Here’s what is covered in the article:

1. Exiting FY2026 in an exceptional way

2. FY2027 outlook exceeds expectations

3. China competition

4. CPO and NPO

5. EML and CW lasers

6. Pump lasers

7. Cloud transceivers

8. OCS

9. Filling up Greensboro capacity

10. New OFC, new financial targets

11. Valuation

12. Conclusion

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Exiting FY2026 in an exceptional way

Lumentum increased revenues by 109% year-over-year in the fourth quarter to $1.006 billion, slightly ahead of consensus expectations of $990 million.

Component revenue increased 103% year-over-year to $649 million (2% ahead of expectations).

The strength in Components revenue was driven by what management calls “exceptional strength” in scale-out and scale-across components, with the company setting new records for 100G and 200G EML shipments.

Management shared that 200G EMLs made up more than 25% of total EML revenue.

Pump lasers grew 80% from the prior year, with management stating that there are now multiple long-term supply agreements in place for scale-across deployments.

Other highlights include the 10^th consecutive quarter of sequential growth in narrow linewidth lasers for DCI or scale-across installations (which was up more than 130% from the prior year), ultra-high-power laser shipments for CPO solutions grew this quarter and is on track to deliver meaningful revenue exiting calendar year 2026. Lastly, Lumentum expanded 200G lane-speed CW laser sales across multiple transceiver customers.

Systems revenue increased 123% year-over-year to $357 million, in-line with expectations).

The strong growth was led by strong cloud transceiver shipments. Lumentum also started first shipments of 1.6T transceivers this quarter, with a portion utilizing internal CW lasers.

Within the Systems segment, the ramp for OCS remains on track, supported by strengthening demand across its multi-year, multi-billion-dollar purchase agreement.

Gross margin came in at 50.4% in the fourth quarter, 1.7 percentage points ahead of consensus.

The strength in gross margin was due to better manufacturing utilization, favourable mix and increased pricing on select products.

On more favourable mix contribution to gross margin, this was largely due to a favorable mix of 200G EMLs and OCS, partially offset by strong transceiver growth.

Strong demand for 200G EMLs contributing more than 25% of revenue was likely a key contributor to the strength.

Operating margin came in at 36.6% in the fourth quarter, 1.1 percentage points ahead of consensus.

Operating margin expanded significantly in the quarter, expanding 21.6 percentage points from 15% in the year ago quarter to 36.6% this quarter.

The strength in operating margin expansion was driven by strong product momentum and operating leverage.

Management continues to invest in key R&D programs serving cloud and AI customers while optimizing its business model through strict cost controls.

FY2027 outlook exceeds expectations

Lumentum provided FY2027 first quarter guidance that was significantly ahead of investor expectations.

Management guided first quarter revenue to be in the range of $1.225 billion to $1.275 billion, 7.6% ahead of consensus expectations.

At the midpoint of $1.25 billion, this implies more than 130% year-over-year growth.

Half of the sequential growth for first quarter FY2027 will come from the components portfolio due to continued expansion of scale-out and scale-across applications, while the other half will come from the systems portfolio, including the 1.6T transceivers and accelerating OCS deliveries.

Operating margin was guided in the range of 39.5% to 40.5%, which was 2.5 percentage points ahead of consensus expectations.

EPS was guided to be in the range of $4.05 to $4.35, 17% ahead of consensus expectations.

With revenue guidance for the first quarter at $1.25 billion at the midpoint, this suggests that Lumentum will reach the first milestone 1 quarter early in the first quarter of FY2027 instead of the second quarter of FY2027.

Furthermore, operating margin is also tracking ahead at the top end of the ranges for $1.25 billion quarterly revenue and at the midpoint of the ranges for $2 billion quarterly revenue.

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There is a disconnect between the fundamentals of the company and its valuation.

The market is concerned about three aspects of Nvidia.

The first is the durability of the growth given its largest customers are turning free cash flow negative.

The second is competitive pressures from AMD and custom silicon, which could eat into Nvidia’s commanding market position.

The third is the circular financing arrangements Nvidia is engaged in today.

I address all 3 in the article below and highlight whether I think Nvidia is undervalued today.

Quarterly review and guidance

Nvidia total revenue was up 106% year-over-year to $96 billion, which was 4% ahead of consensus.

The majority of that comes from the data center segment, which contributes to 93% of total revenues.

Data center revenue increased 117% year-over-year to $89 billion, 15% ahead of consensus expectations.

The strength in the data center revenue comes from continued momentum of its Grace Blackwell platform, the early ramp of Rubin, Spectrum 6 which supports both pluggable and CPO options available and Vera CPU.

The data center business is split into hyperscale which includes the public clouds and largest consumer internet platforms and makes up 55% of total data center revenue, and ACIE (AI Clouds, Industrial & Enterprise) which includes sovereign AI, industrial, non-hyperscale cloud, enterprise and makes up 45% of total data center revenue.

Hyperscale revenue was up 102% year-over-year to $48.7 billion.

Hyperscale revenue was driven by sustained strength in Blackwell.

Management highlighted an expanded partnership with AWS to deploy an additional 2 million GPUs starting from the third quarter of FY2027 through the second quarter of FY2029, along with Vera CPUs and more.

ACIE revenue was up 138% year-over-year to $40.3 billion.

ACIE revenue was driven by growth in neocloud capacity additions to meet demand from AI startups, sovereigns and hyperscalers purchasing capacity to supplement their own build outs.

I think the splitting of data center revenue to these two segments was an intentional effort to show that demand is broadening beyond the top 5 hyperscale customers.

Edge computing, which is the new segment combining the old Gaming/ProViz/Auto/OEM lines, covers PCs, game consoles, workstations, AI-RAN base stations, robotics, and automotive.

The segment grew 27% year-over-year.

For the next quarter, Nvidia guided revenue to be at $108 billion at the midpoint, about 4% ahead of consensus expectations.

CFO Colette Kress stated that FY2028 revenue is expected to grow 70%, which continues to be a supply-constrained outlook.

Gross margin for the second quarter came in-line with consensus expectations of 75%, which does demonstrate that Nvidia is showing some resilience to the memory pricing inflation headwinds in the quarter.

For the next quarter, management is guided gross margin to be 74% at the midpoint, which is likely slightly below expectations, and that the long-term target continues to be 75%.

Apart from memory cost headwinds, there is also a chance that the early ramp of Rubin could lead to higher start-up costs in the near-term that could result in lower margins.

EPS came in at $2.22, 5% ahead of consensus expectations.

Nvidia returned $26 billion to shareholders in the quarter in the form of dividends and share repurchases.

The company still has $99 billion of share repurchase authorization remaining.

Nvidia continued to make strategic commitments across supply, infrastructure, and partner ecosystems to capitalize on the substantial growth opportunities ahead.

Total commitments increased from $119 billion last quarter to $279 billion this quarter, primarily related to the procurement of memory.

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Subscribers to Outperforming the Market get full access to the Model Portfolio, all my intrinsic value, 1-year and 3-year price targets in the Price Target Report, and real-time trade alerts when I place buy and sell orders (I am fully invested in the Model Portfolio).

The full track record for the Model Portfolio from 2022 till today can be found here.

In addition, subscribers get a weekly deep dive on Fridays, a weekly newsletter on Mondays, and other earnings analysis, market review and portfolio review articles during the week. All links can be found consolidated here.

Articles posted in the last week

1. 4 New Contrarian Ideas On The Watchlist

2. Arm Holdings: Cloud AI delivering upside potential

3. Weekly newsletter 176

Market Updates

1. Federal Reserve

   1. Two Federal Reserve officials said the central bank’s interest-rate setting is not restraining the US economy at a time when inflation continues to run above its 2% target. Economists are divided over whether the Fed will need to raise interest rates over coming months in a bid to tame inflation, which rose 3.7% in the year through July.

2. US Treasuries

   1. US Treasuries decline as traders turn focus to Jackson Hole, with the rate on benchmark 10-year notes climbing to 4.67%. Yields remained higher after a $44 billion auction of seven-year notes drew solid demand and economic data showed jobless claims declined from the previous week.

5. Russia Ukraine war

   1. Russia is preparing to escalate attacks on Ukraine after concluding that negotiations for a peace deal have reached a dead end, according to three people close to the Kremlin. Moscow is weighing an intensification of powerful conventional ballistic missile attacks on Kyiv and infrastructure targets in other Ukrainian cities, the people said. The escalating spiral of strikes is leading a growing number of Russian officials to the conclusion that Putin could eventually opt to use tactical nuclear weapons as a last resort in Ukraine, according to the people close to the Kremlin.

6. US Iran war

   1. Iran’s military said it reached a revenue-sharing agreement with Oman on the Strait of Hormuz. The US is obstructing the process, causing progress to be delayed, according to the Islamic Revolutionary Guard Corps’ spokesman Hossein Mohebbi. Iran has cautioned that a re-opening of the strait will take more than a deal with Oman.

   2. Treasury Secretary Scott Bessent said the US will soon unveil its plan to economically isolate Iran and its trading partners. The US plans to put “economic pressure” on its allies to join the effort, with Bessent saying “you are either with us or against us”. The threats come after months of military strikes and a full naval blockade of Iran’s ports failed to force Tehran to capitulate, with the US now seeking to pivot from a military campaign to economic pressure.

7. SpaceX

   1. SpaceX plans to build a new launch site for its Starship rocket on the southern coast of Louisiana, allowing the company to expand operations of the vehicle. The site, called Starbase, Louisiana, will include five launch complexes and is expected to support thousands of Starship flights a year with missions launching to Earth orbit, the Moon, Mars, and beyond. Production on the site starts in 2027, with the first planned launch in 2029, and the project could bring between 3,000 to 10,000 jobs to the area.

8. Google

   1. Waymo is planning to offer driverless ride-hailing services in Germany by the end of next year, marking its third planned international market and the first in the European Union. The company will start to manually drive its vehicles on the streets of Munich to create high-definition maps and ensure that its self-driving software can adapt to the city’s distinct driving conditions. Waymo will test the cars with trained autonomous specialists behind the wheel during the validation period before opening to the general public toward the end of 2027.

9. OpenAI

   1. OpenAI said its new Jalapeno chips performed better than Nvidia Corp.’s current lineup during testing in two categories: the amount of AI work it could handle per unit of power and its speed at returning responses. The maker of ChatGPT plans to start using the new chips to support its artificial intelligence models later this year, part of a broader push to build its own AI infrastructure. OpenAI created Jalapeno in a partnership with Broadcom Inc., and the chip offers both high-throughput and low-latency performance, allowing customers to benefit by selecting options that offer either cost savings or better performance.

10. Apple

    1. Apple announced upgraded Mac mini and Mac Studio desktop computers with major processor upgrades, including the new M6 chip and M5 Pro and M5 Ultra chips. The new machines are available to preorder and will be in stores on September 22, shipping with the latest major Mac operating system update, macOS 27 Golden Gate. The Mac mini and Mac Studio feature upgraded wireless connectivity with Wi-Fi 7 and Bluetooth 6, and the Mac Studio is highly customizable for professionals with options including up to a 36-core CPU and 80-core GPU.

11. Anthropic

    1. Anthropic mulls letting shareholders sell in IPO, as it has been working on a plan to let existing shareholders sell some stock in its blockbuster initial public, the Information reports, citing people familiar with the process. Also considering longer-than-usual lockup periods for sales after it goes public. It’s also expected to host an investor day for prospective investors and research analysts in mid-September. The IPO would likely be held in late September or early October, though Anthropic could choose to push back the offering, Information reports

12. Marvell

    1. Marvell Technology reported second quarter results that modestly beat expectations and gave an outlook that is above the analyst consensus. However, shares of the chipmaker are down 7.4% in extended trading. Marvell Technology’s further upward revisions to its fiscal 2027 and 2028 outlook — after substantial increases over the past few quarters — show that its AI sales trajectory continues to accelerate and could drive significant upside to current estimates, but Nvidia set a very high bar for the group, and it’s not clear Marvell is incrementally bullish vs. where the narrative now stands.

13. Workday

    1. Workday shares are down 6% in extended trading, after the software company’s results and forecast were seen as underwhelming. The stock is up more than 70% off a June low, and it was recently the subject of takeover speculation. AI datapoints “are encouraging,” but “with FY27 subscription revenue expectations largely unchanged, the broader debate around whether better bookings and AI monetization can bend the medium-term growth curve higher will continue

14. Salesforce

    1. Salesforce jumped the most in six years after giving an outlook for strong revenue expansion and deepening its partnership with Anthropic. The company expects revenue to accelerate in the second half of the year, with sales of about $11.5 billion in the fiscal third quarter, and current remaining performance obligations increasing about 14%. Salesforce announced an expanded partnership with Anthropic, integrating its products within the AI model Claude, and reported that its AI tool Agentforce is on track to contribute about $1.5 billion in revenue this year.

15. SK Hynix

    1. SK Hynix is exploring ways to deepen its cooperation with Japanese customers and suppliers in the memory industry, according to Chief Executive Officer Kwak Noh-Jung. Kwak said the company doesn’t have “any fixed plans” for its significant indirect stake in Kioxia Holdings. SK Hynix is keen to contribute to the development of Japan’s semiconductor industry and remains open to investing in locations that can provide reliable access to power, water and skilled workers.

16. Kioxia

    1. Kioxia Holdings is building a new fabrication facility at its manufacturing site in Japan’s northern prefecture of Iwate to meet sustained AI-related demand for storage. The new plant will manufacture the company’s latest high-density 3D flash memory chips designed to help manage massive workflows generated by AI services. Kioxia and Sandisk will seek subsidies from the Japanese government for the expansion plan, which will be carried out with manufacturing partner Sandisk.

17. Lambda

    1. Lambda is in talks to raise as much as $3 billion in a round that could tee it up to go public next year, according to people familiar with the efforts. The company has discussed raising the money at a valuation of as much as $12 billion or more, and is expected to earn more than $1.5 billion in revenue this year. Investor appetite for AI chip and infrastructure companies has grown this year, prompting a wave of IPOs, but public markets for Lambda competitors have been volatile.

The Model Portfolio updates

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In contrast, the S&P 500 generated 117% in the same period.

The Model Portfolio outperformed the S&P 500 significantly by 314%.

The reason for this outperformance is due to contrarian stock ideas that turned out to be right, buying stocks at depressed sentiment and valuation and seeing it rerate as the turnaround plays out.

Today, I am adding 4 new contrarian ideas to the watchlist.

Here’s a preview of the 4 new contrarian ideas:

• Contrarian idea 1

  • The company is a high-quality industrial compounder with strong pricing power, exceptional margins, and a highly recurring aftermarket business.

  • The stock has pulled back to valuations not seen since 2020 during the covid pandemic despite strong organic growth, resilient margins, raised guidance, and active share repurchases.

• Contrarian idea 2:

  • The company is a leading global consumer brand undergoing a turnaround after several years of strategic mistakes.

  • The company’s new leadership has reversed those decisions, rebuild distribution, and refocused product innovation, with early signs of renewed momentum.

  • The stock could see a significant positive rerating if it moves towards stabilization or modest recovery, which could drive meaningful earnings and valuation multiple upside.

• Contrarian idea 3:

  • The company is a leading enterprise software company in which investors are concerned with potential AI disruption.

  • The market is overlooking the fact that the company has a new AI agent platform growing at more than 200%, its broader AI and data business is booming, and its core business continues to generate significant free cash flows.

• Contrarian idea 4:

  • The company is a rapidly growing AI infrastructure company that is evolving from a low-margin electronics manufacturer into a higher-value provider of networking, compute and rack-scale systems for hyperscalers.

  • Revenue is growing at more than 60%, earnings are compounding even faster, and management expects growth to accelerate further as 1.6T networking and next-generation AI compute platforms ramp.

  • Despite this, the stock trades at only a 15x multiple on expected 2027 earnings.

These 4 new contrarian ideas will be added to the watchlist and I will discuss the investment thesis for each below.

Let’s get into the 4 new additions to the watchlist!

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For the first quarter of FY2027, Arm generated $1.29 billion, slightly above consensus of $1.26 billion.

The growth was driven by continued Cloud AI strength, with Data Center royalties again more than doubling from the prior year, and robust licensing demand from hyperscaler, automotive and robotics customers.

Gross margins were in-line, while lower operating expenses drove an 11% beat in operating income, which came in at $531 million.

Adjusted EPS was 12.5% ahead of consensus, coming in at $0.45, ahead of consensus of $0.40 and guidance range of $0.36 to $0.44.

For the second quarter of FY2027, Arm guided revenue of $1.38 billion at the midpoint, 3% ahead of consensus.

This was due to stronger licensing demand as customers sign longer duration agreements and adopt additional content, while offsetting the softer low-teens year-over-year growth of royalties due to weaker smartphone demand and mix.

Management also guided operating expenses to be at $780 million at the midpoint, implying operating income of $580 million or 42% operating margin, which was 10% ahead of consensus.

Arm’s business remains robust, especially its licensing business.

Management expects licensing growth to accelerate to 25% to 30% in FY2027.

This strong growth is again supported by next-generation architectures, hyperscaler engagements, and longer-term renewals.

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Subscribers to Outperforming the Market get full access to the Barbell Portfolio, all my intrinsic value, 1-year and 3-year price targets in the Price Target Report, and real-time trade alerts when I place buy and sell orders (I am fully invested in the Barbell Portfolio).

The full track record for the Barbell Portfolio from 2022 till today can be found here.

In addition, subscribers get a weekly deep dive on Fridays, a weekly newsletter on Mondays, and other earnings analysis, market review and portfolio review articles during the week. All links can be found consolidated here.

Articles posted in the last week

1. Amkor Technology: Server AI CPU and Advanced Packaging Upside

2. Google: Most Important Developments From 2Q26

3. Weekly newsletter 174

Market Updates

1. Treasury Secretary Scott Bessent

   1. Treasury Secretary Scott Bessent said the administration will unveil a new fiscal initiative to address the highest borrowing costs in years. The Treasury Department will increase the size of buybacks for longer-dated securities “by at least double” to ensure orderly trading in a “thin” summer market. Bessent said the expanded buyback operations “could be more than the $4 billion” size currently planned to start next month and that the administration has a “big toolkit” to get bond yields down.

   2. US Treasury Secretary Scott Bessent made a fresh attempt to rein-in long-term borrowing costs from multi-year highs, sending Treasury yields and the dollar down. The Treasury Department is increasing the size of liquidity support buyback operations for securities dated from the 10-year to the 30-year sector, at least doubling the size of the operations. The new plan drove the US dollar to the weakest in three months and pushed yields on the 30-year bond lower, with the impact of the plan on long-term borrowing costs remaining to be seen.

2. US Iran war

   1. President Donald Trump said he’s not interested in extending the expiring agreement with Iran. Tensions over the Strait of Hormuz have sparked flare-ups in hostilities, and there’s been no movement on addressing Iran’s nuclear capabilities. Fighting has flared anew in Lebanon, and any renewed fighting would likely complicate efforts to revive the deadlocked negotiations between the US and Iran.

3. Federal Reserve

   1. Several Federal Reserve officials favored an interest-rate hike last month and many indicated that policy tightening would be necessary if inflation didn’t decline. The FOMC voted 9-3 in July to hold the benchmark federal funds rate in a range of 3.5% to 3.75%, with some officials dissenting in favor of raising rates. Fed officials described the labor market as stable and inflation outlooks as “highly uncertain”, with the re-escalation of the Iran war “clouding the inflation outlook”.

   2. Federal Reserve Bank of San Francisco President Mary Daly suggested the US Treasury market is signaling that monetary policy is in a good place right now. Daly said she doesn’t see evidence that preemptive cuts or hikes are an urgent problem to solve and that she doesn’t see the Fed’s credibility at risk. The recent bond selloff is attributed to concerns over growing US debt and inflation, as well as the heightened demand for artificial intelligence products and infrastructure.

4. US consumer sentiment

   1. US consumer sentiment fell for the first time in three months as households worried about worsening business conditions and rising inflation. Consumers expect prices to rise 4.3% over the next year, up slightly from the prior month, and saw costs rising at an annual rate of 3.3% over the next five to 10 years. The survey showed that consumers are increasingly concerned about inflation and less so about unemployment, with sentiment for the short- and long-term economic outlook deteriorating.

5. US retail sales

   1. US retail sales fell in July by the most in more than a year as consumers pulled back on purchases at online stores and auto dealers. The value of retail purchases decreased 0.6%, the most since May 2025, according to data published by the Census Bureau. Five of 13 categories in the report posted declines, led by a 2.2% drop in sales at nonstore retailers such as Amazon.

6. OpenAI

   1. OpenAI on Tuesday said it is slowing down the pace of its AI model development while ‌it overhauls its research and training systems after OpenAI officials were caught unawares last month when an AI agent under testing hacked another AI firm Hugging Face. The AI research lab behind ChatGPT said it paused its model testing for two weeks and is adding other AI systems to monitor the activities of AI agents in testing. The company has paused training on its next generation of models, called Astra, and its largest planned training run remains on hold, ⁠the company said.

   2. OpenAI is on track to generate annualized revenue of more than $40 billion based on its current performance, roughly doubling its run rate from the end of 2025. The company’s revenue has accelerated in recent months, driven in part by the growth of its AI coding software, subscription sales, and its nascent advertising business.

7. Anthropic

   1. Anthropic expects to match or beat the size of SpaceX’s record-setting initial public offering, according to people familiar with the matter. The company is running the numbers as it prepares to file publicly for its potential mega-IPO as soon as the end of this month, with discussions ongoing and details subject to change.

   2. Anthropic is on track to generate annualized revenue of more than $65 billion based on its current performance, according to people familiar with the matter, up more than sevenfold from its pace at the end of last year. The company’s run rate, a metric that projects full-year revenue from a shorter period, hit $65 billion by the end of July, said the people, who spoke on condition of anonymity to discuss private information. Anthropic shared the figures as part of a regular update with investors, one person said.

8. Samsung

   1. Samsung plans to announce Friday a new shareholder return package that could be worth as much as 110 trillion won ($79 billion), according to a person familiar with the matter. A board meeting is scheduled to take place around 4 p.m. local time after the close of the Korean stock market, and the company is set to disclose the details of the program shortly afterwards

9. Cerebras

   1. Cerebras launches new server chip and system designed to speed AI chatbots. Cerebras Systems announced on Tuesday a new version of its server hardware that includes its dinner-plate-sized chips that it says will speed AI chatbot queries. The new system, called the CS-4, is a server rack powered by three of the large chips the company designs, which Cerebras said translates into better performance. The ⁠hardware is based around the company’s Nexus server architecture, which includes pluggable modules that house the chips.

10. Micron

    1. Micron said on Thursday it plans to spend $10 billion on its newly established research lab in Boise, Idaho, over the next decade ‌to advance memory technologies, develop compute systems and support future chip manufacturing. Micron Research Labs will bring together customers, academia, government, and the broader semiconductor ecosystem to pursue breakthroughs, the company said. The latest investment builds on the more than $250 billion that Micron had separately committed to manufacturing and R&D across the United States.

11. SK Hynix

    1. SK Hynix unveiled plans to buy back 40 trillion won of stock and return more profits to investors to stabilize its shares after they fell more than 50% in two months. The company will buy back as many as 24 million shares between Aug. 20 and Nov. 19 and cancel them, and raised its shareholder return pledge to more than 50% of cumulative free cash flow from 2025 to 2027. SK Hynix’s buyback plan is partly aimed at appeasing Korean retail investors who were upset by the company’s decision to issue new shares for its US listing, and the company is considering

12. Marvell

    1. Marvell has agreed to give Alphabet’s Google rights to buy as much as $12.2 billion of its shares in exchange for purchasing chips. Google will have the right to buy almost 59 million Marvell shares at a price of $206.58 apiece, with nearly 1.4 million of the warrant shares vesting in the first year of the deal. Marvell’s products will support Google’s tensor processing units, chips known as TPUs that have gained traction among firms using them to build, train and run AI systems.

13. Tesla

    1. Tesla prepares for Cybercab launch in August. Tesla has told employees it is gearing up for a public launch of Cybercab, starting with a rollout in Austin, Texas, ‌as soon as this month, the Information reported on Monday, citing people with knowledge of the plans. Cybercab, a purpose-built autonomous vehicle without pedals or a steering wheel, is crucial to Tesla’s robotaxi ⁠ambitions, as the company is planning to eventually deploy the vehicle for its autonomous ride-hailing service.

The Barbell Portfolio updates

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AWS revenue accelerated from 17% in the last year ago period to 37% year-over-year growth today.

I think this acceleration is evidence that we are starting to see the return on investment on AI infrastructure.

The acceleration was driven by both AI revenues and core workloads, while AWS chips business is also seeing very strong growth as Graviton revenue commitments increased more than 3x sequentially and Trainium secured multi-gigawatt commitments from Anthropic and OpenAI.

AWS reiterated demand exceeds capacity in 2026 and likely in 2027, as it is seeing most of its capacity in 2027 being sold out and even 2028 capacity is being sold today.

1. AWS’s booming acceleration

2. Visibility into demand

3. AWS custom chips business

4. ROI on capital expenditures

5. AWS margins

6. Resilient North American and International retail

7. Valuation

8. Conclusion

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AWS’s booming acceleration

AWS delivered 37% year-over-year growth in 2Q26.

Last quarter, the market was impressed by AWS 28% year-over-year growth in 1Q26.

Bear in mind that this was a 4-percentage point acceleration from 4Q25’s 24%, and on top of 4Q25’s 4-percentage point acceleration from 3Q25’s 20%.

As such, AWS accelerated from 17% in 2Q25 to 37% in 2Q26, amounting to a total of 20-percentage point acceleration.

AWS revenue growth essentially more than doubled from the prior year.

This has significant implications for not just AWS but all other hyperscalers as it demonstrates that we are starting to see tangible return on investment on the huge capital expenditures that the hyperscalers are spending on AI infrastructure.

AWS achieving this is more significant as AWS is now a $169 billion annualized revenue run rate business today.

I think it is also worthwhile to highlight that we are seeing an acceleration in both AI and core cloud demand, as much of the focus tends to be on AI cloud demand.

Management shared that AI revenue reached $25 billion in ARR in 2Q26, up triple digits from the prior year.

This is also up from 1Q26’s $15 billion ARR, which means that we saw 67% sequential increase in AI revenue from the prior quarter.

Any concerns that we may not see an acceleration in AI revenue as a result of the heavy spending in AI infrastructure is starting to seem misplaced, in my view.

In addition, I think we should also appreciate that core AWS growth is also accelerating.

Core AWS growth accelerated to the low-to-mid-20s% year-over-year growth.

This suggests the highly complementary nature of AI and core cloud requirements.

As AI revenue accelerates, this is driving an acceleration in core revenue as post-training reinforcement learning and agent tool use is largely executed on CPUs rather than AI accelerators.

This plays to AWS hands because its Graviton chip is one of the strongest CPU chips, offering up to 30% to 40% better price performance than other options.

Visibility into demand

I think another positive thing for AWS is how far ahead it can see demand and revenues today.

AWS backlog or commitments reached $496 billion in 2Q26, up 154% from the prior year.

When I talked to management on a call after the earnings report, they provided more color on visibility.

On the call, management shared with me that the “lion’s share” of 2027 capacity has already been reserved and “quite a bit” of 2028 capacity is already reserved, both of which continued strong cloud growth for the next 2 years ahead at least.

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Management highlighted that it has multiple new monetization tools coming out of its business, including on the enterprise AI front, agents front, and compute front.

Furthermore, management seemed confident in its product roadmap, including personal agents, business agents, AI glasses, new models and new AI products for users and advertisers.

Here is what we cover in the article below:

1. Review of the 2Q26 quarter

2. Outlook for 2026

3. Core business acceleration due to AI

4. AI product roadmap

5. Model development

6. Personal agents

7. Business agents

8. Enterprise AI opportunity

9. AI glasses

10. Monetization efficiency gains from AI

11. Approach to building or monetizing AI capacity

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2Q26 review

Meta’s 2Q26 revenue increased 28% year-over-year or 26.5% on a constant currency basis to $60.8 billion, 1% above consensus expectations.

Operating income came in at $18.8 billion or 30.9% operating margin, which was 12% below consensus as it included $2.4 billion legal charge in G&A and $1.18 billion in severance expenses.

When adjusted for these 2 one-off charges, operating income would have been 9% ahead of expectations.

From the expenses perspective, this continues to be driven by growth in employee compensation due to hiring of AI talent and growth in infrastructure costs driven by higher depreciation, data center operating costs and third-party cloud spend, partially offset by the 8,000 employees affected by the May 2026 headcount reduction.

Family of Apps revenue increased 28.0% year-over-year in 2Q26 to $60.4 billion, which was driven by US & Canada acceleration in advertising revenue growth of 31.4% year-over-year growth.

Ads pricing was stable this quarter at 12% compared to the last quarter.

US & Canada was the key contributor to ads pricing accelerated from 14% last quarter to 20% this quarter while Rest of World ads pricing accelerated from 18% last quarter to 21% this quarter.

Ad impressions grew 14% from the prior year, a deceleration from 19% growth in the prior quarter but still an acceleration from 11% in the last year.

In general, the ad impressions served across its services was healthy across all regions due to strong growth in engagement and users along with ad load optimizations.

Family of Apps operating income came in at $23.4 billion or 38.8% operating margin.

Reality Labs generated $431 million in revenues, up 16.5% year-over-year due to strong AI glasses sales, and operating losses came in at $4.6 billion.

Meta generated $784 million in free cash flow in 2Q26 and ended the quarter with $90.3 billion in cash on its balance sheet and $83.7 billion in debt.

Guidance and outlook

Meta’s revenue guidance for 3Q26 between $61 billion to $64 billion, 1% below consensus and suggesting 20% to 25.9% constant currency growth.

This 3Q26 revenue guidance includes 3 key headwinds for the quarter.

First, it includes the lapping of stronger impressions growth in 3Q25 due to ranking and recommendation improvements in Instagram Feed and Reels and ad load optimization on Instagram Feed and Stories.

Second, it includes impacts from less personalized ad offerings in the EU, which is now fully rolled out.

Third, it includes continued integrity enforcement efforts.

For the full year of 2026, Meta narrowed the capital expenditures guidance from the earlier range of $125 billion to $145 billion to the new range of $130 billion to $145 billion.

Meta also narrowed the 2026 expense guidance from the earlier range of $162 billion to $169 billion to the new range of $165 billion to $169 billion.

This updated guidance also likely reflects the 10% RIF, with the spending reallocated towards Meta Compute.

AI driving improvements in engagement

One of the lowest hanging fruit ways for Meta to show returns on investment on its AI investments is through its core business by driving content recommendation initiatives.

In 2Q26, global time spent on Instagram increased double digits year-over-year as a result of the improvements made to the feed and reels recommendations.

This is not just happening on Instagram.

In 2Q26, video time spent on Facebook increased 9% globally year-over-year and more than 10% in the US and Canada due to ranking improvements.

Increasingly, Meta is seeing that LLMs and LLM-powered agents are delivering gains in ranking and recommendations.

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Subscribers to Outperforming the Market get full access to the Barbell Portfolio, all my intrinsic value, 1-year and 3-year price targets in the Price Target Report, and real-time trade alerts when I place buy and sell orders (I am fully invested in the Barbell Portfolio).

The full track record for the Barbell Portfolio from 2022 till today can be found here.

In addition, subscribers get a weekly deep dive on Fridays, a weekly newsletter on Mondays, and other earnings analysis, market review and portfolio review articles during the week. All links can be found consolidated here.

Articles posted in the last week

1. Amkor Technology: Server AI CPU and Advanced Packaging Upside

2. Google: Most Important Developments From 2Q26

3. Weekly newsletter 174

Market Updates

1. US Iran war

   1. The US military campaign against Iran has failed to force the regime to capitulate, so the Trump administration is relying on economic sanctions and a naval blockade to stifle Iran’s oil exports. The US is betting that suffocating economic pressure, dubbed “Maximum Pressure”, will lead to the collapse of the Iranian regime, with US Energy Secretary Chris Wright saying Iran’s economy is getting “strangled”. The US has added thousands of sanctions on Tehran since 2018, but some analysts argue that this approach is unlikely to produce meaningful political change, as 47 years of sanctions haven’t broken Tehran’s will.

   2. US President Donald Trump made new demands on Iran, including compensation for people killed and wounded by Iranian actions, and for damages and death in Lebanon, Syria, Yemen, and Gaza. Iran is seeking compensation for the US and Israeli war launched on February 28 and is demanding reparations as part of talks to reopen the Strait of Hormuz. The new demands from Trump and the reiteration of Iran’s requests have dimmed hopes of a quick deal to reopen the Strait of Hormuz, with both sides appearing to harden their positions.

   3. Pakistan’s defense minister said the US and Iran are “close to some sort of arrangement” over the Strait of Hormuz, with “things shaping up in favor of peace”. Talks between Iran and Oman about reopening Hormuz to some maritime shipping have reached an advanced stage, according to a Qatari Foreign Ministry spokesperson. The US sees Iran’s demands as constantly shifting and believes Tehran faces mounting economic pressure and factional infighting, with a White House official saying Trump is in no rush to secure a deal.

2. US initial jobless claims

   1. Applications for US unemployment benefits were little changed, remaining below 200,000 for a third straight week and underscoring the labor market’s resilience. Initial claims edged up to 199,000 in the week ended Aug. 1, according to Labor Department data released Thursday. The streak below 200,000 was the longest since 1969, at a time when such low levels were more common and the US workforce was about half what it is now. Meanwhile, the four-week moving average, a metric that helps smooth out volatility, fell to the lowest since September 2022.

3. Underlying US inflation

   1. Underlying US inflation was subdued in July, likely easing pressure on the Federal Reserve to raise interest rates. The consumer price index, excluding food and energy categories, increased 0.2% from a month earlier and 2.5% from a year earlier. The report suggests the impact of the energy-price shock from the Iran war continued to fade in July, giving the Fed more room to weigh inflation pressures against a recent slowdown in hiring.

4. Capital gains tax exemption

   1. The White House is considering a push to increase a capital gains tax exemption for primary home sales and cut levies on investments ahead of the midterm election, which would disproportionately benefit some of the wealthiest US households. The proposed tax cuts would likely do little to help the average voter struggling with high grocery bills and gas prices and would instead predominantly benefit wealthier homeowners, many of whom live in Democratic-led states. Raising the capital gains exemption for home sales and indexing capital gains to inflation are being considered, with the latter change estimated to hand the top 0.1% a $350,000 tax break on average, while the bottom 40% of people by income would see no change to their tax burdens.

5. 30-year US government bonds

   1. The US government sold 30-year bonds at a 5.216% interest rate, the highest since 2001, due to investors’ demand for greater compensation to finance the nation’s growing deficit. The high interest rate is a concern for the government ahead of midterm elections, as lofty government financing costs are feeding through to the broader economy. Investors are demanding higher yields due to inflation uncertainty, fiscal risks, and the Federal Reserve no longer being a major buyer, which could lead to long-term yields moving higher.

6. Cerebras

   1. Cerebras Systems slid after the company projected slower growth than some investors anticipated. Revenue will be about $215 million in the current quarter, which topped the $212 million average estimate but was below some predictions. The company’s cloud division revenue nearly quadrupled to $127.7 million on a core basis, eclipsing its hardware business, which sells computers outfitted with its chips.

7. Cisco

   1. Cisco fell after the company projected $7.5 billion in AI data center sales this fiscal year, which disappointed investors. AI sales will make up about 10% of Cisco’s projected total revenue of $72.2 billion to $73.4 billion in fiscal 2027, according to a company statement. Cisco Chief Executive Officer Chuck Robbins described the AI sales guidance as “a good, prudent guide for the year”, despite analysts questioning how it lined up with AI-related orders.

8. CoreWeave

   1. CoreWeave soared in late trading after the AI spending frenzy spurred faster sales growth than anticipated, with sales expected to be $3.45 billion to $3.6 billion in the third quarter. The company’s backlog was $104 billion at the end of the quarer, and it inked more than $25 billion in new customer commitments after the period ended, suggesting that “AI demand remains strong”. CoreWeave raised its revenue outlook to a range of $12.4 billion to $13.2 billion for the full year, and its shares rose about 15% in extended trading after the report was released.

9. Google

   1. Google released its Gemini 3.7 Flash artificial intelligence model, which outperforms its predecessor in coding tasks. Google added stronger safety features to Gemini 3.7 Flash, including blocking malicious hacking and dangerous misuse. Delays to Google’s Gemini 3.5 Pro model have left investors questioning the company’s roadmap, especially in areas like AI coding.

10. OpenAI

    1. OpenAI is on track to generate annualized revenue of more than $40 billion based on its current performance, roughly doubling its run rate from the end of 2025. The company’s revenue has accelerated in recent months, driven in part by the growth of its AI coding software, subscription sales, and its nascent advertising business. OpenAI has seen a sharp uptick in demand for its AI agents, including Codex for coding and ChatGPT Work, and has cut prices on certain models to better compete for cost-conscious customers.

11. Pony AI

    1. Pony AI plans to deploy more than 2,000 robotaxis across Europe in partnership with Uber Technologies. The initiative will expand an existing partnership between the two companies in Croatia’s Zagreb to four additional cities in the continent. Pony AI and Uber’s expansion also includes the Middle East, with more details about the rollout to be announced later.

12. Sandisk

    1. Sandisk announced its financial model for the years 2028 through 2030 at its 2026 investor day. Sandisk targets the following as part of its 2028-2030 financial model: Revenue growth in the mid-to-high teens during that period; Sees non-GAAP gross margins at about 80%; Targets non-GAAP operating margin of about 75%; Expects to return excess 100% of excess cash after investing in business; Targets ~50% adjusted free cash flow margin. Sandisk is up more than 530% this year.

13. SpaceX

    1. SpaceX has unveiled its latest AI model, Grok 4.6, which could help it achieve CEO Elon Musk’s revenue goals. Grok 4.6 scored higher on Artificial Analysis’s “Intelligence Index” than its predecessor Grok 4.5 and appears to be cheaper than its rivals。 SpaceX shares rose as investors cheered the release of the new model and other recent AI announcements, with CEO Elon Musk saying AI revenue will “exceed all other SpaceX revenue probably” by September.

14. Workday

    1. Reuters reported Workday is in talks to be acquired by Silver Lake. Reuters cites people familiar with the matter. Silver Lake and Workday have held discussions about a potential deal in recent months; sources say talks are ongoing and there is no guarantee a deal will materialize. Silver Lake and Workday did not immediately respond to Bloomberg requests for comment Peers including Wix, HubSpot, and Salesforce also extending gains after the Reuters report.

The Barbell Portfolio updates

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That said, the AI story of Amkor is actually strengthening.

Amkor is winning in the server CPU market with Nvidia Vera CPUs ramping and AMD ramping in the 2028 timeline.

Advanced packaging is increasingly becoming an important and fast-growing portion of its business, and this high-value business is helping drive strong margin gains.

Computing strength offsets Communications weakness

While the market sees Amkor as an AI play, it is important to note that 42% of 2Q26 revenues came from the communications end market, which includes smartphones and tablets, while only 22% of revenues came from the computing end market, which includes the data center end market.

In fact, the computing end market currently has the same sales mix as the automotive, industrial and other market.

Due to strong demand for data center applications, the computing end market saw revenue increase 20% sequentially in 2Q26.

Automotive and Industrial and consumer end markets both grew strongly, with revenues up 17% and 15% sequentially as ADAS demand was strong and there was broad-based IoT demand across customers.

The Communications market was weakest in 2Q26, up 6% sequentially.

Within the communications market, growth was driven by double-digit growth in the iOS ecosystem, while Android revenue was down 20% due to the impact of memory supply dynamics.

Communications revenue is expected to deviate from typical seasonal patterns and decline in the high-single-digits sequentially in 3Q26.

The weakness in Communications revenue is due to 3 key factors.

These 3 key factors are the delay in Amkor’s strategic initiative to move SiP to Vietnam to support the communications end market, the constraints in memory supply and high memory prices affecting demand, and build pattern changes.

The strategic initiative to move SiP from South Kora to Vietnam will enable Amkor to free up space to scale its high-value advanced products.

The lighter 3Q26 communications revenue was attributed to 50% from SiP delay qualifications, 35% from slower Android and 15% slower iOS due to memory.

On the other hand, computing growth is expected to accelerate to almost 30% sequential growth in 3Q26, due to strong AI data center demand and ramping of Nvidia’s Vera CPU.

Growing compute opportunities as AI CPU ramps

Advanced packaging is Amkor’s most important driver of growth given how important it is for next-generation AI semiconductors as packaging complexity increases.

With that in mind, the company recently signed 2 significant partnership agreements that support growth in this area.

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Google was first of the cloud service providers to report earnings and I think its results were important for whether we see further acceleration in cloud revenue, capital expenditures trends for 2026 and 2027 and returns on investment on AI.

Here are the 4 key topics covered below:

1. Accelerating Google Cloud

2. Cash flows, capital expenditures and capital structure

3. AI monetization within Search and Subscriptions

4. AI models and products

Accelerating Google Cloud

Google Cloud revenue came in at $24.8 billion, with growth accelerating to 82% in 2Q26, up from 63% in 1Q26 and 32% in 2Q25.

The strong growth was driven by Enterprise AI products and services.

In my view, Google Cloud’s stellar acceleration is largely due to a mix of vertically integrated chip platform, successful integration of Gemini across its products, strong demand for Gemini Enterprise and a leading frontier model, Gemini.

This was also the first quarter in which Google recognized revenues from TPU system sales which were delivered to customers in 2Q26.

Even without these TPU system sales, cloud revenue growth still accelerated meaningfully.

Management also stated that growth in Google Cloud was contributed by core workloads, AI solutions and AI infrastructure.

Google Cloud backlog also increased more than $50 billion sequentially to $514 billion in 2Q26, with about 50% of total backlog to be recognized as revenues in the next two years and the backlog comes from a broad mix of customers.

Firstly, Google Cloud has the best integrated AI portfolio, consisting not only of models, data, security and agent platforms, but also chips, all of which have high levels of integration.

While Google offers the best accelerators from Nvidia, one of the key drivers of differentiation and growth upside is its vertical integration and long history in developing its own chips.

This was the first quarter in which TPU systems were delivered to customer data centers and the revenues from TPU system sales agreements will be a small percentage of revenues in 2026, but Google is ramping this and the “vast majority” of revenues from these agreements will be realized in 2027.

Google continue to highlight that its TPU 8t and 8i deliver strong price performance, but further elaborated how its internally developed stack offers further differentiation.

Google’s Virgo Network was designed to meet modern large-scale AI workloads and allows customers to connect 1 million AI accelerators across multiple data center sites into a unified supercomputer.

Google’s software stack is also becoming increasingly sophisticated, with native support for JAX, PyTorch, vLLM and SGLang, enabling workload portability across GPUs and TPUs.

Google’s new agent-optimized Axion CPU delivers 30% better performance per dollar compared to its competition.

As such, due to a strong and differentiated portfolio of chips and high levels of vertical integration, Google Cloud is seeing strong growth in demand for its AI infrastructure offerings.

Secondly, Gemini Enterprise is one of the strongest growth drivers for Google Cloud.

Management highlighted that due to Gemini Enterprise differentiated and easy-to-use tools to build agents and automate processes, the company is seeing rapid adoption of Gemini Enterprise and almost 90% of Fortune 100 are using Gemini Enterprise.

Thirdly, Google is seeing diversified demand across products, customers and geographies, leading to Google winning new customers, deepening relationships with existing customers and driving growth through partners.

On new customers, Google is seeing a higher win rate of new customers and its acquisition velocity has 2x from the prior year.

As more enterprises and businesses use Gemini to build custom agents, automate processes, manage their customer relationships and more, this is also driving growth in Google’s paid token usage.

Almost 500 cloud customers have each processed more than 1 trillion tokens in the past year and over the last year, more than 2,000 enterprise customers consumed more than 100 billion tokens.

As such, Google is deepening its relationship with existing customers who are expanding their usage and exceeding their commitments by more than 50%, an acceleration from 1Q26.

Lastly, through partners, transactions on Google Cloud Marketplace is up more than 7x from the prior year, helping drive growth for Google Cloud.

On the margin and profitability front, Google Cloud operating income more than 3x from the prior year to $8.8 billion in 2Q26.

Operating profit margin of the Google Cloud segment also increased from 20.7% in 2Q25 to 35.6% this quarter.

Cash flows, capital expenditures and capital structure

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Subscribers to Outperforming the Market get full access to the Barbell Portfolio, all my intrinsic value, 1-year and 3-year price targets in the Price Target Report, and real-time trade alerts when I place buy and sell orders (I am fully invested in the Barbell Portfolio).

The full track record for the Barbell Portfolio from 2022 till today can be found here.

In addition, subscribers get a weekly deep dive on Fridays, a weekly newsletter on Mondays, and other earnings analysis, market review and portfolio review articles during the week. All links can be found consolidated here.

Articles posted in the last week

1. ASML: Expanding Capacity As Order Visibility Grows

2. TSMC: AI supercycle strengthens as N2, N3 and CoWoS demand accelerates

3. Weekly newsletter 173

Market Updates

1. US Iran war

   1. Iran said it reached an agreement with Oman on a proposed route for shipping through the Strait of Hormuz, a potential step toward a reopening of the critical waterway for energy supplies. A joint statement from Tehran and Muscat is under review and in the final drafting stage, with Iranian foreign ministry spokesman Esmail Baghaei saying negotiations between the two countries are “forward-moving” and a deal would be struck “if certain third parties do not obstruct this process”. Iran’s latest announcement on Hormuz comes after months of deadlock between the US and Tehran over how to conclude the war, with control over shipping through the waterway a particular sticking point.

   2. Iran will seek to bar US and Israeli ships from the Strait of Hormuz and require compensation from hostile countries before they’re allowed to use it, according to local media reports on a proposed Iran-Oman deal. The agreement proposes a ban on cargo related to Israel, and a fee structure covering services like insurance and environmental costs, with Iranian management over the entry of vessels into Hormuz. The US has insisted on free transit through Hormuz and broadly called for a return to the pre-war status quo, with any temporary routes through the strait not subject to approvals, permissions, tolls or charges.

   3. US President Donald Trump is pushing Iran to reach a deal with Oman on the Strait of Hormuz as soon as Tuesday, or face devastating air strikes on the country. A diplomatic resolution appears to hinge on talks between Oman and Iran to get more ships sailing through the strait, but there’s little sign of progress in those negotiations. Trump said “there’s not going to be charging” for access to the strait, something Tehran has set as a key condition of any deal.

   4. The prospect of an interim deal focused on the Strait of Hormuz appeared to be gaining traction, with Qatar saying a proposal had been drafted and both American and Iranian officials sounding hopeful about an agreement to reopen the crucial waterway. A short-term deal could help normalize commercial shipping in the strait and prevent the resumption of fighting in the Middle East, but it might still fail to end the war conclusively or resolve Trump’s concerns about Iran’s nuclear program. Iran is considering allowing European nations to remove mines from the Strait of Hormuz, according to diplomats familiar with the matter, which is contrary to Iran’s public stance but in line with its softened position in private meetings in recent weeks.

2. Federal Reserve

   1. Federal Reserve Bank of Minneapolis President Neel Kashkari said the US central bank should start to raise interest rates incrementally right now to curb inflation that remains too high. Kashkari warned that policymakers might have to raise rates more aggressively if they wait too long and high inflation becomes entrenched. Kashkari said he’s still unsure what policy action will be appropriate at the Fed’s next meeting in September, adding that he wants to see what incoming data say about the economy.

   2. Federal Reserve Bank of New York President John Williams said interest rates remain well positioned as inflation should ease during the second half of the year. Williams said if inflation does not behave as expected, the central bank would need to act to get on a trajectory that brings inflation back to 2%. Williams added that underlying measures of inflation excluding energy and food prices should ease, and the Fed could deliver on its 2% inflation goal by 2028.

   3. Federal Reserve Bank of Dallas President Lorie Logan said she dissented from the Fed’s decision to hold interest rates steady because she doesn’t see inflation returning to officials’ 2% target without action from the central bank. “Without any policy restraint, inflation will likely continue to trend above target until there’s an unanticipated shock,” Logan said in a statement released Friday. “Modest action in the near term would reduce the likelihood of needing to take sharper action later.”

3. US jobs report

   1. US companies added fewer jobs in July than expected, with private payrolls rising 44,000. The report showed wage growth for those who switched jobs picked up to the strongest pace in nearly a year. The ADP report showed workers who changed jobs saw a 7% increase in pay from a year earlier, while wage growth for those who stayed put held at 4.4%.

4. Initial jobless claims

   1. Applications for US unemployment benefits were little changed, remaining below 200,000 for a third straight week and underscoring the labor market’s resilience. Initial claims edged up to 199,000 in the week ended Aug. 1, according to Labor Department data released Thursday. The streak below 200,000 was the longest since 1969, at a time when such low levels were more common and the US workforce was about half what it is now. Meanwhile, the four-week moving average, a metric that helps smooth out volatility, fell to the lowest since September 2022.

5. US debt issuance

   1. Debt issuance, signaling no change in note and bond auction sizes well into 2027. The Treasury tweaked its language to say it is evaluating potential future “changes” in coupon and floating rate note sales, rather than “increases”. The Treasury will hold refunding auctions next week, including $58 billion of 3-year notes, $42 billion of 10-year notes, and $25 billion of 30-year bonds, to raise new cash of approximately $28.7 billion.

6. US job openings

   1. US job openings eased in June but hiring picked up slightly, indicating relatively steady demand for workers. The decrease in openings was driven by a pullback in healthcare, leisure and hospitality, wholesale trade and business services. The report shows a stable labor market with limited layoffs and about one vacancy per unemployed worker, which is broadly consistent with a balanced labor market.

7. US manufacturing activity

   1. US manufacturing activity expanded in July at the fastest pace in more than four years as demand remained strong, production surged and firms added workers. The Institute for Supply Management’s July manufacturing gauge rose to 55.6, the highest since May 2022, with readings above 50 indicating growth. The manufacturing sector has gained momentum this year, with factories benefiting from resilient consumer demand, solid business investment and government outlays on defense.

8. US drafts ban on China data center components.

   1. The Federal Communications Commission is drafting a ban on imports of some Chinese data center components to protect US data center infrastructure. The proposed ban aims to prevent Chinese firms from installing malware or stealing data from the data centers that are critical to the artificial intelligence boom. The ban would include imports of new models of optical transceivers, which help data travel through fiber optic cables inside data centers.

9. AMD

   1. AMD Slides After AI Growth Outlook Underwhelms Investors. Advanced Micro Devices fell after the company gave an underwhelming sales outlook, a sign shareholders expected more of a return from the global expansion of AI data centers. Third-quarter revenue will be $13 billion, plus or minus $300 million, according to the chipmaker, though some Wall Street estimates were well north of $13 billion. AMD shares declined as much as 7.2% to $481.06 on Wednesday after trading got underway in New York, suggesting that the company needs to show more rapid growth to justify its valuation.

10. Anthropic

    1. Anthropic has struck a deal for computing capacity from Volta Infra Holdings Ltd., a months-old infrastructure startup, to keep pace with demand for its products. The deal is valued at $10 billion and the agreement runs for six years, with Volta partnering with Bitdeer Technologies to deliver the computing capacity from a site in Norway. Anthropic has moved aggressively to shore up its computing resources, inking computing agreements with several companies and considering tapping the public markets for capital with a Wall Street debut as soon as this year.

11. Apple

    1. Apple asked a federal judge to order OpenAI to stop using what it calls stolen trade secrets and to return any confidential information to Apple. The order would also require OpenAI to cease any efforts to acquire other private details and would stay in place while Apple’s lawsuit proceeds. OpenAI said Apple’s request is “both based on false information and completely unnecessary,” stating that it does not have, nor want, any of Apple’s trade secrets.

12. CoreWeave

    1. CoreWeave is entering the Asian market with its first data centers in the region, planning three new data centers in Indonesia with a total of 360 megawatts of capacity. The company will spend billions of dollars on the project, with the data centers expected to come online in 2028, targeting labs, startups and enterprise customers in Southeast Asia. The Indonesian data centers will also target global customers, with the country’s data center market projected to more than double to $6.08 billion by 2031, according to Research and Markets data.

13. Caterpillar

    1. Caterpillar posted second-quarter earnings and revenue that beat Wall Street expectations as the company’s power-generation business continued to post strong growth off the back of data center spending. Earnings excluding one-time items of $8.17 per share, compared with $4.72 a year earlier, it said in a statement, the US company said in a statement Tuesday. That compared with the $6.17 average of analysts’ estimate compiled by Bloomberg. Sales rose to $20.5 billion, exceeding the $19 billion average estimate.

14. CXMT

    1. China’s CXMT is preparing to manufacture advanced low-power memory chips in small quantities around the end of the year, people familiar with the matter said. The production of sixth-generation low-power double-data-rate memory chips would allow CXMT to compete against companies like Micron, SK Hynix and Samsung Electronics Mastering the manufacture of such chips would boost revenues at CXMT and help reduce China’s reliance on foreign components, marking a breakthrough in Beijing’s pursuit of technological self-sufficiency.

15. Google

    1. Google is losing prominent artificial intelligence veterans, including Jeff Dean, in a seismic overhaul that is casting doubt over leadership of a critical area of growth. Demis Hassabis, the head of Google DeepMind, is moving into a chairman role at the lab and will assume the dual titles of chairman of Google DeepMind and chief scientist of Alphabet. The changes in leadership may make it harder for Google to recruit top talent and compete with rival labs, as the company faces intensifying competition in the AI race and criticism that it has been too slow to turn its research into tangible progress.

    2. Alphabet sold $25 billion of investment-grade bonds after generous yield payouts helped secure one of the year’s largest order books for AI-related debt. The strong investor reception for Alphabet’s notes underscores a shift in sentiment, after a flood of debt offerings and concerns about excessive spending on artificial intelligence infrastructure fueled a selloff in technology bonds last month. The company sold notes across 10 tranches, with maturities ranging from two to 40 years, and plans to issue US debt twice a year, according to people with knowledge of the matter.

16. McDonald

    1. McDonald’s posted slowing growth for a second straight quarter, with sales at established US restaurants rising 0.8%. The company highlighted growth in international markets including Germany, Australia, the UK and Japan, while comparable sales were negative in China. McDonald’s is embarking on a multiyear plan to become more than just a fast, cheap meal, with the aim of being the first choice for family outings and other occasions.

17. Palantir

    1. Palantir shares surged after the company boosted full-year revenue and income forecasts, describing commercial demand for its data analytics tools as “otherworldly.” Palantir Chief Executive Officer Alex Karp said US commercial sales in the second quarter were “staggering,” rising 149% from a year earlier to $764 million. The stronger outlook worked to assuage investors’ fears that Palantir’s business would suffer from AI developers selling their own software and from governments outside of the US increasingly working with tech firms at home.

18. Samsung

    1. Samsung Reveals New 3D-Memory Roadmap in Bid for AI Tech Lead. Samsung Electronics is touting improved performance and power efficiency in its most advanced memory hardware to overtake rivals SK Hynix and Micron. The new system, known as zHBM, vertically stacks high-bandwidth memory on top of AI accelerators, delivering about eight times the performance of next-generation HBM5. Samsung introduced other new technologies, including zNAND-O and V10 BV-NAND architecture, as part of its efforts to position itself as an end-to-end provider of infrastructure for the AI era.

19. SpaceX

    1. SpaceX stock fell after the company disclosed higher-than-expected spending on its artificial intelligence business, dampening an inaugural quarterly report that broadly surpassed Wall Street forecasts. SpaceX reported revenue of $7.8 billion, greater than the $6.81 billion analysts estimated on average, and lost 9 cents a share for the quarter, less than the 24-cent loss analysts forecast. The company’s Starlink satellite-internet service reached 12 million subscribers by the second quarter, and SpaceX intends to build out terrestrial mobile infrastructure and use Starlink to develop a direct-to-mobile service.

20. Spotify

    1. Spotify shares fell in premarket trading after the company gave disappointing forecasts for active users and operating income in the third quarter. Monthly active users will rise to 788 million in the current period, missing the average analyst estimate of 793.5 million, and operating income in the third quarter will be €670 million, also missing expectations. Spotify shares fell 6.4% in early trading before markets opened in New York, with the stock down 16% so far this year, after the company reported revenue and user growth that slightly missed or exceeded expectations.

The Barbell Portfolio updates

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ASML has two large drivers of revenue growth from logic and memory customers, as logic customers ramp 2nm node capacity and continue to see migration towards the leading edge, while the tight supply in memory is resulting in unprecedented demand for memory capacity.

As a result, we are seeing ASML planning significant capacity expansion in 2027 and 2028, and more importantly, ASML is willing to provide these numbers for the next 2 years which they typically do not do, suggesting high visibility going into the next 2 years.

1. 2Q26 print

2. 2026 outlook

3. Expanding capacity but more likely to come

4. Dramatically improved order visibility

5. Financials

6. Valuation

7. Conclusion

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2Q26 print

ASML’s 2Q26 total net sales were €9.3 billion, which was 6% above consensus.

The beat was primarily driven by higher than-expected installed base management sales of €2.8 billion and 11% above consensus.

EUV system sales were €3.7 billion up 39% from the prior year and 7% above consensus.

China system sales decreased 23% sequentially and 39% from the prior year in 2Q26, which is in line with China import data, representing 14% of 2Q26 product sales.

ASML continues to expect China to normalize to 20% of sales this year, implying China down 8% from the prior year.

This was driven by logic, which would imply further upside from memory, in my view in 2027.

ASML expects memory revenues to grow 75% from the prior year in 2026 and 25% for advanced foundry logic which shows the strong litho intensity increase.

Gross margin for 2Q26 was 54%, compared to consensus expectations of 51.9%.

This beat was primarily due to the contribution of the very high margin components within its installed base management business which drove the revenue upside.

Operating margin for 2Q26 was 37.1%, compared to consensus expectations of 34.6%.

Outlook

Memory demand is driving majority of the upside revision to 2026 revenue guidance numbers as management expects memory revenue growth to be up 70% from the prior year, but both logic and installed base management are also strong, expected to grow 25% and 30% respectively in 2026.

On the gross margin front, due to improving mix with high levels of upgrades within installed base management helps to drive the upside in 2026 gross margin guidance.

ASML guided 3Q26 net sales to be between €11 billion to €12 billion, ahead of consensus expectations of €10.4 billion, while gross margin was guided to be between 55% to 57%, ahead of consensus expectations of 52.1%.

ASML raised 2026 revenue guidance from the earlier range of €36 billion to €40 billion to the new range of €43 billion to €45 billion.

Based on the new numbers, ASML raised revenue guidance for 2026 by 16% at the midpoint, while also narrowing the range.

At the midpoint, the new guidance implies 35% year-over-year revenue growth, compared to consensus expectations of just 21%.

ASML also raised the gross margin guidance from the earlier range of 51% to 53% to the new range of 54% to 56%, which is a 3-percentage point increase at the midpoint.

Based on the newly revised 2026 revenue and gross margin guidance, I expect EPS upside to be 25% and likely 20% to 30% in 2027 and 2028.

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This is what I will be covering in the article:

1. Strong 2Q26 and outlook

2. Pricing discipline

3. Accelerating advanced node capacity expansion

4. Node development for the A14 node family

5. Long-term order visibility

6. Valuation

7. Conclusion

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Strong 2Q26 and outlook

In 2Q26, TSMC delivered revenue of $40.2 billion, which was up 34% from the prior year and 12% sequentially, while also guiding to yet another 12% sequential growth next quarter.

Gross margin and operating profit margin came in at 67.7% and 60.3%, ahead of expectations of 67.3% and 58.7%.

Earnings per share came in at NT$27.25 per share, ahead of expectations of NT$24.33.

TSMC guided 3Q26 revenue to be between $44.5 billion to $45.8 billion.

At the midpoint, this implies 12% sequential growth.

Gross profit margin is expected to be between 65% and 67% while operating profit margin is expected to be between 56% and 58%.

For the full year 2026 revenue guidance, TSMC raised guidance from the earlier “more than 30% growth” in 2026 to “more than 40% growth” in 2026.

Due to rising AI demand across AI accelerator, networking and CPU along with inflationary costs, TSMC also raised its 2026 capital expenditure guidance from the earlier range of $52 billion to $56 billion to the new range of $60 billion to $64 billion.

This is a 15% increase in 2026 capital expenditure guidance.

For the new range of capital expenditures, management expects 70% to 80% to be invested in the advanced process, 10% in specialty, 10% to 20% in advanced packaging testing and masks.

In terms of US investment, TSMC is adding another $100 billion investment for its US Arizona expansion, with the total investment now reaching $265 billion.

Despite the aggressive increase in capital expenditures for 2026, management acknowledged that supply will likely remain tight for years.

Management highlighted that AI-related demand spans CPUs, GPUs and XPUs, requiring continuous balancing of wafer allocation across customers.

Rather than being motivated competitively, TSMC reiterated their stance that their expansion of leading-edge capacity is entirely demand driven.

TSMC starts customer engagements several years before production, which makes the foundry business fundamentally different from commodity manufacturing.

Through these engagements and extensive collaboration with customers, along with TSMC’s own judgement, TSMC’s capacity planning is based on visibility and conservatism in my view.

Specifically for the lift in capital expenditures in 2026, management suggested that as AI demand broadens beyond GPUs to include CPUs, custom ASICs and networking silicon, this has further reinforced management’s confidence in 2026 revenue growth of more than 40% from the prior year.

Perhaps more importantly, management mentioned that it does not just rely on cloud service provider forecasts, but it also evaluates their deployment schedules, power availability and data construction before TSMC decides to expand capacity.

As such, TSMC’s method of expanding capacity is based on real AI demand and real deployment and less likely to result in inventory building.

TSMC guided for 2H26 gross margin to be supported by continued productivity improvement, UTR enhancement and optimizing capacity allocation.

Overseas fabs expansion will have an impact of 2 to 3 percentage points to gross margin in the early stage and 3 to 4 percentage points in the later stage.

Ramping of N2 in 2H26 will also have about 3 to 4 percentage points gross margin impact in 2H26.

Management continues to have an optimistic long-term outlook, with 5-year AI sales CAGR between 2024 to 2029 remaining at high-50%.

Management continuously reiterated that AI demand has become even stronger than previously expected.

Pricing discipline

In my view, TSMC is playing the long game here with its pricing discipline.

While we see headlines of memory or storage prices increasing exponentially, TSMC has kept its discipline on pricing discipline despite being a monopoly in the leading-edge nodes.

Despite the fact that overseas fabs and N2 ramp will dilute gross margin as mentioned earlier, TSMC is using stronger advanced node utilization and manufacturing efficiencies to offset these gross margin headwinds rather than just leveraging on higher price increases.

With gross margin in 2Q26 reaching 67.7%, advanced technologies account for 77% of wafer revenue and 2nm contributes revenue for the first time.

TSMC is thus well positioned in the leading-edge to sustain best-in-class profitability within foundry peers while supporting the investments needed for AI growth.

TSMC has not and will not maximize short-term pricing at the expense of customer relationships, management has reiterated this many times.

As such, TSMC’s best-in-class and gross margin could technically be much better with price hikes given its strong leadership in the leading node, but its ability to offset gross margin headwinds through efficiency improvements and utilization is highly commendable in my view.

In my view, TSMC’s excellent disciplined philosophy is what differentiates it, especially when it is operating in one of the strongest demand environments for the industry, highlighting that the company does not operate in a way that maximizes short-term gains and margins.

By earning a sufficient return to continuously reinvest in its technology leadership and capacity expansion while ensuring that its customers continue to remain competitive is a smart long-term strategy as it is playing to the natural pricing power expansion that comes with increases in advanced node complexity and its technology leadership.

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Subscribers to Outperforming the Market get full access to the Barbell Portfolio, all my intrinsic value, 1-year and 3-year price targets in the Price Target Report, and real-time trade alerts when I place buy and sell orders (I am fully invested in the Barbell Portfolio).

The full track record for the Barbell Portfolio from 2022 till today can be found here.

In addition, subscribers get a weekly deep dive on Fridays, a weekly newsletter on Mondays, and other earnings analysis, market review and portfolio review articles during the week. All links can be found consolidated here.

Articles posted in the last week

1. The Barbell Portfolio review | July 2026

2. Trade alert 99

3. Netflix: Looking Into Bearish Arguments

4. Weekly newsletter 172

Market Updates

1. US Iran war

   1. The US and Iran exchanged airstrikes, with Washington hitting dozens of Iranian military targets and Iran targeting air bases in Jordan and Kuwait. The conflict has spread across the Middle East, with Saudi Arabia and Iraq drawn into the fray, and Houthi militants in Yemen attacking Saudi vessels in the Red Sea. The US and Iran had paused an exchange of strikes to give diplomacy a chance, but that lull ended with Tehran carrying out a surprise attack on an American military base in Jordan.

2. US economy

   1. The US economy grew at a weaker-than-expected pace in the second quarter, with inflation-adjusted gross domestic product increasing an annualized 1.5% in the three months through June. Consumer spending rose at a stronger-than-expected 3.2% rate, and business investment continued to boom amid a rush to invest in artificial intelligence. A narrower metric of underlying demand known as final sales to private domestic purchasers climbed 3.9% in the second quarter, more than double the first quarter pace and the strongest since early 2023.

3. US consumer confidence

   1. US consumer confidence ebbed in July, and households’ perceptions ‌of the labor market remained generally weak, a survey showed on Tuesday. The Conference Board said its ⁠consumer confidence index slipped to 90.8 this month from an upwardly revised 92.2 in June. Economists polled by Reuters had forecast the index climbing to ‌92.3 ⁠from a previously reported 91.2 in June.

4. Capital goods new orders

   1. New orders for key US-manufactured capital goods increased strongly in June while shipments surged by the most in 4-1/2 years as businesses ramped up spending on artificial intelligence, suggesting the economy maintained a fairly strong pace of growth in the second quarter. The report from the Commerce Department on Monday also showed upward revisions to the data for May. The AI build-out is helping to ‌limit the drag on the economy from the five-month war in the Middle East and the Trump administration’s lingering tariffs on imports, propping up manufacturing.

5. Euro-area economy

   1. The euro-area economy expanded more than anticipated in the second quarter, with gross domestic product rising 0.4% from the previous three months. Germany, France, Italy, and Spain all recorded growth, with Spain outperforming its peers with a consensus-beating expansion of 0.7%. The European Central Bank warned of upside risks to inflation and downside risks to growth, with some officials inclined to add to June’s hike and investors anticipating another move in September.

6. Situational Awareness

   1. Assets at Leopold Aschenbrenner’s hedge fund Situational Awareness have slumped to about $10 billion after Ken Griffin’s Citadel stepped in to buy the bulk of its public stock bets. Situational Awareness had more than $20 billion in assets as of late May and began liquidating some of its equity positions after suffering losses in the AI stock rout in recent weeks.

7. Apple

   1. Apple sales grew slower than anticipated in China and its services business last quarter, sparking concerns about two key markets. The company’s revenue from services was $30.7 billion, compared with a $31.4 billion projection, and China sales amounted to $18.8 billion, well short of the $19.6 billion estimated by analysts.

8. Bloom Energy

   1. Bloom Energy posted second-quarter revenue of $1.07 billion, beating analyst estimates of $822.77 million. The company reported second-quarter adjusted earnings of 78 cents per share, beating estimates of 40 cents per share, and raised its full-year 2026 revenue guidance.

9. Cadence Design Systems

   1. Cadence Design Systems reported stronger-than-expected second-quarter results and raised its full-year guidance, with revenue increasing 24% year over year to $1.584 billion. The company ended the quarter with a record backlog of $8.1 billion, highlighting strong customer demand and continued business momentum, with artificial intelligence remaining a key growth driver. Cadence increased its adjusted earnings forecast to a range of $8.05 to $8.15 per share and expects revenue of $6.26 billion to $6.34 billion for the full year, up from its previous guidance.

10. Corning

    1. Corning stock fell sharply despite reporting better-than-expected second-quarter 2026 results, as investors focused on revenue guidance that largely matched Wall Street expectations. The company delivered strong growth, with adjusted earnings rising 30% year over year to 78 cents per share and revenue increasing 17% to $4.74 billion. Corning expects adjusted earnings of 85 cents to 89 cents per share for the third quarter, with revenue forecast at $4.9 billion to $5.0 billion, representing about 16% year-over-year growth.

11. DeepSeek

    1. DeepSeek is planning a massive artificial-intelligence data center in Inner Mongolia to add one gigawatt worth of compute. The company aims to build its own new facility, while leasing additional capacity from other companies, and is pushing to bring at least part of its data center’s capacity online by the end of next year or early 2028. DeepSeek’s effort is part of a broader push by Chinese competitors to make sure they’re not left behind in AI computing capacity.

12. Lam Research

    1. Lam Research beat analyst estimates for its fiscal fourth quarter and with its guidance for the current period. The company earned an adjusted $1.82 per share on sales of $6.72 billion in the quarter ended June 28, with earnings increasing 37% and sales climbing 30% on a year-over-year basis. For the current quarter, Lam predicted adjusted earnings per share of $2.15 on sales of $8.1 billion.

13. OpenAI

    1. An OpenAI AI agent breached systems at Hugging Face and also compromised a customer of the technology company Modal. The agent broke into an isolated testing environment known as a sandbox that Modal was running for a customer, who had set up a publicly accessible interface.

14. Qualcomm

    1. Qualcomm shares were falling after the chip maker reported fiscal third-quarter earnings that fell short of Wall Street estimates, but better-than-expected revenue. For its fiscal third quarter, Qualcomm reported adjusted earnings of $2.21 a share, on revenue of $9.9 billion, while analysts had expected adjusted earnings of $2.24 a share on revenue of nearly $9.7 billion. Qualcomm projects revenue of $9.7 billion to $10.5 billion and adjusted earnings of $2.05 to $2.25 a share for the current fiscal fourth quarter, below current Wall Street estimates.

15. Samsung Electronics

    1. Samsung Electronics posted a surge in chip profits and expects memory shortages to worsen next year due to the global AI infrastructure buildout. The company’s chip operations reported an operating income that beat the average analyst estimate, driven by demand for high-bandwidth memory and storage. Samsung’s comments echoed SK Hynix’s, with both companies seeing no letup in the speed of AI development and data center construction, despite investor concerns about overcapacity.

16. SK Hynix

    1. SK Hynix’s quarterly profit rose 557%, but missed expectations, fueling fears that an AI boom may be decelerating. The company expects its capital investments to hit the high 40 trillion won range this year, and has shed more than $500 billion of value since June. SK Hynix’s net income surged 1,242% on one-time investment gains, but operating profit and revenue came below analyst estimates.

17. Seagate

    1. Seagate reported quarterly earnings of $5.71 per share, beating the Street estimate of $5.09. Seagate’s fourth quarter highlights include non-GAAP gross margin of 52.7% and cash flow from operations of $1.3 billion. Seagate expects first quarter revenue of $4.1 billion, plus or minus $100 million, and non-GAAP diluted EPS of $7.30, plus or minus 20 cents.

18. Vertiv Holdings

    1. Vertiv Holdings’ shares tumbled after the company’s second-quarter revenue missed expectations and guidance failed to impress Wall Street. Vertiv posted adjusted earnings of $1.52 a share and sales grew 24% to $3.27 billion, but missed the analyst consensus call for $3.38 billion. The company updated its full-year outlook, forecasting adjusted earnings of $6.65 to $6.75 a share on net sales of $13.8 billion to $14 billion.

The Barbell Portfolio updates

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I would like to remind everyone that this is a long-term portfolio and not a trading portfolio.

I only place trades when they are high conviction and when valuation is attractive and avoid trading too often or too much.

As such, this portfolio is well positioned fundamentally for the long-term and is very well suited for investors who have a strong focus on fundamentals and have a long-term investment horizon rather than someone who is more focused on technical analysis and have a shorter investment horizon.

With that, let’s get into the individual positions, the reasoning for their place in the portfolio and how I view each one of them:

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Here’s what I cover in the article about Netflix:

1. Revenue weakness

2. Retesting new ways to attract new members

3. Changing of the viewing hours disclosure

4. Return on investments

5. Valuation

6. Conclusion

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Revenue weakness

One of the key reasons for investors selling off Netflix post-earnings was the softness in 2Q26 revenues, decelerating UCAN growth and a lack of upside to full-year 2026 revenue guidance.

Firstly, on 2Q26 revenue, Netflix increased revenues by 13% from the prior year, or 12% on a constant currency basis, to $12.6 billion.

This was driven by membership growth, pricing, and increased ad revenue.

To be fair, 2Q26 revenue was as per expected and in-line with management guidance for the quarter.

Investors were perhaps more focused on the 2Q26 UCAN revenue growth, which came in at 10% growth from the prior year, compared to 1Q26 and 2Q25 UCAN revenue growth of 14% and 15% respectively.

Is this deceleration a fundamental shift in the UCAN story for Netflix?

At least for now, management stated that the softer UCAN revenue of $5.43 billion, which was 2% below expectations, was due to more difficult comparables for 2Q26 as price hikes only benefited part of the quarter in 2Q26 compared to the full quarter benefit in 2Q25.

The deceleration across the board for EMEA, LATAM and APAC probably did not help as well (deceleration of 5 percentage points, 7 percentage points and 5 percentage points respectively).

Unless Netflix shows revenue acceleration back to the mid-teens for UCAN like we saw in the prior 4 quarters and a similar dynamic for EMEA, the stock could see further downside and derating.

Netflix narrowed its full-year revenue guidance to between $51 billion and $51.4 billion with the midpoint unchanged from the prior guidance, which implies 12% constant currency growth for 2026.

There was also a lack of upside to ad revenues, as Netflix reiterated ad revenue to double to $3 billion in 2026, which was the guide entering the year.

Fundamentally, management stated that price increases have led to consistent levels of churn that have been in-line with expectations, and in 3Q26 we should see a full quarter of price increase benefit.

Retesting new ways to attract new members

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Subscribers to Outperforming the Market get full access to the Barbell Portfolio, all my intrinsic value, 1-year and 3-year price targets in the Price Target Report, and real-time trade alerts when I place buy and sell orders (I am fully invested in the Barbell Portfolio).

The full track record for the Barbell Portfolio from 2022 till today can be found here.

In addition, subscribers get a weekly deep dive on Fridays, a weekly newsletter on Mondays, and other earnings analysis, market review and portfolio review articles during the week. All links can be found consolidated here.

Articles posted in the last week

1. Arm Deep Dive (Part 1)

2. Weekly newsletter 170

Market Updates

1. US Iran War

   1. The US widened the scope of its airstrikes on Iran, striking a military site near Tabriz and other areas, as President Donald Trump signaled a renewal of peace talks is unlikely. The Iranian government activated air defenses in Tehran and the US struck multiple locations, with Iran firing on US bases in Kuwait, Bahrain, and Jordan, marking the 11th straight day of attacks. Trump vowed to bomb and destroy Iranian targets, including bridges and power plants, if Iran’s military shoots at ships in the Strait of Hormuz, while Iran warned of a “powerful strike” in response to any attack on its nuclear facilities.

   2. President Donald Trump threatened to step up strikes on Iran and said he’d hold the country responsible for any further attacks by the Yemen-based Houthis on Red Sea ships. Trump told Axios he’s considering a “massive attack” and is “close to making a decision” on it and posted that the US will inflict “major military punishment” on both Iran and the Houthis in the event of more strikes. Iran warned it will retaliate against infrastructure in the region, including energy facilities, if Trump follows through on his threat to destroy one bridge or power plant each time Tehran shoots at vessels in the Strait of Hormuz.

2. Forced-Labor Duties

   1. The US will collect duties of between 10% and 12.5% on imports from most major trading partners, following an investigation into the alleged failure of around 60 economies to prevent forced labor in their supply chains. Goods from some trading partners deemed to have adopted forced-labor restrictions will be subject to 10% tariffs, including Mexico, the UK, Canada and India, while duties on items from the European Union and Taiwan will be at least 10% and products from Japan, Switzerland and South Korea will be taxed at at least 12.5%. The new duties take effect Friday at 12:01 a.m. New York time and won’t apply to certain goods already loaded onto vessels before that time, with exemptions for imports such as fuel, foods and fertilizers, as well as products covered by separate, industry-specific levies.

3. US Initial Jobless Claims

   1. First-time applications for US unemployment benefits fell last week to the lowest level since 1969, signaling layoffs remain muted in a stable labor market. Initial claims fell by 22,000 to 187,000 in the week ended July 18, according to Labor Department data released Thursday. The median forecast in a Bloomberg survey of economists called for 210,000 applications.

4. Alphabet

   1. Alphabet boosted its projected capital expenditures for the year to an unprecedented $200 billion at the midpoint, stoking fears of fiscal discipline falling by the wayside in the race to dominate AI. The company’s cloud revenue totaled $24.77 billion for the period ended June 30, up 82% from a year earlier and above the $22.46 billion that analysts had expected, demonstrating some progress in generating new growth from AI investments. Alphabet’s investment portfolio has become a source of upside for the company, with gains in the value of Alphabet’s investments totaling nearly $100 billion for the quarter, sending net income soaring.

   2. The value of Alphabet’s stake in Anthropic has soared to around $124 billion, making it one of the most lucrative bets in the company’s history. Alphabet recorded about $77 billion in unrealized gains from its private investments in the second quarter, with the value of its investments in unidentified private companies totaling roughly $124.3 billion as of June 30. Alphabet’s stake in Anthropic has become one of the most valuable assets on its balance sheet, helping drive nearly $100 billion in total gains for the second quarter and fueling a surge in Alphabet’s net income.

   3. Shares of Alphabet gained on a report that the company is developing a server chip designed to optimize its Gemini AI model. The semiconductor, called Frozen v2, may be deployed as soon as 2028, and would reduce the amount of data the chip has to move around, making it faster at responding to queries.

5. Apple

   1. Apple is preparing to debut new versions of every Mac it sells, including updates to its desktop computers and laptops, across this fall and next year. The new computers will include a refreshed low-end 14-inch MacBook Pro with a new M6 chip, new iMacs, and a high-end 14-inch and 16-inch MacBook with a fresh design and a touch screen that uses OLED display technology. Apple is also planning refreshed MacBook Air and MacBook Pro lines, as well as new Mac mini and Mac Studio models with upgraded chips, although the timing of these releases may be affected by memory-chip supply challenges.

6. AMD

   1. Advanced Micro Devices announced new products for data centers that it said will outperform those from rival Nvidia. The products include a new generation of microprocessors, an updated AI accelerator, and a server design, which represent major upgrades to its current lineup. AMD believes it will be competing in a market worth $2 trillion in 2030, with the market for AI accelerators predicted to soar to $1.4 trillion by that date.

   2. Advanced Micro Devices has agreed to invest up to $5 billion in Anthropic as part of a potential multi-gigawatt deployment of chips for the artificial intelligence startup. Anthropic will buy as much as 2 gigawatts of AMD’s latest-generation chips, called the Instinct MI450, beginning in the first half of 2027. The deal is poised to help bolster AMD in competing against industry leader Nvidia and provide Anthropic with essential computing power.

7. CXMT

   1. Investors are looking to CXMT’s trading debut to help renew a rally in Chinese semiconductor stocks. CXMT’s IPO values the company at $86 billion, with a valuation seen as leaving ample room for the company to run. The company’s listing is expected to perform well given its heavy state backing and an IPO that was hundreds of times oversubscribed.

8. GE Vernova

   1. GE Vernova’s shares slumped after a higher revenue outlook failed to impress investors, a sign that it’s getting harder for companies that sell equipment to data centers to meet the market’s sky-high hopes. The company now expects full-year revenue of $45.5 billion to $46.5 billion, an increase of $1 billion, and left unchanged a margin forecast for adjusted earnings before interest, taxes, depreciation and amortization. The shares fell 8.7% in New York, the biggest decline since December, as investors’ expectations were high before the report and the “relatively modest” increase to the revenue outlook and the unchanged margin forecast could limit upside for the stock in the near term.

9. Intel

   1. Intel delivered a revenue forecast that shattered Wall Street estimates, indicating that booming data center spending is helping fuel a long-awaited turnaround. Sales will be $15.8 billion to $16.8 billion in the third quarter, with the low end of that range easily clearing the $15.1 billion average analyst estimate. The outlook underscores Intel’s gains with data center customers, which are clamoring for chips to satisfy demand for artificial intelligence computing, with sales in that segment soaring 59% last quarter.

10. Moonshot AI

    1. Moonshot AI is preparing to begin discussions in August on a final round of fundraising before listing in Hong Kong at a valuation of as much as $50 billion. The Chinese AI lab should close a financing round that began this summer at a valuation of $31.5 billion and then intends to open discussions with potential backers about a follow-on capital-raising. Moonshot achieved $300 million of annual recurring revenue in June, and daily sales have surged at least six times since the launch of its latest AI model, the 2.8 trillion-parameter Kimi K3.

11. OpenAI

    1. OpenAI said its advanced artificial intelligence models inadvertently hacked Hugging Face in an “unprecedented” incident. The models broke into Hugging Face’s system during an evaluation of their cyber capabilities, operating with lower guardrails to be tested. The incident raises questions about the ability of advanced AI models to carry out cyberattacks and has prompted fresh calls for curbs on the technology.

12. ServiceNow

    1. ServiceNow reported better-than-expected quarterly sales and bookings, boosting Wall Street’s hopes that the software maker’s new artificial intelligence tools will spur growth. Subscription revenue increased about 25% to $3.88 billion in the period that ended June 30, the company said Wednesday in a statement. Current remaining performance obligations, a measure of near-term bookings, jumped 21% to $13.2 billion. Both measures exceeded analyst estimates. New AI business continues to outpace expectations, Chief Financial Officer Gina Mastantuono said in the statement. The results highlight “ServiceNow’s broad-based demand, strong execution and operating leverage,” she said.

13. SpaceX

    1. SpaceX has set the stage for one of the largest share unlocks in capital markets history, with as much as $116 billion worth of stock becoming eligible for sale for the first time next month. Restrictions preventing some insiders from selling as many as 911.5 million shares will lift on August 6, with billions of shares set to be freshly eligible for trading by the end of the year. Insiders and early backers who owned SpaceX shares before the company went public are almost certainly in line for a windfall when they can finally sell, with the number of shares available to trade set to soar to 5.33 billion by early December.

    2. SpaceX delayed the next major test of its Starship rocket to Friday due to unfavorable weather. The rocket will be carrying upgraded Starlink satellites that are intended to burn up later in the atmosphere as part of the test mission. Starship is central to SpaceX Chief Executive Officer Elon Musk’s ambitions to put data centers in space, expand the Starlink communications network and send humans to the moon and Mars.STMicro

14. STMicroelectronics

    1. STMicroelectronics forecast third-quarter sales that missed analysts’ expectations, with third-quarter revenue set to rise about 16% from a year earlier to $3.7 billion at the midpoint of guidance. The company’s shares fell as much as 17%, the biggest intraday decline since July 2025, despite being up 121% in 2026, buoyed by the company’s growing data center business. STMicro said that sales growth will accelerate in the final quarter of the year as more orders come in for its chips serving satellites and data centers, with revenue expected to be above $4 billion in the fourth quarter.

15. Tesla

    1. Tesla missed Wall Street’s profit expectations with adjusted earnings of 33 cents a share in the second quarter, well short of the 51-cent average of analyst estimates. The company reported its first quarter of negative free cash flow in more than two years, burning through $1.09 billion, and operating costs surged 47% to $4.35 billion. Tesla Chief Financial Officer Vaibhav Taneja said spending this year will total more than $25 billion as the company looks to increase production of cars, batteries and robots across half a dozen plants.

The Barbell Portfolio updates

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