Yesterday, I said this would be the week markets bring back some sanity. That stock prices would rise on good news, fall on bad news… not the other way around.

Big tech company beats earnings expectations, shows how it’s paying for the AI build-out, demonstrates insane profit growth (mainly due to AI), and the share price goes up.

Surely that’s not too much to ask for?

I did also say they’d keep spending, capex would stretch further, free cash flow (FCF) would stay negative, and they’d do what they could to tame the yields in the bond markets.

So, how’s it playing out so far?

Mostly, in the direction I expected, albeit as usual, nothing always goes exactly to plan…

Microsoft (Nasdaq: MSFT) announced their results and low-and-behold things were good, and much to my enjoyment, the stock went up!

About 3% after trading was done for the day.

Azure (Microsoft’s cloud which rents out compute) grew 48% to $33.17 billion on expectations of $32.32 billion. Earnings came in at $4.89 a share, compared to $4.73 expected.

Tick, and tick.

CFO Amy Hood looked at future Azure growth of 49% to 50% next quarter, and said, “We still have demand that exceeds supply.”

The other good news was that data center spending came in about $5 billion below expectations.

More cloud money and a smaller building bill is what the market has been begging for... no wonder the stock got a tidy bump.

While it wasn’t technically an earnings report, Oracle (NYSE: ORCL) more or less guided its next one at its investor day in Las Vegas. The guidance was so welcome by the market the share price closed up more than 10%.

But it wasn’t their revenue forecast that got the market pumping. Oh no, it was their call that spending will peak this year and next and then fall.

Which then turns free cash flow positive in the second half of the year to May 2028, and hits at least $30 billion the year after. Analysts had been expecting them to still be burning cash.

That is still a couple years away, but if there’s an end game in sight, and the payback is monstrous, then what we just saw from Oracle is probably a precursor to how all the other hyperscalers move when spending dials back a little, and those profits keep rising.

And as noted yesterday, SK Hynix gave a glimpse of how ridiculously profitable the memory companies are.

SK Hynix (Nasdaq: SKHY) reported revenue of 104.62 trillion won, about $78 billion, up 328% on a year ago. Operating profit rose 632%.

It expects demand to outrun supply through 2030. The shares closed up 13%. And just for the fun of it, on the back of that Micron (Nasdaq: MU) closed up nearly 6% because the market finally switched on to the gigantic profits these companies are making and how supply isn’t even close to meeting demand yet.

Alphabet (Nasdaq: GOOGL) reported solid earnings and yet fell more than 10%.

Just a lazy $440 billion or so wiped off the value of the company in about 90 minutes of post-market trading.

That works out at around $81 million per second, getting wiped away from their value.

The odd part is how good parts of the business is going, with Google Cloud growing 103% to $30.7 billion and search queries growing at the fastest pace in five years.

Now, earnings were $2.12 a share. Well below the $3.02 expected. But an $8.7 billion paper loss on shares Alphabet holds in other companies was a big chunk of that.

Operating income missed too, at $40.6 billion compared to $43.23 billion expected.

Free cash flow came in at negative $9.07 billion. And that’s because while some (ahem, Oracle) said spending would slow, Alphabet said spending would rise... a lot.

So, are we out of the “great results, falling shares” woods?

In part, yes. But what’s abundantly clear is the market really wants spending to slow down. Which seems suspicious to me. So maybe I should say that the powerbrokers of Wall St and their algorithms want spending to slow before they’ll release the handbrake.

Either way, look at the growth numbers that AI continues to deliver. It’s enormous. And any chance to grab a great company like Google, at 10% discount because they’re building out leading AI just seems like a good deal to me.

More soon,

Lewis Maguire