Trading update : 19 February 2026

The AI growth engine narrative continues to give way to the AI scare trade, with contagion rapidly spreading to new sectors. We’re seeing a rotation out of industries once thought “safe”, like logistics and insurance, as investors panic over who might be the next casualty of automation. Meanwhile, a massive supply-demand mismatch in the hardware space is creating RAMageddon, with memory chip costs potentially making up 30% of smartphone bills by the end of the year. While US inflation is showing signs of taming, providing a glimmer of hope for rate cuts, the outlook in the East remains cloudy due to Tencent’s lagging AI adoption and a deteriorating earnings picture in China.

AI scare trade

The AI disruption theme has accelerated over the past few weeks, with the carnage spreading from the software sector to more traditional industries, like travel agencies, insurance brokers and wealth managers. The latest sector hit by the AI scare trade is logistics, with logistics stocks sinking last week as part of a broader sell-off amid fears over disruption from AI.

RAMageddon

A shortage of memory chips is hammering profits, derailing corporate plans, and inflating prices on various products, with the crunch expected to worsen. The fundamental reason for the squeeze is the expansion of AI data centres, with companies like Alphabet (GOOG-NASDAQ) and OpenAI acquiring large shares of memory chip production, leaving consumer electronics producers competing for a dwindling supply. Bloomberg reports that skyrocketing memory costs mean DRAM could soon account for as much as 30% of low-end smartphones’ bill of materials, tripling from 10% in early 2025.

Taming inflation

US inflation was fairly mild at the start of the year, with the consumer price index rising 0.2% in January, the smallest gain since July. Core CPI, which excludes food and energy, advanced as expected from a month earlier, with services costs picking up and prices of core goods remaining stable. The inflation report has boosted expectations that the Federal Reserve will deliver more interest-rate cuts, with markets rallying in relief and traders boosting bets for further cut interest rates.

AI letdown

Prosus (PRX-JSE) and Naspers (NPN-JSE)-owned Tencent Holdings Ltd., is losing favour with equity investors due to concerns it is falling behind in the nation’s AI race. Tencent’s AI app is clearly lagging when it comes to adoption. According to a Bloomberg report, daily active users of ByteDance’s Doubao and Alibaba’s Qwen models reached 78.7 million and 73.5 million, respectively, far exceeding Yuanbao’s 18.3 million, according to the Shanghai Securities Journal, which cited data from QuestMobile. Investors are disenchanted with Tencent’s relatively conservative AI strategy, and the company’s plan to spend 1 billion yuan on a campaign to woo users to its AI tools is raising concerns about profit margins.

Dark clouds

A worsening earnings picture is darkening the outlook for Chinese equities, leaving investors wary that Lunar New Year holiday spending may not be enough to reignite a rally. According to Morgan Stanley, corporate profit pre-announcements have shown a “major deterioration” for the last quarter of 2025, with negative alerts outnumbering positive ones by 14.8%.

Stockpile pain

Export volumes of BHP’s (BHPL-TRQX) Jimblebar Fines iron ore crashed by 80% in January amid a fight with China. Bloomberg reports that iron ore prices are at a six-month low, with record high stockpiles at Chinese ports approaching maximum capacity limits. BHP has been reluctant to switch to Fastmarkets, a price reporting agency, and has become the focus of Chinese pressure, with sales of its Jimblebar Fines product particularly affected.

Falling on deaf ears

British American Tobacco (BAT-JSE) plans to shut its sole factory in South Africa by the end of the year and rely on imports. The company it has warned South Africa’s government for years about illicit tobacco, but the problem of illicit cigarette trade fell on deaf ears and was never effectively addressed. Illicit trade makes up about 75% of South Africa’s traditional cigarette market, and the government has not been able to bring the figure down to “meaningful levels” since COVID.

Not so bad

Aspen Pharmacare (APN-JSE) rallied as much as 7.4% after reporting earnings guidance that came in better than analysts feared. According to a trading statement, Aspen expects to report a 19%-24% decrease in normalised headline earnings per share for the six months ended Dec. 31. 

Cause for pause

Sasol (SOL-JSE) shares jumped after  Electricity and Energy Minister Kgosientsho Ramokgopa said the government is working on a proposal to pause the country’s carbon tax. According to a News24 report, arguments that the tax is not achieving its original objectives is gaining traction in the Cabinet.

Stock focus: Cell C

Cell C’s (CCD-JSE) latest report shows a company that has finally moved out of “intensive care” but is still in the early stages of recovery. For years, Cell C struggled with massive debt that made it a very risky bet. However, the company’s latest results show it has successfully slashed that debt by 58%, significantly cleaning up the balance sheet. While the “headline” profit of R3.36 billion looks massive, it’s mostly due to one-time accounting gains from their recent restructuring, not from daily operations. The real “business-as-usual” profit (adjusted EBITDA) was a much more modest R917 million. What should get investors excited is the wholesale side of the business. Cell C acts as the engine for popular MVNO brands like Capitec Connect and FNB Connect. This segment is growing by over 20% and now supports over 5 million customers.

Sector focus: Mining

Miners fell last week after the Financial Times reported that the Trump administration is planning to scale back some tariffs on steel and aluminium goods. The US is reviewing a list of products affected by levies and is planning to exempt some items and halt the expansion of the lists on concern the tariffs are hurting consumers, according to the report. Iron ore also weighed on the mining sector after it dropped as much as 2.5%, to its lowest intraday level since Nov. 11.