Alphabet’s Sky-High Earnings ☁️, While AI Costs Hit New Heights

Good afternoon! Last week’s CrowdStrike outage grounded thousands of flights, yet somehow Southwest Airlines remained remarkably unscathed. Word on the street is that this might be because Southwest is still operating on '90s-era systems. It seems decades of clicking "ignore" on those pesky software update prompts have finally paid off. While everyone else was grounded, Southwest’s vintage tech kept them flying high, proving that sometimes, being behind the times can have its perks.

MARKETS

• All three major indexes began the day on a high note, experienced a significant dip in the afternoon, rallied towards the close, but ultimately finished the session in negative territory. Investors were anxiously awaiting earnings announcements from Alphabet ($GOOGL) and Tesla ($TSLA), hoping for some guidance. Earnings review listed below.

• Treasury yields dropped as some clarity emerged in the U.S. presidential race. However, investors are primarily focused on the upcoming major economic reports (GDP and PCE) later this week to gauge the market's future direction.

• Bitcoin also saw a decline as a new competitor entered the rapidly growing crypto ETF market, adding to the pressure on the cryptocurrency.

STOCKS
Winners & Losers

What’s up 📈

• MSCI ($MSCI) surged 7.90% today following a robust earnings report that exceeded analyst expectations on both revenue and earnings.

• Sherwin-Williams ($SHW) jumped 6.87% after surpassing earnings estimates, raising its full-year guidance, and naming "Upward" as the paint color of the year.

• GE Aerospace ($GE) climbed 5.68% due to strong demand for its engines, leading to better-than-expected earnings.

• Lockheed Martin ($LMT) rose 5.63% on a strong earnings report that highlighted the benefits of ongoing geopolitical conflicts.

What’s down 📉

• UPS ($UPS) tumbled 12.05% to new all-time lows after missing earnings expectations and lowering its revenue forecast.

• NXP Semiconductors ($NXPI) dropped 7.58% following a weak revenue forecast for the next quarter, despite meeting current quarter expectations.

• GM ($GM) fell 6.43% despite solid earnings; investors were concerned about management's warning of a tougher second half of the year.

• Comcast ($CMCSA) declined 2.58% on mixed earnings, beating on earnings but missing revenue due to a slow theme parks segment.

EARNINGS
Alphabet’s Sky-High Earnings, While AI Costs Hit New Heights

Alphabet ($GOOG, $GOOGL) crushed it in Q2, reporting earnings that topped analysts' estimates thanks to a booming cloud business. The tech giant posted earnings per share of $1.89 on $84.7 billion in revenue, beating expectations of $1.85 per share on $84.3 billion in revenue.

Key Numbers:

• Revenue: $84.7 billion (up 14% YoY)

• Earnings per Share: $1.89 (up 31% YoY)

• Cloud Revenue: $10.35 billion

• Cloud Operating Income: $1.17 billion

• Advertising revenue hit $64.6 billion, slightly ahead of projections but YouTube ad revenue missed the mark at $8.66 billion.

Cloud Business Shines

Google’s cloud division hit an impressive $10.35 billion in revenue with $1.17 billion in operating income, outpacing expectations and marking a significant increase from last year’s $8 billion in revenue and $395 million in operating income.

AI Spending Surge

• Alphabet's AI ambitions are costly. The company shelled out $2.2 billion on AI development in Q2, double last year’s $1.1 billion. Despite the investment, significant AI-driven revenue might not materialize until 2025-26. Google’s AI features, like AI Overview in search, have faced hiccups, including quirky and incorrect advice. Google is refining these features and remains committed to the tech despite the bumps.

In a bid to streamline, Alphabet cut headcount to 179,582, down from 181,798 last year. While Alphabet's shares remained flat post-announcement, they are up 30% year-to-date, outpacing rivals Microsoft ($MSFT) and Amazon ($AMZN), up 18% and 22%, respectively. The tech titans continue their pricey race to dominate the generative AI space.

NEWS
Market Movements

• Wiz has decided to walk away from its $23 billion deal with Google ($GOOGL) and will pursue an IPO instead. Google also scrapped plan to remove cookies from Chrome

• Delta ($DAL) is grappling with the aftermath of a global IT outage that led to the cancellation of at least 900 flights yesterday. The airline now faces an investigation by U.S. regulators over its handling of the incident

• Ryanair ($RYAAY) announced that lower fares are on the horizon after the budget European airline reported a 46% drop in profits last quarter

• Krispy Kreme ($DNUT) has sold its majority stake in Insomnia Cookies but is retaining a minority interest in the company

• Warner Bros. Discovery ($WBD) is fighting to keep its NBA media rights as the shot clock runs down, with the league already securing $76 billion in deals with Disney, Universal, and Amazon

• Boeing ($BA) has received orders for up to 70 jets from Korean Air and Japan Airlines, providing a significant boost to the aerospace company

• Cohere, a Canadian AI startup specializing in custom models for businesses, has raised $500 million in a funding round, bringing its valuation to $5.5 billion

• Meta ($META) has introduced its latest Llama AI model, developed with assistance from Nvidia and various cloud partners

EARNINGS
Tesla's Q2, A Mix of Hits and Misses

Tesla ($TSLA) just dropped its Q2 results and it’s a rollercoaster. They’re on track for a 2025 debut for budget-friendly EVs, but their 2024 growth rate is hitting the brakes compared to last year.

For Q2, Tesla pulled in $25.05 billion in revenue, slightly above the expected $24.63 billion. However, their adjusted EPS came in at $0.52, missing the $0.60 mark, with $1.8 billion in non-GAAP net income. The market wasn't thrilled, sending shares down 6.83% in after-hours trading.

Budget EVs and Delays

Despite the financial hiccup, Tesla's plan to roll out affordable EVs by 2025 is still on. These new rides will blend old and new tech, using the same production lines as current models. Analysts are buzzing, seeing these cheaper models as a potential boost for EV sales.

Meanwhile, the highly anticipated robotaxi reveal is on hold. Musk wants to tweak the design and add a few extras. This delay has analysts like Dan Ives from Wedbush concerned about Tesla’s valuation, especially with the spotlight on AI and full self-driving features.

Truckin’ Along

Cybertruck production tripled since Q1 and is on track to hit profitability by year’s end. The Semi factory is also gearing up, set to begin production by late 2025.

Tesla delivered 443,956 vehicles globally in Q2, topping estimates but down 5% from last year. Still, it’s a major leap from Q1’s 386,810 deliveries, signaling a hopeful turnaround. A surprise hit? Tesla deployed a record 9.4 GWh of battery energy storage, doubling last quarter’s numbers. Morgan Stanley’s Adam Jonas called it a “show stealer.”

By the Numbers

• Revenue: $25.05B (expected: $24.63B)

• Adjusted EPS: $0.52 (expected: $0.60)

• Non-GAAP Net Income: $1.8B

• Vehicle Deliveries: 443,956 (estimate: 439,302)

• Battery Energy Storage Deployment: 9.4 GWh

So, while the Q2 results might not be lighting up the stock price, there are some bright spots on the horizon for Tesla fans. Buckle up; it’s going to be an interesting ride.

EARNINGS
Spotify Rocks Record Profit, Stock Pops 12%

Spotify ($SPOT) hit a high note in its Q2 earnings, dropping a record profit and strong future guidance. Investors loved it, pushing the stock up nearly 12%. Here’s the scoop:

Spotify’s revenue matched estimates at €3.81 billion ($4.14 billion), marking a 20% year-over-year increase. The real showstopper? Operating income of €266 million ($289 million), up from a loss of €247 million last year. Net income hit €274 million ($298 million), or €1.33 ($1.44) per share, blowing past expectations.

Efficiency Hits the Right Notes

Spotify’s recent "efficiency" strategy is paying off big time. By hiking subscription prices and slashing headcount, they managed to beef up gross margins to a record 29.2%, with a Q3 forecast of 30.2%. Free cash flow also soared to €490 million, up from a meager €9 million last year.

By the Numbers

• Revenue: €3.81B ($4.14B), up 20% YoY

• Operating Income: €266M ($289M), beating guidance

• Net Income: €274M ($298M), or €1.33 ($1.44) per share

• Gross Margin: 29.2%, forecast to hit 30.2% in Q3

• Free Cash Flow: €490M, up from €9M YoY

• Monthly Active Users (MAUs): 626M, up 14% YoY

• Premium Subscribers: 246M, up 12% YoY

Despite a slight miss on monthly active user metrics, Spotify’s premium subscribers came in just above expectations at 246 million. The company also guided a robust Q3 operating income of €405 million ($440 million), crushing Wall Street's forecast.

Looking Ahead

• Spotify isn’t hitting pause anytime soon. The company is doubling down on its audiobook offerings and introducing higher-priced bundles that include music, podcasts, and audiobooks. With plans to push gross margins between 30% and 35% long-term, they’re in it for the long haul.

• CEO Daniel Ek is optimistic, noting the company’s growth has “exceeded even our own expectations.” As Spotify tunes its strategy, it’s clear they’re ready to keep rocking the audio world.

Investors, Tune In?

Spotify’s stock has surged over 75% this year, and analysts are vibing with the turnaround plan. With a mix of price hikes, strategic layoffs, and a focus on profit, Spotify’s future looks harmoniously profitable. Apple Music, you might want to grab some tissues.

CRYPTO
Ethereum ETFs — The New Kids on the Blockchain

ETFs, usually slow and steady, just got exciting with the launch of eight spot Ethereum ETFs today from giants like Grayscale, BlackRock, and Fidelity. In just 90 minutes, these newbies pulled in over $360 million, per Bloomberg.

Meet the Players:

• iShares Ethereum Trust (ETHA), Fee: 0.25%

• Grayscale Ethereum Trust (ETHE), Fee: 2.5%

• Grayscale Ethereum Mini Trust (ETH), Fee: 0.15%

• Bitwise Ethereum ETF (ETHW), Fee: 0.20%

• 21Shares Core Ethereum ETF (CETH), Fee: 0.21%

• VanEck Ethereum ETF (ETHV), Fee: 0.20%

• Fidelity Ethereum Fund (FETH), Fee: 0.25%

• Invesco Galaxy Ethereum ETF (QETH), Fee: 0.25%

Ethereum is up nearly 1% today and over 50% this year.

Why It Matters

After years of SEC back-and-forth, these ETFs are finally here. While Ethereum might not have Bitcoin’s “digital gold” status, analysts predict these funds could attract billions, following Bitcoin ETF’s success. Ethereum’s potential as a tech platform is drawing interest, with investors looking to diversify beyond Bitcoin.

The Fee Wars Begin

To attract investors, firms like Bitwise, BlackRock, and Invesco are offering fee waivers initially, making it a free-for-all (literally) for early investors. Expect fierce competition as these giants battle to be your go-to Ethereum ETF.

Calendar
On The Horizon

Tomorrow

Before Market Open

• AT&T ($T) has faced several challenges recently, including a significant hack that compromised customer information. Additionally, Verizon's latest results showed a decline in phone sales. Despite these setbacks, Wall Street remains optimistic about AT&T, with an average price target 17% higher than its current trading price. Analysts are expecting earnings per share (EPS) of $0.57 and revenue of $29.98 billion.

After Market Close

• IBM ($IBM) hasn't experienced the AI-driven surge that many of its tech counterparts have, primarily because its main focus is now on cloud software solutions. However, in the upcoming earnings call, investors will be keen to hear about the company's progress in quantum computing. Analysts expect an EPS of $2.19 and revenue of $15.62 billion.

• Chipotle ($CMG) has seen a strong performance, with shares up nearly 28% over the past year. Wall Street's average price target is another 28% higher than the current share price. Despite this, investors are concerned about potential overvaluation. Tomorrow's earnings will be crucial in determining the true value of the company, with consensus estimates at an EPS of $0.31 and revenue of $2.93 billion.

• Ford ($F) has faced difficulties in the EV market recently, with high costs and low sales impacting profits. However, management has committed to improving margins, which, if successful, could enhance the company's financial health and boost its already strong dividend. Analysts are looking for an EPS of $0.66 and revenue of $44.05 billion.