The Compound and Friends: AI Darlings Wrecked, Earnings Preview META, MSFT, AAPL, AMZN, Rate Hike Spook, Nvidia’s OpenAI Deal
On this episode of What Are Your Thoughts, Downtown Josh Brown and Michael Batnick previe
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Show notes (from RSS)
On this episode of What Are Your Thoughts, Downtown Josh Brown and Michael Batnick preview earnings from Microsoft, Meta, Amazon, and Apple, breaking down the biggest questions facing the market: Is Azure growth enough to justify Microsoft's AI spending? Can Meta's AI investments keep powering ad growth? Will AWS reaccelerate? And what does Apple's capital-light AI strategy mean as Tim Cook prepares for his final earnings call as CEO?
Plus:
- Why the market keeps shrugging off bad news
- The surprising relationship between stock momentum and earnings beats
- The brutal selloff in semiconductors and Corning
- Sam Altman's latest AI warnings and the Hugging Face controversy
- The Fed, market resilience, and what to expect from SpaceX's first earnings call next week.
This episode is sponsored by DBMF. To learn more about the alternative solution for the model revolution check out: https://www.DBMF.com/WAYT
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Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management.
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Transcript
Josh Brown: Foreign. What up? What up? It is Tuesday, 5:00pm we're back with an all new edition of what are your thoughts? We have a jam packed show. A lot to say, not a lot of time to say it in. I do want to give a couple of quick shout outs in the chat, mostly because people are saying nice things about my hair first. The nice thing about Michael Leave the gene pool said Batnik predicted that this broadening out would create a weird environment months ago. It's a great call by Michael. I agree. See Paul Breezy JB got that Jon Gruden hair school for men look working. I guess Josh looks like a.
Michael Batnick: You can use a visor. Yeah, it's visor season.
Josh Brown: Josh looked like a golden rooster on CNBC today. You're damn right I did. All right, who else is here? Sam F is in the house. Cliff Peebles is back. Noah Turner says what up? Magnus is here. Jacobs 2001 Bloom energy blooming after hours like Josh's hair. All right, it's enough of that. Who's the sponsor tonight? Michael?
Michael Batnick: It is dbmf. This podcast is brought to you by them. The World's Largest Managed Futures ETF alternatives should do two things be uncorrelated to traditional asset classes and deliver strong performance. But many alternatives don't do those things very well. That's where DBMF comes in. With its revolutionary low cost approach, DBMF has quickly become the world's largest managed future ctf, delivering both alpha generating returns and genuine diversification to portfolios. Find out why managed futures should be a foundational part of any alternatives allocation@www.dbmf.com. the Fund's investment objectives, risk charges and expenses must be considered carefully before investing. The statutory and summary prospectuses contain this and other important information about the investment company. It may be obtained by visiting ww.imgp.com the IMG DBI Managed Futures Strategy ETF is distributed by Alps Distributors, Inc. All
Josh Brown: right, gangsters, this is we say this every every quarter and every time we say it, it's always true. We are in the most important week, statistically and perhaps emotionally for earnings season. We are going to hear in the next two nights from four of the biggest companies in the world. And arguably the comments, not just the numbers from those companies, matter just as much for the rest of the overall market. Or do they? Microsoft and Meta are tomorrow after the close and the following night on Thursday we're going to get Apple and Amazon. Quick programming Note I want to let you guys know we're going to finish out the week with the compound and friends. And we're bringing our friend and perhaps the world's foremost authority on big tech, Alex Cantuit, back on the show. So tonight we're going to do a preview of the big storylines going into these reports. And then on Friday, we're going to give you like the postmortem. Here's what happens, the reveal, and here's what you actually need to take away. So we have you covered front and back. Let's, let's, I guess let's start with Microsoft. Michael, you said before this is the one that you pay the most attention to or you look forward to the most. Is that still true?
Michael Batnick: Did I say that? Yeah, I take it back. I don't remember saying. I don't remember thinking that. But go on, what did I say? I say a lot of things.
Josh Brown: I don't know specifically, but I think you were just talking about it in terms of its importance to the ecosystem and maybe because it's in the biggest drawdown of the whole group and all that OpenAI exposure. And I just, I think you said last time they reported like this is the one that you're looking most forward to. I don't know. I guess it's not still the case now.
Michael Batnick: Feel like you might be misquoting me. I don't know.
Josh Brown: Well, that definitely.
Michael Batnick: Well, listen, here's the. I mean, Microsoft, Microsoft is the biggest software stock in the world. And so. Yeah, you're damn right I'm interested to hear what they have to say. Absolutely.
Josh Brown: All right, we'll roll the tape back. We'll see if you ever said that or if my own internal. I hallucinated it. Here, here's. I'm going to give you the expectations and then, Michael, you can react to it. $4.24 on earnings, revenue of 87.7 billion. The entire conversation around Microsoft is not about the software business these days. It's about Azure. Azure grew 40% last quarter. Investors want to hear 39 to 40% this quarter. The other big number, the CapEx number, $190 billion is what the company said they're on pace to spend for calendar 2026, which is an insane number. So we're gonna watch for that growth rate. Capex versus free cash flow is really the big part of the story. We know that the hyperscalers with cloud data businesses are very happy to see that free cash flow squashed to zero and continue to spend. I do think copilot monetization is going to matter here. So I guess that's sort of their software business. Paid copilot seats broke 20 million last quarter. That was over 250% over the prior year. So any update on seat growth could be taken positively. The other thing that's happened is that Microsoft recently gave up Azure's exclusivity serving OpenAI models. And so now that exclusivity is gone and I think people are going to want some clarity. Well, what is going to be the AI strategy on the software side? The last thing here, we talked about this earlier, Michael. The commercial backlog. The number right now is $627 billion, which is so big, like so unbelievably gigantic. I think it partially explains the patience that investors have with all this capex spending. Think about how big that number is. I wasn't sure exactly what gets considered commercial backlog. And Michael, I think you and I didn't know the answer like what really goes in there. So I thought I'd share what it's actually made up of. It's multi year Azure consumption commitments. So these are enterprises that have signed deals to spend a certain amount over the coming years, but it's backlog until they actually book it. It's Office 365 and Microsoft 365 subscription contracts. Again, these are multi year. It's server and cloud enterprise agreements and it's large AI infrastructure commitments including the opening ideal. So it's almost like at whatever revenue they're not booking immediately just gets added onto that pile. And so the quarterly revenue only reflects what's actually been delivered and recognized. We want to see, I think if we're long, we want to see upside to that $627 billion because it's evidence that the return for all this CapEx is actually on its way in the form of signed commitments from enterprise customers. Did I explain that well?
Michael Batnick: You did. It's funny Josh, you and I think alike. After the show last week I did the exact same thing. Made sure I was educated on what the backlog is. And it's exactly what you think it is. It's exactly how you described it.
Josh Brown: Okay, anything else on Microsoft here? Do you think it's going to be eventful?
Michael Batnick: So I actually took a shot in the stock a couple of weeks ago. I bought some software names. I bought Microsoft Workday and ServiceNow three weeks ago or so and I think I'm probably gonna. What's that?
Josh Brown: You still long?
Michael Batnick: Yeah, modest positions. I burned my hand a couple times on those stoves. I'm probably going to whack it off at the open and that's a teaser for later in the show. I don't love the setup. Going to the call and it's limp, it's limp.
Josh Brown: It's limping into the report.
Michael Batnick: It's uninspiring.
Josh Brown: Okay, Meta, so I thought we would steal some, some commentary from Mark Mahaney for this one. We're borrowing it, we're not stealing it. Consensus $7.23 on 60 billion in revenue. Almost the entirety of that is advertising. It's, it's almost the whole business. The big question here is if AI driven ad targeting is still moving the needle enough to justify the massive capex and how do margins look? The growth will be there. This is like of all the problems Meta has, growth is not one of them. So this is. Mark Mahaney points to five specific things to watch out for and I'll just list them and I'll get your reaction. 1. Meta should be able to print revenue near the top end of its guidance range. 61 billion. That would be a 28% year over year revenue growth number, which is fantastic. Yeah. And he's saying that given the perceived strength in the ad market and they've done all these checks and I won't bore you with it, but it doesn't look like there's any sort of pullback in ad spending generally. And of course Metta is one of the biggest platforms in the world for advertising, so the environment is good. Operating margins will be down materially but will be in a robust mid 30 percentage range given the inherent leverage on the metal model. Three updated commentary on 26 CapEx and OpEx early reads into 27. He points out in the wake of Google, the market will be expecting Meta to raise its 26 CapEx outlook as well from the current 125 billion to $145 billion guidance. So do they go to 150? In other words, do they go much higher for any indications of new capital allocation plans and then five, any management plans to sell excess compute capacity? And he thinks this is Mark Mahaney @Evercore ISI. Confirmation of this would likely be perceived positively by the market. The market likes that story of them taking some of the capacity they've built and monetizing it right now. So that's the read from Mahaney. What do you think about Meta going into the print?
Michael Batnick: At the risk of getting too queued, I think you could do something very similar to Google. Google fell 6% after its earnings and you and I spoke briefly. I said this is a really Good quarter.
Josh Brown: Yeah.
Michael Batnick: Like if you were just looking at the fundamentals, it was really good and the street hated it. And it gapped down 6%. It has been up in the next three trading sessions. I think you're going to see something similar out of Meta. I think the reals monetization is going to be insane, up 30% year over year. I think it's going to be a monster number. But I don't think it's going to matter right now because the only thing that investors seem to be focused on right now is, is CapEx and free cash flow and one's going higher, the other's going lower. So I think they're going to punish a stock at the open.
Josh Brown: What do you. So I know this is like a counterfactual that's not really possible because it's too late. They're already in the spending mode. And once you've spent some, you have to spend the rest. Otherwise all that investment you've already made is worthless. So they're not going to pull back on spending until. Until and unless they literally have to, which I don't see coming. But I wonder what do you think the stock price reaction would be if they kept capex spend exactly where it is and said we're very comfortable with the rate. Does the stock add 10% the wake of that news or do people get nervous and say, whoa, whoa, whoa, whoa, whoa, whoa, whoa, wait, they're like pulling back even though they're not pulling back.
Michael Batnick: I suppose you could have it both ways where they hate it either way, but I think if they said they're just maintaining, I think the Stock goes up 10%, maybe more.
Josh Brown: Yeah, I wouldn't be shocked if the
Michael Batnick: business is on fire and it's trading at 16 times forward earnings. I don't think it would take a lot to get investors very excited.
Josh Brown: I would almost, I would buy on that news if I didn't miss the 10% gap that it's like, no, we're very comfortable with our CapEx for the year. No change to guidance. We're sticking to our plan. Listen, I know, but watch that.
Michael Batnick: Nobody is saying that. I suppose somebody would have to be the first. By definition. I don't see that happening.
Josh Brown: Okay, let's do. All right, so that's, that's tomorrow. Let's do Amazon and Apple, which report the following night. I'm more excited for these two than I am for the other two. I own both, so makes sense that I'm more excited. But I also think that, well, maybe Amazon's not going to be that interesting. All right, $82 in earnings, 196 to 197 billion in revenue. That would be 17% growth over the prior year on the top line, again, similar to Microsoft, the most important thing is aws, which is their, their cloud business. And analysts are actually expecting acceleration. They think they're going to see 32 to 33% cloud growth driven by surging AI workload demand.
Michael Batnick: Google did 82%. I know it's a smaller base, but 82%.
Josh Brown: Right. Google's number three behind Amazon and Azure.
Michael Batnick: But
Josh Brown: what else? Oh, Capex guidance is the swing factor. Amazon is already currently guiding to $200 billion for full year 2026. That's versus 125 billion that they spent in 2025. These are almost adding up to real numbers. So Alphabet went from 180 to 195 to 205. So the street thinks Amazon's going to do something similar. If they hold the line at 200 billion. Again, it could be read as a relief if they meaningfully hike above that. Like they go to 220. I feel like that's a negative for the stock. Even if it's the right thing for the business. I think the investors just want, want like a status quo announcement. I just don't think people want to wrap their head around more. But you know, they're, they're not gonna worry about what the street thinks this week. It's just not the culture at Amazon. There's some weird shit with Prime Day, but I almost think it doesn't matter. The retail business is very steady. It's not a big needle mover. You can kind of set your watch by it. I don't think it's a swing factor for the stock. There's a distortion where prime day fell in Q2 this year versus Q3, which pulled sales forward. No one, no one gives a shit. Yeah, I don't think there's anything left really to say on Amazon. The one thing on a stock basis that I would say getting away from the company itself. This has really been running in place for a long time. It does.
Michael Batnick: Long time.
Josh Brown: It doesn't look as bad as the pullbacks in Tesla, Microsoft and Meta, but like it also is literally going nowhere. And I don't know what, I really don't know what actually changes that dynamic. But that's, that's the read on Amazon going in Apple, when we did a show two weeks ago, why Apple's going to 400. Everything that I've read and thought about since I'm absolutely convinced this is still going to be the one to own for the second half of the year. The stock went out at an all time record high today. It is literally pennies from closing above a $5 trillion market cap. I think it might have gotten there, but I don't know if it closed there. Whatever, it's, it's right there. Tim Cook's last earnings call as CEO. This is his final earnings print before the transition. So there'll be a lot of questions about the transition itself. And we're gonna start hearing from new CEO John Ternus on the next earnings call. We'll hear from him before that because remember, There's a big September 1st event coming up.
Michael Batnick: Tim Cook has never said anything interesting on the earnings calls. I don't know about never having listened to all of them, but he's pretty boring.
Josh Brown: He's very buttoned up. They did get a major. We talked about this already, so we won't say a lot, but they did have a major major victory during the course of the quarter with their China business. They got approval from Beijing to include AI, obviously homegrown AI models on Apple phones in China. It's a big deal. It's their second biggest market. It was a big question mark hanging over the stock. The capital light AI narrative is gaining traction. So here's the, the, here's the phrase to watch for. They're calling it AI on device as opposed to AI that's being carried out at the data center. So Apple Silicon is enabling these next generation of phones to do more on device and then thinking about the frontier models almost as, as like feeders into the iOS services ecosystem and the market. Like, I mean I've been pounding the table on that thesis. The market has really come around and I think they like it a lot. So this is almost the biggest company in the world. Very close to Nvidia. IPhone stuff. Is it normalizing or is it slowing? So they got a big burst of enthusiasm when they launched the iPhone. 17 is their follow through in the quarter. Very important tariff and component costs. Apple very famously came out and said they were going to be raising prices across a lot of their most popular devices because of the price of memory chips, among other components that go into the products. So they've got those price hikes in the market now and we'll see if that is offsetting demand.
Michael Batnick: No, it's interesting how it's. The narratives on these stocks is changing so fast. It was Thursday June 25th. I forget who we were on the air with but they, they were raising prices as a result of memory costs and of course it was going to come to margin and they, they whacked the stock. It was down 6% of the day.
Josh Brown: Yeah.
Michael Batnick: And I think we were like, that doesn't really make sense to me. Like demand is not going to change the stock.
Josh Brown: We're going to find out. Right. Like hang on the quarter where they're going to have to answer for what demand. What happened to demand? In the wake of price hikes.
Michael Batnick: It was, I don't know if there's enough time because that was, that was only a month ago. But on, on that day the stock close at 270 and that was the low and in the blink of an eye it ran up to 340. So even on the biggest stock in the world, people are so wrong, us included all of the time. And the narratives follow the price obviously always.
Josh Brown: Yeah. So the narrative now is if you want to own large cap tech and you want to invest in AI, Apple is the company that is not spending a trillion dollars over the next five years in CapEx but is poised to become a toll booth for consumer AI use on device. People really have come around to that story. That was not the story with the stock six months ago to your point. The story was Apple is literally nowhere in AI. All of their best AI scientists are running off to join the Circus. They lost 400 employees to OpenAI. They lost Jony I've to his own design studio. And it was like well what are we doing about AI? Why aren't we building data centers and blah blah blah. And why doesn't Apple have its own LLM? Why doesn't Siri work? Nobody's speaking that way anymore. People are now speaking about this being sort of a covert way to, to see earnings come in from AI without Apple having had to make these types of investments that are making people nervous.
Michael Batnick: Yeah.
Josh Brown: Quite like at Oracle they cut the stock to one notch above junk. People clearly like the capital light version of benefiting from AI versus that.
Michael Batnick: So down 70%.
Josh Brown: Dude, it's look, I mean it's, it looks like a company.
Michael Batnick: Matter of fact, it's not. We have right here. All right, why is this chart here? It seems sort of out of voter but whatever. Josh, you asked for this. Some stocks that are getting whacked.
Josh Brown: Oh. In the Teflon market. I don't need it. Right up top. Why don't you take over?
Michael Batnick: All right, so let's, this is A natural segue to what's happening with earnings season. I thought this was really interesting. There is this notion that some investors have, at least I did and I think others share the same thing that if a stock is performing really well going into earnings you might say or somebody might go on TV and say it's price for perfection. Right? And that makes sense.
Josh Brown: Like I don't use that term
Michael Batnick: buy the rumor, sell the news type of thing like that all checks out. But actually there is a lot of wisdom in stock prices. So Adam Parker said you better not miss earnings. He said quote, cheap stocks with bad momentum are not de risked into the print. They are anticipating the miss correctly and the miss is a confirmation of the price action. Stocks with bad momentum that are cheap have never been punished more for missing. Let me read that one more time. Stocks with bad momentum that are cheap have never been punished more for missing. So that's what gives me pause about Microsoft. That's what gives me pause about Meta going to the print and whatever. I don't know if I'd be wrong
Josh Brown: but that makes me nervous. That makes me nervous on Uber which is going to short on August 5th. It's a dirt cheap stock with horrendous momentum. You should, that is like, that is like exactly what he's talking about.
Michael Batnick: So obviously listen, I, I'd love for Meta and Microsoft to gap up. Who, who wouldn't like to see that? But Adam has, has run the data and he has this, this kick ass chart that shows the mean industry relative return for missing EPS over time and he's breaking it down by price to forward earnings quintile. So he's showing that stocks in the bottom Quintile of 12 month momentum through the end of June 2026. What you're seeing is the cheap stocks when they miss holy they get killed.
Josh Brown: Killed is not going to save you in this market killed.
Michael Batnick: So the market is anticipating these stocks are cheap for a reason. Now there was an important caveat. Chart off please Daniel. Is that listen, most stocks don't miss earnings, right? Like there is a high beat rate. Matter of fact you have 100%.
Josh Brown: The guidance comes from the company, right?
Michael Batnick: So they tell you it would be
Josh Brown: crazy if most stocks missed earnings.
Michael Batnick: So 100 of financials, industrials, communications and staples have beat through 7-23-100. So the only place that you're getting any sort of misses is is in discretionary 1311 materials 4% information tech 8% healthcare 20 real estate 40 energy. So most companies don't miss but the Ones that do. And the cheap ones, they get slaughtered. All right, so that's because we paused about Microsoft and Meta. All right, let's talk about the market because. Josh, I am.
Josh Brown: Well, wait, we can't. Before we move off this subject, I did want to show you this list of stocks. Give me the 52 week drawdown chart. There's a couple of points I want to make here, Michael, that are germane to what you just said. These. So we're at, we're within a couple of percent of an all time record high in the s and P 500. And look at the stocks in more than a 20% drawdown. And I'll just for the people listening, Oracle negative 65%. That's the worst. Coinbase negative 59%. Sandisk negative 50%. Surprise. Nike's in a 46% drawdown. ServiceNow 45. Western Digital 43. Netflix down 42%. Palantir down 40. And it gets less bad, but still pretty bad. Tesla, Salesforce, Adobe. Josh, there's Microsoft, Chipotle. These are, these are cornerstones of corporate America and they're, they're down by a third or worse every sector. It's unbelievable that the market is holding up as well as it is given, given the names that are absent from the 52e high list and just getting absolutely demolished. What you think about that?
Michael Batnick: I'll bet one. Do you throw that chart back up out of all of these stocks and there's maybe 20 on this list that are getting smoked. There's really only three that are expensive. I would say two and a half because Tesla is its own animal, doesn't trade on anything. It's Palantir and Robin Hood. Everything else here is, is a, is a market multiple or below stock. These are not. So when you think of like I think people have this tendency to think it's expensive stocks get smoked and yeah, sometimes. No, but it's the opposite. It's the cheap stocks that are getting smoked. So Adam's. Adam's. Adam's right. All right, so I want to talk about the stock market. Throw this chart up today. Daniel, this is what happened today. A lot of green and a lot of bright red. And the bright red was in the AI trade. It continues to unwind and at the risk of sounding like an idiot in front of a Fed meeting and some big earnings reports where the market could change in a second and make this take age terribly. Chart off this market is Teflon, the Mag 7.
Josh Brown: How is it, how is it Teflon, though? The Mag it is.
Michael Batnick: But how the Mag 7 dead throw up this chart Daniel. So year to date there's one Stock in the Mag 7 that's beating the index. Apple. That's it. The market lost the Mag 7.
Josh Brown: All of it, all of it.
Michael Batnick: Every one of them except for Apple are underperforming, shot off. So we lost the Mag 7 and the market marched higher. So that was the leadership group and then we lost the AI trade. Semiconductors blown into the stone age. The equal weight, the equal weight index was up over 1% today despite the S P500 was green today we lost the Max 7 and we lost the semiconductors. What is it going to take for this market to give the bears what they want?
Josh Brown: We're getting by with this bizarre combination of healthcare, financials, small caps and Apple and Nvidia holding up or Apple pushing to new highs.
Michael Batnick: Nvidia is not holding up.
Josh Brown: It is, it's hovering around 200. It's a little bit above, a little bit below. It's holding up, dude. Believe me, relative to the microns of the world, it's doing just fine.
Michael Batnick: It's not, it's not helping the market.
Josh Brown: It's stabilizing the market. That's all I'm saying. I'm not saying it's contributing. The stock's doing nothing this year but it's also not, it's also not in a 40% drawdown. I just, I just showed you AMD down 22% SanDisk down 54%. It's not doing that. So I think that helps. But it's really the financials, the health care names obviously Energy is leading the market year to date although most of those gains happen in Q1, not Q2 but they're sort of hung in there like Exxon is hanging in there. Closer to highs than lows. So you have this really bizarre oh, the industrials last bank of America. I don't have a chart but bank of America said last week was an all time record for single stock buying by clients in industrial stocks. Like that's what's holding this market. Up next show the Halo trades are holding the market up for sure. The Halo ETF is outperforming the S&P since inception. Loha. Full disclosure, I'm involved in that. It's up I think five and a half percent, close to six percent since inception. The S&P is down one percent since it launched. Like I know it's not that much time but it's just indicative. What's in that etf? Airlines, JB JB Hunt. It's companies nobody's ever heard of like tfi. I couldn't even tell you. But these are the stocks that people are are moving toward. They love the industrials so.
Michael Batnick: Right. Ryan Dietrich tweeted most stocks in the S&P 500 above the 50 day moving average since February 70 above the 200 day moving average. So the leadership names, the biggest names are falling apart and the market is still at least equal weight ripping to new all time highs. I want to say, I want to, I want to give a rest in peace to the AI will kill everything trade. And I would present to you as exhibit A Expedia and Charles Schwab. Yeah remember the. Okay so Expedia. Why would you need this website when you have AI okay new all time high. Remember when Hazel was going to kill Schwab? And you know we love Hazel. We use Hazel, we love Altruist. We use Altruist. But I think we all joked at
Josh Brown: the time just the wrong just. You know what this is Michael? This is just people drawing like connecting
Michael Batnick: the dots made no sense at the time. So that trade is now over. And we had a monster, monster two day change in software outperforming semiconductors. And this is only igv and IGV includes Palantir and it includes Oracle and Microsoft. If you were to just isolate like the, the horizontal software names that were supposedly dead like Salesforce and Workday and ServiceNow. Again two names that I own. They would like if you were to just look at this. The two day change looks even more extreme.
Josh Brown: Yeah, you know what, you know it's having a, having a moment. Berkshire Hathaway.
Michael Batnick: Berkshire.
Josh Brown: So, so I've been pounding the table on, on the insurance stocks on TV and here like we've been talking about Travelers and Allstate and these stocks are all making record highs. Berkshire is too. Berkshire owns a huge slug of Coca Cola which today gapped higher to an all time record. So Berkshire is a big holder there. They obviously have all the utility exposure. They obviously have transportation exposure via the railroad. All of these things are firing on all cylinders. And, and Berkshire of course primarily an insurance company. So between the, the Coca Cola position, the American Express position, catering to the top of the K, transports, industrials, utilities, it has like everything investors want right now. Almost as if like it was premeditated for this moment. I know it's of course not. But I thought that was interesting one,
Michael Batnick: one thing that I was thought was worth pointing out if you were like to be cautious on the Market is, is Staples ripping is not like awesome. You don't love to see that. Well, guess what? Staples gapped higher by, I don't know, 3 or 4% and closed on the dead lows of the day. So the resilience of the market, it's just. I am, I am beyond impressed. All right, let's, let's continue the semi crash conversation. So there has been a monster unwind, just a disgusting unwind in SanDisk and our sweet western dig and Micron and all these that we've been talking about that we own. So this was a necessary unwind. It's not fun for anybody involved, but look at this chart. $46 billion of inflows into semiconductor ETFs this year alone.
Josh Brown: Bananas.
Michael Batnick: Just obviously unsustainable. And again, it feels shitty. But this, this, I'm, I'm sorry, I don't know what to tell you. This puke was necessary. So obviously the story in the, in the journal yesterday or two days ago about Nvidia in talks with OpenAI to guarantee $250 billion in financing for data center did not help the matter. I think investors are sort of done with the circular stuff. And I want to read you something. Josh, you got to get a load of this. So Lnick and the Trump administration also have a lot rotting on the Ohio project. As part of its commitment to invest in the U.S. in return for lower tariffs, Japan agreed to invest $33 billion in a natural gas power project on federal land in Ohio that would be operated by SB Energy, which is effectively controlled by Masayoshi Son. Softbank is involved in this, of course. So SB Energy has received an investment from OpenAI and Softbank. I'm sorry, SB Energy has received an investment from OpenAI and Softback himself is one of the largest investors in OpenAI. In March, of course, Lutnik Sohn and Energy Secretary Chris Wright broke ground on the data center complex. There's just, there's so much circular activity and in dealing happening that investors are sick of it.
Josh Brown: Well, Nvidia. So the Journal article that you're referencing, which we're not going to do a deep dive into, it's just more of the same, but on a larger scale. Nvidia is in talks to provide a $250 billion backstop for OpenAI as part of a massive data center project. So basically OpenAI is going to foot the bill for this, and Nvidia is basically going to be one of the biggest tech vendors to the project. So they're almost like saying, you don't have to worry about money.
Michael Batnick: Yeah, we'll give you money to pay us.
Josh Brown: We'll give you money to give it back to us. People do not. I understand the purpose of that guarantee, to make sure the project actually goes forward. And they're doing this out in the open. It's not like a lie or a hidden thing, but people do not like it.
Michael Batnick: The stock fell 5%.
Josh Brown: Yeah. To your point. They also don't like the mixture of politics and, and business. I mean, look, I think we all know that OpenAI is going to grant 5% of itself to the federal government before it goes public. They've floated that as a trial balloon. I think they're going to do it. I think it's strategically smart. I don't think it costs them anything. The next time we have a financial crisis, the government will sell it for cash on the open market. A new administration, they'll say, we don't want to be in the open air business. We'll get rid of that stake. But what that buys them is unlimited political cover. And we've, like, we've seen this work with the, with the, we've seen this work with the gambling stock, the gambling companies, Kalshi and Polymarket. Donald Trump Jr. Owns a stake in both. No one, no one's with these companies. That's it. That's checkmate. So the Trump administration being able to do a Rose Garden ceremony with Sam Altman and accept, on behalf of the American people, a 5% stake in OpenAI, that buys him almost unlimited political cover for the next couple of years. And I think they're going to do it. I don't think people love it, but if you were Sam Altman, it's like, yeah, why, why wouldn't we do that? Think about all the aggravation that saves us to have to have at least half the country's political people on our side rather than both parties hating us.
Michael Batnick: It's not just aggravation, it's financing costs. If Nvidia has your back, all right, you're not. So for plus 15%. I mean, I'm exaggerating, but like the, the rates are a lot better with Nvidia at your back. All right, let's get back to the sell off tech, hardware and equipment stock drawdowns. The Average is down 27% from its 52 week high. Sandis is down 54. Corning is down 55. By the way, that Corning, actually, we'll get to that in a second. We have a chart on that later. Let's move to the semi stocks. The average is in a 30% draw down Marvell, which Jensen Wang said about a month or two ago was going to be the next trillion dollar stock. Whoops. Just got cut in half.
Josh Brown: Yeah, well George Jinx in the chat. MF or I bought the top again. Listen, you're not the only one. Tops are created by an excess of buying so a lot of people contributed to the creation of that at least short term top. I think this is on balance very healthy for the market because people aren't throwing in the towel on the rest of their stocks. This is sort of like it's a three ring circus. This is one of the rings. In the other ring you have people making money hand over fist in bank stocks and the investment banks. In another ring you have people buying up industrials and this isn't really shaking them out. So I think like you had an excess. The semis felt like a one way trade.
Michael Batnick: It was dude, Sandisk got cut in half. I don't know how many stocks you could say this about in the history of the market. SanDisk a company like a legitimate company of the size. The stock has been cut in half
Josh Brown: in 30 days and it's like 200%.
Michael Batnick: It's still up 100% year over year and if you look, if you zoom out a little bit it still looks like it's in an uptrend. I know this isn't, you know, it doesn't give you a lot of confidence but this had to happen.
Josh Brown: So Corning Today we'll spend two seconds on Corning. The reason this matters is because Corning is in this small group of stocks that has become synonymous with the AI Capex trade that are not in the tech index or not really thought of as like the way we think of semiconductor stocks and they've become sort of a signal of sort about risk Appetite around the AI CapEx build out. So those stocks include Comfort Systems which is Fix Corning, Caterpillar, believe it or not, Vertiv, there's this whole group of names. They actually beat earnings. Revenue grew 17% they hit 4 spot 74 billion. Adjusted earnings were up 30% which beat consensus. Operating margins expanded as well. It's not a bad quarter. The guidance didn't hit the whisper number. We're back to that bullshit. So Q3 revenue guidance came in at 4.9 to 5 billion and the whisper was they're going to do 5 for guidance. And that said it didn't. This is the point. The Stock was up 30% year to date going into this and, and had tripled off its lows. And all of a sudden what ends up happening is the same thing that happened in the memory stocks. It's no longer about the fundamentals being solid. Everybody, they're solid. It's mentality. It's like, well, I wanted more. The expectations catch up with the fundamentals and then outpace them and become unrealistic. And then there's nothing you could do that's good enough. And the whole optical sector, because what Corning is doing in the data centers is, is fiber optics and, and glass for chips and all kinds of shit, but coherent, Lumentum, Marvell, Sienna, axt. This is this whole cohort of like the optical stocks that are involved in data center. They crushed all of them and they've all been going down. So the company actually give me the corning stock price one more time, dude. 255 to 126 in less than eight weeks.
Michael Batnick: No, no, in July.
Josh Brown: Was that in July?
Michael Batnick: Yeah, it was at 255 in the last month.
Josh Brown: Yeah, dude.
Michael Batnick: All of this decline is in July. So I know this doesn't feel great and hear me say this is healthy sucks, but this was necessary. The decks have been cleared, expectations have reset and, and this happened.
Josh Brown: You know, Shark Kid tells us this is the 23rd worst day for Corning since 1980. This is not a rock and roll stock. You, you can see it was some really tough days in the 2000-2002.com bubble burst because Corning was a player back then as well. Since then this company for 20 years has been minding its own business doing very boring industrial things with the exception of like supplying glass to Apple for iPhones. And now it's like right back into here. Third worst month recording ever. Put this up. Third worst month ever. Negative 50.7% this month. Sick Forward earnings per share.
Michael Batnick: All right, so let me. So here we go. So, so the question is, the question is what's going to happen with the earnings and is the forward PE too cheap? So the forward 12 months earnings per share up and to the right. I mean, unbelievable. There's a reason why these stocks went up 500%. And now you have micron trading at 5 times forward 12 month earnings. SanDisk same. Corning. I don't know what it's at, but way lower and trot off. The market's not dumb. The market is not dumb. It doesn't give away free Money. Micron at 6 times earnings. The market is telling you something very clear. Very obviously it doesn't believe it. Not that the next 12 month earnings, because it might be trading at 6 times 2027 earnings, but what if it's trading at 30 times 2028 earnings? And that's what Bernstein is predicting next chart. Check this out. So Sean Emery tweeted, Bernstein has earnings in memory. Graphic and memory going parabolic.
Josh Brown: Look at this chart.
Michael Batnick: And then collapsing. So this is the first time I've seen something like this. We're looking at Samsung, sk, Hynix and Micron, and this is what the market believes to be happening because there's no other way a company that's tripling its revenue year over year would be trading at five times forward earnings. It doesn't make sense until you look at this, it does.
Josh Brown: So if, if you want to make the case that what's going on this year is not a valuation bubble, but an earnings bubble, that's a great chart for you because that explains what, number one, it explains why today's quote unquote, cheap multiples are not that cheap. And number two, you just think about what that's going to feel like for the Longs who ride that over the cliff and they're still in the stock two years from now and they're like, I don't understand. The company's going 30%. How come, how come the stock is still going down? Because eventually these companies revert back to what they are, which is commodity producers of a product and the users become more efficient at using it. New lanes of supply open up. It's some combination of those things all conspiring together to make it so something that looked like it was a new secular growth story. Oh, wait. Turns out it's cyclical.
Michael Batnick: Well, Patrick. Patrick asked Sam Altman what could change the shortage of memory. And one of the things that Sam said was maybe the models just get more efficient. And just figure.
Josh Brown: That's what I'm saying, that's what I've been saying. If that is so much of a pain point that it's forcing Apple to raise prices on all its laptops and phones, you better believe the buyers of these raw materials and commodity memory chips. This is what they're focused on. More, more efficiency for the dollars that we have to spend. There's a company in China, CMC, which went public, I think, with an $85 billion initial valuation and went up 460%, not a typo that I'm speaking, went up almost 500% on its IPO day. One day. One day became the largest public company in mainland China, a memory chip company that nobody has ever heard of until 10 minutes ago. So this is sign of the time stuff. The, the Korean retail traders and what they're doing with leverage, on and on and on and on. There's so much going on there. Maybe easier to step aside. Let's skip the Sam Altman stuff because we're going to do this with, with Alex. Okay, Good call.
Michael Batnick: All right.
Josh Brown: We're going to do the Fed really quickly. Do people really, do people honestly expect. Put this Citadel securities thing up? This spooked the market. Citadel came out and said they think there could be a surprise rate hike. I don't know what the probability is in the, in the, in the futures market, I think I saw 40%. Now, the market initially sold off on this and then came all the way back. Is that what happened?
Michael Batnick: I don't, I don't know if that's what moved the market. I'm not sure. When was this? This was month. This was, was this yesterday?
Josh Brown: I don't know. It all blends together yesterday and today. Yeah, people, people were mad that Citadel did this. I think it spooked. I just think it spooked the market and got people to sell some stuff.
Michael Batnick: I don't know. Maybe it did.
Josh Brown: And then the market ripped right in everyone's face.
Michael Batnick: I was, I was very sick yesterday. Neil Dutta also thinks that the market is going, that the Fed is going to go. So.
Josh Brown: Okay, I don't, so I'm on the other side of that. And I would assume Citadel and Neil are better informed than I do. Then, then I am. But I, I just don't picture Trump's appointee sitting down in the seat for three weeks and the first thing he does is a rate hike.
Michael Batnick: So, all right, so in conclusion, we lost the Mike 7, we lost semiconductors, The Fed may hike. Rates are as high as they've been in a long time. Inflation is sticky, maybe tariffs, more war, and the market is at an all time high. What else are you going to throw at it?
Josh Brown: Listen, man, if this, if this S and P can weather this, this semiconductor crash and not have them not have six of seven mag. Seven names, even within 5% of a high, it's very hard to be bearish. And I know people say, ah, you guys will be bearish either way. You guys will be bullish. No matter what happens, you guys are always finding a reason to be bullish. Dude, look at the tape.
Michael Batnick: I'm bearish. When stocks start to go down, I listen to the market.
Josh Brown: Michael gets Bearish. One red day.
Michael Batnick: Yeah, if the market's down today, I'll turn bearish. I don't care.
Josh Brown: This is one of those times where the tape is not speaking. It's whispering specifically to me. No, it really is. I feel like I have a really good handle on, on, on the tape right now.
Michael Batnick: I'm heavily the clap button, but it's not working.
Josh Brown: It's gently, it's gently whispering to me. It's gently whispering to me. This too shall pass. But again, all those earnings previews we just did at the top of the show, that's not for fun. Like, this is the thing that everything else kind of relies on. The those have to be good reports and there has to be a lot of confidence in those Q and A's. And the good news is we all get to find out together. So, guys, that's the show for tonight. Thank you so much for watching and listening. Remember, there's an all new Animal Spirits tomorrow, Spotify, Apple, and right here on YouTube there'll be an Ask the Compound later in the week. And then we will finish with Alex Kantowitz on an all new edition of the Compound. And friends, we appreciate you guys. Thank you so much for watching, listening. Talk to you soon. Ritholtz Wealth Management is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Ritholtz Wealth Management and its representatives are properly licensed or exempt from licensure. Nothing on this podcast should be construed as and may not be used in connection with an offer to sell or solicitation of an offer to buy or hold an interest in any security or an investment product. Past performance is no guarantee of future results. Investing involves risk and possible loss of principal capital. No advice may be rendered by Ritholtz Wealth Management unless a client service agreement is in place. Lots of places can expose you to identity theft. Oh, no. That's why LifeLock monitors hundreds of millions of data points a second for threats to your identity, which is way more than anyone can do on their own. If we find anything suspicious, like new loans or changes to your financial accounts, we alert you right away all through text, phone, email or the LifeLock app. Get the alerts that could make all the difference. Save up to 30% your first year at lifelock.com specialoffer terms apply.