Written by: Chaoxiang Research

The three major stock indices slightly declined on Wednesday, with the Nasdaq falling 0.57%, leading the drop. Oil prices surged to a six-week high, with WTI settling up 2.95% and Brent up 3.36%. AI server manufacturers surged against the trend, with AMD soaring nearly 20% and Dell Technologies rising over 9%, marking the largest single-day gain since June. After-hours, the earnings reports of tech giants were revealed one after another, with Tesla reporting earnings per share of $0.33, significantly lower than the market expectation of $0.51, and the pace of capital expenditures clearly lagging behind the target set by Musk. Alphabet's revenue and cloud business growth both exceeded expectations, but for the first time in the quarter's history, there was negative cash flow, raising investor concerns about the accelerating cash burn.

Market Performance

The Nasdaq fell 0.57%, the S&P 500 fell 0.14%, and the Dow fell 0.01%.

AMD surged nearly 20%, and Dell Technologies rose over 9%, marking the largest single-day gain since June 2, with the AI server market becoming the strongest theme of the day. SpaceX fell over 6%, hitting a new low since its listing.

WTI crude oil settled up 2.95%. Brent crude oil settled up 3.36%. COMEX gold rose 1.46%, settling at $4135.9 per ounce. COMEX silver rose 1.35%, settling at $59.99 per ounce. Bitcoin opened at $66,508.87 on Wednesday, up 2% from Tuesday, briefly approaching $67,000 before retreating, fluctuating throughout the day between $65,500 and $66,900. Ethereum opened at $1928.62, up 1.3%.

After-hours, the earnings reports of tech giants were gradually revealed. Tesla's Q2 revenue was $28.24 billion, a 26% year-over-year increase, exceeding market expectations of $26.32 billion; earnings per share of $0.33, below the market expectation of $0.51; capital expenditures of $5.789 billion, implying an annual figure of about $17 billion at this pace, below Musk's target of $25 billion.

Alphabet's Q2 revenue was $119.8 billion, a 24% year-over-year increase; Google Cloud's revenue grew 82% year-over-year to $24.8 billion; the company also raised its full-year capital expenditure expectation to $195 billion to $205 billion, while experiencing negative cash flow for the first time in history in a single quarter.

Macro and Outlook

The most striking aspect of Tesla's report is not the revenue itself, which was actually above expectations, but the issues with profitability and spending pace. The significantly lower earnings per share compared to market expectations indicate that cost pressures are greater than anticipated. The pace of capital expenditures is particularly concerning; at the current rate of spending, it is unlikely to meet Musk's previously set target for the year, directly raising doubts about the company's ability to advance new projects like humanoid robots according to plan. Management stated that the Optimus in the Fremont factory will begin production later this year, but the market clearly wants to see tangible evidence of financial investment; a mere promise on the timeline is no longer sufficient.

Alphabet's issue has a different dimension. Both revenue and cloud business growth rates are impressive, with the 82% year-over-year increase in Google Cloud being remarkable, but all this good news was overshadowed by negative cash flow. It is the company's first instance of negative cash flow in a single quarter and they also raised the full-year capital expenditure ceiling, meaning they are both making money and spending it faster than they can earn. How long this cash burn rate can sustain becomes an unavoidable topic in the coming days among investors.

The company also revealed an equity arrangement, planning to issue up to $40 billion of Class A and Class C shares through market transactions.

The surging AI server stocks that day countered this concern from another angle. The spikes in AMD and Dell indicate that there are no issues with the orders themselves; the AI hardware business remains a good business, but funds are now being pickier. They are willing to pay for visible hardware orders but are questioning the cash burn model of cloud services that lacks clear return timelines.

On the same day, several news items supported this logic. OpenAI plans to invest over $30 billion to build new data centers and has raised its cloud spending expectation to $750 billion, Anthropic plans to purchase up to 2 gigawatts of the latest AMD chips starting in the first half of 2027, and Microsoft also signed a multi-billion dollar data center partnership agreement with Mistral. The funding flow within the entire industry is becoming increasingly selective.

Geopolitically, Trump issued a stern warning on social media, stating that if Iran fired at passing ships in the Strait of Hormuz, the U.S. would target an Iranian bridge or power plant. Iran did not plan to back down, as Foreign Minister Amirabdollahian stated that Iran's position is summarized as "If no one attacks me, I will not attack anyone; if someone attacks me, I will retaliate," suggesting that if the country's infrastructure is attacked, the response would not be small.

This verbal confrontation has directly raised the geopolitical risk premium on oil, which is an important backdrop for the day's surge in oil prices.

Chaoxiang Perspective

The market's tolerance for AI-related companies has now become very low; mere revenue growth is no longer a plus. Investors want to see if capital expenditures can translate into tangible cash flow returns, a standard that has become far stricter than a few months ago. Tesla faltered in execution, while Alphabet stumbled in spending speed; although the pitfalls they encountered differ, the market's punishment logic is consistent.

The surge in AMD and Dell provides a counterpoint; still within the main line of AI hardware, companies with visible orders in the hardware business are increasingly favored, while revenue projections from cloud providers are harder to sell than before. Whether this trend can continue depends on whether the upcoming financial reports from cloud providers can present more reassuring data on capital returns.

The recent rise in oil prices to a six-week high will continue to affect market sentiment in the short term. As long as the shouting back and forth between Iran and the United States does not de-escalate, the geopolitical premium on crude oil is unlikely to dissipate, which will continue to exert pressure on technology stock valuations through inflation expectations and U.S. Treasury yields.

The key in the next few days is whether the financial reports of tech giants that disclose more details on capital expenditures can provide the market with a more reassuring answer.