Good morning, investors. Micron surged double-digits Tuesday after Morgan Stanley doubled its price target to $1,050 and so pulled the entire chip trade out of its worst week in months.

It was only one day ago that the AI narrative had felt frothy.

But even without a bubble, there’s a cash risk that could soon be a problem.

The AI boom has left Big Tech’s cash flow smaller than ever.

Hyperscalers like Alphabet, Amazon, Meta and Oracle can’t seem to stop putting capital to semiconductor names like Nvidia and Micron. That dynamic means only one of the market’s two ongoing bets — that hyperscalers will rein in spending and that chip profits will keep soaring — can pay off. 

Earnings kick off with Alphabet after the closing bell Wednesday, followed by Microsoft, Meta, Amazon and Apple shortly after. The results could begin to answer the question of what comes next.

Bank of America data illustrated below shows how far the two sides have diverged. 

Twelve-month forward estimates for hyperscalers’ free cash flow have collapsed while estimates for the chip complex underpinning the AI boom have gone vertical.

Wall Street wants to see restraint from the hyperscalers, whose capex plans are seen near $1 trillion in 2027.

And yet the same investors can’t stop buying chip stocks. 

Effectively every dollar for a chipmaker stems from a dollar of Big Tech spending. 

If Alphabet signals any pullback in its earnings, the AI trade at large could stumble. Just the same, if it commits to even more capital expenditures, the K-shaped chart above turns even more extreme.

On paper, the Google parent should report another blowout quarter.

Analysts expect the company to report $2.95 a share on roughly $117 billion in revenue, up from $2.31 and $96.4 billion, respectively, a year ago.

Ridiculous numbers across the board in any era. 

Now, the bulls will say that falling free cash flow is an investment in a high-upside future with massive existing demand. Alphabet’s contracted cloud backlog hovers in the tens of billions of dollars and it’s growing rapidly.

Yet the stock prices of semiconductor names, for their part, suggest that investors are already questioning the outlook. The Philadelphia Semiconductor Index (SOX) has declined 16% over the last month. 

It’s one thing for chip stocks to go up when their trillion-dollar customers are happy to burn cash. 

But pick-and-shovel AI stocks won’t go up so fast if the buyers with the deepest pockets start to economize. 

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🛢 Trump downplayed the idea of imminent Iran talks. The two countries have exchanged strikes for 10 days now and Houthi militants continue to threaten shipping in the Red Sea. (Bloomberg)

📉 Oracle stock has fallen more than 50% since June 2. Shares are down 36% year-to-date versus a 9% S&P 500 gain and now trade at just 15.5 times forward earnings, days after S&P cut Oracle's credit rating to one notch above junk. (Yahoo Finance)

💰 Investor Kevin O’Leary turned himself into the face of capitalism. The famed Shark Tank host and entrepreneur has no problem playing the villain and it’s helped him achieve a net worth of roughly $400 million. (The Profile)

🤖 Nvidia showed off its Vera Rubin platform ahead of AMD's Advancing AI conference. The company said CoreWeave is seeing 10 times more tokens per watt on the new setup and claimed its Vera CPU delivers 1.9 times better agentic-AI performance than AMD's Epyc Turin. (Yahoo Finance)

Jay Woods is the chief market strategist for Freedom Capital Markets and has spent three decades on Wall Street. We sat down to discuss his favorite stocks right now, the sectors he’s betting on for the second half of 2026, and why asset prices can still catch up to earnings strength.

Tune in on Spotify, Apple Podcasts, or YouTube.

🗓 July 22, 1944: The Bretton Woods Agreement was signed by delegates from 44 nations on the closing day of the international monetary conference in New Hampshire.

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