Transcription
S&P 500 still in the same range. The big thing tonight is obviously Google absolutely crushed, but it's getting destroyed after hours. We're going to get into why in some great detail. Had some huge earnings tonight. Let's get into it.
Let's start with what happened. Google had earnings tonight and they were absolutely fantastic. But there's one thing that they did and when we start going through these numbers, they were just absolute blowouts. But there's one thing they did that nobody wanted to see: free cash flow actually is flipping to negative. Really depends on how you're calculating it, but it's pretty negative. We're going to start there with it. And that's the first thing to focus on.
The second thing is capex. Capex is what these companies spend. So the amount that they were looking to spend for the year was right around that 185 billion. That was the average. Their high end on the call went to 205 billion. Now this is important for a lot of reasons and we're going to focus on this. So pay attention to this part of it 'cause it's going to explain why you're seeing what you're seeing after hours. This is going to get pretty granular, but if you understand this, it will help you out greatly.
So Google comes out crushes. Everyone was worried about ROI, which is return on invested capital. They wanted to make sure that they were making money on their cloud business. This is what we know. You were supposed to do 22 billion. You're coming in at 24 billion. That is an enormous difference. So are they getting a return on investment in the cloud? 100%. It's not even debatable anymore. The backlog they say, they say their backlog, everything out there is $514 billion. It's absolutely insane. They have huge backlog. They have huge demand. So what are they doing for that? They are increasing what capex and that was the thing that everybody was concerned about. And the reason they're concerned about that is because of the semiconductors. That's why semiconductors are absolutely ripping.
I know this is somewhat complex for some of you, but parts of this you're going to want to listen to again because this is what's actually moving. When we talk about the stool, which we're not going to draw now for time's sake, this is the part of the stool that you would think about when you think about fundamentals. Well, I guess we're going to have to do it real quick. So you have the macro side, you have the fundamental side, and then you have the technical side. So the fundamental side is who is affected, right? And obviously you have Google that's going to be affected, but who else do you have that's affected by this? You're obviously going to have the people that they're spending that capex on. So higher capex at 205 billion means they're going to take those numbers up.
Now, we went through this in a little bit of detail on Saturday. And if you're in the community, you know this because we talked about the fact that Morgan Stanley actually took their capex numbers up across the board from a trillion to 1.2 trillion. So, why everybody's here saying they're waiting for this to end and they're waiting for capex to come down. They're actually raising it. So, when we talk about this is over, it's going to end. That's not the case. What we're going to see is I think is we're going to see a shift. And I'll explain the shift in a second. But understanding the foundation is everything. That's everything to us right now is understanding the foundation and understanding this fundamental part of it.
So as the conference call stock comes down, the earnings were phenomenal when you read them. They gave no clue whatsoever what they were doing with capex, which everybody was looking for. Comes all the way back up, trades out. Actually, I bought it down here for a trade right off that put wall. Always watch your put walls when you're trading after hours on earnings. Not once, but like always. It's pretty clean the way that they worked. And we'll get to some other names tonight, but this is why the market's doing what it's doing right now. So, if you watch this and you follow this, it'll be very helpful going forward during earnings season.
So, guess where they came out and said they're increasing capex at right here. They came out and said, "Oh, no. We're not done. We're just starting." And then as the questions went on, how long are you going to be doing this for? We're just getting started. We are in the early innings of doing this. CFO came out and said, "We have such massive demand for product right now that we don't see an end in sight. More offerings, yes. More bond offerings, yes. Possibly equity offerings, yes." I mean, they're being very blunt that they are going full bore into this, whether you agree with it or not. And the reason I think you're down is because you have a company that's a huge cash flow company that basically is now spending everything that's coming in. It's flipped. So the people that own it now are looking at this and saying to themselves, is this really what I want?
So once this came out, this move right here on Google, all I have to do from that move over, and if you're going to take a look at this, that's right around that 4:58 time. But wait, there's more. If we flip to that and I'm just going to go to the sock so you can see it that way. You can see exactly when semiconductors rallied. So you can see SOXL from that level absolutely exploded as soon as that came out and rallied up. Now you're going to bounce around after hours, of course, as always. But what names were in the most jeopardy? Well, you have names like Micron because surely that's going to slow down. There is zero end in sight of the slowing down. It is increasing. That is objective. It is very objective. That is what Google is doing. That means the others are going to fall into suit in my opinion. They're going to have to adapt or die.
Now, what we have to see is what happens tonight. Obviously, in Asia, but the important thing is if you take a look at Micron or you take a look at SanDisk from that spot, you're going to start seeing you're getting different names that are going to move differently. There's reasons for that. SanDisk does one thing, Micron does something else. But the important thing is if you go from that point on, some of these names moved like Dell didn't do much. AVGO it rallied substantially as soon as they heard that because of the spend and then of course you just have the after hours action. But something like a Micron, which is trading at four or five times earnings, those kinds of names, they're going to have a bid to them and that's exactly what you have here. You have a bid to that kind of name. So that is what happened with Google and that is why Google is acting the way that it is after hours. From a trading perspective, you'd want to watch the 330 level and see if it can get over there tonight.
The next thing we have to understand is if we go here and now we have our levels on Google and understanding that we're just going to clean all this off and then you can see where they're going to open Google tomorrow. Now whether it stays down there, whether it gets defended, we don't know because when they start spending more cash than they're taking in, when you get into those negative free cash flow kind of situations, not everybody's like feeling really good about themselves in that case. You're buying a cash cow and now the cow is saying that we're out of milk. We're just going to keep it all for ourselves or whatever analogy you want to use, 'cause both of those were god awful.
But if you take a look at these names, you're going to see pressure on Meta now because if Google's doing it, Meta's got to do it. Microsoft's down, Amazon. You start seeing these names, they're all going to do the same thing and that's going to lead us to the other trade. So now you see something like the Mag 7 is going to drop and that'll start coming in because the goal here was the MAG 7s are going to slow down their spending. Remember this whole trade that started on June 30th, I believe it was right around here. There we go. That when you flipped and the whole trade was, hey, we're gonna start going in the Mag 7 because this is going to start slowing down. And so then what you saw from the MAG 7 from that date, if you go and take a look at it, this is the socks. We're going to start slowing down. So the trade was you take the mags and you divide it by the socks. And when you look at it right here, you had this huge trade that had this enormous bounce.
There's a couple more names I'd like to cover for you this evening as well, but I really want to get this point home because this is the trade. This is the thing that you should really be focused on. This is the thing that is going to have that macro shift to it. So, if we look here on the daily, you can see the bottom right in here and then that bottom starts lifting. And so, from that point on, this was during the end of the second quarter. And then what happens? You're ringing up. Now I can drop this to a 4-hour and get rid of the pre and the post. And you can see that you already started to break. And you never know how this is going to go on a call. I didn't mean to make a rhyme, but you can see this for yourself. And this kind of alluded to the fact earlier today that hey, you might be having a problem and that increase in capex is showing you that.
So, there's a really good chance that the MAG Seven trade versus the socks is actually going to reverse. So, what does this do for you? Well, you should do what you're comfortable with. But I think what you would want to do is watch what happens in Asia tonight and watch what happens in South Korea. So, if you start seeing names like DRAM start making higher highs, and I'll give you exact levels so you know exactly what to watch if you're trying to get in the community. And I'm talking fast because I have to wrap this up and then I have to hop on two other conference calls. So that's why I'm talking really fast. So I still have to go listen to Tesla about uh Optimus Robots in space with cyber cabs.
So if we take a look here, you're looking at this at 59 and a half was the high on that bar. And then if we come over, you're looking at 5866. You're already over both of those. So really what you want to focus on with DRAM, which memory is really where the cat's pajamas are going to be clearly. What you want to focus on is can I get over that level? And then if I can get over that level, can I get over that 55 and close over the 55 and then we would be victorious. Same thing here with the socks. I'm going to give you the exact level. You want to see if you can close over that 55 tomorrow. So the exact level of that is 56126. You can watch parts of this again and just jot these down or mark them off. Do whatever you want. But I do think that this is super important for us to understand. A real clean way of looking at this would be to go look at the socks and just see what's happening with the eight, the five, and the three. And you can start seeing that you have an eight, three, five cross right here. And look at where you opened today. Look at how that opened. It's beautiful. Came right down to that five hit and that look where you closed. So you undercut, scared everybody. And then what does it do? In the face and rips. And that's what you're looking for, that kind of behavior.
But when someone says, "Is this ending?" Google's saying, "No, not anytime soon." Now, whether you believe Google or don't believe Google, that's on you. I can only do so much. But if a company's going to do this and they're going to spend that kind of money, we have to look at it and say, "Okay, well, this is what they're doing. We're either on board with it or we're not on board with it." And either way, it's okay, but we can't say that it's not happening. That's the important part that you have to take from this. So, you're going to want to watch the Mag 7 tomorrow because they're going to have to spend as well.
Now, I do want to cover some other names. Texas Instruments is super interesting because it's down. And the reason that I find that interesting is because they beat, they raised guidance. They had solid margins and data centers doubled year-over-year. So, I do think that this is super interesting that it came in like this and I will pay attention to this very closely and see how it acts. But I find that very, I find it very troubling the way that acted. It doesn't make a lot of sense to me. It's like I saw Mo drop and this doesn't make sense 'cause they actually increased what they're looking for on the year, but you know, healthcare is a completely different beast. Also, IBM, pay attention to this one because they missed and they lowered even lower than the guidance. I'm actually surprised that this is up. So, you're going to want to watch that tomorrow 'cause that was super interesting. Now, their subscriptions, we'll clean all this off. Their subscriptions are off. They raised their subscriptions year to date, but they missed on the quarter, which is just smokin' mirrors. What you want to watch with this kind of thing, in my opinion, is taking a look at this and saying to yourself, okay, 6% of the float is short, and I think that's what you're dealing with here. I actually shorted this and then lost a dollar or two and just got out of it and just moved on because there was just greener pastures on other things out there. Candidly, what's going on in memory to me is just, I, I don't think people are getting it yet and I still think you have an edge in that. I don't think people are going to equate the capex and what happens. That's why I say watch what happens in Asia and go from there.
Now, if we take a look at Tesla here, maybe you hold 350, maybe you don't, but this was a dumpster fire. Um, now what he did come out and say, and the call's going down, so please understand that I'm reviewing this without the call. Your put walls 350. So, you're going to want to watch that. And I do know again that I'm talking fast, but I'm trying to get this out to you as fast as humanly possible. And I still have to get on a couple other calls here. So, if we take a look at this, 350 is your level. Now, the good news is he came out and said Optimus robots soon. I think people would just want to see a cyber cab at this point, but that's just me. They're all over Miami. The way all over, so I don't know how many of these things we're going to need. So, he must have said something here or who knows with that crazy guy. That's not great, is it? I've seen great before. It doesn't look like that. So, I have to listen to the call. But earnings-wise, revenue-wise, gross margins, it was a pretty much not great. I actually thought it was going to be worse. And I'm surprised that it acted so poorly, but it wasn't good. So, watch the 350 level and we'll see if that holds. They're the big ones that I would go over. And then, of course, tomorrow night.
Now, this is again, I think it's super interesting today and I'm going to clean off my thousand levels for you because now the question is what happens with Intel knowing that cap X is going to be greater. Do they play Intel tomorrow? What happens with AMD? Because AMD did have a great call and they're spending 5 billion on this Anthropic deal, but that was supposed to roll on day two. Remember, they're always sell the news events, these things. I don't know that that's going to be a sell the news event right now, right? It might not be because they're going to position themselves. So, what we really want to focus on with to bring it all home, you have to focus on what does Asia do tonight? Do they just sell to us and just say, "Cool, I can tag your it." Or does Asia get involved and start buying here? And that's really going to be the rub. That's it, guys.