Alphabet Inc Class C

Nvidia reported stronger-than-expected second-quarter results on Wednesday after the market close, with adjusted earnings per share of $2.22 beating analyst estimates of $2.09, and revenue of $96.2 billion surpassing the expected $92.38 billion. Data center revenue reached $89 billion, ahead of the $85.86 billion forecast, while the company guided third-quarter revenue to $108 billion, above the consensus of $105.16 billion. Gross margin improved to 75% from 72.7% a year earlier. The company also noted that its Vera Rubin platform is now in full production. Despite the strong numbers, analysts are focused on concerns about competition from major customers like Alphabet and Amazon, as well as questions about circular financing in the AI sector.

Alphabet priced an $84.75 billion capital package in June, but Wednesday's stock drop of 1.7% to $341.22 highlights investor concerns about valuation, with shares trading 34.53% above the $253.64 GF Value estimate. The package includes $18 billion of common stock, $16.75 billion of mandatory convertible preferred securities, and a $10 billion Berkshire Hathaway placement, while the remaining $40 billion at-the-market program is primarily for covering tax obligations on employee equity awards, not AI infrastructure. This means nearly half of the total package is not a direct bet on AI, even as Alphabet's second-quarter revenue surged 24% to $119.8 billion. The key test is whether Alphabet can convert its AI spending into returns quickly enough to offset dilution and justify its premium valuation.

Apple has introduced the M6 and M5 Ultra chips, strengthening its silicon portfolio for compute-intensive AI workloads. The M6, debuting in the new Mac mini, is Apple's first 2-nanometer chip with a 12-core CPU, 12-core GPU, Dual 16-core Neural Engine, and up to 170GB/s of unified memory bandwidth, while the M5 Ultra, powering the Mac Studio, offers up to a 36-core CPU, 80-core GPU, and 1.2TB/s bandwidth. The M6's Neural Engine delivers up to twice the peak compute of previous generations, and GPU AI compute improves nearly 30% over M5, supporting up to 32GB of memory for on-device LLMs. The M5 Ultra's GPU provides up to 4.5 times the peak AI compute of M3 Ultra, and configurations with up to 512GB of memory can run LLMs with hundreds of billions of parameters locally. These launches come as Mac revenues climbed 29% year over year to $10.4 billion in fiscal Q3 2026, with Apple reporting an installed base of over 2.5 billion devices and R&D spending up to $11.73 billion. Apple faces stiff competition from Alphabet and Microsoft, which are building broader AI ecosystems; Alphabet's Gemini app has 950 million monthly active users, and Microsoft 365 Copilot has surpassed 30 million paid seats. Apple shares have returned 14% year to date, underperforming the sector's 14.4%, and trade at a forward P/E of 32.77X versus the sector's 20.66X, with a Zacks Rank #3 (Hold).

KBRA released a report on the credit implications of AI infrastructure expansion among the AI-7 companies—Meta, Amazon, Alphabet, Microsoft, NVIDIA, Broadcom, and Oracle—finding that their gross disclosed contractual commitments and contingent support have surged to approximately $3.2 trillion from $575 billion at the end of 2024. The report highlights that these off-balance sheet commitments, including long-term leases, purchase and construction commitments, and cloud capacity agreements, are reshaping the companies' financial risk profiles and reducing future flexibility, despite generally strong balance sheets. Six of the AI-7 maintain traditional lease-adjusted leverage below 1.5x, but the rapid growth in commitments is a concern. KBRA emphasizes that commitments are not economically uniform and should be analyzed separately based on timing, utilization, demand, cancellability, and counterparty performance.

Nvidia has warned some of its largest customers that AI servers built around Grace Blackwell and Vera Rubin chips could cost more than 15% extra in early 2027 as memory prices climb. Alphabet is among the data center operators exposed to those increases, and it has committed $195 billion to $205 billion in capital spending this year on AI infrastructure. Google Cloud revenue grew 82% in the June quarter to $24.8 billion, and cloud backlog reached $514 billion. Marvell reported Q1 fiscal 2027 revenue of $2.42 billion, up 27.57% year over year, with data center accounting for 76% of the total, and CEO Matt Murphy said the custom chip business has a path to over $10 billion in revenue in fiscal 2029.

Alphabet reported 24% overall revenue growth in the second quarter of 2026, driven by an 82% surge in Google Cloud, but massive AI infrastructure spending pushed quarterly free cash flow to negative $5.9 billion. Management raised capital expenditure guidance to a range of $195 billion to $205 billion and warned that free cash flow will remain under pressure. The company's core operating margin of 33% is at the high end of its multi-year range, and executives signaled that using more expensive third-party capacity will create modest margin pressure in the near term. Analysts noted concerns that Google must keep pace with other leading labs, and management stated it will need Gemini 4 as a larger base model to compete at the frontier level.

New Zealand Prime Minister Christopher Luxon announced his party will introduce legislation banning social media for users under 16, with noncompliant platforms facing fines of up to 10% of global revenue. The measure would require companies like Meta Platforms and Alphabet to verify user ages using account information, facial recognition technology, and digital identity documents, directly affecting Instagram, Facebook, and YouTube. Australia has already enacted a similar under-16 ban, and other countries may follow as concerns over child safety and online addiction grow. The proposal is not yet law and faces opposition from Luxon's coalition partner New Zealand First, but if adopted, it could raise compliance costs and limit younger user acquisition for major social media firms.

Dan Ives says Nvidia's roughly 15% price increase on AI server systems is not a demand warning but another sign that AI infrastructure remains severely supply constrained. He told Bloomberg Television that demand and supply for chips is upwards of 15 to one, with the current memory shortage forcing Nvidia and others to pass rising component costs through the supply chain. Ives expects the memory super cycle to keep the industry from reaching meaningful supply-demand equilibrium until the middle or latter part of 2028. Microsoft, Alphabet and Oracle are reportedly among customers facing higher data-center system costs as memory prices rise, yet Ives sees little evidence that those costs are causing customers to retreat. He described the AI buildout as still being in the third inning, with enterprise adoption accelerating rather than slowing, and expects hyperscalers to continue raising capital and increasing capital expenditures.

Apple has become Wall Street's favorite Magnificent 7 stock due to its unusually low capital spending on AI, with 24/7 Wall St. issuing a BUY rating and a $361.66 price target implying 16.91% upside from the current $309.35. Apple spends just 2% of revenue on capex, compared with Microsoft's $115.95 billion full-year capital spending and Alphabet's planned $175 billion to $185 billion in 2026 capex, which pushed Alphabet to negative free cash flow of $5.85 billion. Apple's July 30 fiscal Q3 revenue of $109.4 billion grew 16.36%, EPS of $2.02 beat estimates by 6.8%, and iPhone revenue jumped 22% to $54.3 billion, marking its ninth consecutive EPS beat. However, CEO Tim Cook described DRAM pricing as a '100-year flood' with exponential increases, pulling September-quarter gross margin guidance to 47%-48% from Q3's 50.1%. The bull-case scenario points to $377.13, while the bear-case lands at $313.60.

Amazon-owned Zoox has begun deploying its fully autonomous vehicles onto the streets of San Francisco, putting the business in more direct confrontation with Alphabet's Waymo. Zoox's vehicles have no steering wheel or pedals, are bi-directional, and seat four people facing each other. The company has clocked over 3 million autonomous miles and carried close to 1 million passengers, and began charging for rides in Las Vegas on Aug. 10 after gaining a government exemption to operate commercially without conventional driver controls. Amazon acquired Zoox for roughly $1.2 billion in 2020.