Feb 10th Pre-Market

Good morning.

We've had two solid sessions but the data underneath isn't backing it up. Retail sales missed, the job market is being carried entirely by healthcare hiring, and UBS just downgraded the entire U.S. IT sector.

Let's dig in...

Today's Big Picture

1. Hyperscalers just got tariff-free chips

TSMC's January revenue hit $12.7 billion, up 37% year-over-year. The Trump administration is exempting big U.S. tech from upcoming chip tariffs, tied to TSMC's $165 billion domestic manufacturing commitment.

UBS downgraded the entire U.S. IT sector to neutral this morning. Their case: cloud capex is increasingly debt-funded and unsustainable. Amazon alone expects -$17 billion free cash flow in 2026.

Cheaper supply, overheated spending.

2. Smart money is buying the AI software dip

Unity, Take-Two, and Shopify all got upgraded in 48 hours. The thesis across all three: AI replacement fears are misplaced, sell-off created entry points.

S&P Global tells the other story. Down 16% premarket on weak guidance, Moody's down 10% in sympathy. AI can do what these companies charge a premium for, and the market is waking up to it.
Tool builders are getting bought. Information gatekeepers are getting sold.

3. The consumer is weaker than the headline data suggests

December retail sales: flat vs. +0.4% expected. Eight of 13 categories declined. Coke missed revenue and guided organic growth at just 4-5%.

Payroll growth outside healthcare turned negative in December. Every net job in this economy is coming from one sector that's 15% of total employment.
Wednesday's jobs consensus: 55,000. ADP printed 22,000.

Market Overview

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Stock Spotlight (pre-market)

TSMC $TSM ( ▲ 2.01% ) 
37% revenue growth. Potential full tariff exemption. This is the single most important supplier in the AI supply chain, and both demand and policy are breaking their way.

Nvidia $NVDA ( ▼ 0.46% )  
TSMC tariff exemption means Nvidia's chip costs stay competitive. OpenAI CEO just told employees ChatGPT usage is growing 10%+ monthly. Demand is there. Supply is protected. Earnings at month-end will matter.

Coca-Cola $KO ( ▼ 1.54% ) 
Revenue miss and soft 2026 guidance. The consumer is weakening, and Coke just confirmed it. Watch Ford earnings tonight for industrial confirmation.

CVS Health $CVS ( ▼ 0.15% ) 
Beat on earnings and held 2026 guidance, but shares are down anyway. Healthcare insurers are pulling back from government programs. If Medicare spending gets cut, the entire healthcare job boom is at risk.

Spotify $SPOT ( ▲ 15.84% )  
Crushed quarterly expectations. One of the few bright spots in a data-heavy morning.

On Semiconductor $ON ( ▲ 3.86% ) 
Missed revenue forecasts with sales declining in its two biggest businesses. Not all chip names are benefiting equally from AI.

Kroger $KR ( ▼ 2.98% ) 
Named Greg Foran as next CEO yesterday. Former Walmart U.S. leader. Strong hire, but the real test is whether consumer staples can actually deliver if tech rotation continues.

What to Watch

Fed Speakers — Today
Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack both speak. After TSMC's tariff exemption news and ahead of jobs/CPI, any comments on inflation or rate cuts will move markets.

Ford Earnings — After the Bell
If Ford confirms what Coke is seeing on consumer demand, the defensive rotation thesis gets tested. Industrials need to deliver if tech can't.

China Treasury Reduction Reports — Ongoing
Bloomberg reported Chinese regulators advised banks to trim U.S. Treasury holdings over concentration risk. The yuan just hit a near three year high. If China is actually rotating out of Treasuries, that's a long term structural shift in capital flows.

Thanks for reading 🙂

- John

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