AI boom, small-cap rally, and record leverage — pick your poison.

Transcript

Tom AI boom, small-cap rally, record leverage — pick your poison. It's a market full of opportunities and landmines, and we're breaking it all down.

Marie I'm Marie, this is Investment Flash, London Edition, Friday July 3rd. With me are Tom and Gerald. We've got a packed show — AI hardware, defense tech, a really interesting contrarian dollar call. Let's get into it.

Tom Alright, first up, AI infrastructure demand is still insatiable. Nikkei Asia says Unimicron's market value surged 350 percent this year, South Korea announced a six hundred billion dollar chip expansion, and a fund manager told MarketWatch he's explicitly buying Nvidia and SK Hynix while dumping software. The hardware trade is on fire.

Gerald Yeah, and that's the same fund manager who probably buys high and tells everyone after he's loaded up. But look, Nvidia at fifteen times forward earnings isn't insane — the growth is real. My issue is with the crowding; when everyone's long the same trade, any hiccup and it's a stampede.

Marie No, Gerald, I'm going to push back. The supply chain bottlenecks are actual constraints — TSMC can't build fabs fast enough. That's not narrative, that's physical. And Apple's planning five new iPhones to take market share during the memory crunch. That's a bold offensive, not just momentum chasing.

Tom Exactly.

Gerald Right —

Marie Spot on.

Tom Marie, you sounded like me for a second there — bullish on Apple and chips. But she's right, the valuation on these names isn't stretched. You get actual orders backing it up.

Gerald Fair enough. But remember when Tom said semis were cooked in Q2 last year? And then they rallied sixty percent? I'm just saying, a broken clock and all that.

Tom Ha — that's brutal. And totally fair. But this time it's different, buddy. We have AI, not just a restocking cycle.

Marie Wait — wait a second. The 'this time is different' flag is already waving. Tom, you literally just said that about defense yesterday and we're flipping that call today.

Tom Oh man, you got me. Alright, we'll get to defense later. Let's move to private equity — Apollo Global is struggling to sell a Hispanic grocery chain because immigration raids are scaring off customers. FT has two reports on this. A single-deal story, but it's a fresh policy risk that's not priced in. We're saying sell Apollo.

Gerald Eleven times forward P-E ratio and a twenty-five percent discount to its high — you'd be shorting a stock that's already priced for a lot of bad news. But, to be fair, the immigration angle could get worse, so I see the downside.

Marie It's not just Apollo — it's any private equity firm with a big consumer portfolio. If raids hit foot traffic, that's a material headwind. The press isn't connecting those dots widely yet.

Tom And speaking of drugs, the WSJ's most original take today is on weight-loss drugs. Medicare coverage looks like a big win, but they argue it's not going to be the revenue gusher Wall Street expects — utilization limits, prior authorization, pricing negotiations. Novo Nordisk and Eli Lilly are holds.

Marie Exactly. Lilly at twenty-seven times forward earnings and near its all-time high — the bar is very high. If Medicare math doesn't add up, that optimism gets punctured fast.

Gerald Right, because nothing drives stock prices like government bureaucracy and pricing negotiations. I'm sure the analysts with their models have factored in the complexity of CMS.

Tom Ha — fair. Alright, next signal: dollar weakness. Bloomberg reports Credit Agricole, Morgan Stanley, and TD Securities are all challenging the consensus dollar bullishness. Rare coordination — the euro is the natural beneficiary.

Marie This is a big contrarian call. When three major desks warn the dollar is overbought, the risk-reward favors fading the rally. Buy the euro against the dollar.

Gerald Yeah look, the ECB isn't exactly hawkish, and the eurozone has its own growth challenges. But if the dollar turns, the move could be sharp. I'll watch it.

Tom Crypto time. CoinDesk says Bitwise sees the Strategy selloff not as a breaking point but a late-cycle leverage unwind that historically marks a bottom. They predict institutions will replace Strategy as the biggest bitcoin buyer. Buy bitcoin, hold Strategy.

Gerald Oh, the old 'it's a bottom because everyone's given up' call. Strategy is seventy-eight percent below its high. For real, that's a lot of pain. But institutions have been 'about to buy' for years.

Marie Hold on — the structural shift is if institutions start buying directly instead of through a leveraged proxy like Strategy. That's different. It would actually be healthier for the market.

Tom Right — and it aligns with the broader move into spot bitcoin ETFs. The flows are real. I get the skepticism, but the contrarian play is long bitcoin here.

Gerald Alright, buddy. Let's see if you're right this time. Now, China autos: Nikkei Asia reports Chinese automakers, led by BYD, overtook Japanese brands in Europe in May. That's a structural shift. Buy BYD, sell Nissan and Toyota.

Marie But Tom, the very next signal group is China consumer, where subsidies are fading and auto sales are crashing. BYD's domestic sales already fell sixteen percent in the first half. So we have a conflicting signal — buy on Europe, sell on China. Which is it?

Tom Look, the European breakthrough is the fresher data. Overseas sales up seventy percent — that's a credible growth driver. The domestic weakness is a cyclical problem, but the structural story is export share. I'm leaning buy.

Gerald Or it's just a tariff-fueled front-running ahead of more barriers. Toyota isn't exactly rolling over. I'd sell Nissan though — they're retreating from Europe already.

Marie No but that's exactly my point — BYD is facing headwinds at home and tailwinds abroad. It's not a clean trade. The China consumer sell signal on the large-cap ETF is clearer: it's near its fifty-two-week low and June sales collapsed.

Tom Fair enough. Defense tech: Quantum Systems valuation doubled to eight billion dollars on a one point two billion funding round. That's a massive vote of confidence. We're buying the aerospace and defense ETF.

Gerald Tom, you were bearish on defense yesterday! We literally said sell US aerospace. Now we're buying? What changed in twenty-four hours?

Tom Ha, yeah. The Quantum Systems deal — that's a game-changer. The sector's attracting real capital, not just talk. The ETF is one percent off its high, so momentum is solid.

Marie I'm not sold. Defense tech is still a spending proxy. If the geopolitical situation stabilizes, that funding could dry up. The ETF near highs means the enthusiasm is already priced in.

Gerald Look mate, you're the one who's always on about structural shifts. This is a startup getting an eight billion dollar valuation — that's a big deal. I'm with Tom on this one.

Tom Small caps! Goldman Sachs says AI, strong economy, and biotech are the three catalysts reviving small caps. The Russell 2000 ETF is just two percent below its high, and the biotech ETF is at all-time highs. Buy the Russell 2000 and biotech ETFs.

Gerald Three factors, but one of them is 'strong economy' — that could reverse fast. Small caps are more cyclical. I need to see earnings before I jump in.

Marie But Gerald, biotech innovation isn't slowing — look at the biotech ETF, it's at record levels. That's a real catalyst. And AI adoption could actually benefit smaller nimble companies.

Tom Exactly. The rotation is real — if the marginal dollar is leaving mega-cap tech, small caps are the beneficiary. I'm bullish.

Gerald Alright, I'll keep my value-tilted skepticism. But I can't deny the momentum.

Marie Exactly.

Tom LNG supply: Bloomberg reports Qatar's LNG export revival is stalling because tanker crossings through Hormuz are still low. The natural gas ETF is down thirty-two percent from its high — a potential squeeze. Buy natural gas.

Gerald And yet oil flows are normalizing? That's a weird divergence. Maybe it's just a timing thing. I'd hold oil, but the natural gas trade has some logic.

Marie Saudi Arabia is exporting the most crude since the Iran war truce, per Bloomberg. That's a massive supply influx — sell the oil ETF, up fifty percent year to date. And buy the Saudi equities ETF, because they benefit from higher export volumes.

Tom Selling oil after a fifty percent run? Gerald, that's your kind of trade.

Gerald Yes, Tom. Even I can be short something. The supply story is real, and the peace deal changes the dynamics. But the Saudi ETF is a smart counterplay.

Marie Now, the systemic risk: Bloomberg's Macroscope piece warns record leverage is sweeping through hedge funds, banks, retail, money markets — it's not just leveraged ETFs. Buy the VIX short-term futures ETF, which is fifty-six percent below its high, and sell the S&P 500 ETF because forced deleveraging could hit.

Tom But we've heard leverage warnings for months, and the VIX ETF keeps making new lows. The market is pricing in calm. I get it as a cheap hedge, but it could be dead money.

Gerald To be fair, that's the point of insurance. When everyone's complacent, the tail risk is underpriced. I'd rather pay a little for protection than get wiped out.

Marie And this is systemic, not just a single ETF. If something triggers a margin call cascade, the selling could be violent. It's worth a look.

Tom Japan corporate: Dentsu is taking a subsidiary private with a one point two billion dollar investment from Fujitsu and a trading house. That's a restructuring catalyst — buy Dentsu, hold Fujitsu.

Gerald Refreshing — a Japanese company actually listening to activist pressure. This is good for the stock. It aligns with yesterday's buy Japan equities call, by the way.

Marie Our view: the market is torn between AI growth euphoria and record leverage. The AI trade still has oxygen — Nvidia and TSMC aren't at extreme valuations. But there's a rotation into small caps, and that's not a bear market, it's a regime shift.

Tom The counterargument is the economy is strong, earnings could surprise, and if the Fed stays put and the dollar weakens, risk assets can keep climbing. The leverage warnings have been false alarms before.

Gerald But earnings season starts in ten days, and nobody's talking about it. With the S&P at highs and Apple surging five percent last session on iPhone buzz, the hurdle for positive surprises is high.

Marie Also, the press is ignoring the policy vacuum in China. Beijing could respond to the subsidy pullback with stimulus, wrong-footing the shorts. That's a binary risk.

Tom The cleanest trade is owning volatility as a hedge while staying long AI hardware names supported by actual orders. Trim oil into the Saudi supply surge, and keep an eye on the euro-dollar.

Gerald Fair enough.

Marie Yeah, that's sensible.

Tom Alright, trimmed.

Marie And as always, none of this is investment advice. If you're just finding us, hit follow on Spotify — or check investmentflash.com for the full digest with charts and sources.

Tom We're back at nine a.m. New York time for the New York Edition. See you then!