408x Oversubscribed AI IPO Crashes 32%—Democratic Sweep Prospects Trigger Selling in Data Center Stocks

AI Boom Warning

Please click here for an enlarged chart of Direxion Daily Semiconductor Bull 3X ETF (NYSE:SOXL).

Note the following:

• Semiconductors reflect the AI trade, and SOXL is the momo crowd’s favorite.
• The chart shows yesterday’s rally attempt was not sustained in spite of very aggressive momo crowd buying.
• The chart shows SOXL is close to the bottom band of zone 3 (support).
• RSI on the chart shows SOXL continues to be very oversold.  This indicates that if there is a positive fundamental or macro development, SOXL can rapidly move up.
• In our analysis, without a new fundamental or macro development, prudent investors need to carefully watch how SOXL acts around the low band of zone 3.  A sustained move below zone 3 will be a negative not only for semiconductors but for the entire AI trade. 
• There is a new sign post confirming the changing character of this phase of AI.
  • South Korean AI infrastructure company Elice plunged 32% on its first day of trading today, raising fresh concerns about the AI boom.  Elice operates GPU cloud infrastructure and AI data centers similar to CoreWeave Inc (CRWV).
  • Retail investors oversubscribed to the Elice IPO 408 times and deposited $7B of real money.  408 times oversubscription means extreme enthusiasm among retail investors as they were willing to buy 408 shares for every one share available.
  • The IPO was priced October 6 at the top of its range before the recent AI stock selloff and before the $5B IPO of NVIDIA Corp (NVDA) backed Australian data center company Firmus collapsed because investors balked at the valuation.
• A 32% one day loss in Elice, at a minimum, should serve as an AI boom warning against paying any price for AI stocks and ignoring valuations. 
• In our analysis, the key question for investors is whether massive AI infrastructure spending will generate adequate returns.  Elice’s collapse shows that even strong growth and overwhelming IPO demand are no longer enough to support high AI valuations. 
• It is now even more important than before for prudent investors to build deeper knowledge of this phase of AI and how it is different from the prior phase.
• A segment of investors in the stock market is selling stocks, especially data center stocks, defense stocks, and bank stocks, on the prospect of a democratic sweep in the midterm elections.
  • AI data center stocks are under pressure on fears of tighter regulations and a possible moratorium on new data center construction.
  • The selling is also hitting companies that supply power, cooling equipment and other infrastructure to data centers.
  • Defense stocks are being sold on concerns that Democrats could block President Trump’s proposed $500B increase in military spending.
  • Selling in bank stocks is due to concerns of increased regulation if Democrats score a sweeping victory.
• In our analysis, it is essential for investors to separate their politics from their investing. 
• There are important earnings after the close from Space Exploration Technologies Corp (SPCX), Netflix Inc (NFLX), Capital One Financial Corp (COF), and United Airlines Holdings Inc (UAL).

Housing Starts

Housing starts are weak.  Here are the details:

• Housing starts came at 1.221M vs. 1.305M consensus.
• Building permits came at 1.4M vs. 1.39M consensus.

Magnificent Seven Money Flows

Most portfolios are now heavily concentrated in the Mag 7 stocks.  For this reason, it is important to pay attention to early money flows in the Mag 7 stocks on a daily basis. 

In the early trade, money flows are positive in Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corp (NASDAQ:MSFT), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are negative in Apple Inc (NASDAQ:AAPL), Alphabet Inc Class C (NASDAQ:GOOG), Meta Platforms Inc (NASDAQ:META), and Nvidia (NASDAQ:NVDA).

In the early trade, money flows are negative in PDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ).

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (USO).

Bitcoin

Bitcoin (CRYPTO: BTC) is range bound.

What To Do Now

Consider continuing to hold good, very long term, existing positions and add tactical positions based on signals.

The Arora Report is known for its accurate calls. Most recently, we correctly called the rally from recent stock market lows and the 2026 semiconductor decline before a 25% drop in the Semiconductor ETF (SMH). In gold, we bought at an average price near $1,105, close to cycle lows, and took partial profits near $5,400, close to cycle highs. Please click here to get our free forever Generate Wealth Newsletter.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.