the most important chart here… maybe.

Nominal average hourly earnings +3.7% Y/Y. Minus CPI you get -0.1%, which is what the government data shows the consumer is feeling. Using real-time you get +1.8%, which is what we think they’re actually experiencing.

That’s the entire macro debate in one chart. We’ve been in the camp that real-time data tells the truer story, and the consumer behavior on the next few charts backs that up.

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[4] Consumer spend +3.2% Y/Y, sitting near the highs.

Credit card data has consumer spend running +3.2% Y/Y as of May ‘26, near the top of the post-pandemic range.

Sentiment surveys say the consumer is miserable. Their actual spending says otherwise.

Either the macro view has been wrong, or something else, but clearly the data we’re tracking shows a consumer that can stand whatever is taking place. Their spending figures keep supporting that view.

[5] The spend is showing up in travel, leisure, and restaurants.

Bank of America internal data has travel & tourism contributing +1.6pp to Y/Y services growth in April, the highest of the cycle. Restaurants and leisure are flowing positive alongside it. If the consumer were actually cracking you’d see discretionary go first. Instead, discretionary is leading. Same story, different week. Strange right?

[6] First Watch keeps outrunning the restaurant peer set.

Now something in the portfolio. A company executing well as shown above. But hard to run away from consumer spending fears in the short term.

Here’s the facts though.

First Watch posted +2.8% same-store sales in 1Q26 against a peer average of +0.6%. The brand keeps taking share quarter after quarter, and the recent trajectory tracks the broader breakfast and brunch tailwind. Small sample, but worth watching. This is the kind of name where the consumer thesis we just walked through actually shows up in earnings but not in price.

[7] Zillow has outrun the housing industry for 10 straight quarters.

Same story to above. Rates push higher on inflation fears, which sends housing related assets lower.

Yet! Zillow revenue growth has outpaced the broader housing industry by an average of +14.3% over the last 10 quarters.

Industry volume was negative through most of ‘23, Zillow was positive every quarter. Q2’25 had Zillow at +15% versus industry at +1.5%. This is what share-takers look like in a soft category.

Reinforces our thesis on owning the dominant platform when the macro setup is choppy.

[8] Anthropic just overtook OpenAI in business adoption.

This one is crazy and not something you probably thought a year ago. Using Ramp’s AI Index, which tracks paid AI subscriptions across 50,000+ US businesses, it shows Anthropic at 34.4% adoption versus OpenAI at 32.3% as of April. That’s the first crossover.

Overall AI adoption is now at 50.6% of tracked businesses, up from basically nothing two years ago. The cyclical buildout we’ve been talking about is real, and it’s happening at the business level, not just the consumer app level.

[9] AI app uninstalls are running at a record pace.

Now this supports the crossover from above. Web traffic data has consumer AI apps churning hard on the install/uninstall front.

Gemini +169% Y/Y uninstall rate

Copilot +138%

ChatGPT +132%

Claude +90%

The business adoption from the previous chart is the durable part of AI. The consumer app layer is far more volatile and people are trying everything. Two very different stories under the same umbrella.

[10] Stripe Atlas startup formation just hit a record.

Now another cool data point showing what is taking place. Stripe Atlas hit 6,250 incorporations in Q1’26, a new high and roughly 2.3x the post-pandemic 2024 trough. Whatever else is going on in the macro, more people are starting companies right now than at any point in the platform’s history. That’s a tell on real economy formation that doesn’t show up in any sentiment survey. That’s the data.

Net Net

We continue to focus on the main data here that matters. We have a piece out next week showing where we think we are in the AI buildout, when we think it peaks, and how to think about it. It will only show on Substack day 1, so make sure you are subscribed.

Investing with Data:

Investing with Data.

The week in markets, told through the charts that actually matter. From Sean Emory, CIO of Avory & Co.

By Sean D. Emory

That’s all for this week.

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About Avory & Co.

Investing Forward.

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

Speak to us:

Schedule a Brief Zoom Meeting

Send us an email: Team@avoryco.com

Want to invest? We are on most platforms.

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Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.

The market keeps shrugging at the Strait of Hormuz, and the bears keep calling it irrational. The numbers say it isn’t. Roughly $255B in fresh dollars is on its way into the US economy this year, and most of the desk research hasn’t priced it in.

There is a recurring question I keep getting from investors or our advisor clients right now. How is the market still holding in when oil ripped from $61 to $118, when shipping through Hormuz was de facto closed for weeks, and when the geopolitical headlines read like 2022 all over again? On the surface, that is a fair question. Underneath it though the answer is just math… let’s jump into it.

Three structural offsets, two policy refunds, and one shifted producer base mean the net dollar flow into the US economy in 2026 is positive, sizable, and almost entirely separate from anything the Fed has to do.

Sean Emory from Avory & Co on Bloomberg TV Global.

Let me walk through it in the order I worked it out, and qualify each piece with a real number from a real source.

Before that, here’s what prediction markets think about WHEN traffic at the strait returns to normal. 16% chance in May… ie the market is already priced for closure.

Now lets get into it…

The oil shock is real. The wallet impact is half what it used to be.

Why a $120 Brent print doesn’t hit the consumer the way it would have in 1979.

In 2024, the average US household spent $2,411 a year on gasoline, which works out to 3% of total household expenditures. That is straight from the BLS Consumer Expenditure Survey. Compare that to the 1970s, when energy products were 7-10% of real consumer spending. So roughly half the wallet share.

The Kansas City Fed put numbers on this directly. Their analysis concludes that gasoline expenditure shares are about 1% point lower across all income quintiles than they were in 1984, and that the effect of oil price changes on consumption has become much more muted, even among lower-income households.

The pass through math reinforces the point. Academic research shows oil price pass-through into broad consumer prices is about 4.2% in the long run. We know this continues to move lower. So a 50% oil shock translates to roughly 2 percent of headline CPI pressure, not 5 or 6% we have seen in prior decades.

Real oil is elevated. It is not extreme.

The level matters less than the comparison. Compare correctly people

WTI, in inflation-adjusted terms, suggests the average YTD run rate for oil prices ($83) is only about 13% above the inflation-adjusted average going back to 1980. Important because the 1980s oil peak would be equivalent to something in the mid-$100s today, or roughly 30% to 50% higher than current levels. And even then, as we just discussed, oil had a much larger impact on the consumer wallet than it does today. So yes, oil prices are elevated relative to history, but they are nowhere near prior inflation-adjusted shock levels, and their contribution to consumer spending pressure is less meaningful than it was in past cycles.

There is one important caveat the bulls should not gloss over though. The EIA itself flagged Q1 2026 as the largest inflation-adjusted Brent move since 1988. So while the level is not a record, the velocity of the move is genuinely historic. That is the part of the bear case that is real. But then there are other offsets that happen to hit at the same time. Here are some of those..

The US is now a net exporter.

In the 1970s, an oil spike was pure tax. Today, half of it is revenue.

This is the structural piece that most analysts trained in a different era still get wrong. Per the EIA, the United States exported 55% of its petroleum production in 2024, and total petroleum net imports were the lowest on record. During the Q1 2026 disruption, US crude exports surged to record levels as global buyers sought alternatives to Middle East supply.

Also this chart tells that story very clearly.

Translation to above: when crude rips, a meaningful share of the dollars consumers spend at the pump cycle back through US producer revenue, capex, hiring, and royalty payments to landowners.

The Kansas City Fed calls this the “oil producer channel” and notes it is materially more important to the US economy than it was during the 2014 to 2016 slump, let alone the 1970s.

The net drag on the broader economy is a fraction of the gross drag on consumer wallets when isolated by itself.

The OBBBA tax cut is already in checking accounts.

Refunds are running $43B ahead of last year, and we are not done filing.

Through April 17 of the 2026 filing season, total refunds were running $43.0B ahead of the 2025 pace, with cumulative refunds of $296.1B versus $253.1B at the same point last year. That is a +17.0% year over year pace, and the average refund is up 11.3% to $3,275. The IRS Filing Season Statistics confirm the pattern week by week.

This is the Tax Act from last year feeding through. Something we discussed early last year. It includes deductions for tips, overtime, auto loan interest, and senior citizens, and the math shows household after-tax income just got a real lift.

Annualized, with the rest of the season still to come, the full year incremental refund delta is plausibly $55-65B higher than 2025. Real cash, hitting real households, in real time, at same time as oil shock. That’s what I meant when stating that the oil shock occurring at the best time it could have.

The tariff refund is the other input nobody is talking about (still).

The Supreme Court invalidated IEEPA tariffs.

On February 20, 2026, the Supreme Court ruled 6-3 in Learning Resources, Inc. v. Trump that IEEPA does not authorize the President to impose tariffs. The Court of International Trade subsequently ordered Customs and Border Protection to refund the duties collected. As of the filings that prompted the CAPE refund portal launching on April 20, the government owes an estimated $166 billion to roughly 330,000 importers, with the outstanding balance accruing interest at about $650 million per month.

Even Penn Wharton’s independent estimate puts the refund total at up to $175 billion when interest is included. Either number is enormous.

For context, the entire 2024 tax refund total from the IRS was roughly $329 billion. We are talking about half a year of the entire IRS refund machine, landing on importer balance sheets in the back half of 2026.

There is a second-order effect that is just as important.

IEEPA tariffs represented roughly half of all customs duties collected by the end of 2025, running at roughly $18 to $20 billion per month in collections at year-end.

Going forward, those collections stop. Importers retain the cash that would have been remitted. On an annualized basis, that is a $200 billion plus run-rate boost that just structurally disappears from the tariff column.

Section 232 expansions on aluminum, steel, copper, and derivatives took effect April 6 and will claw back some of this, probably $30 to $60 billion per year by our estimate. But the gap between IEEPA cessation and Section 232 replacement is a real net positive in 2026.

The math, end to end.

What it actually nets to in dollars flowing through the system.

Here is the bridge, all in. Every line ties to our calculations above. I would view the number as directionally accurate given some of the unknowns in timing.

Here’s another visual.

For scale: US nominal GDP printed $31.86 trillion in Q1 2026 per the BEA. That puts this net flow at roughly 75 to 90 basis points of GDP, on a one-year view, before any multiplier effect.

Tax refunds to households have a higher marginal propensity to consume than tariff refunds to importers, so blended through a 0.5 to 1.0 fiscal multiplier, the GDP impulse meaningfully expands.

And note the BEA’s own footnote on the Q1 2026 release: the IEEPA refunds are being treated as a capital transfer in the National Accounts, which means they are not yet reflected in the GDP print. That is upside still to come in the data, not behind us.

Why the market is doing what it is doing.

Good reminder to do the work don’t just read the terrifying headlines…

If you put all of this together, the market’s behavior stops looking irrational and starts looking like efficient pricing of a fiscal and regulatory regime change that the bear narrative has missed.

The oil drag is real but contained, the consumer is structurally less sensitive than 1970s playbooks assume, and the offsets are large and arriving in 2026.

Know another investor who'd find this useful? Forward it along or share on your page!

About Avory & Co.

Investing Forward.

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

Speak to us:

Schedule a Brief Zoom Meeting

Send us an email: Team@avoryco.com

Want to invest? We are on most platforms.

Want More

🎥 Avory YouTube”: Channel

🎙️ Avory: Podcast

Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.

SOURCES

1. Bureau of Labor Statistics. *Consumer Expenditures 2024.*Released December 19, 2025. Average annual gasoline spending of $2,411, or 3.1% of household expenditures. bls.gov/cex

2. RBC Economics. Oil price shock: Higher US inflation could weigh on consumers. 1970s energy spending share of 6 to 7 percent of real consumer spending. rbc.com/en/economics

3. Federal Reserve Bank of Kansas City. Çakır Melek & Vigfusson. The Evolving Link between Oil Prices and U.S. Consumer Spending. Economic Review, 2021. kansascityfed.org

4. ScienceDirect. Oil price pass-through into consumer prices: Evidence from U.S. weekly data. Long-run pass-through of approximately 4.2% to consumer prices.

5. U.S. Energy Information Administration. Crude oil and petroleum product prices increased sharply in the first quarter of 2026. Largest inflation-adjusted Brent quarterly move since 1988. eia.gov/todayinenergy

6. GuruFocus / EIA WTI series. Inflation-adjusted WTI of $99.89 as of April 27, 2026; long-run median $63.47.

7. Britannica Money. Highest Crude Oil Price. 2008 real peak ~$188; 2011 real peak ~$165. britannica.com/money

8. U.S. Energy Information Administration. U.S. energy facts: imports and exports. United States exported 55% of its petroleum production in 2024; net total energy exporter since 2019. eia.gov/energyexplained

9. Internal Revenue Service. Filing Season Statistics, weekly cumulative through April 17, 2026. Cumulative refunds of $296.1B vs $253.1B in 2025; average refund of $3,275, up 11.3% YoY. irs.gov/newsroom

10. Avory & Co. analysis. Tax refund pace and OBBBA pass-through tracking. +$43.0B cumulative delta vs 2025 same week; +17.0% YoY pace.

11. U.S. Supreme Court. *Learning Resources, Inc. v. Trump,*No. 24-1287, decided February 20, 2026.

12. Penn Wharton Budget Model. Supreme Court Tariff Ruling: IEEPA Revenue and Potential Refunds. Up to $175B in refunds; IEEPA at ~50% of customs duties; ~$20B/month in collections at year-end 2025. budgetmodel.wharton.upenn.edu

13. U.S. Customs and Border Protection. CAPE refund portal; ~330,000 importers, ~$166B principal, ~$650M/month interest accrual. Refund processing began April 20, 2026.

14. Norton Rose Fulbright. Potential refunds: US Supreme Court overturns IEEPA tariffs. Legal mechanics of refund and re-liquidation process.

15. BDO Global. Supreme Court Reins in IEEPA Tariff Authority: What Happens Now. Court of International Trade order of March 4, 2026; Section 232 expansions effective April 6, 2026.

16. U.S. Bureau of Economic Analysis. GDP Advance Estimate, 1st Quarter 2026. Released April 30, 2026. Nominal GDP of $31.856 trillion; IEEPA refunds treated as capital transfer. bea.gov

Big Picture

💡 Big Tech earnings just confirmed it. Capex is exploding, AI is converting, and the consumer is fine.

Ok so this was the week.

Meta, Microsoft, Google, and Amazon all reported, with Starbucks and Omnicell on the side (holdings). And the takeaway for me is pretty clear: the macro still looks healthier than the CNBC guest circuit suggests.

Across the hyperscalers, demand commentary was strong, AI revenue is converting at scale, and capex commitments into 2026 and 2027 remain massive. Meta raised CY26 capex to $125B-$145B. Alphabet moved to $180B-$190B including Intersect. Microsoft is around $190B. Amazon is still $200B+. That is $700B+ of combined hyperscaler capex this year, off roughly $416B in CY25. +71% Y/Y.

The signal we keep coming back to is simple: these companies are not spending because they hope AI works. They are spending because the demand they see internally requires it.

Susan Li said it well on Meta’s call: “we have continued to underestimate our compute needs.”

I’d say that’s the read from our desk too. Especially platforms like Meta with so much distribution.

And the consumer side still lines up with what we have been discussing. Amazon retail units +15% Y/Y, strongest since COVID. Google Search +19%, with retail and finance strength called out. Not perfect. Not booming everywhere. But still a “good enough” economy.

On AI infrastructure, vertical integration keeps showing up. Amazon with Trainium. Google TPUs generating external hardware revenue. Microsoft Maia 200 live in Iowa and Arizona. Meta rolling out custom silicon with Broadcom alongside AMD and Nvidia.

So yes, we remain constructive. AI is real, the winners are emerging with plenty of time left. Let’s get into it.

[1] Hyperscaler capex is exploding. ~$710B combined CY26 guide.

Meta raised CY26 capex guide to $125B-$145B (from $115B-$135B). Alphabet bumped to $180B-$190B (from $175B-$185B, now including Intersect). Microsoft committed roughly $190B for CY26 on the call. Amazon held at $200B+. That is ~$710B at the midpoint of guides, all on a capex.

[2] Amazon AWS +28% Y/Y. Backlog +$120B in one quarter to $364B.

iwd_aws

AWS revenue $37.6B, up +28% Y/Y, the fastest growth in 15 quarters. Operating margin 37.7%. Backlog hit $364B excluding the Anthropic deal, up ~+$120B in a single quarter. AI run-rate now >$15B annualized. Bedrock spend +170% Q/Q.

Amazon is on the frontier again.

[3] Amazon retail units +15% Y/Y. Consumer is fine, full stop.

Worldwide retail units grew +15% Y/Y. Per Jassy, that is “the highest since the tail end of covid lockdowns.” North America COMMERCE segment revenue was $104.1B. Advertising revenue $17.2B (+24% Y/Y), TTM ad revenue >$70B.

We care about Amazon retail units specifically because it is the cleanest proxy for actual consumer goods demand. +15% Y/Y is not a weak consumer signal.

[4] Amazon’s chip business. $20B run-rate, $225B+ in commitments.

Amazon disclosed its custom silicon business (chips) runs at >$20B, growing triple digits. >$225B in Trainium revenue commitments. Trainium 2 is sold out, 30% better price-performance vs Nvidia GPUs. Trainium 3shipping in early 2026, ~30-40% better than T2.

Big tech wants to control the silicon stack and Amazon is moving aggressively. More signal.

[5] Microsoft Azure +40% Y/Y. RPO doubled to $627B.

Microsoft crushed. Azure grew +40% Y/Y in FY26 Q3. Total RPO surged +99% Y/Y to $627B. AI revenue now at a $37B+ run-rate, up +123% Y/Y. M365 Copilot has 20M+ paid seats with +250% Y/Y seat adds.

Not sure how I feel about those copilot seats. As a product I think it’s third tier. So Microsoft Azure is doing great, but I still think there is some risk to their productivity suite do you do AI encroachment.

[6] LinkedIn +12% Y/Y. Hiring momentum showing up in ads too.

LinkedIn revenue grew +12% Y/Y (+9% constant currency) with growth across all lines of business. Q4 guide is ~+10%.

I always liked to look at this as LinkedIn is a useful real-time read on enterprise hiring and B2B advertiser demand. +12% growth is consistent with the ADP weekly pulse picking up that we flagged in our last edition.

[7] Google Search +19% Y/Y. AI Overviews are not killing Search.

Google Search revenue $60.4B, up +19% Y/Y. Pichai called out retail and finance verticals driving strength. Search queries hit an all-time high.

This is the cleanest read on advertiser demand and downstream consumer demand. +19% Y/Y growth in Search ads is a strong economy signal.

[8] Google Cloud +63% Y/Y. Backlog nearly doubled to $462B.

Google also winning in compute needs. Google Cloud segment revenue $20.0B, up +63% Y/Y, with GCP itself growing materially faster than the segment. Operating income $6.6B, tripled Y/Y. Margin jumped to 32.9% from 17.8%. Backlog hit $462B, nearly doubled sequentially, with just over 50% expected to convert within 24 months.

Google is now a real third platform alongside AWS and Azure.

[9] Meta ad impressions +19%, price +12%. AI WORKING.

Honestly outside of them trying to spend more on things that are working, this was great quarter.

Meta revenue +33% Y/Y to $56.3B. Ad impressions +19% Y/Y, average price per ad +12%. Both metrics accelerated vs Q4 2025. Reels time spent +10% on Instagram from AI ranking improvements. Facebook video time +8% Q/Q, the largest quarterly gain in 4 years.

They are only one of biggest 100% of CAPEX is tied to direct usage. Their new Adaptive Ranking Model added +1.6% conversion rate across major Facebook and Instagram surfaces. Value Optimization ARR is now >$20B, more than doubling Y/Y. More than 8M advertisers are now using at least one of Meta’s gen AI ad creative tools, up from 4M when first disclosed at Q4 2024 earnings.

This is the AI play.

[10] Meta business AI. 1M to 10M+ weekly conversations in one quarter.

iwd_meta_business_ai

Meta’s business AI weekly conversations grew from ~1M at start of 2026 to more than 10M by end of March. That’s 10x in one quarter. WhatsApp ads and Status are scaling, with hundreds of millions of people now viewing them daily.

Zuckerberg framed the strategy directly: “We’re building a personal agent focused on helping people achieve the diverse goals in their lives. We’re also building a business agent focused on helping entrepreneurs and businesses across the world use our tools and others to grow their efforts, reach new customers, and serve existing customers better. These agents will work together to form an ecosystem.”

[11] Atlassian: AI is a tailwind, not a headwind, for the right software platforms.

We’ve said for a while that software should not be treated as one bucket. AI is essentially software, and the platforms that integrate it well are going to benefit, not get disrupted. Atlassian’s earnings is one of the cleanest data sets we’ve seen on that thesis.

A few of the standouts. Customers using Rovo (their AI) are growing ARR at ~2x the rate of non-AI customers. AI credit usage is compounding more than +20% month over month. The Service Collection, their AI-heavy offering, is now >$1B ARR growing +30%+ Y/Y. There are other datapoints but clearly software can win.

[12] Starbucks comps +6.2% global, +7.1% US. Niccol is delivering.

Global comp +6.2%, US comp +7.1%, North America comp +7.1%, China +0.5%.

The strongest in three years and the third consecutive positive print after 7-8 quarters of declines.

Long-time followers know we’ve been on Brian Niccol for a while. We owned Chipotle when he took over and that worked out. We were patient with Starbucks because it is a different animal but the early returns are paying off.

[13] Omnicell beat across the board. Titan XT cycle is the next leg.

Omnicell Q1 revenue $309.9M (+15% Y/Y), beat by ~$5M. Non-GAAP EPS $0.55 vs $0.33 consensus, a +66% beat. Non-GAAP EBITDA $44.7M, +42% above estimates. Product revenue +20% Y/Y.

More importantly for our thesis, Titan XT first orders already booked in Q1 2026, with hardware shipments beginning H2 2026 and OmniSphere software rollout in H1 2027. Total replacement opportunity is >$2.5B over the cycle, with bookings ramping through 2026 and revenue scaling in 2027.

Looking Ahead

• Jobs data Friday. April NFP and unemployment rate. We want to see continued labor strength but not so hot it changes the inflation read.

• Iran. Any news on ceasefire.

• Earnings: more earnings next week.

That’s all for this week!

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About Avory & Co.

Investing Forward.

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

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Big Picture

💡 Macro keeps firming up across labor, consumer, and inflation. Earnings say the same thing.

Ok so busy week and busy month really with market gyrating daily on headlines. Funny though with the noise, the macro continues to hold up and improve. Another week of supportive data reinforces our view that peak uncertainty is behind us and the longer-term backdrop remains healthy. We’ve been beating this drum for a while. Sometimes doesn’t feel like it but it is the right move to stay pat.

Retail sales this past week came in around +1.9% ex-autos, beating estimates and extending a run of resilient prints. The ADP weekly pulse 4-week moving average took another leg higher to +55K, now 5 straight weeks of improvement. Initial claims held in the low 210s. The S&P Global US Composite PMI rebounded to 52.0, a 3-month high. Different data sources, same read for the most part, ie the economy is on solid footing, something we have not backed away from.

Earnings season kept reinforcing it. Tesla printed a mixed quarter but margins expanded nicely to 21.1%, which we liked. ServiceNow had really healthy numbers. Subscription revenue up 22% Y/Y with cRPO +21% constant currency, and the AI target for the year got raised from $1B to $1.5B. The market sold it off on the margin guide (maybe or just SAAS jitters). Our belief continues to be that the large software platforms central to mission-critical operations, with technical ability at the top, execute well in this environment.

We remain constructive. Consumer is in good shape, jobs market is building momentum, inflation dynamics remain absorbable (rent disinflation keeps grinding lower), and guidance is good enough right now. WTI futures currently price mid-to-high 70s by year-end. Moving target, but directionally consistent with conflict easing over time. That’s the read from our desk.

[1] Retail sales +1.7%, +1.9% ex-autos. Hard to say weak consumer.

Lets start with the March retail sales data that came in at +1.7% M/M headline vs. +1.4% expected. Ex-autos hit +1.9% vs. +1.3% expected. 12 of 13 categories were up, the most in months. That follows an upwardly revised +0.7% in February.

The consumer keeps spending because the consumer has money. Tax refunds are tracking ~10-15% Y/Y and hiring has picked up. This is what “good enough” looks like. That’ll do.

[2] Hiring momentum is building. 5 straight weeks of improvement. Oops more strength…

The ADP weekly pulse 4-week moving average hit +55K private sector jobs. That’s the 5th consecutive week of acceleration.

To put that in context, this number was sitting near zero through most of the fall. It has inflected meaningfully in a short window. The labor market is firming here????

[3] Initial claims in the low 210s. No crack in the labor market.

Initial jobless claims printed 214K for the week ending April 18. The prior week was 208K. We are sitting in a range that historically correlates with a healthy labor market.

Combine this with ADP accelerating and you get a consistent message. Hiring is picking up and firing is not picking up. Not bad

[4] S&P Global US Manufacturing PMI Highest in a LONG TIME.

The flash Composite Output Index went from 50.3 in March (a 2.5-year low) to 52.0 in April. Manufacturing PMI hit 54.0, the highest since May 2022. Services moved back to 51.3.

Activity growth rebounded as we kicked off Q2. Another data point pointing the same direction as retail sales and ADP. The economy is on a solid foundation. Checks the box for us.

[5] Rent disinflation continues. +1.7% Y/Y.

Zillow’s Rent Index grew just +1.7% Y/Y as of March. That compares to the +15%+ peak in early 2022. This is well below the pre-COVID average of ~3-4%.

Shelter is the single largest weight in CPI. The BLS methodology lags private market data by 6-12 months. So what shows up in today’s Zillow print is likely to flow into official inflation data over the next several quarters. This is disinflationary fuel that has not fully shown up yet.

[6] Tesla margins expanded. 21.1% total gross margin.

Tesla reported Q1. Revenue +16% Y/Y to $22.4B, EPS of $0.41 vs. $0.36 expected. The headline was the margin line: total gross margin 21.1%, up from 16.3% in Q1 2025. Auto gross margin ex-credits improved sequentially to 19.2%.

Mixed quarter overall. Deliveries missed and some of the margin lift came from one-time benefits. But in the grand scheme of things, constructive. We care about the direction of margins and that direction was up. Can’t complain about that.

[7] ServiceNow had a really strong quarter. Market didn’t love the guide apparently.

Subscription revenue $3.67B, up +22% Y/Y (+19% constant currency). cRPO $12.64B, +21% constant currency. Beat guide by 100bps. Non-GAAP operating margin 32.0%, beat by 50bps. FCF margin hit 44%.

Biggest tell for us: the internal 2026 AI target moved from $1.0B to $1.5B, same measurement methodology. Customers with >$1M on Now Assist grew +130% Y/Y. Deals with 3+ Now Assist products grew ~70%.

Stock sold off ~12% after hours on a softer margin guide that includes Armis dilution. That is the debate. Our read: demand side of the business is accelerating, AI is converting. Mission-critical software platforms with strong leadership keep executing in this environment. This is one we may want to own.

[8] Tim Cook retires. ~2000% return during his tenure BUT Avg 22% drawdown.

Tim Cook announced he will step down Sept 1. John Ternus takes over. Under Cook, Apple market cap went from ~$350B to $4T. Annual revenue roughly quadrupled from $108B in 2011 to $416B in 2025.

What is interesting though is what it took to earn that return. The chart we built this week shows the average and max drawdowns along the way. The run wasn’t straight up. Patience and stomach are always part of the equation. Great operator, great run.

[9] WTI futures curve: mid-to-high 70s by year-end.

The WTI futures strip is currently pricing the mid-to-high 70s by year-end. Moving target, but the curve continues to reflect the market’s expectation that conflict pressure eases over time.

The daily tell for us remains the front-month. Every week without escalation slowly repricing what has been a big source of uncertainty since February. Watching closely.

Looking Ahead

• Earnings acceleration. Big Tech next week. We want to see whether AI features are converting to software revenue in the same way ServiceNow showed us this week despite getting hit.

• Conflict resolution. Every week without escalation changes the probability table. Oil futures remain the daily tell.

• Breadth. Still thin. We want to see more stocks participate in the ATH.

• Fed speak. Watch for commentary on the Composite PMI rebound and whether it shifts the tone. Lets see…

That’s all for this week!

Know another investor who'd find this useful? Forward it along or share on your page!

About Avory & Co.

Investing Forward.

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn’t constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

Speak to us:

Schedule a Brief Zoom Meeting

Send us an email: Team@avoryco.com

Want to invest? We are on most platforms.

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Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.

Regulation can change everything but sports betting apps, insurance companies, and traditional financial rails must pay attention now! Things are coming together…

11% of US sports bettors now open Kalshi.

Why? Because this is already happening.

The easiest way to see it is not through theory. It is through behavior. We can speculate all we want, but the data is already moving: roughly 11% of U.S. sports betting users now also open Kalshi, up from roughly 1.5% to 2% in early 2025. That is a very large shift in a short period of time.

More importantly, prediction markets are no longer sitting outside the sports betting ecosystem. They are beginning to merge with it. What started as “betting” or “predicting” elections is evolving into something much broader and, over time, likely much more meaningful for society.

I think some people believed this could happen. But this may be the first real sign that the category boundary is starting to give way.

Kalshi is no longer niche.

Kalshi reached 21% MAU share within the combined sports betting cohort in QTD 1Q26, up from just 3% in 1Q25.

That is not niche anymore. That is a real part of the market mix.

And it did not happen in a vacuum. FanDuel, DraftKings, BetMGM, Caesars, theScore Bet, and Fanatics all lost share over that same stretch. So this does not look like simple category expansion. It looks more like encroachment.

An Uber analogy is interesting here.

It is not a perfect comparison because that market led to direct category expansion, but I’d say that the lesson still matters. Legacy structures can remain important until a new model starts routing around them. Sportsbooks still operate inside a more constrained, state by state framework. Prediction markets may be building a parallel access layer that reaches users faster and more broadly.

That does not mean incumbents disappear. But it can absolutely change who captures growth at the margin.

And think back to Uber. It was criticized. Cities pushed back. Regulators tried to block it. But users loved the product, and that mattered. Over time, Uber did not just enter the market. It exposed how broken the legacy system was. The old structure had become more focused on protecting its position than building a better product for users.

Prediction markets feel similar, but potentially much bigger. And here’s why:

The distribution advantage

Part of this rise is structural, and part of it is being paid for.

Structurally, prediction market platforms have had more room to operate across geographies where traditional sports betting remains restricted. I think this matters because habit businesses are often won early. The first product a user installs, opens, and trusts during a live event has a real edge.

But Kalshi is not only benefiting from broader access. It is also spending aggressively. More than half of its downloads in QTD 1Q26 came from paid channels, well above the sports betting cohort average.

So yes, some of this adoption is being bought. But that does not make it less important. It may actually be the point here.

Prediction markets are no longer spreading only through niche internet communities. They are now being pushed into mainstream consumer awareness.

Sports are the wedge, not the endpoint.

This is where I think the story gets much bigger than Kalshi versus DraftKings.

Sports may just be the easiest wedge.

What prediction markets are really doing is turning outcomes into tradable exposure. At first that looks like betting. Over time it starts to look like something broader: speculation, yes, but also hedging, protection, and insurance.

That is the part I do not think people fully appreciate yet.

Because once people get comfortable using markets to express a view on a sports outcome, it is not a huge leap to imagine them doing the same thing around weather, inflation, travel disruption, political events, business conditions, crop yields, local economic shocks, or even highly personal risks. At that point prediction markets stop looking like a gambling adjacency and start looking more like a flexible risk transfer system.

That is a much bigger story.

From speculation to insurance

The most interesting version of this may not be betting at all.

It may be insurance. Not insurance in the traditional sense of heavy underwriting, deep intermediation, and slow moving claims processes. Insurance in the practical sense: protecting yourself against an event that would hurt you financially or personally.

That could be macro.

A company hedging a rate move.

A household hedging inflation.

A traveler hedging disruption.

Or it could get much more micro.

A hurricane.

A delayed wedding.

A heat wave.

A regional crop issue.

A missed local event.

If these markets become liquid enough, simple enough, and trusted enough, you can start to imagine a world where people do not just speculate on outcomes. They insure themselves against them.

That is where prediction markets start to become much more important than sports.

Just look at the size of the insurance market.

Why tokenization matters

If prediction markets become broader risk-transfer systems, then tokenization starts to matter a lot.

Because tokenization can turn fragmented exposures into programmable, tradable, and composable units. It’s going to happen. And that matters if the future of this category is not just “who wins the game?” but “how do I hedge a specific real world outcome that affects me?”

The more granular the exposure, the more important the infrastructure becomes.

You could argue tokenization provides that substrate. A way to represent risk, transfer it, settle it, and eventually bundle it across many forms of real world exposure. Decentralized, non decentralize, it doesn’t matter, that’s a side convo.

Truth is we are still early but logic and gravity are going this way. But that is part of why this category feels much bigger than most people think. Throw in AI agents also I can already see it.

but look sports may be where the consumer behavior shows up first.

But the longer term opportunity may be building the rails for a much broader market in OUTCOMES.

Conclusion

JUST TO PUT A BOW ON IT…

Prediction markets are already here, and they are moving faster than many expected. As I mentioned sports may be the first mainstream consumer entry point, but it is unlikely to be the endpoint.

If this model keeps gaining trust and liquidity, the category could expand far beyond gambling and into hedging, protection, and insurance like use cases.

And if that happens, tokenization becomes more than an adjacent theme. It becomes part of the infrastructure layer that helps the whole system work.

About Avory & Co.

Avory & Co. is an investment firm focused on investing forward.

or contact us at team@avoryco.com

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At Avory, we believe in data-driven investments that can lead to a prosperous tomorrow.

By Sean D. Emory

We publish ongoing research, market commentary, earnings analysis, and long-form discussions with founders and operators shaping the next decade.

Disclaimer

This article reflects the personal views of the author and is provided for informational and educational purposes only. It should not be construed as investment advice, a recommendation, or an offer to buy or sell any securities. The opinions expressed are subject to change without notice and are based on publicly available information believed to be reliable, though no representation is made as to its accuracy or completeness. Any forward-looking statements involve risks and uncertainties, and actual results may differ materially. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions.

$HOOD $XYZ $COIN $SPY $QQQ $ETH $BMNR $IWM

Big Picture

I think it’s clear at this stage that our view that peak uncertainty was likely behind us is playing out. This past week added further confirmation...

We remain optimistic, while recognizing that sentiment can still shift quickly on every headline. That is part of markets. Staying the course is often the right approach, especially when the backdrop feels most uncomfortable.

Markets moved higher just as sentiment felt close to its worst. Again that is a good reminder. The VIX is now at 17. Just six weeks ago, it was nearing 31. This was one of the six largest single-day VIX declines on record. That is the market repricing a meaningful risk premium that had been building since February.

What makes this even more interesting is positioning. Hedge funds remain defensive, with the long/short ratio sitting at 1.96x, a cycle low. In other words, a lot of capital was still positioned for further downside, and the market moved the other way. That kind of disconnect can create real opportunity for patient capital.

Some may ask whether markets now look expensive. That is harder to argue when all-time highs are being accompanied by only 12 companies making new 52-week highs. To us, that likely points to meaningful dispersion beneath the surface.

Simply put, this does not look like a market where everything is expensive and moving together. It looks like a market with selective leadership and plenty of opportunities still out there for investors.

1. The VIX collapsed. One of the six largest single day declines on record.

Fear peaked at 30.75 on March 27. By April 8 it dropped 19.15% in a single session. That is one of six such moves in the VIX’s history. Shows again how fast things can change and not to overreact to single headlines.

Today it sits at 17.84. Normal range. The gyrations are not over but the direction seems clearer to us.

2. Hiring is healing. Four straight weeks of improvement.

The ADP NER Pulse 4 week moving average hit +39,250 private sector jobs added for the week ending March 28. That is the fourth consecutive week of acceleration.

To put this in context, in January that same average was sitting at 4,250. It has nearly 10x’d in 10 weeks. The labor market is quietly getting stronger.

3. Core PPI came in at +0.1%. Expected was +0.6%.

This was a very constructive reading this week. Headline PPI was elevated, obviously energy impacts. But strip that out and core came in at a fraction of the consensus estimate. .5% below what was expected and essentially flat.

This is exactly what we have been saying. The inflation story is an energy story right now, not a demand story outstripping supply like 2021. The underlying machinery of the economy is not overheating. That should keep the Fed on the sidelines assuming escalation continues.

4. The consumer is still spending. Redbook at +7% Y/Y.

Redbook same-store retail sales came in at +7.0% Y/Y for the week ending April 11. That number has been above 6% every single week this year. People keep waiting for the consumer to crack. It is not happening.

Part of why? Tax refunds. The average refund this season is $3,521 tracking around +14% from last year. About 62.9 million returns processed. That is roughly $200B flowing back into consumer pockets in a compressed window.

5. Tax refunds up 14% Y/Y.

As just mentioned. 14% above 2025. This is good, not bad.

It is not complicated. $200 billion in refunds hits checking accounts right as people were supposed to be pulling back. The consumer keeps spending because the consumer has money.

6. Tech valuations have reset.

This one is pretty cool.

Tech (XLK) is trading at forward of 25-26x P/E today. The S&P 500 broad market is at 20x. That gap is near the smallest it has been in years. It has compressed meaningfully relative to its own history, below on a 5 year and above on a 10 year.

This is not a call to buy tech blindly. It is a signal that the premium you used to have to pay is less.

7. Market breadth is thin. And that matters.

The S&P hit an all-time high. 12 stocks made new 52-week highs that day. Not normal.

The historical average on an ATH day is 50+. This sub 12 companies has only happened 6 times since 1999. Thin breadth on a new high is not a sell signal, but it is a signal. For us this means more opportunities not less. Does that make sense??

8. Hedge funds are at a cycle low in exposure.

Funny. Coming int week hedge funds were really short. L/S ratio of 1.96x. That is the lowest it has been in years. Funds de-risked hard through the conflict uncertainty and the index ran away from them. Patient long-term capital owning quality companies through the noise is the structural advantage here. We spoke about this in our last two editions and it keeps playing out.

9. Bank earnings kicked off. The read is constructive.

JPMorgan, Wells Fargo, Citi, and Bank of America all beat this week. All four.

The consistent thread: consumer spending is up, delinquencies are in line, corporate debt levels are healthy, credit quality is stable. JPM was constructive on both sides of the ledger. BofA called out accelerating consumer spend specifically.

Looking Ahead

• Earnings season continues. Some of the real signals over the next 3 weeks is whether AI features are actually converting to software revenue.

• Conflict resolution. Every week without escalation changes the probability table. Oil futures are the daily tell for us. Following the story has not been a staright line by any stretch.

• Breadth. We want to see more stocks participate in the ATH.

That’s all for this week!

Know another investor who'd find this useful? Forward it along or share on your page!

About Avory & Co.

Investing where the world is headed.

Avory specializes in high-conviction equity strategies, emphasizing Secular Growth and Transformation Stories driven by exceptional teams. Data guides decisions. We cater to high net worth investors, family offices, and institutional investors. Note: This information doesn't constitute a recommendation to buy or sell any mentioned securities. Avory is based in Miami, Florida with clients all across the globe.

Speak to us: Schedule a Brief Zoom Meeting

Send us an email: Team@avoryco.com

Want to invest? We are on most platforms.

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Disclaimer: Not a recommendation to purchase or sell any securities mentioned. This is for educational purposes only.