CSC Idea-Tier Update 1/27/24

Walking into a massive gap down that shakes the market is never easy. Today’s selloff had all the hallmarks of a black-swan event, catching most investors—including us—off guard.

As strong believers in the AI thematic, we’ve consistently managed our exposure with caution. That discipline served us well, as evidenced by recent moves: selling CLS after its significant run (even if not at the absolute top), de-risking GEV ahead of earnings, trimming most of our ANET position, and fully exiting TSM post-report. In hindsight, these decisions were all prudent.

Do we wish we had exited all AI-related exposure last week? Of course. But hindsight is always 20/20.

The reality is that holding overnight positions inherently carries risk—and that risk is the price we pay for the potential of outsized returns. So far, the damage hasn’t been as severe as feared. Key contributors to resilience include rotation into software and cyclicals, our volatility hedge, and META exposure. We’ve always avoided overloading into a single thematic for precisely this reason. Years of market experience—and many battle scars—have taught us to anticipate and navigate such moments.

The AI trade was overcrowded, and for good reason—these stocks looked fantastic. However, that level of crowding also set the stage for a sharp de-leveraging event if a catalyst emerged. DeepSeek provided that catalyst.

While we don’t claim to be AI experts, we’re sharing thoughts from a desk analyst friend below. He’s incredibly sharp and offers valuable perspective on the situation.

Portfolio Updates
 All positions will be updated by the end of the day. Please refer to the executions column for activity. We’re also working to update the options page, including expired positions. Thanks for your patience as we handle these fast-moving developments.

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