Editor's Notes:

• As AI overvaluation debates continue, investors still reacted positively to memory chip shortages (memory chip shortages been going on for a while, but market still seems surprised by MU earnings). The broadening of AI impact may continue in 2026, as the investors find unexpected consequences / bottlenecks beyond GPU, hyperscalers, datacenters, electricity, copper, memory chips, etc.

Global markets are navigating a complex landscape defined by persistent AI enthusiasm, rising US recession indicators, and impending central bank decisions. Key takeaways include a critical AI memory supply crunch, intensifying debates around AI valuations, China's growing AI dominance, and significant individual stock movements driven by earnings, upgrades, and strategic catalysts. Investors are also re-evaluating international equity performance and exploring emerging trends like tokenized assets.

Overall Themes, Market Sentiment & Debates

US Markets: A Delicate Balance of Data and Doubt

The US market continues to exhibit a "perfect world" pricing dynamic, buoyed by recent inflation data. December 2025 inflation came in at 2.7%, significantly below the 3.1% consensus for both December and November. This provided a noticeable uplift for tech stocks.

However, skepticism persists regarding the accuracy of this data, with reported lapses in BLS data collection potentially distorting the picture. More critically, the job market shows nascent cracks, with continuing jobless claims ticking up, signaling a potential slowdown in job creation.

The Sahm Indicator, a reliable recession predictor, is trending "north of 20 bps" towards its trigger point, suggesting a "risk off" scenario if January's unemployment rate exceeds 4.7%. This implies that while the market is near highs, a prudent approach involving tighter sizing, hedging, or increased downside protection is warranted. The debate around AI valuations is intensifying, with concerns about the sustainability of massive capital expenditures and the quality of AI revenues, particularly beyond 2027/2028.

Japan Markets: BOJ's Shadow and Sectoral Pressures

The impending Bank of Japan (BOJ) interest rate decision on December 19th is casting a long shadow over Japanese markets, with Polymarket pricing in a 98% probability of a rate hike. Expectations lean towards a 25bps hike to 0.75%, which would mark a 30-year high.

This potential hawkish shift is contributing to yen strength, which, while beneficial for banks, presents a significant headwind for Japanese equities, especially exporters like Toyota and Sony. The Nikkei 225 has already reacted, declining amidst yen strength and broader global risk aversion. Tech and exporter sectors are particularly vulnerable to deeper pullbacks, though some support is noted near current levels.

Hong Kong Markets: Stabilization Amidst Tech Headwinds

The Hang Seng Index (HSI) closed marginally up at 0.12%, indicating some market stabilization after early volatility. However, the Hang Seng Tech Index lagged, declining 0.72%, reflecting broader pressure on the tech sector. While some specific stocks showed strong performance, the overall sentiment remains cautious, especially concerning tech.

Notable Big Stock Moves, Earnings and Development by Each Stock

Interesting Comments, Facts and Ideas

AI's Insatiable Demand & Supply Crunch: What are the critical bottlenecks in AI infrastructure?

The severe shortage and rising cost of memory components (HBM, DRAM, NAND) driven by AI demand is a critical bottleneck. NAND costs are up 246% since early 2025, and SK Hynix forecasts shortages lasting until 2028.

Reports of Sam Altman "prebooking 40% of the world's DRAM wafers" highlight the extreme competition for compute resources and the need for maximizing utilization. This persistent demand underpins the strong performance of Micron ($MU) following its "blowout" Q1 FY2026 earnings, with HBM TAM for 2028 projected to exceed the entire DRAM market size in calendar 2024.

The AI Bubble: Is a reality check in progress for AI valuations?

Recent pullbacks in Oracle, Nvidia, and CoreWeave are fueling the "AI Bubble" debate. Investors are increasingly demanding "clearer, near-term profits" from AI investments. Oracle's 5-6% dip after Blue Owl Capital reportedly declined to back a $10B OpenAI data center underscores concerns about the funding sustainability of massive AI infrastructure projects, especially given Oracle's substantial debt ($240B+ commitments).

Nvidia's 15-20% decline over 45 days, alongside insider sales, prompts a re-evaluation of its valuation trajectory. These events suggest a more discerning market for AI plays.

China's AI Ambition & Geopolitical Implications: How is China challenging global tech leadership?

China's aggressive push into AI infrastructure and semiconductors is a significant competitive threat to US AI companies. Reuters reported China building a prototype EUV machine, leading to ASML's 6% drop and underscoring the potential for domestic competition.

Simultaneously, Chinese chipmaker MetaX saw a nearly 700% surge on its Shanghai debut, showcasing domestic advancements. This dual development demands close monitoring for its long-term impact on global tech leadership and supply chains.

Digital Garage (4819.T): Why is it considered an undervalued "stub" trade in Japan?

Digital Garage is being highlighted as an undervalued "stub" play, with a sum-of-the-parts (SOTP) analysis suggesting a conservative valuation of ¥200+ per share against a current trading price of ¥140. The company holds a major stake in Kakaku.com and substantial cash reserves. The previous involvement of activist Oasis as a shareholder adds credibility to the SOTP thesis.

Adobe ($ADBE): Is the AI threat overstated for Adobe?

Despite broader AI anxieties, Adobe is positioned as an undervalued asset with nearly 90% gross margins and minimal debt, trading 50% below its ATH. The bull case suggests the AI threat is overstated, as professionals continue to rely on their tools, and initiatives like Firefly Foundry (AI tool with IP indemnification) could shift to a usage-based growth model, aligning with evolving AI consumption patterns.

Nebius ($NBIS): What are the divergent views on this high-stakes AI bet?

This stock presents a stark bull-bear divide. Bulls point to "massively undervalued" status, strong contractual commitments from Microsoft ($19.4B) and Meta ($3B), and Q3 revenue up 355% YoY, targeting $7-9B ARR by end of 2026. They highlight valuable assets beyond core cloud.

Conversely, bears view it as a "generational bag holder" opportunity, arguing its core GPU renting business operates "at a loss" and subsidiaries are "money-sinks." Concerns center on hyperscalers potentially dropping Nebius, leading to high uncertainty regarding cash flows and solvency. This presents a classic high-reward/high-risk scenario driven by differing interpretations of underlying business health and future dependency.

Lululemon ($LULU): How is activist investor involvement impacting Lululemon?

Elliott Investment Management's acquisition of a >$1 billion stake in Lululemon is a significant development. This activist involvement, supporting a potential CEO change and strategic overhaul, signals a push for value creation and could act as a strong catalyst for the stock, as evidenced by its +3.48% move.

DTE Energy ($DTE): How is DTE positioned as a data center growth play?

DTE's agreement to support 1.4 gigawatts of data center load for a leading hyperscaler is a key milestone, signaling robust growth in the data center market infrastructure. This move, combined with an increased capital plan, positions DTE as a direct beneficiary of surging compute demand.

AST SpaceMobile ($ASTS): What is the progress on ASTS's satellite constellation?

ASTS is advancing its BlueBird satellite constellation, targeting 40 satellites by early 2026 and a manufacturing cadence of six satellites per month. The expectation of increased processing capacity in Block 2 satellites reinforces its potential for strong commercial momentum, supported by a Scotiabank upgrade.

Luckin Coffee ($LKNCY): What does Luckin's US expansion signify for Chinese brands?

The opening of Luckin Coffee's first US stores in 2025, including in New York, signifies a broader strategic shift for Chinese brands. Faced with slowing domestic growth, these companies are increasingly looking for international expansion to pursue higher profit margins and new markets.

Tokenized Stocks and Real World Assets (RWAs): What trends indicate TradFi-DeFi convergence?

Growing interest in RWAs and tokenized stocks, exemplified by $88 million in volume on Bitget via Ondo Finance, points to a potential convergence of traditional finance (TradFi) and decentralized finance (DeFi). Nasdaq's proposal to the SEC for tokenized securities trading further validates this trend, suggesting future implications for capital markets and asset liquidity.

Global vs. US Equity Performance: Why are investors re-evaluating international exposure?

In 2025, global stocks ($VEU) significantly outperformed the S&P 500 ($SPY) nearly twofold (29.6% vs. 16% in dollar terms). This stark difference reignites the debate about optimal investment location and whether US equities are "too damn expensive," prompting a re-evaluation of international exposure.

Happy Alpha Hunt! - Distilla

Disclaimer: This content is generated using AI, synthesizing public data (filings, reports, news) and social media (Reddit, X). It may contain errors, inaccuracies, or hallucinations. Nothing herein constitutes financial advice. This newsletter is for informational purposes only; please consult a qualified professional and conduct your own due diligence before making any investment decisions.