Written by: Chaoxiang Research

The Dow Jones Industrial Average has closed in the green for the fifth consecutive trading day, hitting a new historical high, while the Nasdaq dropped nearly 1% due to setbacks from SpaceX and AMD. What continues to support the Dow’s rise is still the situation in the Strait of Hormuz. Iran's deputy foreign minister has eased concerns, stating that the agreement is close to finalization, leading to three consecutive drops in oil prices, and traditional sectors have likewise started to relax. However, the technology sector’s internal atmosphere is entirely different; SpaceX doubled its revenue in the second quarter, narrowing losses, yet dropped over 13% in after-hours trading; AMD’s earnings report exceeded expectations, with a median guidance of $13 billion for the third quarter, but the market deemed it insufficient and dropped over 7% during regular trading. During the day, easing geopolitical tensions held down oil prices, and in after-hours trading, valuation issues began to surface for AI hardware stocks. Funds have not left AI, they just moved to a different seat. Nvidia has risen for five consecutive days, and Micron has returned to a trillion dollars, as the market is rearranging the seating order.

Expectations of a Hormuz Agreement Keep Oil Prices at $75, Dow Jones Hits New High

The Dow rose 0.49% to 54349.12 points, closing in the green for the fifth consecutive trading day and hitting a new historical closing high. The S&P 500 dropped 0.17% to 7723.55 points, ending a four-day rally. The Nasdaq fell 0.83% to 26363.44 points.

The Dow’s upward momentum still comes from the Hormuz issue. Iran's Deputy Foreign Minister Garibabadi stated that the agreement between Iran and Oman on commercial passage through the Strait of Hormuz is nearing finalization, and Iran has for the first time revealed that the U.S. proactively approached them for discussions. Oil prices fell in response, with WTI crude oil September contracts dropping 0.73% to $75.22 per barrel, and Brent October contracts rising slightly by 0.11% to $79.45 per barrel, with WTI hitting its lowest price in nearly a month. The drop in oil prices has pulled inflation expectations down; data from the Chicago Mercantile Exchange shows the market anticipates a 54.9% probability of an interest rate hike by the Federal Reserve in September, a decrease from 58.3% a week ago.

COMEX gold futures rose 3.74% to $4308 per ounce, while spot gold rose 4.11% to $4245 per ounce. The drop in oil prices and rise in gold makes sense, as the market simultaneously trades on the easing of geopolitical risks and the potential pivot of the Federal Reserve, with both sides hesitant to fully let go.

Kenny Polcari, Chief Market Strategist at Slatestone Wealth, highlighted a note of caution regarding the optimistic sentiment. He stated that this surge resembles a straight-line rocket without a moment to breathe, and the market's stance is that they won’t buy into it again until substantial progress is made, having been misled too many times over the past four months. The pricing of geopolitical benefits has been quite ample, and with the agreement yet to be signed, the market remains cautious.

SpaceX Doubles Revenue but Plummets 13%, Market Focused on $18.4 Billion Capital Expenditure

SpaceX's earnings report would have seen considerable gains in a normal market. Second-quarter revenue reached $7.8 billion, up 92% year-over-year, exceeding the market's expectation of $6.93 billion; adjusted EBITDA was approximately $3.5 billion, rising a staggering 192% year-over-year; and the net loss narrowed to $541 million, about 46% less than the same period last year. Doubling revenue and narrowing losses are impressive figures, yet SpaceX dropped over 13% in after-hours trading, wiping out $225 billion in market value.

The market’s skepticism stems from capital expenditures. SpaceX's capital expenditures for the second quarter soared to $18.4 billion, six times year-over-year, with most directed towards AI infrastructure. With revenue at $7.8 billion and capital expenditures at $18.4 billion, the company is burning cash at an unprecedented speed. Investors are concerned about the sustainability of this spending method and when they might see returns. Musk mentioned in the earnings call that future AI infrastructure will exclusively use Nvidia processors, and Nvidia rose 3.43%, but SpaceX did not hold its ground. The impending release of employee stock options has also added pressure to the stock price.

The narrative around AI has shifted from who is investing to who can deliver results, and SpaceX's capital expenditures have prompted the market to reassess this issue.

AMD's Third-Quarter Guidance Not Impressive Enough, Funds Shift from AMD to Nvidia and Micron

AMD's situation is similar. Second-quarter revenue hit $11.54 billion, a 50% year-over-year increase and a record high, with data center revenue at $6.7 billion, up 107% year-over-year, accounting for 58% of total revenue. However, the median revenue guidance for the third quarter of $13 billion did not meet the higher expectations of some aggressive investors. It came under pressure in after-hours trading on Tuesday and opened lower in regular trading on Wednesday, closing down over 7%.

A key detail is that while AMD dropped, the AI sector did not collapse. Nvidia rose to $222.22 during the day, reaching a new high since June 3, with a maximum increase of 4.85%, and it has risen for five consecutive trading days, with its market value approaching $5.8 trillion. Micron has risen for three consecutive trading days, with its market value returning to $1 trillion. The Philadelphia Semiconductor Index fell 2.12%, but the semiconductor ETF only dropped 1.04%, significantly less than AMD’s drop, indicating that funds are reallocating positions within the sector rather than exiting entirely.

Funds have not left AI; they have just shifted from AMD to Nvidia and Micron. The phase of indiscriminate rises in AI is over, and funds are starting to pick and choose.

Google Drops Over 4%: AI Talent Loss, Market Interested in Leadership

Alphabet Inc. (GOOGL) fell 4.03% to $357.72. The company announced major adjustments in its AI department, with AI head Demis Hassabis stepping down from major management roles, and Chief Scientist Jeff Dean leaving after 27 years to start his own AI company.

In the phase of intense AI competition, the departure of key personnel is seen by the market as a significant uncertainty. Questions about who is leading and who is losing talent are directly affecting the valuations of AI companies.

Storage Giants Drop During Regular Trading Before Earnings Reports, Guidance Still Not Impressive

SanDisk and Western Digital both reported earnings after the market close on Wednesday, and both companies faced pressure during the official trading session, with SanDisk closing down 5.4% and Western Digital down 5.36%.

The earnings figures themselves were not bad. SanDisk reported fourth-quarter revenue of $8.96 billion, a staggering 372% year-over-year increase, far exceeding the expected $8.394 billion, and the board approved a $14 billion buyback plan; however, this quarter's performance guidance disappointed the market, and it briefly fell 8% in after-hours trading. Western Digital reported fourth-quarter revenue of $3.75 billion, a 44% year-over-year increase, exceeding expectations, and management indicated that long-term contract orders are already booked through 2031, yet it still fell 10% after hours.

The plight of the storage giants is similar to that of SpaceX and AMD; good performance is not enough, it must exceed expectations. The valuation standards for AI hardware stocks are being fully adjusted, and the phase where anything associated with AI would rise has completely passed.

Seven Giants See One Up, Five Down, Chinese Stocks Continue to Decline; Cross-Asset Signals Indicate the Same Issue

The Seven Giants Index fell 0.9% on Wednesday, with internal structure indicating problems. Nvidia rose 3.43%, leading the pack, and Tesla rose 0.4%, while all others closed down; Alphabet Inc. (GOOGL) fell 4.03%, Microsoft dropped 1.21%, Apple fell 0.74%, Amazon decreased by 0.28%, and Meta dropped 0.19%. With one up and five down, funds are highly selective even within the giants.

Chinese concept stocks continued to underperform. The Nasdaq Golden Dragon China Index fell 1.49%, marking six consecutive trading days of decline since the end of July, with a cumulative drop of over 7%. JD.com, Alibaba, and Pinduoduo fell between 1.7% and 2.1%, while Baidu dropped 3.2%. Global funds are being more discerning about high beta assets during earnings season, and Chinese concept stocks are becoming the subjects of filtering.

Regarding U.S. Treasuries, the 10-year yield remained at 4.615%, while the 2-year yield fell by 1.05 basis points to 4.177%. The decline in short-term yields reflects a cooling of rate hike expectations, while stable long-term yields indicate that inflation fears have not subsided.

Bitcoin was at $65280 (as of 8:00 AM Beijing time), up about 1.5% over the past 24 hours; Ethereum was at $1893, rising about 0.92%. The rise in gold has significantly outpaced Bitcoin, indicating that funds are still cautious about geopolitical risks.

Today's Focus: Data Window Before Non-Farm Payrolls and Federal Reserve Speeches

Three variables are worth monitoring on Thursday. First, speeches from Federal Reserve officials Daly and Musalem; with a 54.9% probability of a September rate hike, any statement regarding interest rates could trigger volatility. Second, initial jobless claims data, which serves as a preview for Friday's non-farm payroll report. ADP data has already shown a slowdown in job growth, and if initial claims continue to weaken, rate hike expectations may decline further. Third, the performance of the storage chip sector in official trading on Thursday; SanDisk and Western Digital have already faced pressure in after-hours trading. The market's demands for AI hardware have shifted from growth to sustained outperformance; whether this change in standards will spread to other hardware stocks is worth noting.