Markets
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Luke Kawa

How the character of the AI trade has changed — for the worse — in 2026

A smattering of observations on how the character of the AI trade has changed this year — with, obviously, some of these trends not having waited for a full turn of the Earth around the sun to start to establishing themselves:

  • All the bullish oxygen is being sucked out of the room and squarely into the memory chip shortage, which is offering bumper profits for a handful of firms. On a related note, semicap equipment stocks have been an upstream beneficiary of this dynamic. The underlying message is that near-term scarcity is being rewarded by the market.

  • That the big capex spenders will generate a high return on investment from their outlays is not something traders are willing to take for granted. Big budgets are not necessarily getting applauded; even companies that seemingly earn the benefit of the doubt by posting accelerating revenue growth, à la Meta, aren’t able to maintain those gains for long.

  • The big “consumers” of memory chips are getting squeezed. This includes the hyperscalers, obviously, but even more so the likes of Qualcomm, which has to wait behind these giants in line for supplies, which played a role in the company’s underwhelming outlook.

  • For public markets, the theme is more of a net negative than a positive. Firms seen as the most likely to be disrupted by AI (basically, the entire software industry) are getting indiscriminately clobbered, regardless of how good their quarterly results and guidance are.

  • The facilitators of disruption, in many cases, have not yet arrived on public markets but plan to do so this year. That’s SpaceX/xAI, OpenAI, and Anthropic. So if the AI theme has seemed a little “negative sum” in this year, that might be about the room that investment firms know they’re going to need in their portfolios to add these stocks once they’re able to (or, in some cases, ahead of time).

  • And this isn’t really a 2026 dynamic, strictly speaking, but the two biggest chip companies have been dead money for months. Since the end of Q3, Nvidia and Broadcom are both negative, with the S&P 500 up about 2% over this span.

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Lululemon’s stretch getting tested: Stock plunges after after outlook is cut

Lululemon shares are down double digits in premarket trading after the company cut its full-year sales and profit outlook, overshadowing a Q1 beat and raising fresh concerns about the brand’s turnaround efforts.

The company now expects fiscal 2026 revenue to be flat to down 1%, compared with its prior forecast for 2% to 4% growth. Guidance for full-year diluted earnings per share was dragged down to a range of $10.95 to $11.15, below the company’s previous guidance of $12.10 to $12.30 and well below Wall Street’s estimate of $13.26.

Key numbers for Q1:

  • EPS of $1.69 vs. the $1.68 expected.

  • Revenue of $2.47 billion vs. the $2.43 billion expected.

The modest top-line beat masked a widening divergence between Lululemon’s geographic markets. While international revenue rose 22% overall with a 30% increase in Mainland China, the bigger problem remains North America, where revenue fell 5%.

Interim co-CEO and CFO Meghan Frank acknowledged during the earnings call that recent product rollouts underperformed. A highly anticipated yoga campaign failed to generate its expected “halo effect” across broader product lines.

Profitability metrics took a major hit, with gross margins contracting by 410 basis points to 54.2% due to mounting tariff costs and promotional markdowns. Operating income consequently fell 37% year over year to $276.9 million.

“We experienced spikes of negative commentary in the media and on social channels with regard to our brand, which had an impact on traffic and overall top-line performance,” Frank said during the earnings call. “And second, not all of our product launches have met our expectations. While we have had several successful launches so far this year, we have seen others as we start Q2 not generate the anticipated guest response.”

Lululemon’s valuation has already been steadily compressing for years. While it was once one of retail’s richly valued stocks, investors have been questioning whether the company can return to the double-digit growth era.

The results also arrive during a leadership transition. Lululemon announced back in April that former Nike executive Heidi O’Neill is set to take over as CEO in September, with investors looking to her to revive growth in North America and restore the brand’s growth.

As Lululemon faces both macroeconomic pressure and brand-specific challenges, its stock has dropped around 40% year to date.

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The strong May job market surprised economists. Experts had predicted only 85,000 new jobs — just half the reported number. The unemployment rate held steady at 4.3%, as expected.

The job growth story is a hopeful spot for the economy as consumers continue to feel inflationary pressure from the Iran war.

Job gains were buoyed by the leisure and hospitality sector, which added 70,000 jobs, as well as local government, healthcare, and education.

Both the March and April jobs reports were revised upward, making them collectively 93,000 higher than previously reported.

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