Things are heating up!
With just 7 more days until deadline, Trump says the 195 countries that have NOT signed his agreements will face “15-50%” tariffs but the President is also saying that drug prices “are coming down 1,000%, 600%, 500%, 1,500% – numbers that are not even thought to be achievable.” That is good news for consumers, who will now apparently be PAID by the drug companies to take their medicine when they get sick.
Well, anything to distract us from Epstein, right? it amazes me that Paramount, who just fired Stephen Colbert and cancelled the top-rated show (by 100%, as noted in “Fear and Loathing at Skydance: The Colbert Purge and the Billion-Dollar Smokescreen“) that has won CBS the most Emmy nominations in the past two decades and then turned around and gave South Park $1,500,000,000 ($1.5 BILLION) for the streaming rights to the show and then South Park turns around and made fun of Trump’s small penis (court testimony says it’s about the size and shape of a small, button mushroom), insinuated he’s having a gay relationship with Satan and insinuated that he’s carrying on the Epstein tradition of wild parties at the White House.
If this first episode of South Park is any indication, Colbert will seem tame by comparison but the episode was “in the can” before the deal so maybe Skydance will be able to bring Matt and Trey under control so we can start getting some pro-Trump messaging in South Park as well. Just substitute Satan in that scene with God or a flagpole and Trump’s base will eat it up again!
Meanwhile, EARNINGS are coming in and it was a mixed bag last night and this morning:
♦ Key Earnings Highlights (since July 23rd, 4 PM EDT):
-
-
-
Alphabet (GOOG/GOOGL):
-
Strong Beat: Reported stronger-than-expected Q2 earnings and revenue, with net income rising to $28.2 billion on revenue of $96.4 billion. This was an acceleration from the previous quarter’s revenue growth.
-
AI as a Driver: CEO Sundar Pichai emphasized that “AI is positively impacting every part of the business,” driving strong momentum in Search (double-digit growth with new AI features like AI Overviews and AI Mode performing well) and YouTube advertising.2
-
Cloud Strength: Google Cloud had a “great quarter” with strong growth (32% year-over-year revenue increase to $13.6 billion), rising profitability, and a surge in large enterprise deals, including multiple $1 billion+ deals in the first half of 2025.3
-
Increased Capex: The company is significantly boosting its capital expenditures, now expecting to invest approximately $85 billion in 2025 (up from a previous estimate of $75 billion) to meet the surging demand for AI and cloud services.4 Further increases are projected for 2026.
-
Monetization & Concerns: While advertising remains the primary revenue source, the company is actively testing ads in its new AI Mode for search. Analysts are watching how effectively AI innovations translate into sustainable monetization and if AI-generated summaries reduce ad opportunities. Antitrust concerns also linger.
-
-
Tesla (TSLA):
-
Mixed Results: Tesla’s Q2 earnings and revenue missed Wall Street expectations. Adjusted profit per share was $0.40 (in line with consensus), but total revenue was down 12% year-over-year to $22.49 billion, missing estimates. Free cash flow dropped significantly to $146 million, well below expectations.
-
Autonomy & Robotics Focus: CEO Elon Musk reiterated a strong long-term vision, emphasizing the expansion of robotaxi services (aiming for availability to half the U.S. population by year-end, pending regulatory approvals) and the development of Optimus humanoid robots, with production expected to start next year.5
-
“Rough Quarters” Warning: Musk warned of “a few rough quarters” ahead (due to lack of sales and vaporware, according to Phil), citing the impact of the expiring $7,500 IRA EV tax credits (effective September 30th) and increased tariffs.6 Tariffs are estimated to cost the company $300 million in FY25.
-
Affordable EV Timeline: The company reaffirmed its timeline for a lower-cost EV model for the second half of 2025, with volume production of the Tesla Semi and Cybercab slated for 2026 (“Tomorrow, tomorrow…” Phil sings).
-
-
-
-
-
-
-
Market Skepticism: Despite the long-term vision, the miss on revenue and sharp decline in free cash flow, coupled with warnings of near-term challenges, led to a dip in Tesla’s stock post-earnings, suggesting investors remain somewhat unconvinced by the immediate financial impact of its ambitious AI and robotics plans.
-
-
International Business Machines (IBM):
-
Strong Top and Bottom Line Beat: IBM reported robust Q2 2025 results, with revenue of $17.0 billion (up 8% year-over-year, 5% constant currency) surpassing analyst estimates of $16.59 billion.7 Adjusted EPS came in at $2.80, comfortably beating the $2.64 consensus.
-
Software and Infrastructure Drive Growth: The software segment, including hybrid cloud platforms (notably Red Hat), saw revenue up 10% (8% constant currency). The infrastructure segment (mainframes, IT hardware) showed the strongest relative growth at 14% (11% constant currency).
-
AI Momentum: IBM highlighted its “generative AI book of business” now exceeding $7.5 billion, reflecting strong client demand for AI-driven solutions.8
-
Consulting Caution: While consulting revenue was up 3% (flat constant currency), management noted ongoing caution in spending, particularly from government and federal clients, making it more susceptible to macroeconomic slowdowns.
-
Raised Free Cash Flow Outlook: IBM raised its full-year 2025 free cash flow guidance to above $13.5 billion, indicating confidence in sustained cash generation.9
-
Market Reaction: Despite strong fundamentals, IBM’s stock faced an initial post-earnings decline of around 5% after hours (-8% in constant currency, notes Phil), indicating that even strong results might not fully satisfy Wall Street’s high expectations in the current environment.
-
-
Chipotle Mexican Grill (CMG):
-
Mixed Performance for a Non-Tech Leader: Chipotle reported a 3.0% year-over-year increase in total Q2 revenue to $3.06 billion, driven by new restaurant openings and a 0.9% increase in average check size.10 However, diluted EPS decreased by 3.0% to $0.32, and net income fell to $436.1 million from $455.7 million in Q2 2024.11
-
Consumer Behavior Shift: A significant trend identified was a shift in consumer preferences from higher-priced proteins like steak and barbacoa to lower-priced chicken options. Transactions fell by 4.9%, indicating slower traffic.
-
Margin Pressure: Rising labor and commodity costs put pressure on operating income and profitability, with restaurant-level margin decreasing by 150 basis points year-over-year to 27.4%.12
-
Expansion Continues: Chipotle opened 61 new restaurants in the quarter, with 47 featuring “Chipotlanes” (drive-thru lanes for digital orders), continuing its strategic store expansion.13
-
Digital Strength: Digital sales remained strong, accounting for 35.5% of total sales.
-
Conservative Outlook: The company anticipates flat comparable sales for the full year, taking a conservative stance due to ongoing volatility in sales trends and macroeconomic factors.
-
-
-
The earnings from Alphabet and IBM reinforce that AI is still the central investment theme. Both companies are heavily investing in AI infrastructure and R&D. HOWEVER: Investors are increasingly scrutinizing how these investments translate into TANGIBLE, NEAR-term Revenue and Profit Growth (ie. MONETIZATION). Alphabet’s direct links between AI and Search/Cloud revenue are clearer than Tesla’s long-term Robotaxi fantasy. IBM, on the other hand, is showing strong AI-driven growth in its software and infrastructure segments.
The market is starting to exhibit a more discerning approach to Earnings Reports… While the “Magnificent Seven” (MSFT, AAPL, NVDA, GOOG/L, AMZN, META, TSLA) are still expected to be major drivers of S&P 500 earnings growth, individual company performance within this elite group is diverging. Nvidia, Microsoft, and Meta have shown stronger performance year-to-date, while Apple and Tesla have lagged. IBM’s strong numbers, leading to a modest stock reaction, further highlight that simply beating estimates might not be enough to satisfy a market with very high expectations – and very high multiples. Chipotle’s results underscore Consumer caution in the Discretionary Spending sector.
Alphabet’s increased CapEx (now $85Bn for 2025) highlights the massive investment cycle underway for AI and Data Center Infrastructure across the tech sector. This is a continued positive for Semiconductor companies and those involved in the AI Supply Chain (we just added to our FI position on yesterday’s earnings sell-off (see our Top Trade Adjustment).
Chipotle’s earnings provide a direct look into shifting Consumer Spending Habits. The move towards lower-priced menu items and declining transactions indicate that even in the Quick-Service Restaurant (QSR) sector, Consumers are becoming more cost-conscious. This trend is something Investors will have to watch closely across other Consumer-facing businesses.
Alphabet’s strong YouTube and Search Ad Revenue Growth indicates continued resilience in Digital Advertising, suggesting that businesses are maintaining or increasing their Digital Ad Spending despite broader Economic concerns. I was very surprised that GOOG/L suffered little or no shrinkage in search, DESPITE the fact that OpenAI alone serves over 2Bn requests per day. It means people are spending a lot more quality time with their computers!
Tesla explicitly cited tariffs as a significant cost. While not as direct an impact for CMG or IBM in these reports, general Macroeconomic factors like Inflation, Interest Rates, and Consumer Sentiment are clearly influencing companies like Chipotle (leading to changes in Consumer Spending) and IBM’s consulting segment (clients are being cautious).
The broader S&P 500 earnings season is showing positive surprises, with a good percentage of companies beating EPS and Revenue estimates. HOWEVER, the performance is selective, rewarding companies that demonstrate strong Core Business Growth, effective Cost Management, and clear benefits from secular trends like AI, while penalizing those facing significant Margin Pressures or Demand shifts.
There also seems to be a continuing divergence, with Enterprise IT spending (driven heavily by AI) remaining robust as seen with Alphabet’s Cloud and IBM’s Software/Infrastructure and that is contrasting with some softening in Consumer Discretionary Spending (as indicated by Chipotle’s traffic and shift to lower-cost items). There’s not really enough data to call anything a TREND yet but next week we hear from 200 more S&P companies and THAT should give us a lot to chew on!
We will continue to watch for further reports from the remaining “Mag 7” companies (Amazon, Apple, Meta, Microsoft, Nvidia) and other major players to get a clearer picture.
