Morning Watchlist: Tuesday Edition
A quick note from Behind the Markets
The Fed's two-day meeting starts today, and the decision lands tomorrow at 2:00 PM Eastern — Sunday's newsletter has your full map for that. But the market didn't wait for Washington.
On Saturday, the CEO of an AI company published an essay. By Monday morning, it may have been the most expensive piece of writing in the world.
Meanwhile, a drone closed one of the planet's most important oil arteries, and one of Wall Street's shrewdest buyers went shopping in the least fashionable aisle in medicine. Three stories this morning. Three pairings. Let's get into it.
1) The Most Expensive Essay Ever Written
On Saturday, Anthropic CEO Dario Amodei published a piece called "We Must Pace the Frontier," arguing that AI systems are now helping build their own successors — and that the speed of capability gains may be outrunning the industry's ability to understand the risks. He called for slowing frontier development, independent safety evaluators inside AI companies, and common standards across democratic nations. OpenAI's Sam Altman backed him — "We could lose control," in Altman's words, via CNBC — and Elon Musk agreed. Google DeepMind's Demis Hassabis endorsed the direction, with reservations.
The crowd heard one word: slower.
Monday morning, the selling started where the sun rises. SoftBank fell as much as 13%. Memory-chip maker Kioxia dropped almost 10% in early trading, SK Hynix 6.4%, Samsung about 4%. By Monday in New York, the Nasdaq was down almost 2%, with Nvidia, AMD, and the whole AI complex marked down.
Now read the fine print. The essay does not call for halting research or training. It does not call for cutting a single dollar of data-center construction. It says nothing about slowing inference — the everyday running of models that already exist — or the agents being deployed on top of them. The hyperscalers cut nothing on Monday; Nvidia's Jensen Huang still projects $3–4 trillion a year of AI infrastructure spending by 2030.
The crowd sold the steel because the architects promised to double-check the blueprints.
Nobody canceled a steel order. And the steel of computing is memory. DRAM and NAND prices hit record highs in August; TrendForce expects PC DRAM up another 18–23% this quarter; SK Hynix itself says the DRAM shortage worsens through 2027 and the market may not balance before 2030.
The pairing: Micron (MU) — Buy
Micron is America's memory-chip champion, and Monday's essay knocked it down about 5%, to roughly $925 — now 26% below its 52-week high. Here's the punchline: after one of the great runs of this AI era, Micron still trades at about 6 times next year's expected earnings. The S&P 500: 21 times.
Six times is the market saying it doesn't believe the earnings will last. The customers are saying the shortage lasts into 2028. We'll side with the customers — regular readers know we already own the inspection line of this same build-out through Onto Innovation, our September 3rd Buy. The honest risks: memory is the most cyclical business on earth, and a cheap multiple on peak earnings is the industry's oldest trap; Micron reports on September 30th, a hurdle all its own; and Washington's chatter about semiconductor tariffs adds noise. Our kill switch: DRAM contract prices actually cracking. An essay isn't a canceled order — falling prices would be.
2) A $50,000 Weapon Closed a Five-Million-Barrel Road
Late last week, drones struck deep inside Saudi Arabia — not at the coast, but in the Riyadh and Medina regions. On Saturday, the kingdom shut its 1,200-kilometer East-West pipeline, which can carry four to five million barrels a day — roughly 4–5% of global supply. Here's the detail that matters: that pipeline exists to bypass the Strait of Hormuz. The escape route is what got hit.
Then on Sunday, Houthi forces seized Perim Island, the rock that commands the Bab al-Mandab strait — the Red Sea's southern gate. Reuters reports the move came with direct guidance from Iran's Revolutionary Guards. Saudi crude supplies are now at their lowest in over three decades, and Brent pushed above $107 Monday morning.
The crowd's response is to buy oil. We've already made our oil calls — the calm Texas barrels of Magnolia, the diesel route of Darling — and we're not adding one at $107. Look instead at what actually happened: a weapon that costs about as much as a pickup truck shut down infrastructure worth billions. Every defense ministry on earth spent Monday absorbing that arithmetic, and the answer to it has a market.
The pairing: AeroVironment (AVAV) — Watch
AeroVironment is America's counter-drone and small-drone pure play. Business is booming: this month it reported record quarterly revenue of $480.5 million, earnings of 59 cents a share against 25 expected, bookings up 71%, and a record $1.5 billion funded backlog, up 37%. It just won a roughly $500 million Army counter-drone contract and the Pentagon's first-ever production contract for a high-energy laser — the weapon that finally flips the cost exchange, because you can't beat cheap drones with $4 million missiles forever. We flagged the missile-refill side of this trade with L3Harris on September 4th; this is the other end of the cost curve.
And yet the stock trades near $144 — down some 65% from its high, near its 52-week low. So why not buy the dip? Price versus earnings. At about 44 times forward earnings — with this year's earnings guided slightly down on expansion costs — we'd be paying a growth multiple for a company still digesting a big acquisition. We've refused that shape all quarter, from Tenable to GitLab to Okta. It's a house with a gorgeous kitchen and a flooded basement: the backlog is real, but let the pumps run first. Our entrance: record bookings showing up as raised earnings guidance, or a washout below the $135 low. What kills it: Gulf de-escalation plus a bookings fade.
3) Private Equity Went Shopping for Hips and Knees
On Friday, Bloomberg reported that Apollo Global is in talks to buy DePuy Synthes — Johnson & Johnson's orthopedics unit, the hip-and-knee business — for close to $20 billion. The unit did $9.3 billion in sales last year and, once separated, would be the largest standalone orthopedics company in the world. Bloomberg Intelligence pegs its full value near $28 billion with debt. An agreement could come within weeks; other buyout firms are circling too.
Why do the most patient buyers in finance want artificial hips? Because the demand compounds with every birthday, and a joint replacement is deferred, never canceled. Private equity doesn't buy what's exciting. It buys what's durable and mispriced — and it just told you which aisle that is.
So who's the pure-play next door?
The pairing: Zimmer Biomet (ZBH) — Buy
Zimmer Biomet holds the leading share of the reconstructive market in the United States, Europe, and Japan — hips and knees are the whole franchise, not a division. Second-quarter results beat estimates, full-year guidance was raised to $8.47–$8.59 in adjusted earnings, and the buyback was upped to $1 billion. Hips grew 5.1%; the surgical-robot side grew 21.5%. At about $93.50, the stock trades near 10 times this year's guided earnings. The S&P 500: 21. And the analyst shape is one we've profited from before — consensus Hold, average target barely above the price — the crowd absent from a business Apollo is paying up to enter. The honest risks: knees were flat last quarter; a leaner, PE-owned DePuy would be a hungrier competitor across the aisle; and deal talks die all the time. That last one matters least — the deal is the appraisal, not the thesis. The thesis is 10 times earnings for the market leader in a product line demographics guarantee.
Before You Go
That's the watchlist. An essay that marked down the world's memory chips without canceling an order, a drone that closed the oil market's back door, and a $20 billion compliment to the least glamorous aisle in medicine. One theme this morning: the crowd trades the headline, and the money is in the fine print.
And your calendar: the Fed decides tomorrow at 2:00 PM Eastern with a hike about 85% priced, Lennar confesses tomorrow night, and the Bank of Japan goes Friday. Nearly every call on our ledger will be listening.
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Written by Behind the Markets