U.S. equities declined for another week, as AI capex concerns combined with higher oil prices and a pickup in treasury yields weighed on all major indices. Main earnings story was GOOGL, which posted an earnings beat on the back of strong Cloud growth and AI demand but investors were disappointed by the increase in capex guidance and negative free cash flow, causing the stock to fall almost 8%. The AI trade has started to show some signs of fatigue. For the first time this cycle, strong capex guidance was not enough to lift semiconductor stocks, as investors have started questioning whether the massive AI spending can ultimately generate returns that justify current valuations. On Thursday, the administration announced new tariffs of 10%–12.5% on roughly 60 trading partners, replacing the temporary 10% global tariff that expired Friday. Since it was largely a replacement rather than a meaningful increase in trade restrictions, markets largely looked through the announcement. Instead, attention remained on the escalating conflict in the Middle East, where higher oil prices have pushed inflation expectations higher. As a result, treasury yields increased across the board, with the 10-year Treasury yield reaching 4.7% at one point- its highest level since January 2025, putting pressure on longer duration bonds. This week is a very busy week for earnings – with MSFT, META, AAPL, and AMZN all reporting. Like GOOGL, expect the focus to be on AI capex and evidence of ROI monetization. We also have the FOMC meeting on Wednesday. While it’s expected that the Fed will keep rates unchanged for this meeting, the September meeting decision is less certain, with the markets continuing to expect a rate hike.
Jobless Claims
Initial jobless claims were unusually favorable in the week ending July 18, falling from 209k to 187k, below consensus expectations and the lowest level since 1969. That said, late July is typically a period when non-seasonally adjusted claims decline sharply, suggesting that at least part of the drop may reflect seasonal volatility rather than a sudden improvement in labor-market conditions. Continuing claims also offered some encouraging news. Although continued claims only ticked down by 2k to 1.796 million, they are 7.5% below year-ago levels, a recent improving trend. Continuing claims are now close to where they stood at the same point in 2023, when the unemployment rate was in the mid-3% range. Although the high number of longer-term unemployed is likely to keep the unemployment rate above those levels, the claims data suggest an improving labor market in which employers are reluctant to reduce headcount. However, given that this most recent data seemed like it was subject to noise, we are hesitant to assume that the labor market is strong – weaknesses in certain industries remain and hiring overall continues to be muted.
Alphabet Q2 Earnings
Last week, Alphabet reported strong earnings, with EPS coming in at $9.11 for the quarter versus average expectations of $2.88. Google Cloud remained the standout segment, with revenue growing 82% year over year and bringing the business close to a $100 billion annual run rate, while YouTube and Search also delivered solid results, increasing to $11.05 billion and $63.30 billion, respectively. The company also reported a cloud backlog of $514 billion, up from $460 billion last quarter, which, when combined with the revenue run rate, shows Alphabet’s ability to convert AI infrastructure spending into future revenue streams. Regardless of the strong results, shares pulled back on the earnings call due to management increasing its expected capital expenditure spending this year from $190 billion last quarter to now anywhere between
$195 billion and $205 billion. The continued upward revisions to capex are now increasing tensions in the market, as anxieties over profitability among the hyperscalers have continued to grow this year, and Alphabet’s quarterly free cash flow results did not quell worries, as the company posted its first negative free cash flow in over two decades. Another concern surrounding Alphabet is Gemini, as the company remains under pressure to stay competitive with frontier labs such as Anthropic and OpenAI. However, recent delays to Gemini 3.5 Pro and the departure of key talent have tested investor confidence in Alphabet’s ability to keep up with competitors, potentially creating future risks for Search if they fall behind. Overall, although results were solid for Alphabet, particularly on Cloud, there continues to be a growing discomfort with some of the most profitable companies in the world now shifting to having negative free cash flows, and with little guidance as to when the spending will taper off, markets have now become hyper-focused on model developments and the cost associated with those models.
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.
