The AI 'bottleneck trade' has run its course, says this hedge-fund manager and early SpaceX investor

By Barbara Kollmeyer

Gavin Baker flags a warning from a Japan company

Indian Prime Minister Narendra Modi pictured with OpenAI CEO Sam Altman, center, and Anthropic CEO Dario Amodei in February. Investors need to stop relying on the AI bottleneck trade, says Gavin Baker.

The stock market looks set for a cautious start Tuesday after the best three-day run for the S&P 500 in 13 months, even as SpaceX keeps running higher since its blockbuster IPO.

But no trade lasts forever.

And one hot AI trade that is starting to wind down is the "bottleneck trade," says Altreides Management managing partner Gavin Baker. The hedge-fund star is referring to companies involved in important facets of the artificial-intelligence build-out, like memory-chip producers DRAM.

"This bottleneck trade is nearing its end," he said.

He pointed to the decision by Japan's Ajinomoto, whose shares (JP:2802) have soared this year, to refuse to lift prices on a product that helps insulate layers that connect processors to chips.

"Everybody's having Claude run 'What's the next bottleneck?' That was the game for the last year; the next game is what has enduring franchise value on the other side of these bottlenecks, whatever that is," he said in an interview with TBPN that aired Tuesday.

Baker then turned to SpaceX, where he was an early investor. He said the investing public will focus on a longer time horizon than quarterly earnings. "The first is just how quickly can they bring on terrestrial compute. It does seem likely that they monetize gigawatts at a higher rate than anyone else," he said.

"Everyone in the ecosystem is really incented to get land and power in the hands of people who can energize it, because everyone starts to make more money when the GPUs are energized," he said.

Earlier this month, SpaceX CEO Elon Musk, who's also the CEO of Tesla (TSLA), laid out plans for solar-powered orbital AI data centers to address the growing artificial-intelligence energy demands. SpaceX has said its first AI satellite could handle 150 kilowatts of AI computing, with a goal of 1 gigawatt per year by late 2027.

"So how quickly they can add gigawatts matters," said Baker.

While he's pretty excited, alongside Musk, about the ideas of cities on the moon and asteroid mining, Baker said SpaceX has "much more tangible near-term drivers here," and figures the team at SpaceX may have more confidence in bringing those gigawatts online.

That's as SpaceX has ordered 20% of Nvidia's (NVDA) powerful Rubin chips, he noted.

Another unappreciated aspect of the SpaceX IPO is that over 10,000 employees bought it, said Baker, which, he noted, is a counterpoint to exhaustive analysis of the share-lockup schedule.

"The reality is that SpaceX employees own a lot of this, and if you're an employee or even if you're an investor who has [access via a special-purpose vehicle or] an SPV or you're directly on the cap table, you've had a chance to sell every six months for the last 10 years. If you wanted to sell, you could have sold when they did that offering in the second half of last year."

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are largely flat, and oil prices (CL.1) (BRN00) are falling.

The buzz

An overnight spike in SpaceX shares (SPCX) saw it overtake Amazon as the fifth-largest U.S. company.

SpaceX announced a plan to buy the company behind the Cursor coding app at a valuation of $60 billion.

Goldman Sachs has trimmed its oil-price forecast.

Dave & Buster's stock (PLAY) is tumbling after the chain reported disappointing results.

Weekly jobless claims and the Philadelphia Fed business-outlook survey are due at 8:30 a.m., followed by leading economic indicators for May.

China's consumer spending fell for the first time since the pandemic.

The Bank of Japan raised interest rates to 1%, the highest level in decades.

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The chart

The chart from Michael Kantrowitz, chief investment strategist and head of portfolio strategy at Piper Sandler, makes the case that a recent stock rebound will inspire Wall Street strategists to push their S&P 500 forecasts toward 8,000 over the summer. He said the chart, which "fits like a glove" since 1998, shows those forecasts tend to follow the markets by 60 days. Yardeni Research's Ed Yardeni currently holds the top S&P 500 forecast for 2026 of 8,250, while most of Wall Street is under the 8,000 level.

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Beyond the headlines

MarketWatch Picks: I'm 62 and retired with $7M. 'I don't want or need a financial planner making between .05% and 1%,' but I want help. What now?

-Barbara Kollmeyer

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06-16-26 0800ET