November Proved AI Trade Isn’t Only Trade.

Given that this is a data-focused newsletter, I wanted to quickly say the data clearly shows that Miami Hurricanes should be ahead of Notre Dame in the college football playoffs. If you know me, you already know I’m a big Miami Hurricanes fan.

With that, back to regular programming.

This week we got stable jobs, tame inflation, and a Fed that looks ready to cut next week. Holiday season 2025 is shaping up to be another record. Consumers look better than many continue to predict. We’ve been saying this for a while, but hey sometimes it takes the market a little bit to catch up. The data today hasn’t changed much. Most consumers are fine, there are pockets of weakness, and the forward-looking indicators continue to reinforce that view.

I also wanted to lightly deconstruct the narrative that the AI trade is the only trade. Or that the market can only work if big caps work.

November was a perfect example. AI and large tech sold off, yet the market held in. Healthy rotation. Healthy breadth. And exactly the kind of setup you want heading into 2026 to get us on track.

More on this below, lets get into it!

Here is the summary if you want just that:

• November S&P flat, Nvidia -12%

• 2026 shaping to be nice.

• 45% worried about AI

We closed out November and the results tell a pretty clear story.

One we’ve been advocating for… and one we expect to continue into 2026. Sure there will be hiccups, but when I was on Bloomberg earlier I said 2026 is shaping up to be a strong year.

The data keeps reinforcing that view.

Here is something to chew on. Nvidia fell -12% in November… and the market barely moved.

So yes, AI can be weak and the rest of the market can still participate.

And this matters because 2025 is shaping to be one of the narrowest markets in history.

More than 50% of S&P names lag the index by 10% or more. Making this the 4th-worst year ever for dispersion on the downside.

In November, investors biggest fear was an AI bubble. Well they got some of that froth taken out without the market crumbling. That’s really good news.

Now some of the negative price moves in AI names is due to fears of three main things:

1. Competition is coming across the AI stack. From datacenters, to chips. This means more supply.

2. Optimization: Some companies are starting to optimize their AI spend. And if not, the market will force them to.

3. Valuations: Some pockets of the AI stack are clearly well priced, and that makes sense for them to fall.

   
   

To be clear, our view is that AI will not end up being a bubble. When this cycle fully plays out, the economic impact will likely be far greater than today’s values reflect. The question isn’t whether AI creates massive value. It’s which companies ultimately capture it. The long-term winners are still unknown, and that’s what makes the opportunity so interesting. We want to stay disciplined during hype cycles.

The image above shows chips coming from Amazon. We also just saw Google launch and successfully land deals for their TPUs. Meta is leaning on Google as well. All of this is supply meeting the flood of new workloads. Compute isn’t slowing. It’s broadening, but that broadening is a threat to incumbents.

Now is this death nail for Nvidia? Far from it. Semianalysis made the point clear:

“We believe the CUDA Moat isn’t constructed by the Nvidia engineers that built the castle, but by the millions of external developers that dig the moat around that castle by contributing to the CUDA ecosystem. AWS has internalized this and is pursuing the exact same strategy.”

Now prediction markets on the consumer AI side are shifting too.

Look at prediction markets right now. They’re pricing in Google’s Gemini as the likely leader by the end of the year. But remember, OpenAI has locked in close to a trillion dollars in enterprise commits. That’s a red flag if their consumer product starts getting chipped away at the edges.

Leadership in this space can shift fast, and the stakes are massive.

Then you have Michael Burry going short NVIDIA, and seems to be pretty negative on Tesla. If you have not taken a Waymo or Robotaxi, you need to. The future is here.

Now where do you want to be? Exactly where we want to be. High quality, industry leaders, that happen to be small and mid caps today. Why?

Forward 12-month net income estimates are rising across the board… and drum roll please... small caps are actually leading.

• S&P 600 net income estimates have surged the most

• Mid-caps are right behind

• Large caps are steady, but lagging the pace

• All three groups are trending higher into 2025

And in January or February you may be able to access our best ideas in a easy way. Let us know if interested in learning more.

Why is this happening. Here is the simple version.

With that. See you next week!

Do not forget to sign up for our Zoom with Founder of Fiverr. Sign Up Here

---

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. 

Want More

🎥 Avory YouTube Channel

🎙️ Avory Podcast 

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