The core focus of the market right now is the contradiction between the certainty of the AI narrative and the uncertainty regarding actual shipping and navigation through the Strait. As a result, no one is willing to let go of their AI hardware positions, while simultaneously worrying that if the blockade continues for another dozen days or so, the first refinery to announce depleted inventory and halt production will trigger an across-the-board price surge in refined oil and petrochemical products.

The AI Supply Chain Logic

The supply chain logic within the AI narrative is very straightforward:

1. Tech giants provide continuously growing CapEx
2. GPU makers and neoclouds collect the money.
3. The Second Circle (HBM memory, CoWoS advanced packaging, optical modules, and liquid cooling) collects the money.
4. The Third Circle (ABF substrates, CPUs, packaging and testing/OSAT, power supplies, and PCBs) collects the money.

The market is then waiting for the slope of application-side monetization to catch up with the growth rate of CapEx. This will shift the closed loop from "tech giants paying out of pocket" to a self-reinforcing cycle of: Consumers/Enterprises pay → Application companies pay → Tech giants collect money → Tech giants continuously grow CapEx.

Currently, this closed loop is only half complete. Azure's revenue share from OpenAI, Google's Gemini API, and Meta's use of AI to boost ad ROI are all providing returns, but the shortfall is still being filled by the free cash flow from their core businesses. And it mixed with circular investments like the Nvidia-OpenAI-Oracle triangle. The elasticity of the second and third circles is essentially a bet that the first circle won't drop the ball, while the first circle is betting on the ROI of terminal applications.

Claude Code, Codex, and Openclaw have allowed people to see the dawn of the application side, but it is not enough yet. Therefore, the core driving forces of the AI narrative right now are the expectations for an application explosion (today's news of OpenAI missing its 2025 target is a negative indicator) and the expectations for continued CapEx growth (look to Thursday's earnings reports). Other factors, such as the revenue growth of the tech giants and the cost of capital upstream and downstream in the supply chain, are merely stock price noise. The AI industry itself is a certainty.

Energy and Geopolitics

The uncertainty of navigation through the Strait has a clear lagging impact, as we have discussed before. When everyone still has inventory, things remain calm; but once that inventory runs out, the shock will be precipitous. It will push the prices of various oil and petrochemical products to a high structural baseline, rapidly elevating stagflation expectations.

Portfolio Positioning

Because of this, the consensus trade is likely holding AI in one hand and energy in the other. This is exactly how our live portfolio is positioned, plus a bit of broad market hedging. Since the beginning of April, SPY's trading volume has been on a steady decline, whereas XLE has maintained pulsing, high-volume spikes and began rebounding on April 17th.