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London Quick Take - 23 July - Soaring AI capex meets soaring oil prices: Crude approaches $100, Tesla and Alphabet drop on earnings and is SpaceX a meme stock?
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Oil +3%, approaches $100, no signs of a peace deal emerging as the US and Iran start to dig in and fears rise about choke points for certain fuel supplies. Brent crude keeps pressing higher, now up above $97 this morning after the US hit Iran for a 12th night and Iran-backed Houthis said they’d struck two Saudi oil tankers in the Red Sea. Inflation fears are higher but the UK's soft inflation print yesterday helped the FTSE 100 rally +1.2% to clear 10,700. That relieved some pressure on gilt yields but oil prices are rising and Andy Burnham is opening the spending taps...so we’re seeing some backing up in yields once more and I expect we test May’s multi-year peaks again.
The BoE will hold fire next week after the labour market and inflation data out of the UK, and the ECB will leave its benchmark steady today, but the Fed's meeting of 28/29 July is still live. Markets are waking up to this fact – which I have been banging on about for weeks – with odds of a hike rising to one-on-three from about on- in-ten last week. It's not just rising oil prices - AI spend is also surging and keeping upwards pressure on inflation.
Spenders vs vendors: Chip stocks rallied overnight in Asia after Alphabet raised its capex forecast as it continues to pour money into the AI infrastructure buildout. This is good news for semiconductor and memory stocks, which have been rattled by fears about the durability of spending by the big hyperscalers. The Kospi, the high beta proxy for a lot of the AI-memory-chips sentiment trade, rallied over 4% overnight, with the SK Hynix ADR in New York printing almost +3% higher in after-hours trading.
Alphabet earnings were very strong as revenues beat expectations thanks to 82% growth in its cloud business. But the company raised its capex guidance for the year to $195bn-$205bn, up from the $180bn-$190bn forecast provided last quarter. Shares slipped in after-hours trading by around –3%. Nothing in the slightest wrong with these results but the capex is the concern for investors - when do they get a return when Chinese competition is intensifying and AI becomes more commoditised?
Tesla shares also fell after releasing earnings as free cash flow turned negative and margins compressed. Revenues were ahead of expectations as deliveries picked up, rising 26% from the year-ago period, with core automotive revenues +20% from last year. But net income declined 5% as gross margins declined from 17.2% to 16.8% due to lower average selling prices of vehicles and a decline in the value of regulatory credits. Meanwhile sharply higher costs plunged free cash flow negative. Operating expenses rose 47% due investment in AI and other projects, while the CFO said opex will "grow in 2026 and beyond". Capex meanwhile soared 142% to $5.8bn but there was no hike to the April guide for the full-year capex to hit $25bn.
We continue to see lots of churn under the hood of the markets with big swings in semis and the like. But the overall picture is pretty well anchored – the S&P 500 has basically stalled at 7,500 since the middle of May. Yesterday it barely budged, dropping –0.14% while the Nasdaq slipped –0.57%. European stock markets were lower early Thursday as the war got all the attention and without a really strong earnings picture to underpin better sentiment. US futures were also under pressure with Tesla and Alphabet weighing.
EasyJet stumble: Shares in easyJet plunged -11% yesterday on reports the European Union could look at tightening up airline ownership rules - potentially throwing a spanner in the works for the two rival US bids. Arguably this hands the advantage back to Castlelake since they had named EU citizens as owners...but I think the regulators are going to consider all kinds of structures - including those that try to create complex structures and likely anything deemed too complex in order to get around the spirit of the rules will be in their sights. No doubt the easyJet bids prompted this action and the review will clarify what's allowed and what's not. This may not scupper the takeover (currently Apollo's) but it certainly adds a layer of uncertainty reflected by the shares declining so sharply. The worry among shareholders would be that the review is specifically targeting the easyJet transaction because the regulators don't like it, rather than being a timely checkup of the rules in light of the bids for easyJet. This morning the shares traded up despite reporting a 70% decline to £85mn in the quarter to the end of June as it was impacted by the Middle East conflict. Shares are trading on takeover likelihood now.
Elsewhere, BT reported a 4% fall in first quarter profit but said it's on track to meet full-year guidance and achieve its target of reaching 25mn homes with full fibre network by the end of the year. There's also results from Centrica, Airtel Africa, RELX, 3i Group and Anglo American delivered a production report.
Finally, before I go on holiday, is SpaceX a meme stock? Elon Musk's other big listed company has had a topsy-turvy ride since listing on the Nasdaq. Shares fell further below the IPO price yesterday, down almost –7% yesterday to $115. It came as the company confirmed it will report earnings on 4 August, triggering the company's lock-up period, with investors eligible to sell up to 20% of locked-up shares on the first full trading day after the release, which will be 6 August. It comes as figures show a third of publicly traded shares are sold short. Which begs the question: When the short squeeze? It's already got a massive retail following, its fundamentals seem somewhat decoupled from its valuation, and now it's come under heavy short attacks by hedge funds et al...the stars could be aligning.
The BoE will hold fire next week after the labour market and inflation data out of the UK, and the ECB will leave its benchmark steady today, but the Fed's meeting of 28/29 July is still live. Markets are waking up to this fact – which I have been banging on about for weeks – with odds of a hike rising to one-on-three from about on- in-ten last week. It's not just rising oil prices - AI spend is also surging and keeping upwards pressure on inflation.
Spenders vs vendors: Chip stocks rallied overnight in Asia after Alphabet raised its capex forecast as it continues to pour money into the AI infrastructure buildout. This is good news for semiconductor and memory stocks, which have been rattled by fears about the durability of spending by the big hyperscalers. The Kospi, the high beta proxy for a lot of the AI-memory-chips sentiment trade, rallied over 4% overnight, with the SK Hynix ADR in New York printing almost +3% higher in after-hours trading.
Alphabet earnings were very strong as revenues beat expectations thanks to 82% growth in its cloud business. But the company raised its capex guidance for the year to $195bn-$205bn, up from the $180bn-$190bn forecast provided last quarter. Shares slipped in after-hours trading by around –3%. Nothing in the slightest wrong with these results but the capex is the concern for investors - when do they get a return when Chinese competition is intensifying and AI becomes more commoditised?
Tesla shares also fell after releasing earnings as free cash flow turned negative and margins compressed. Revenues were ahead of expectations as deliveries picked up, rising 26% from the year-ago period, with core automotive revenues +20% from last year. But net income declined 5% as gross margins declined from 17.2% to 16.8% due to lower average selling prices of vehicles and a decline in the value of regulatory credits. Meanwhile sharply higher costs plunged free cash flow negative. Operating expenses rose 47% due investment in AI and other projects, while the CFO said opex will "grow in 2026 and beyond". Capex meanwhile soared 142% to $5.8bn but there was no hike to the April guide for the full-year capex to hit $25bn.
We continue to see lots of churn under the hood of the markets with big swings in semis and the like. But the overall picture is pretty well anchored – the S&P 500 has basically stalled at 7,500 since the middle of May. Yesterday it barely budged, dropping –0.14% while the Nasdaq slipped –0.57%. European stock markets were lower early Thursday as the war got all the attention and without a really strong earnings picture to underpin better sentiment. US futures were also under pressure with Tesla and Alphabet weighing.
EasyJet stumble: Shares in easyJet plunged -11% yesterday on reports the European Union could look at tightening up airline ownership rules - potentially throwing a spanner in the works for the two rival US bids. Arguably this hands the advantage back to Castlelake since they had named EU citizens as owners...but I think the regulators are going to consider all kinds of structures - including those that try to create complex structures and likely anything deemed too complex in order to get around the spirit of the rules will be in their sights. No doubt the easyJet bids prompted this action and the review will clarify what's allowed and what's not. This may not scupper the takeover (currently Apollo's) but it certainly adds a layer of uncertainty reflected by the shares declining so sharply. The worry among shareholders would be that the review is specifically targeting the easyJet transaction because the regulators don't like it, rather than being a timely checkup of the rules in light of the bids for easyJet. This morning the shares traded up despite reporting a 70% decline to £85mn in the quarter to the end of June as it was impacted by the Middle East conflict. Shares are trading on takeover likelihood now.
Elsewhere, BT reported a 4% fall in first quarter profit but said it's on track to meet full-year guidance and achieve its target of reaching 25mn homes with full fibre network by the end of the year. There's also results from Centrica, Airtel Africa, RELX, 3i Group and Anglo American delivered a production report.
Finally, before I go on holiday, is SpaceX a meme stock? Elon Musk's other big listed company has had a topsy-turvy ride since listing on the Nasdaq. Shares fell further below the IPO price yesterday, down almost –7% yesterday to $115. It came as the company confirmed it will report earnings on 4 August, triggering the company's lock-up period, with investors eligible to sell up to 20% of locked-up shares on the first full trading day after the release, which will be 6 August. It comes as figures show a third of publicly traded shares are sold short. Which begs the question: When the short squeeze? It's already got a massive retail following, its fundamentals seem somewhat decoupled from its valuation, and now it's come under heavy short attacks by hedge funds et al...the stars could be aligning.
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