Written by: Chaoxiang Research

This round of AI capital expenditure by tech giants has once again set a new ceiling, and Alphabet's strong financial report has not quelled market concerns about return on investment, with the combined market value of the seven giants evaporating nearly 800 billion dollars in a single day. Tesla is the hardest hit, plummeting over 14%, marking the largest single-day decline since March 2025, as its second-quarter net profit fell short of expectations and gross margins continued to decline. Google fell over 7%, pushing its total market value below 4 trillion dollars. Geopolitically, the Houthi armed forces attacked two Saudi oil tankers with missiles and drones, causing Brent crude oil to momentarily break the 100-dollar mark for the first time in nearly two months. The yield on U.S. 30-year Treasury bonds has been above 5% for several consecutive days, setting the longest record since the 2007 financial crisis.

Market Performance

The Nasdaq fell 2.15%, the S&P 500 fell 1.21%, and the Dow Jones fell 0.97%. The tech giants index dropped 4.8%, with a market value evaporation of 797 billion dollars in a single day.

Tesla dropped over 14%, marking the largest single-day decline since March 11, 2025, as the company's second-quarter net profit fell short of expectations and gross margins continued to decline. Google fell over 7%, marking the largest single-day decline since May 8, 2025, with its total market value falling below 4 trillion dollars.

Storage concept stocks rose against the trend, possibly benefiting from news that Google is increasing its AI spending, with Micron Technology rising 3.2%, SK Hynix rising 2.56%, and SanDisk rising 0.69%.

WTI crude oil settled up 6.17% at 92.19 dollars per barrel. Brent crude oil settled up 7.04% at 100.69 dollars per barrel, reaching a nearly two-month high. COMEX gold fell 2%, settling at 4052.3 dollars per ounce. COMEX silver fell 3.99%, settling at 57.895 dollars per ounce.

Bitcoin opened at 66081.05 dollars, down 0.6% from the previous day, at one point falling to 65054.55 dollars during the day. Ethereum opened at 1933.32 dollars, up 0.3%, but also fell to 1899.38 dollars during the day.

Macro and Outlook

Tesla's problems are more severe than the market expected. The revenue figure itself is not bad, increasing by 26% year-on-year, but what really frightened investors is the significant shrinkage in profits, coupled with a cash flow net outflow for the first time in two years. The company's rationale is that it is currently hitting the most aggressive expansion period since its founding, spending 5.8 billion dollars in just one quarter on AI and robotics alone. Whether this explanation will convince the market will be answered by the cash flow performance in the coming quarters.

Alphabet's situation is consistent with the assessments disclosed the previous day, with revenue and cloud business growth both impressive, but free cash flow turned negative for the first time in history, and the annual capital expenditure ceiling raised to 205 billion dollars. This financial report did not dispel market concerns about the sustainability of AI spending; instead, it further fueled worries, with Google's intraday drop exceeding 7% at one point.

One analyst made an analogy, saying that the market has not given up on AI itself, but the days when it was willing to buy into beautifully painted prospects have passed. Now it's time for the management to shoulder responsibility, and what everyone truly wants to hear in the upcoming earnings calls is how much cash each invested dollar can bring back, with little patience left for dreamy ten-year visions.

The scale of bond financing for AI infrastructure by tech giants has surpassed 500 billion dollars, and this batch of new long-term bonds competes with U.S. Treasury bonds for the same set of buyers, directly pushing up the already elevated long-term interest rates. The yield on 30-year U.S. Treasury bonds has repeatedly held above 5%, setting the longest record since the 2007 financial crisis.

A fund manager mentioned that whether it's the government, cloud computing giants, or other bond issuers, they are now competing for funds from the same pool, causing traditional buyers like pension funds and insurance companies to have more options, naturally diminishing their interest in government bonds.

This wave of financing coincides with the backdrop of the U.S. Treasury market expanding from 4.5 trillion dollars in 2007 to 31 trillion dollars today, with debt-to-GDP ratio exceeding 100, making it hard for long-end rates to ease in the short term.

Regarding geopolitical issues, the Houthi forces in Yemen used ballistic missiles, cruise missiles, and drones to attack two Saudi oil tankers, with one of the ship's bow catching fire, fortunately with no injuries to the crew. The incident occurred near the Bab-el-Mandeb Strait, which connects the Red Sea and the Gulf of Aden, a vital artery for global oil exports.

Additionally, with the ongoing standoff between the U.S. and Iran, the fear in the market over whether supply chains would really be disrupted was reignited, causing Brent crude to rise over 7% that day, briefly touching the 100-dollar mark.

Trump also stated that he is "seriously considering" launching larger-scale military actions against Iran.

On the trade front, the U.S. Trade Representative's Office announced tariffs ranging from 10% to 12.5% on dozens of countries and regions, citing "forced labor," to replace the soon-to-expire global import tariffs, with the new taxes coming into effect on the 24th.

The final suspense of the week rests on Intel, which will also release its earnings report on Thursday. The focus of the market, like other tech giants in recent days, is on capital expenditure guidance. Next week, it will be up to Microsoft, Meta, and Amazon, as these giants' latest statements on AI investments will determine how far this round of valuation reassessment will go.

Chaoxiang Perspective

What broke that day was a default assumption; the market was previously willing to give a lot of imaginative space to AI narratives, but now this space is rapidly being compressed by the reality of cash flow numbers. Both Tesla and Alphabet share the common problem that their spending speed has clearly outpaced their earnings speed, and investors expressed their stance through real cash selling.

The rise of storage chip stocks against the trend provides an important reference point. Still within the main line of AI, funds are still willing to pay for companies with visible orders and tangible cash flow transformation paths, but they are becoming increasingly impatient with purely pie-in-the-sky suggestions. This differentiation is likely to continue in the short term, and the earnings reports from Intel and several cloud providers next week will serve as the next litmus test.

Both long-end interest rates and oil prices are unlikely to ease in the short term; the former is a structural result of the AI infrastructure borrowing boom, and the latter is a direct product of escalating geopolitical conflicts. These two macro variables together mean that even if the financial reports of certain companies can provide satisfactory answers, the overall market valuation environment is unlikely to genuinely relax in the short term.