Something strange is happening this earnings season: Big Tech keeps beating expectations, and investors keep selling anyway. The culprit is not growth, which remains robust, but the soaring cost of chasing it.

Alphabet set the tone. On July 22 it beat on almost every line, with cloud revenue up a remarkable 82% year-on-year, yet the stock fell roughly 7% the next day. The trigger was a single number: management lifted 2026 capital-expenditure guidance to as much as $205 billion, from $190 billion, dragging quarterly free cash flow negative.

Meta followed the same script last night. Revenue rose 28% and advertising beat, but it raised the floor of its capex range by $10 billion to $135-145 billion, and free cash flow collapsed to just $784 million. The shares fell around 7%.

The logic is straightforward once you see it. A revenue beat describes the quarter just gone; a capex hike describes years of future depreciation, thinner margins and vanishing cash, with no guarantee the AI spending ever earns its return. The Magnificent Seven are on course to spend over $700 billion this year, and Moody's has warned the pace threatens their credit quality. The market has stopped paying for growth and started pricing the bill.

Amazon is the next test, reporting today, with analysts expecting it to lift its own $200 billion capex guide. Whether booming AWS demand finally convinces investors the spending is worth it, or Amazon becomes the third giant to fall on good numbers, is the question that now defines the season.

- Neev Dave

China has overcome a major hurdle in maturing its domestic chipmaking industry by manufacturing domestically sourced deep-ultraviolet lithography machines. Developed by Aishengna, a Shanghai-based firm backed by state-owned shareholders, these DUV machines mark a major step toward technological self-sufficiency, as they now enable China to etch fine circuit patterns onto silicon wafers domestically. This allows China to circumvent Western-backed suppliers such as Dutch tech giant ASML, which has long dominated the industry.

From this announcement, ASML shares fell by more than 7%, driven by concerns that this innovation could erode its Chinese market share. Furthermore, the breakthrough triggered a broader semiconductor stock sell-off, with AI stocks also affected amid predictions of a more self-sufficient Chinese supply chain.

However, despite this achievement, production is still in its infancy, with only 5 machines to be produced in 2026 and around 20 in 2027. This pales in comparison to ASML, which expects to ship 130 immersion systems by the end of the year while also planning to increase capacity by 30% in 2027. In addition, analysts are noting the performance of China's DUV machines, stating that it is currently unknown whether they can deliver a chip yield comparable to ASML's machines.

For now, reliability and quality remain in question, and it is up to China to show the world that it is capable of competing with long-standing juggernauts in the industry.

- Chandresh Mohan

In the recent July meeting at the Bank of England, a predictable holding of interest rates was seen, making it the fifth consecutive time interest rates have been held at 3.75%. Whilst analysts are still confident about the unchanged interest rates, the Monetary Policy Committee noted that developments in the Middle East could influence future interest rate decisions through their effect on rising energy prices.

The UK economy has shown modest growth over the last few quarters, growing by just 0.1% in the second quarter of 2026. Inflation has seen a fall from 3% in February to 2.6% in June, but the MPC has remained vocal about pushing this down further to the 2% target. As a result, a premature rate cut may not be the best move as volatile tensions in the Middle East are always prone to bring about another bout of cost-push inflation. As such, the Bank of England wishes to hold the rate, highlighting its priority for price stability despite signs of slowing economic growth.

Whilst interest rates have historically been used to slow down high consumer demand, inflation today is largely being driven by supply shocks, with increasing oil prices caused by geopolitical tensions. Whether holding the interest rate at 3.75% will effectively reduce this type of inflation will ultimately depend on the level of economic growth the UK faces in the following months despite inflationary pressure.

- Nithilan Sharrierr

Until next time,

The Long and Short

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