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Weekly Newsletter
📉 Google Reported Negative Free Cash Flow For The First Time
🧠 Elon Musk Thanks Micron
📊 Key Takeaways From This Week's Earnings
🚀 Seven Stages Of CapEx To Stock Returns
QUOTE OF THE WEEK:
“A 5% 10-year Treasury bond yield is a sign of a very healthy economy. It's a yield that made sense before the Global Financial Crisis. Higher for longer implies we're going to be going back to the rate you're supposed to, Zero interest rates— that was the abnormal. And now 6%, 6.5%, 7% mortgage rates seem awfully high to a lot of people. Compared to what? Compared to where they were when the economy wasn't doing so well." - Edward Yardeni, Yardeni Research president
KEY US ECONOMIC EVENTS NEXT WEEK:
MARKET CLOSE:
WEEKLY MARKET WRAP:
Good Afternoon. Tech stocks sold off this week, mainly due to concerns about rising CapEx following Google's earnings. Google reported negative free cash flow for the first time in 22 years since its IPO. This just shows that Google's management (and it's true for all hyperscalers) is clearly convinced of the AI's potential and willing to go all in and take short-term pain. More on CapEx in the curated insights section. Overall, this was quite a week for macro data. Unemployment claims came in better than expected.
For the week:
CNN's Fear & Greed Index now stands at 39 (Fear) out of 100, down 2 points from last week. Details here
The top five trending stocks on Reddit are SPY, enCore Energy, DTE Energy, VOO, and SpaceX. Read More
Liquidity:
Banking Reserves + ON RRP: Banking reserves remain at approximately $3 trillion. ON RRP balance remains immaterial.
Standing Repo Operations: The New York Fed’s standing repo operation (primarily reflecting SRF take-up) is $0.
Here is a summary of this week’s key economic releases:
Target Rate Probabilities for July 29th FOMC Meeting:
CURATED INSIGHTS & ANALYSIS:
Seven stages of CapEx to stock returns:
Alphabet raised its 2026 capex guidance to $195–205 billion, and the shares fell roughly 7% the following session. The market is not wrong about the near-term pain: second-quarter free cash flow was negative $5.9 billion. The real question is whether that cash was burned or converted into productive capital.The demand is already here. Google Cloud grew 82% to $24.8 billion, backlog reached $514 billion, and management said demand still exceeds the capacity built over the past three years. Just over half of that backlog is expected to become revenue within 24 months. Not every capex dollar is pre-sold—the same infrastructure supports Gemini training, Search, and other internal workloads—but this is far from capacity built on hope.
Margins are expanding before the buildout is mature. Cloud operating margin rose from 20.7% to 35.6%, while Alphabet’s consolidated margin increased from 32.4% to 34.0%, even as depreciation rose. That is, so far, evidence that revenue growth is absorbing the cost of prior capex.
Management did warn that depreciation, power costs, and temporary third-party capacity will pressure margins and free cash flow. The J-curve has not disappeared. Google is simply climbing it faster than feared.The compounding hurdle is not headline ROE versus cost of equity. It is incremental ROIC versus WACC: will the after-tax operating profit generated by this new capacity eventually exceed its cost of capital? Alphabet does not disclose the return by the capex cohort. But 82% Cloud growth, a 35.6% segment margin, a $514 billion backlog, and persistent supply constraints are precisely the evidence investors should want before the servers are fully deployed.
Capex is cash converted into invested capital. The outflow is immediate; depreciation follows; revenue and NOPAT arrive as utilization builds. Stock returns may lead—or lag—that accounting path.
The cash-flow pain is real. The value-destruction thesis is not yet proven.Key takeaways from this week’s earnings:
The memory shortage is the quarter’s hidden protagonist
On Tesla’s call, Elon Musk thanked Micron directly for a memory allocation “given the pretty insane pricing of memory these days.” Intel named memory its most constrained supply line, tied softening PC demand to memory costs, and hired the former SK Hynix CEO. Two weeks after Micron sold its HBM out through 2027, the same shortage is now rationing cars and PCs.
‘Negative free cash flow’ is being misread
Part of Alphabet’s negative free cash flow reflects inventory it is building to sell TPU systems into customers’ data centers — a hardware business it began recognizing this quarter, with most of the revenue due in 2027. Intel, separately, recovers roughly 35 cents of every U.S. capex dollar through tax credits. Much of the cash leaving is pre-funding contracted revenue, not speculative capacity.
Tesla’s margin drop was mostly last quarter’s benefits rolling off
Automotive gross margin excluding credits fell to 16.3% from 19.2%, but the prior quarter carried a $230 million warranty-and-tariff benefit that did not repeat; adjusted for it, the underlying margin was roughly flat. Management also noted that rising rates raise the financing-subvention cost booked against revenue — a direct line from the Fed’s hawkish turn to the reported number.
Every capex increase came attached to customer commitments
Alphabet’s cloud backlog grew by more than $50 billion in a single quarter to $514 billion. Intel said it would not place tool orders “without customer confidence.” Tesla exited with its largest order backlog since 2023. The spending the market punished this week was demand-pulled, not supply-pushed, which is the opposite of the 2022 overbuild it is being compared to.
The CPU is quietly re-rating inside the AI trade
Intel reported its strongest year-over-year server growth on record and argued the CPU-to-GPU ratio is nearing parity as inference and agentic workloads lift demand for general-purpose compute. Alphabet’s new Axion processor and its TPU sales point the same way. The AI-infrastructure story has been told almost entirely through GPUs; the processor mix now looks broader.
FRONT PAGES:
Trump Slaps 50% Tariffs on Canada; 60-Country Backfill Friday: Trump signed three Section 338 proclamations Monday, imposing 50% tariffs on Canadian wine, cement, hockey sticks, and dozens of other goods, citing "discriminatory treatment" of US exports. Thursday's separate announcement of 10–12.5% tariffs on 60 countries went into effect Friday as the stopgap blanket 10% duty expired. New tariff regime layers on top of existing IEEPA and Section 232 duties across major trading partners. Read
Big Tech Rallies Behind Open-Source AI Models: Nvidia, Microsoft, Meta, Dell, IBM, Palantir, Andreessen Horowitz, Y Combinator, Hugging Face, and 16 other US tech firms signed a letter Friday titled "Open Weights and American AI Leadership" urging the administration not to restrict open-weight models. Trigger: Moonshot AI's Kimi K3, which the White House accused Wednesday of "distilling" Anthropic's Fable. Notably absent: OpenAI, Anthropic, and Google — the three closed-model champions. Jensen Huang's first-ever X post backed the letter. Read
Kalshi Files for CFTC-Approved 24/7 Gold Perpetual Futures: Kalshi filed Tuesday to launch perpetual futures on gold, silver, and platinum — the first US-regulated attempt to bring the crypto-native product to precious metals. Contracts trade 24/5, with no expiration and cash settlement. CFTC has 45 days to decide (deadline ~September 4). CME simultaneously begins 24/7 gold futures on Sunday. Since the May launch, Kalshi's crypto perps have done $16.1B in cumulative volume. Read
AMD Helios AI Rack Lands at Microsoft Azure: Microsoft announced Monday it will deploy AMD's Helios rack-scale AI system in Azure data centers, joining Meta, OpenAI, Oracle, and Tata Consultancy Services as launch customers. Helios is AMD's first rack-scale system and its most competitive move yet against Nvidia, which still commands 95% of the data center GPU market. Meta's earlier commitment covers up to 6 gigawatts of AMD GPUs over time. Read
Intel Cuts Deeper Into Data Center Group Despite 22% Growth: Intel is preparing another layoff round, this time targeting its Data Center and AI Group, under CEO Lip-Bu Tan's turnaround plan. The unit posted 22% Q1 revenue growth to $5.05B, making the cuts notable. Follows 5,000+ US layoffs across California, Oregon, Arizona, and Texas since Tan's March 2025 arrival. Global headcount has fallen from 132K in 2022 to ~81K today. Read
EARNINGS UPDATE:
● Alphabet. Revenue $119.8B, up 24% and a beat; Google Cloud surged 82% to $24.8B on a $514B backlog. GAAP EPS was $9.11, but that included large one-time equity gains, so the operating beat was more modest. Capital-spending guidance jumped to $195–205B, free cash flow turned negative, and shares fell about 7%. Cloud is winning; the bill is the question.
● Tesla. Record revenue $28.2B, up 26% and a beat, on record deliveries of 480,000. But EPS of $0.33 missed by roughly 30% as operating expenses rose 47%, operating margin fell to 1.4%, and regulatory credits dropped 67%. Robotaxi reached seven metros. Shares fell about 14%. A revenue record that the margins could not support.
● Intel. Revenue $16.1B, a 12% beat; non-GAAP EPS of $0.42 nearly doubled the estimate, a seventh straight beat. Foundry losses narrowed, 18A yields reached 85%, and Q3 guidance topped consensus. Yet after a 340% run and a brief 12% pop, shares closed lower. A genuine turnaround, already in the price.
● Philip Morris. Adjusted EPS $2.20 versus $2.05; revenue $11.2B, a beat, on continued strength in smoke-free products like Zyn and Iqos. Shares rose about 3%. The pivot away from cigarettes keeps compounding.
● GE Vernova. Revenue $11.1B, up 22% and a beat, but EPS of $2.47 fell short of the $3.17 consensus on roughly $400M of Wind-segment losses. Power and Electrification were strong, and free cash flow was robust. Shares fell about 9%. Two great businesses, still carrying a third.
● RTX. Adjusted EPS $1.89 versus $1.66; revenue $24.7B, a beat, on strong commercial aerospace and defense demand, and RTX raised its full-year outlook. Shares rose about 7%. Backlog and aftermarket keep the engines running.
● American Express. EPS $4.53 versus $4.41; revenue $19.6B, roughly in line. Card-member spending grew, but the top line landed a touch light. Shares fell about 4%. A solid quarter that had already been priced in.
● T-Mobile. Adjusted EPS $2.99 versus $2.59, a clear beat; revenue $22.8B, a shade light. Service revenue and postpaid additions grew, but shares fell about 6% across the two sessions. Profitability is strong; the subscriber bar keeps rising.
● IBM. EPS $2.93, in line; revenue $17.2B, just below estimates. Software and AI-consulting bookings grew, but the top line disappointed. Shares were little changed. Steady, though the market's desired growth remains elusive.
● Thermo Fisher. Adjusted EPS $6.03 versus $5.72; revenue $12.0B, a beat, as life-sciences and diagnostics demand recovered. Shares jumped about 9%. The clearest sign yet that the lab-equipment slump is ending.
● SAP. EPS of $1.85 fell short of the $2.00 estimate; revenue was roughly in line. Cloud growth continued, but profitability disappointed, and shares slipped. Even reliable software compounders are being held to a higher bar.
● NextEra Energy. Adjusted EPS $1.15 versus $1.08, a beat; revenue $7.5B came in below estimates. Renewables and backlog growth tied to data-center power demand supported the quarter. Shares rose about 2%. The utility side of the AI-power trade keeps delivering.
EARNINGS PREVIEW:
Date | Symbol | Name | Time |
28-Jul | KO | Coca-Cola Co | Before Open |
28-Jul | V | Visa Inc | After Close |
29-Jul | PG | Procter & Gamble | Before Open |
29-Jul | MSFT | Microsoft Corp | After Close |
29-Jul | META | Meta Platforms | After Close |
29-Jul | ARM | Arm Holdings plc | After Close |
30-Jul | MA | Mastercard Inc | Before Open |
30-Jul | AAPL | Apple Inc | After Close |
30-Jul | AMZN | Amazon.com Inc | After Close |
31-Jul | XOM | Exxon Mobil Corp | Before Open |
31-Jul | ABBV | AbbVie Inc | Before Open |
31-Jul | CVX | Chevron Corp | Before Open |
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