Most important take away

Yardeni Research’s new “AI 11” basket (semiconductor infrastructure plays, notably without Nvidia) is being flagged by the hosts as potentially indicative of a late-cycle top — these are inherently cyclical businesses whose combined 2023 free cash flow was negative and is now $123B. The contrarian buy in athletic wear is On Holding (ONON) for its rare pricing power; in athletic apparel, Lululemon is the most attractive turnaround story; and in gambling/prediction markets, draftKings and Flutter are both down 50%+ with regulatory risk making them speculative rather than confident long-term bets.

Summary

Three segments with explicit investment views and stock mentions.

1) The “AI 11” basket — bullish trend, late-cycle concern. Yardeni Research’s new moniker covers 11 AI infrastructure / semiconductor-adjacent names: SanDisk, Western Digital, Micron, Intel, Samsung, AMD, Marvell Technologies, Taiwan Semiconductor (TSMC), Broadcom, SK Hynix, ASML. Conspicuously excludes Nvidia.

Key actionable points:

• Travis Hoium pulled aggregate free cash flow for the 11: negative in 2023, $85B in 2018, $123B in 2025. Inherently cyclical. AI tailwinds historically don’t last forever in semis — once choke points emerge (memory is hot now), developers optimize, hardware buyers shift, and capex overshoots create the bust.
• Top pick within the basket: Taiwan Semiconductor (TSM) as the bellweather — nearly every other name depends on TSMC as supplier or customer. Less cyclical than memory names like Micron or SanDisk.
• Matt Frankel owns AMD — up ~5x, trades ~50x forward earnings. Bull thesis: data center growth, CPU shift leadership, strong product rollouts later this year. Bear case: cut in half if a product launch disappoints.
• “Frothy at current valuations” — hosts won’t buy the basket today but also won’t bet against it.
• Memory (Micron, SanDisk, Western Digital, SK Hynix): prices and margins running hot — these are the highest-cyclicality plays. Risk/reward gets worse as the cycle ages.
• Watch for efficiency breakthroughs (algorithmic, quantum, energy) that could break the linear extrapolation everyone is pricing.

Historical context: Hosts cite past baskets — Fang (worked), Mag 7 (worked so far), Four Horsemen of the 1990s (mixed: Microsoft did, others didn’t), Nifty 50 (mostly didn’t work, except Home Depot and Walmart). Pattern: when Wall Street names a basket, it’s often near a peak.

2) Athletic wear earnings — On Holding stands alone. Recent results from Under Armour, On Holding, and Adidas.

Common themes:

• All three taking tariff hits, Under Armour worst.
• Direct-to-consumer outperforming wholesale across all three.
• Apparel sales outpacing footwear (or declining less).
• US consumer spending slowed for all three.

Stock-specific actionable views:

• On Holding (ONON) — top pick. Margin expansion 4+ percentage points YoY despite tariff headwinds, strong Asia-Pacific growth, true pricing power (raising prices through tariffs while competitors discount). Long-term gross margin guidance was 60%, already at 65%. Travis says On “sits alone” — no other name has matched its pricing power.
• Adidas — good business but less exciting growth than On. Margin expansion driven by pricing on fresh innovative products while discounting older inventory.
• Under Armour — avoid. “Restructuring story with no clear path to finishing restructuring.”
• Nike — closer to Under Armour camp (discount-driven, no clear innovation moat). Not the favorite.
• Lululemon — most attractive of the three turnaround stories (Nike, Under Armour, Lulu). They have pricing power, made marketing missteps (declining percentage of new products in stores), management focused on remedying it.
• Deckers (DECK) / Hoka — also showed strong pricing pass-through on tariffs. Reports May 21.
• Speculative future watch: Alo Yoga IPO whenever it comes.

Macro consumer insight: pricing power exists at the high end ($200-300 shoes). The $50-150 mid-market is heavily promotional. This bifurcation is a useful filter beyond athletic wear.

3) Listener question — DraftKings (DKNG) and Flutter (FLUT) with prediction markets pressure.

Key actionable points:

• Both stocks down >50% over past year on prediction market disruption.
• Sports wagers = 85% of “prediction market” volume. They are gambling in everything but name.
• Core problem: no moat. Better odds are one click away. Users have multiple accounts. State tax rates can jack up at any time (Illinois did this).
• Regulatory wildcard: pending state-level lawsuits arguing prediction markets are “regulated financial instruments” not gambling. Hosts skeptical this survives Supreme Court scrutiny. If prediction markets get shot down, DKNG and FLUT could double quickly. Big “if.”
• Tax angle (Tyler’s add): prediction markets benefit because losses are fully deductible as commodity futures, while gambling losses are limited — that asymmetry lets prediction markets offer more favorable odds, which is part of why they’re winning users.
• Travis’s preferred way to play the sector: MGM Resorts (50-50 online JV with Entain, free-cash-flow positive operations, physical asset backing).
• Adjacent picks: Disney (ESPN) and Spotify — recipients of customer acquisition spending from gambling companies. Buy where the marketing dollars flow rather than the operators whose unit economics are pressured.

Sponsored ads (Tasty Trade, State Street DIA) excluded as non-advice.

Chapter Summaries

The AI 11 Basket Introduction. Yardeni Research’s new naming convention for 11 semiconductor and AI infrastructure stocks. Notable absence of Nvidia. Debate over basket vs individual stock investing in thematic trends.

Favorites Within the AI 11. Travis picks Taiwan Semiconductor as the bellwether. Matt owns AMD, up ~5x, sees both upside (could become $1-2T) and downside (could halve). All considered “frothy.”

Is AI a Bubble? Aggregate FCF history of the 11 (negative 2023, $123B in 2025) shows inherently cyclical dynamics. AI tailwinds don’t last forever in semis. Hosts wouldn’t buy today, wouldn’t bet against. Reminder of historical basket names — Fang, Mag 7, Four Horsemen, Nifty 50 — and mixed track records.

Athletic Wear Earnings — Common Themes. Tariff hits across all three (Under Armour worst). DTC outperforming wholesale. Apparel outpacing footwear. US consumer spending slowing.

On Holding as the Standout. True pricing power, margin expansion, strong APAC growth. Travis calls them alone in their category. Hosts note Hoka and Lululemon as comparable pricing-power stories. Under Armour to avoid. Adidas good but less exciting. Lululemon best turnaround.

Listener Question on Gambling Stocks. DraftKings and Flutter down 50%+ on prediction market disruption. No moat for online gambling. Regulatory wildcard could double the names if prediction markets are killed. Travis prefers MGM. Both hosts suggest adjacent plays (Disney, Spotify) capturing customer acquisition spend. Tax-treatment edge for prediction markets explained.