💰 Record Profits, Vanishing Cash

THE MAIN EVENTRecord Profits, Vanishing Cash 🤔

Last quarter, Alphabet pulled off a financial magic trick that has never been done before.

1. It posted the largest quarterly profit in the history of American business.

2. And it burned through cash for the first time on record.

Say whatttt.

The Record Comes With An Asterisk 🏆*

In Q2 2026, Alphabet reported $112.1 billion in net income, the biggest quarter any US company has ever booked. The business is clearly humming:

• Revenue rose 24% to $119.8 billion

• Google Cloud grew a stunning 82% to $24.8 billion

• Operating income rose 30%, with margins widening to 34%

But $98 billion of that headline figure wasn't cash from selling ads or cloud time. It came from “other income,” mostly gains on Alphabet's stakes in companies like Anthropic and SpaceX.

That's not money in the pocket. It's a paper markup on holdings nobody has sold.

The core business is still enormously strong. The “biggest ever” line just happens to lean on bets that have nothing to do with search or the cloud.

The Cash Burn 🔥

Here's the number Wall Street couldn't ignore. Alphabet's free cash flow came in at  -$5.9 billion.

For the most dependable cash machine in corporate history, that has simply never happened. Three quarters ago it threw off $24.5 billion. Today it's underwater.

The reason is simple. Alphabet is spending more to build AI than its business brings in, so it made up the difference in the markets:

• Capex doubled from a year ago, reaching $44.9 billion this quarter, nearly all AI data centers and chips

• It sold $50 billion in stock in June

• It doubled its long-term debt to $100 billion over the past six months

A company that used to hand cash back to shareholders is now raising it like a utility.

It’s Not Just Google 👀

To be clear, Alphabet isn't the outlier. It's just the first to report.

The four giants building out AI (Alphabet, Amazon, Microsoft, and Meta) are on track to spend about $725 billion on capex this year, up 77% from last year. That is good for 100% of their combined operating cash flow, versus a 40% average over the past decade.

The whole industry is spending almost every dollar it makes.

Tesla underlined the point hours later, posting its first negative free cash flow in two years and warning the burn will only deepen. Google's report sent its stock sliding 6.9%. Tesla's dropped 14.5%.

The Investor Test 💡

I'm no cynic, so let's be fair: big spending ≠ foolish spending.

These are the most successful companies ever built, and they see the biggest opportunity of their lives. So they're taking their shot. That carries risk, sure. It does not automatically mean a bubble or recklessness.

Alphabet CEO Sundar Pichai put it plainly: “The risk of underinvesting is dramatically greater than the risk of overinvesting.”

He may well be right. If AI is as big as they (and I) believe, being early is priceless and being late is fatal.

• China is closing in fast. The release of Kimi K3 shows Chinese models reaching the frontier at a fraction of the price.

• Memory, compute, energy, and data-center capacity are all in short supply.

• And new data centers keep getting delayed or blocked, which makes those shortages worse.

It all points the same way: get it while the getting is good.

But notice what changed.

This bet used to run on profits. It now runs on the balance sheet, with debt and stock. And debt carries a price. The 10-year Treasury yield just hit 4.7%, its highest since last year, making every borrowed dollar increasingly expensive.

So this earnings season, watch free cash flow, not the headline figure.

A big “profit” can hide paper gains and a spending surge underneath it. The real question was never whether the AI giants make money. It's whether they can keep funding the build before the markets push back.

Meta, Microsoft, and Amazon all report in the next two weeks. If they show the same cash burn Alphabet just did, the question stops being “who wins AI” and becomes “who can afford to.”

MARKET MOODWar Reignites, Oil And Rates Rip Higher 🛡️

Winners

Lockheed Martin ($LMT) - Market Cap: $131.1B (Week-to-Date: +11.8%)

Lockheed just had the quarter every defense contractor dreams about. Revenue rose 11%, management raised guidance, and its backlog surged to a record $230 billion. The message was simple: global defense demand is not cooling off. When the world gets more volatile, Lockheed’s order book gets more valuable.

AMD ($AMD) - Market Cap: $880.0B (Week-to-Date: +8.9%)

On Monday, AMD unveiled Helios, its first rack-scale AI system. Microsoft, Meta, OpenAI, and Oracle are already lined up as customers. The company then spent two days walking Wall Street through where its chips go next. Analysts liked what they heard, lifting price targets and pointing to accelerating demand into 2027.

Freeport-McMoRan ($FCX) - Market Cap: $91.3B (Week-to-Date: +8.8%)

Freeport-McMoRan beat earnings on the back of a copper boom, as the red-hot metal sold for $6.17 per pound, up from $4.54 a year ago. Investors also liked signs that production at Grasberg, its huge Indonesian mine, is ramping back after last year’s disruption. As one of the world’s biggest copper producers, Freeport has a front-row seat to rising demand from data centers, EVs, and power grids.

Losers

Albertsons ($ACI) – Market Cap: $7.2B (Week-to-Date: -24.3%)

Albertsons got whacked after cutting its full-year profit outlook to $1.80 per share, down from $2.27. The grocery chain now expects identical sales to fall 1.0%, instead of growing modestly. Management pointed to cautious shoppers making fewer trips to the store. Kroger slid right alongside it, so this isn’t just an Albertsons problem. It’s a grocery problem.

Tesla ($TSLA) – Market Cap: $1.02T (Week-to-Date: -16.1%)

Tesla delivered a record 480,126 vehicles and still managed to disappoint. Revenue rose, but earnings missed because Tesla sold more cars for less profit per car. Margins thinned, regulatory credits fell, and free cash flow turned negative for the first time in over two years. Record volume is nice, but investors are still waiting for robotaxis to justify the valuation.

T-Mobile ($TMUS) – Market Cap: $184.4B (Week-to-Date: -11.4%)

T-Mobile beat on earnings and got punished anyway. Revenue came in a touch light, but the bigger issue was customer growth. The wireless giant added just 277,000 postpaid accounts (monthly-bill phone customers), down 13% from last year. AT&T had a stronger subscriber quarter the same week. I guess the Un-carrier just got out-carriered.

CHART OF THE WEEKIPOs Have Been A Losing Bet 📉

The AI IPO wave is coming.

Anthropic could go public as soon as October, with a line of unicorns forming behind it. Before you rush in, this chart from Apollo's Torsten Slok is worth a look. Since 2019, IPOs have mostly trailed the market for years after they debut. Why? Three reasons.

1. They price for perfection. The 2020-21 class came public at nosebleed valuations during zero-rate mania, leaving almost no room left to run.

2. Then rates turned hostile. The Fed's 2022 hikes hammered exactly the kind of unprofitable, long-duration growth stocks that fill most IPO classes.

3. The bar keeps rising. The boom rushed marginal companies to market before they were ready, all while a handful of mega-caps kept the index they're measured against sprinting ahead.

This doesn’t mean every IPO is a trap. But it does remind us that the excitement around a hot debut is usually a sell signal, not a buy one.

FAST FACTSNobody Gets Out Free 🔒

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🇨🇳 China Nearly Erased America's AI Lead: Moonshot's Kimi K3 matches top US models at ~40% less cost, erasing an eight-month AI lead. [Read]

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WORDS TO REMEMBERNever Trust Forecasts… Or Astrology 🧠