Bayesian Investor Blog

The AI trade is still a very good bet. Increased political uncertainty makes all investments today somewhat less promising than was the case when I wrote about this topic in July 2025.

Regulation of AI is likely to increase over the next 2 years or so, constraining growth somewhat. But AI capabilities have been increasing faster than I expected. I don’t expect a full halt in AI capability advances, and existing capabilities are enough to fuel quite a bit of further growth in AI-related companies. So it’s unclear whether AI revenues will be higher or lower than what I expected in 2025.

A pause is looking like it will cause less harm to AI stocks than the fairly serious estimates that I made a few months ago in Financial Costs of an AI Pause?, because pretraining is becoming less important to AI development.

The biggest risk that I see to the AI trade is military action in Taiwan. I’m currently doing little about that risk. I’m guessing I’ll start buying puts that hedge the risk in a couple of months.

Memory

I sold nearly a third of my Micron position during the spring rally, and the remainder is still 40% of my net worth.

I’ve also got around 7% of my net worth in SK Hynix, which is clearly the better buy now for those of us who can get permission to buy on the Korean exchange. The US ADRs have a significant premium to the Korean shares.

I have a smaller position in Samsung.

I probably should diversify more, but nothing stands out as a better deal than memory stocks, and I don’t feel any urgency about the risks of betting too much on one industry.

The default path for the next three years or so is that demand for memory continues to outpace supply. That means DRAM and HBM prices will trend somewhat upward.

Simple efforts to increase supply will run into constraints such as ASML’s inability to make EUV machines at a much faster pace. Eventually, someone will figure out how to make those EUV machines in accelerating quantities, make competitive DRAM / HBM fabs without those machines, or route around the need for memory.

There are plenty of options that might increase memory supply around 2030 by enough to bring the industry back to cycles with big plunges in memory prices: FPGAs with fixed weights on-die, CXMT building DRAM with older deep-UV tools, LUT-based FPGA designs, etc. None of them look like they’ll scale up enough to match demand by 2029.

Even if spot prices drop a lot in 2030, Micron’s strategic customer agreements will keep it profitable for that year.

I see Taiwan-related risk as by far the biggest concern for my memory investments.

Other Semiconductor and Datacenter Bets

Markets are likely at most halfway to realizing how much demand there will be for compute toward the end of this decade. But markets seem relatively good now at identifying which stocks will benefit. So I’m making relatively diversified bets on compute, and I’ve cut back on my efforts to figure out which of these stocks will do best.

I have 3+% positions in ASML, SCIA, TSSI, SMCI, GOOGL, and smaller positions in MKSI, AXTI, NBIS, DELL, ACMR, NVDA, and many others.

Note that SPCX is becoming a datacenter stock, and I’ve started to accumulate a small position in it, after years of thinking that Musk was overrated.

Robots

I expect we’re one to three years away from a major takeoff in robot mass production. I wish I knew how far in advance markets will react to it. I’m buying too early just to be safe.

Robot software is now good enough that it only requires a good deal of fairly ordinary engineering to enable mass adoption. The biggest problems today result from chips in the robots not being powerful enough to handle all cognition, and latency problems creating headaches for doing some of the cognition in datacenters. Both of those constraints can be mitigated by relatively routine engineering.

My current guess for the best way to bet on robots is influenced by this CrossCurrents post:
1) Markets are seriously underestimating the demand for robots in 2029 and beyond.
2) The parts of robot construction that look hardest to scale up are the separation and refining of neodymium and praseodymium (needed for NdFeB Magnets representing ~15–20% of total build cost).
3) Neo Performance Materials (NOPMF, TSE:NEO) is the obvious way to invest in this.

I expect that CrossCurrents overstates the difficulty of increasing the capacity for separation and refining. But that’s offset by underestimating demand for robots. CrossCurrents’ “upside” forecast for humanoid robots shipped in 2030 is 1 million. This Manifold market suggests that a bit more than that will be shipped. I’m expecting something like 5 or 10 times that.

CrossCurrents implies that robotics uses will be around 1% of neodymium demand in 2030. So my forecast is that robotics will be closer to 10% of neodymium demand, and will be growing at more than 100% per year.

Batteries will be another important component of robots. Will robot manufacturers build their own batteries, or buy from the companies that have the best energy density? Probably some mix of the two approaches. Solid state batteries would probably be best if their production can be scaled up well. My main position here is AMPX, with small positions in QS and SES. Ability to scale production is the key uncertainty with these.

Other robotics-related investments: TER, TSLA, CCXI, RRX, OUST, and these Hong Kong codes: 2432, 2498, 2525, 2692, 2715, 3952, and 9880.

I’m guessing I’ll buy Unitree when it starts trading on the Hong Kong exchange.

Raw Materials

Resources such as silver, lithium, and copper will become more valuable if economic growth accelerates beyond expectations. Mines aren’t likely to quickly increase production, so profit margins will rise.

I’m also betting on gold, more as a hedge against inflation.

I mostly don’t think I can identify which mining companies are best. One company that stands out is TMC, which might be able to scale up faster than a mine. I have some doubts about whether its production costs will be competitive. But I bought a few shares last week after deciding that metal prices will rise enough that production volume matters more.

Energy

I’ve bought some oil futures, mainly as a hedge against a Hormuz-related economic slowdown.

Solar investments (CSIQ, JKS, TOYO, TE, SEHK:1799, SEHK:968, SEHK:3800) make up maybe 5% of my net worth. In a few years, solar plus batteries will be a key source of new power for datacenters. Who knows when markets will react to that?

I have a tiny bet on fusion via GFUZW.

Bets Against Non-AI Sectors

AI is causing real interest rates to rise. Investors significantly underestimate how far this will go.

My biggest bets here have been short positions in t-bond and SOFR futures, and buying TLT puts.

Banks will struggle to survive conditions that drastically reduce the market value of their current loans. The fate of Silicon Valley Bank provides a hint of their pain, although bank runs in the US seem mostly prevented by FDIC guarantees. Instead, their profits will be squeezed by the need to pay higher interest rates on deposits, while rates they get on their longer-term loans rise more slowly.

I’ve bet against banks via buying puts on KRE and TD.

I’m keeping my short positions in AAPL and WMT as bets on lower PEs due to interest rates.

Others

I’m weakly leaning toward buying Anthropic after it IPOs, but I won’t make a firm decision until I see the price.

VIX is surprisingly low now. This feels like the calm before the storm. Investors are nervously switching back and forth between AI stocks and traditional industries. The net effect on the S&P 500 is small, but that masks unusual instability.

Two years ago I hadn’t bought any options in a long time. Now I’m buying calls fairly often, and occasionally puts. I’ve bought some May VIX futures, and I have positions in long-term SPAC warrants (e.g. AMPX.WS, TOYWF).