It’s a chipmaker world, and software’s just living in it.

As we’ve written about before, the winners of the AI trade thus far have been the “picks and shovels” of the boom—aka, the hardware companies that make chips and build data centers, the most famous example being Nvidia. Meanwhile, software companies, many of which are trying to embrace AI or incorporate the tech into their services, have borne the brunt of investor skepticism about how the AI boom could upend the tech industry as we know it.

In a recent slate of earnings, the trend is calcifying: A batch of “meh” but not “yikes” earnings reports from software companies has triggered a whole new round of panic from investors.

• ServiceNow plunged 17.75% today after slashing its full year operating-margin guidance and reporting slowing subscription revenue growth, catalyzing its worst day of trading ever, even though profit and revenue for the quarter was in line with expectations.
• Things went from bad to worse for IBM, which fell 8.25% today simply because it maintained its 2026 outlook, despite beating top- and bottom-line expectations.
• Those two earnings reports don’t necessarily point to issues with the entire industry, but the iShares Expanded Tech-Software ETF still spiraled 5.79%—marking a steep selloff in software.

Meanwhile, on the chip side:

• SK hynix not only tripled revenue last quarter, but also projected that demand will outpace supply for the next three years.
• Broadcom, meanwhile, just became the sixth company in US history to pass the $2 trillion market cap milestone after Google announced it’s co-developing its new TPUs with the chipmaker.
• The PHLX Semiconductor index, the chip industry benchmark, gained 1.71% today, and has seen gains for the last 16 sessions—a new record.

The chips are up big

Analysts have gone back and forth in recent weeks about whether this year’s software selloff is overblown. But while it’s true that some specific companies have been hit too hard, the broader story does have legs.

“Without taking any single-company views, we remain constructive on memory, advanced semiconductors, and enabling infrastructure amid earnings visibility through 2026 and into 2027,” explained UBS head of equities Ulrike Hoffmann-Burchardi. “Separately, ServiceNow’s mixed results point to continued pressure in parts of the software sector due to AI disruption.”

But that doesn’t mean that hardware itself doesn’t have its own problems. According to Hoffmann-Burchardi: “Some early signs of soft spots in demand and intensifying competition also suggest that AI infrastructure bottlenecks may be shifting.”—LB

🟢 What’s up

• American Airlines rose 2.43% after beating first-quarter expectations, even as higher fuel costs prompted a cut to its full-year outlook.
• Texas Instruments jumped 19.43% as strong margins and upbeat guidance reinforced demand resilience.
• Oklo surged 5.59% on a new partnership with Nvidia to power AI with nuclear energy.
• United Rentals gained 22.92% as it beat earnings and raised guidance on strength in construction and mining demand.
• West Pharmaceutical climbed 12.6% after topping expectations and boosting its 2026 outlook.
• Penn Entertainment popped 16.86% after a surprisingly strong quarter.

What’s down

• Tesla slipped 3.56% as weak revenue overshadowed an earnings beat, highlighting ongoing pressure in its core auto business.
• Blackstone fell 5.7% despite an earnings beat, weighed down by flat returns in private credit and losses in its loan portfolio.
• Paramount Skydance fell 4.49% as Warner Bros. Discovery shareholders approved its $110 billion acquisition.
• Lockheed Martin dipped 4.62% after missing estimates and reporting flat year over year sales.
• Freeport-McMoRan sank 12.62% as operational setbacks and lower copper guidance offset its earnings beat.
• American Express tumbled 4.31% even after Q1 earnings rose 15% year over year, while maintaining full year guidance.

The Trump administration is moving to reclassify marijuana at the federal level—shifting it from Schedule I, alongside drugs like heroin and LSD, to Schedule III, a category that includes substances such as ketamine and testosterone. The change would expand research into cannabis and could unlock new growth in legal sales and investment.

For the weed industry, it’s a potential game-changer. It means cannabis companies could finally write off business costs like rent and employee salaries on their taxes, and get easier access to banks, instead of operating mostly in cash.

Cannabis stocks rallied on the news in premarket trading, but reversed course this afternoon: Curaleaf Holdings fell 23.18%, Tilray Brands declined 11.82%, Green Thumb Industries tumbled 13.64%, and Trulieve Cannabis slid 3.93%.

Much of the hesitation comes down to timing: While an expedited hearing is scheduled for June, the process remains lengthy and uncertain, requiring extensive scientific review and coordination across agencies.

Zoom out: The administration’s move also reflects a broader push into alternative therapies. Over the weekend, President Trump instructed the FDA to expedite the evaluation of psychedelic treatments for serious mental health conditions.

Oppenheimer analysts are bullish on psychedelic stocks, arguing the shift signals greater government backing, lower risk, and faster paths to market. They highlight AtaiBeckley, Compass Pathways, and Definium Therapeutics as top picks, with price targets implying about 169%, 134%, and 59% upside, respectively, over the next year.

Bottom line: Washington may finally be coming around—but markets aren’t lighting up just yet. Until timelines become clearer, cannabis investors are stuck in limbo, while psychedelics might be the ones taking the trip higher.—SY

At first glance, Avis Budget Group appears to be just like any other meme stock, soaring 113.59% in just the last month for seemingly no reason at all. The rental car company was one of the OG meme stocks back in 2021, and its wild rally since March 20 pushed the stock up 667% at its high point on Tuesday, surpassing its gains from a half decade ago.

That said, retail traders are shockingly uninvolved in Avis’ sudden surge, which has been anything but a straight ride upwards. Trading was halted due to volatility on Tuesday, and on Wednesday the stock lost 37.82%, its worst day in 28 years—before it fell another 48.38% today.

Short sellers put the pedal to the floor

Like all meme stocks, Avis has been getting short-squeezed: A stock climbs high enough and fast enough that short sellers are forced to buy shares and cover their positions, in turn propelling the rally higher, in a sort of self-fulfilling prophecy. How it’s getting short-squeezed is the unique part.

Of the 35.26 million shares of Avis available on the market, two hedge funds own the vast majority: SRS Investment Management (17.4 million shares) and Pentwater Capital (7.8 million), leaving everyone else with roughly 10 million shares to buy or sell (the float). About 49% of that float was held by short sellers at the end of March—not exactly a vote of confidence.

For those too lazy to do the math, SRS Investment Management and Pentwater Capital combine to own about 72% of Avis’ outstanding shares. But, through a series of financial finagling involving cash-settled total return swaps, the two funds really own 108% of the stock. That might raise some eyebrows, but it’s legal, if not exactly smart: Over-ownership like that is exactly what kicked off the GameStop meme stock madness of yore.

But this time around, the spark came after Pentwater spent February buying up shares of Avis, while also selling puts expiring on March 20. The firm exercised its massive block of in-the-money puts that day, forcing the delivery of millions of shares to offset its options contracts—pulling those shares from an already-small float.

None of that would have mattered if the government wasn’t partially shut down. But long security lines at airports thanks to TSA agents walking off the job pushed travellers to rent cars instead, giving Avis shares an unexpected jolt. As the stock climbed, short sellers needed to buy shares to cover their positions—at which point they discovered that there were so few shares available in the float thanks to Pentwater’s puts that there were more shares sold short than there were shares available to buy back.

In other words, the squeeze was on.

So, what comes next?

Today’s decline might be the pullback that we all knew was coming. After all, there was a reason the company was so heavily shorted: It’s a terrible investment. Both Deutsche Bank and Barclays have cut their ratings on the stock since the squeeze began, noting that Avis is now trading at a massively inflated valuation for a company that is bleeding profits and deeply in debt.

Then again, Avis has an opportunity to follow in GameStop’s footsteps, capitalizing on the moment by issuing new shares and using the money it raises to pay off its debt.

Regardless of what happens in the coming days, if you were lucky enough to hold Avis before shares rocketed to the moon, you might want to consider locking in your gains while they’re still stratospheric.—MR

• France is investigating suspicious temperature spikes at Charles de Gaulle airport that led to a mystery Polymarket user bringing in $21,000.
• Meta is cutting 10% of its workforce as it reorients even more towards AI.
• Related: Microsoft is planning its first ever voluntary employee buyout for roughly 7% of its workforce.
• And in even more AI news: OpenAI just announced GPT-5.5, its latest generative AI model.
• Too little too late? The SEC and bank regulators are finally ramping up investigations into the opaque private credit industry.
• Here’s how the jet fuel shortage in Europe could upend your summer vacation.

Economic reports: The final reading of the University of Michigan consumer sentiment survey for the month of April wraps up the week.

Earnings announcements: Procter & Gamble, HCA Healthcare, Charter Communications, Norfolk Southern, and SLB