Big Tech’s capex hangover

Hey Superheroes,

Two of the Magnificent Seven just beat revenue expectations but still sold off. Alphabet closed down 7.1% and Tesla down 14.5% on Thursday 23 July, wiping out roughly $300 billion and $200 billion in market value respectively. The culprit in both cases: AI infrastructure spending that is now growing faster than near-term earnings. More on that below.

Oil crossed a psychologically significant threshold on the same day. Brent crude surged 6.45% to close at $100.69 a barrel, its first close above $100 since May, after Houthi forces struck two Saudi oil tankers in the Red Sea. WTI settled at $92.19. The escalation is widening the conflict well beyond the Strait of Hormuz.

Back home, Australian unemployment held at 4.4% in June on a 76,000 person rise in employment, far exceeding the consensus estimate of 15,000 new jobs. That, combined with the rise in oil prices, could make it harder for the RBA to justify cutting rates in August.

Meanwhile, new U.S. tariffs of 10 to 12.5% on imports from around 60 trading partners, including Australia, have kicked in, adding fresh uncertainty to the global trade outlook.

Here’s what else moved this week.

The capex crunch: Alphabet and Tesla sell off despite beating on revenue

It was the kind of week that showed what investors care about right now. Two of the market’s biggest companies reported strong top-line numbers and still lost a combined half a trillion dollars in market value. The message from investors was unambiguous: spending discipline now matters more than revenue growth.

1. The Alphabet numbers

Alphabet (NASDAQ:GOOGL) reported Q2 revenue of $119.8 billion, above the $117 billion analyst estimate, with cloud revenue of $24.77 billion surging more than 80% year on year. But the company raised its full-year capital expenditure guidance to $195 to $205 billion, up from a prior $180 to $190 billion and warned of a further increase in 2027. Free cash flow turned negative for the quarter.

2. The Tesla numbers

Tesla (NASDAQ:TSLA) told a similar story. Capex surged 142% year on year in Q2 to $5.79 billion, with full-year guidance lifted to more than $25 billion. GAAP operating income fell 57% year on year to $398 million as operating expenses rose 47% and regulatory credit revenue collapsed. Free cash flow was negative for the first time in more than two years.

3. The market reaction

Alphabet shed roughly $300 billion in market value. Tesla shed roughly $200 billion. Amazon was also dragged lower, losing 4.6% on the day despite not reporting earnings, as investors repriced the entire hyperscaler capex narrative. The Nasdaq Composite fell 2.78%.

4. What the numbers don’t tell us

Both CEOs argued their spending will yield exceptional returns. Musk described it as “maybe the best capex returns that we’ve ever seen.” Sundar Pichai pointed to cloud margin expansion as proof the investment is working. The market’s current read is that the returns timeline is too uncertain relative to the capital being deployed. Whether this proves a one-quarter adjustment or a broader re-rating of AI capex plans will depend on how Meta (NASDAQ: META) and Microsoft (NASDAQ: MSFT) guide when they report in the coming days.

Arms race, earnings pace: Lockheed, RTX and Thales all beat and raise

While Big Tech was being sold off for spending too much, the defence sector was being rewarded for exactly the same reason. Three of the world’s largest defence contractors reported blowout quarters this week and all three raised guidance.

1. Lockheed Martin

Lockheed Martin (NYSE:LMT) reported Q2 net earnings of $1.8 billion ($7.94 a share) on $20.1 billion in sales, beating the roughly $7.22 a share estimate. Full-year sales guidance was raised to $79.75 to $81.75 billion and backlog grew 38.3% year on year to $230.4 billion.

2. RTX

RTX (NYSE:RTX) posted Q2 sales of $24.7 billion, up 14% year on year, with adjusted EPS of $1.89, up 21%. Backlog hit a record $289 billion, up 22% year on year and full-year guidance was raised to $95 to $96 billion in sales.

3. Thales

French defence giant Thales lifted H1 2026 sales 8.1% to €10.3 billion, with defence segment organic growth of 12.7% and order intake of €10.4 billion. Full-year order and sales guidance were raised despite a roughly €450 million exceptional charge from Germany scrapping the F126 frigate programme.

4. The bigger picture

Three companies, three continents, three record backlogs. The geopolitical backdrop: Middle East escalation, U.S.-Iran conflict and European rearmament is translating directly into defence order books. The sector’s outperformance against the broader market this week is a direct read-through from the headlines.

🔦 Some other things we’re shining the Spotlight on:

1. OFX ROCKETS 70% ON $247M TAKEOVER OFFER

OFX Group (ASX:OFX) shares rose as much as 69.9% after agreeing to a 100% cash acquisition by UK fintech Equals, valuing OFX at A$247 million. Shareholders would receive A$1.00 a share in cash under the proposal, representing a 108% premium to OFX’s undisturbed close of A$0.480 on 4 February. The deal is subject to due diligence, financing and an independent expert report.

2. MACQUARIE NAMES NEW CEO AFTER 8 YEARS

Macquarie Group (ASX:MQG) CEO Shemara Wikramanayake will retire on 6 November 2026 after eight years in the role. Greg Ward, a 30-year Macquarie veteran and current head of banking and financial services, was named her successor. Wikramanayake oversaw a near-tripling of Macquarie’s share price during her tenure.

3. INTEL POSTS FASTEST GROWTH SINCE 2011

Intel (NASDAQ:INTC) reported Q2 revenue of $16.1 billion, up 25% year on year and its fastest growth since 2011, beating consensus of roughly $14.4 billion. Adjusted EPS of $0.42 beat the $0.21 estimate and shares jumped in after-hours trading. A sharp contrast to IBM’s result last week. Not all legacy chipmakers are being left behind by the AI infrastructure cycle.

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