From Small Caps to Gen AI: Where Momentum is Shifting.

Hey everyone! Happy Friday. This week was another busy one with earnings still rolling in, even as nearly 95% of companies have already reported. For us, the highlights included Workday, Intuit, and Zoom. Zoom delivered a blowout quarter, beating and raising full-year guidance while posting its strongest growth in 11 quarters. A clear bright spot. Something we have been pointing to for some time.

On the macro side, jobs data came in mixed. Initial jobless claims are down Y/Y, but shorter-term trends continue to creep higher. Net-net, the labor market remains fairly stable, and that stability is keeping consumers engaged.

AI remained front and center. We looked at who’s winning the generative AI race, and while ChatGPT still controls the majority of traffic, challengers are steadily gaining share. The real advantage, in our view, is when open models are paired with proprietary data, that’s where durable moats form.

We also tracked competition in social platforms, with Threads continuing to narrow the gap with X. This battle is becoming a two-player market. And finally, all eyes are on Jackson Hole. Jerome Powell’s comments will shape how markets think about the path of rates from here. Until then, everyone’s on pins and needles.

Let’s dig in.

Here is the summary if you want just that:

• Russell 2000 EPS revisions positive for first time since 2022

• Spec positioning -22% (multi-year bearish extreme)

• Jobless claims 235k, above 3- and 6-month averages

• OpenAI traffic share slips: 85% to 75% in 12 months

• Waymo rides/day: 25k SF, 12k Phoenix

So let’s start with small caps. We’ve been highlighting all year that small and mid-caps offer some of the most compelling opportunities, even as we remain all-cap investors. After years of trailing large caps, the Russell 2000 is finally showing signs of a turn. EPS revisions just flipped positive for the first time since 2022, and historically, these inflection points have lined up with periods of relative outperformance.

At the same time, speculative positioning in Russell 2000 futures is near multi-year bearish lows, sitting at -22%. That level of capitulation, paired with improving earnings revisions, sets up the potential for a contrarian rally if macro conditions remain stable.

On the macro side, weekly jobless claims ticked higher to 235k, above the 3-month and 6-month averages. The average overall was actually down Y/Y which makes the reading somewhat neutral. You can see that in our overall internal scoring system where it gave us a weak to neutral reading. The weakness isn’t the absolute number itself but just the shorter term moving averages pushing higher.

Switching to AI. We wrote a piece here recently on how the strongest players are building moats at the intersection of open internet access and proprietary data. It’s not just model quality, it’s distribution plus differentiated inputs. That’s where the real advantage forms.

Now we have shared this in the past. A look at AI traffic. Traffic share trends show OpenAI still leads but its dominance has slipped, from ~85% a year ago to ~75% today (still 80-20 rule). Rising challengers like Claude, Gemini, and Perplexity are steadily pulling users. The edge will likely come from ecosystems and integration. Chat GPT is the favorite here.

Now onto autonomous driving. Waymo is gaining real traction. In San Francisco, they already account for 8.4% of daily rideshare trips, while in Phoenix it’s 7.9%. That’s 25k and 12k rides per day, respectively. With Miami, DC, and Dallas set to launch in 2026, we’re seeing the transition from pilot projects to scaled consumer adoption.

We’re also watching the competition in social. Daily users on Threads have climbed to ~115M, narrowing the gap with X at ~125M. That’s the closest these two have been since launch. For advertisers, this increasingly looks like a two-player market.

That is it this week. Let's see what Powell has to say.

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