US equities ended the week higher last week, although breadth was weaker with the equal-weight S&P underperforming the S&P 500. Main micro driver for the week was mega-cap tech earnings – with MSFT and AMZN seeing gains of over 15% after reporting while META and AAPL fell over 7% post-earnings. The reasoning behind the big divergence in performance among mega-cap tech was that the AI narrative is now shifting from focusing on AI demand to focusing on AI ROI. MSFT saw strong growth in its AI copilot business and slightly trimmed the lower end of capex guidance, and AMZN as well reported robust growth for its AI/chip business. On the other hand, META increased their capex estimates and AAPL is struggling with high input costs. Zooming out to earnings in aggregate, Q2 earnings are coming in significantly higher than expected, similar to Q1 – with earnings growth coming in at 45% (although some of this is from mega-cap tech’s equity AI investments). If you exclude these items, earnings growth is still a staggering 26% year-over-year rate. As we look to the rest of the year, we think AI ROI visibility will remain of the main market themes.
On Wednesday, the Fed kept rates unchanged as expected and offered no forward guidance, although three officials dissented in favor of a 25 bp hike with inflation concerns the reason behind the dissents. Oil continued to climb higher last week, and WTI crude increased by roughly 21% for the month of July. Given the markets’ concerns around inflation, treasury yields increased for the month of July, with the 30-year treasury yield reaching 5.27%, its highest level since 2007. This week we have the jobs report on Friday, where expectations are for the unemployment rate to remain unchanged at 4.2%.
Q2 GDP Advance Estimate
Real GDP came in at a 1.5% annualized rate in the second quarter, lower than the 2.1% growth we saw in Q1 and below the 2.1% consensus estimate, but the underlying details were stronger than the headline number suggested. Consumer spending grew at a 3.2% pace, while private domestic final sales (a measure of consumption and private fixed investment that excludes the volatile categories) rose 3.9%, its strongest increase since early 2023. Business investment was strong as well, with equipment spending rising 15.2%. The strength came from industrial and transport equipment categories such as electrical transmission, likely related to data centers. The main drag on GDP was the increase in imports. The data suggests the economy enters the second half of the year with a healthy macro backdrop, supported by resilient consumers and continued AI- and data-center-related spending. However, growth could moderate in Q3 as there is no more tax refund tailwind, household savings remain low, and high energy costs could pressure discretionary spending.
MSFT & AMZN Earnings
Two of the largest hyperscalers, AMZN and MSFT, reported earnings last week and were met with a positive market reception, which is noteworthy, especially as markets have focused on hyperscalers’ spending plans and future profitability. Starting with MSFT, Azure remained in the spotlight as revenues grew by 43% year-over-year (YoY), versus consensus of 40%, putting Azure revenue over $100 billion for the first time in the company’s history. The company remained disciplined on its CAPEX figures, with quarterly figures coming in at just $41 billion, versus expectations of $42 billion, and guidance for FY 2027 is currently between $255 billion and $260 billion; yet, unlike other hyperscaler competitors such as GOOGL, META and AMZN, MSFT is still guiding towards being cash flow positive for FY 2027. Lastly, Co-Pilot finally appears to be gaining momentum, as paid seats jumped by 50% on a quarter-over-quarter (QoQ) basis, putting the paid seat count at 30 million, and there is ample evidence that Co-Pilot usage is increasing and being adopted by large organizations.
Similarly, AWS remained the focal point of AMZN’s earnings, with revenue growing 37% year over year, marking its fastest growth rate in 18 quarters and putting AWS’s run rate at $169 billion, the highest out of its hyperscaler peers. Within AWS, AI monetization appears to be showing, as AI revenues now stand at $25 billion, growing 66% QoQ, thereby soothing some concerns that AI monetization is not keeping up with CAPEX spending plans. The chips business has also continued to be a bright spot, as the company rents out computer space with its own chips, mainly the Trainium and the Graviton, to customers. Similar to AI revenue, the chips business is now at $25 billion and delivers value to customers by addressing current supply constraints, particularly for high-end NVDA GPUs, and offers the added benefit of lower compute costs. CAPEX spending plans were still upwardly revised, with them now being $220 billion for 2026, mainly driven by higher memory and component cost. Overall, these two earnings reports show that markets have grown more nuanced about increased CAPEX, but so long as firms either remain disciplined with their spending or can prove AI monetization keeps pace with spending, markets will not be as punishing on share prices.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
