Two of America’s largest companies reported earnings this week. Neither was punished for what it sold.
Both were punished for what they spent.
Alphabet Inc. (NASDAQ:GOOGL) lost $294 billion in market value on Thursday, the largest single-session loss in the company’s history.
Tesla Inc. (NASDAQ:TSLA) suffered its worst week since March 2020. Underneath both selloffs sat the same line item: CAPEX.
Above it all, Brent crude climbed above $100 a barrel for the first time since May.
Why Did Oil Reclaim $100?
After Iran-backed Houthi forces attacked Saudi oil tankers in the Red Sea, President Donald Trump told Axios he was weighing a “massive attack” against Iran.
The markets reacted. The two-year Treasury yield, the bond market’s cleanest read on where investors think the Federal Reserve is headed, rose to 4.35% — its highest level since February 2025.
Traders now price two Fed rate hikes over the next year.
There is even a 35% probability attached to a hike at next week’s Federal Open Market Committee meeting, the gathering that sets U.S. interest rates.
The inflation trade is back.
Chart: Crude Broke Above $100, Before Slipping On Friday
What Spooked Alphabet’s Investors?
Alphabet reminded Wall Street that AI leadership arrives with an invoice.
Second-quarter capital expenditures reached $44.9 billion, double the level of a year earlier. Management lifted full-year spending guidance to $195 billion–$205 billion and signaled another increase in 2027.
Free cash flow, the money left over once a company has paid its bills and built its infrastructure, swung to a record negative $5.9 billion.
Shares fell 7.1%, the worst session since May 2025.
Chart: Alphabet’s Free Cash Flows Went Negative For First Time In Company’s History
Tesla’s Bill Was Even Harder To Read
Tesla dropped nearly 19% for the week after adjusted earnings of 33 cents a share missed the 53-cent consensus and operating margin collapsed to 1.4%.
Capital expenditures jumped 142% year over year to $5.8 billion, tied largely to AI, robotics and autonomous driving, pushing free cash flow $1.1 billion below zero.
Chart: Tesla Suffered Worst Week Since March 2020
Where Did The Money Go Instead?
Into weapons. Lockheed Martin Corp. (NYSE:LMT) rose 10.6% on a record $230.4 billion backlog, supported by a $35 billion THAAD contract and surging missile demand. RTX Corp. (NYSE:RTX) gained 7.7% after another beat-and-raise quarter. Both are positioned for higher U.S. defense budgets.
Detroit joined in. General Motors Co. (NYSE:GM) climbed roughly 10% after its 16th consecutive earnings beat and an upgraded full-year outlook.
The Streaks Beneath The Surface
Energy did the quiet work.
Chevron Corp. (NYSE:CVX), ConocoPhillips (NYSE:COP) and EOG Resources Inc. (NYSE:EOG) each closed higher for a seventh straight session, the longest active winning streaks in the S&P 500, amid soaring crude prices.
The pain at the pump is the payday in Houston.
Meta Platforms Inc. (NASDAQ:META) moved the other way, falling for a seventh consecutive session, the longest active losing streak in the index. Investors are applying the Alphabet lens to every hyperscaler that has promised to spend more.
Banks quietly ran the tape. Bank of America Corp. (NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM) each closed an eighth straight winning week, the longest run for Bank of America since 2021 and for JPMorgan since 2024.
Higher yields for longer widen what lenders earn on their loan books.
What’s Next?
Four of the Magnificent Seven — Apple Inc. (NASDAQ:AAPL), Microsoft Corp. (NASDAQ:MSFT), Amazon.com Inc. (NASDAQ:AMZN) and Meta Platforms Inc. — report earnings between Tuesday, July 27 and Thursday, July 30.
In between sits what is shaping up to be one of the most uncertain Federal Reserve meetings in years.
The ingredients for another volatile week are there.
Image: Shutterstock
