Baker says valuation spreads within sectors reached 4.5 standard deviations, now at 3.5 standard deviations.
“Valuation spreads within a sector between individual stocks are at all time highs. It was a 4.5 standard deviation relative to the norm only a few days ago.”
Baker argues semiconductor industry has consolidated into monopolies or duopolies in every subsector over fifteen years.
“Let's step back and look at the last fifteen years of semis. The industry has completely consolidated to where you almost have these monopolies and almost monopolies or duopolies.”
Baker describes semiconductor industry as consolidated into monopolies, duopolies, or three-player oligopolies in every subsector.
“In every subsector of semis, you either have a monopoly, duopoly, or in the worst case, an oligopoly of three.”
Baker claims installed compute capacity trades at massive discount to spot prices making repricing wave inevitable.
“ are still going vertical in 2026. And because the entire contracted base of installed compute — every long-term deal signed over the past two years — trades at a massive discount to current spot prices, a repricing wave is inevitable. ”
Baker identifies four companies that matter at scale in long-term supply agreements for AI chips.
“Let's just think about the game theory of breaking an LTA. So there's four companies that matter at scale. There's Amazon with their tradiums.”
Baker argues only four companies matter at scale for AI chips: Amazon, Google, AMD, and NVIDIA.
“So there's four companies that matter at scale. There's Amazon with their tradiums. There's Google with their TPUs. There's AMD, and then there's NVIDIA who's, like, much bigger than everybody else combined.”