Focus on Big Tech spending plans

00:00:00: Hi and welcome to Swiss Coats Daily Market Talk.

00:00:03: It's Wednesday, July the second of July.

00:00:06: Chips suck stage a rebound this week as investors buy their dip on several encouraging headlines for the sector.

00:00:13: but the real test is only beginning!

00:00:16: With Alphabet & Tesla kicking off big tech earnings today after the US closing bell, investors will be looking beyond profit growth.

00:00:25: One question.

00:00:26: Will the AI spending boom continue?

00:00:28: So we will talk about the latest earnings and spending updates, how they could shape capital flows across the globe but before.

00:00:50: So I started the day again by looking at these two charts, The US Crude and Cosby.

00:01:18: Now, what's funny is that the chip stocks are more volatile today than... oil, even with the escalating geopolitical tensions that rattled energy supply outlook from the Middle East and Russia.

00:01:30: And bring along great uncertainties regarding a short-term resolution to these conflicts.

00:01:36: fuel inflation expectations around the globe encourage investors to pile up into this short end of the yield curve and push longer maturity borrowing costs higher while us moon among shipmakers determine the market's direction.

00:01:51: more than And the broad macro comics series I just cited, when chips go well major market indices do as.

00:02:07: First, AMD said it's launching its first RAG AI system to rival NVIDIAs Blackwell and Vera Rubin platforms.

00:02:14: A RAG system here is essentially a ready-to-use AI supercomputer imagined in cabinet filled with hundreds of AI chips networking cooling and software that work together to train an run advanced AI models in data centers.

00:02:28: so AMD jumped eight percent after the news.

00:02:32: then Nvidia which could have sold off on AMD News because And also really, two percent yesterday on news that its latest chip designs are all there where to it's customers.

00:02:42: Then finally Intel gained more than eight per cent as well for announcing to cut jobs and a collaboration with Fortinet which is the cyber security firm that will use Intel's foundry services.

00:02:57: Overall, the news were perceived as being positive and a good occasion for investors to buy DIP across chip makers.

00:03:04: But it is impossible today that recent downside correction across major chipmakers is over!

00:03:11: I'm guessing upcoming earnings and spending announcements will tilt market toward one way or other.

00:03:18: so risks remain two-sided.

00:03:20: If big technology continues stand behind their spending plans obviously, but if the big technology that sees today's free cash flow flow into chipmakers pockets.

00:03:34: That sees interest rate expectations and borrowing costs mount along with middle east tensions And has yet to show investors that investments are bearing fruit.

00:03:45: Show signs of slowing in spending growth In coming days or weeks.

00:03:49: we could eventually see another wave of chips hit the shore.

00:03:54: The good news is that we won't wait long before finding out the big technology spending plans.

00:03:59: Already today, after the US closing bell Alphabet and Tesla will go to the earnings for Spending Confessional.

00:04:06: Now in numbers, Alphabet has already pledged to spend around US dollars on capital expenditure this year.

00:04:16: That's nearly double last years level for the company that Microsoft and Amazon announced plans to spend a similar amount of US dollars.

00:04:26: Meta spending pledges between US dollar to US dollar.

00:04:32: Tesla is about US dollar and Apple just around fourteen billion US dollars.

00:04:37: Together, this is nearly eight hundred billion U.S.

00:04:40: dollar worth of spending from just these magnificent seven companies.

00:04:45: and while some investors believe that big technologies total KPEX could fall between eight-hundred billion to one trillion US dollars this year!

00:04:54: This is the expectation.

00:04:55: so if that's the case These companies are expected to spell higher spending numbers when they update their earnings report in the coming hours days and weeks.

00:05:06: But the story doesn't end here with those spending plans, it's also important to see whether these big technology companies actually do Walk the talk because the latest reports actually suggest that Tesla, which set aside a K-Pax budget of twenty five billion US dollars for this year has spent only two and half billion U.S.

00:05:26: dollars off that budget so far This year we're past halfway through there.

00:05:31: So later is somehow raising questions about potential under spending from tesla this year on AI self driving vehicles And robots.

00:05:41: I mean in case of tesla he's already only dreams that keep Tesla investors on board, giving that the core segment of the company is under pressure due to Elon Musk somehow damaging political journey so far.

00:05:55: and That's the spending front.

00:06:00: On earnings from S&P, five hundred tech sector is expected to report The second highest year over a year earnings growth rate of sixty three point four percent thanks To that AI spending.

00:06:12: but the Magnificent Seven Is not necessarily among the top contributors to that Growth nor to then nearly twenty-five Percent earnings growth Expected for the s&p Five hundred companies together in the Second quarter this Year?

00:06:26: The magnificent sevens earnings growth is expected to fall around just half of it, around.

00:06:31: thirty one percent only and that's roughly half the pace recorded in the first quarter of this year when Magnificent Seven earnings surged around sixty three percent.

00:06:41: That was also the strongest growth since the second quarter of two thousand twenty-one where The earnings growth was about eighty nine percent.

00:06:49: But today, that earnings growth is slowing.

00:06:52: And you see a problem right because the earnings growth Is expected to slow at time.

00:06:56: these companies rely increasingly on debt to finance AI spending.

00:07:02: And at the same time interest rate expectations are rising, rising the borrowing costs for long maturity debt as well.

00:07:10: so it will be curious to see how Magnificent Seven will make its way out of this AI spiral Again.

00:07:17: any pullback in expanding expectations and spanning plans could have dramatic consequences For top contributors today.

00:07:24: earnings growth among S&P five hundred companies because Two chip makers probably occupy the top two positions.

00:07:33: One is Micron and other is NVIDIA.

00:07:36: Remember yesterday I wrote damned if you spend, damned If You Don't.

00:07:40: Well i repeat that again.

00:07:42: Softer spending plans from big technology may eventually help big tech stocks make a comeback if earnings growth follows obviously but it would definitely would definitely hammer the whole supply chain That has been outperforming since the past eight to twelve months on that's spending.

00:08:01: thats coming To The Market.

00:08:03: Fackset actually says All of a sudden, it looks much less sexy.

00:08:23: I will also find there the name of Broadcom which is another chip maker that is today extending its presence in AI business.

00:08:40: And if we zoom further out, ninety percent of companies are already reported earning so far including big banks member.

00:08:49: they managed to beat expectations so all eyes are on alphabets and tesla earnings today.

00:08:55: after the well we will probably have a clearer market direction tomorrow at the wake of the first spectake numbers robust earnings growth and despite the geopolitical led worries that include higher operating costs due to high energy prices, and higher burden cost due to the higher energy price in a higher inflation expectations.

00:09:21: And also slower growth out there for the entire world economy!

00:09:25: So this is all for today.

00:09:27: I'm Ipek Oskar Deshkia and thank you for joining me and Thank You For All Your Beautiful and Supportive Comments.

00:09:34: This episode of Market Talk has been helpful and it's been insightful to you so please do not hesitate leave your comments, reactions below as usual.

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00:10:04: So I will meet you again tomorrow.

00:10:06: And until then, good day trading!