Good morning, investors. The Dow snapped its five-day winning streak on Thursday and markets continued to digest mixed messaging from the US and Iran on the Strait of Hormuz.

The story that could end up driving the next leg of the bull run, though, comes down to AI capex.

Investors have gone from punishing Big Tech’s AI spending to rewarding it.

For months, hyperscalers sold off every time they raised capital expenditures. Yet blowout reports from Microsoft, Amazon and Alphabet have suddenly flipped that trade, even as the group plans to spend every dollar of operating cash flow this year.

Near the end of July, Microsoft was down more than 21% while Alphabet and Amazon were each roughly flat on the year.

Then, each of the three reported massive quarterly earnings beats:

These names are up 5.1%, 10.6% and 3.2%, respectively, over the last five days.

Microsoft has gained 24% since its earnings announcement on July 29, adding more than $700 billion in market cap.

Amazon has similarly added 25% in its share price.

Steve Sosnick, chief strategist at Interactive Brokers, told me on Full Signal that the demand underlying the latest hyperscaler rally is real.

"They're minting money in those businesses," he said. "They're spending a lot of it, but right now the demand is there and the profits and the margins are there."

Still, he questioned the speed of the repricing.

"How much are we extrapolating in when you basically take a multi-trillion dollar company and mark it up by 25% in 3 days? It's like a meme stock."

Indeed, as the above chart illustrates, Microsoft, Alphabet, Amazon and Meta together spent 64% of their operating cash flow on capex in 2025.

That is set to reach 103% by the end of 2026.

As startling as that number looks, it’s also true that every dollar hyperscalers spend lands on someone else’s balance sheet.

That’s bullish for chipmakers, power producers, cooling specialists and niche utility stocks (many of which I’ve highlighted in our high-conviction Best Ideas Club portfolio).

Even as hyperscaler stocks start to play catch-up to the rest of the market, that does not change the reality that the biggest companies in history are funding the AI buildout while the firms selling them chips, electricty and materials are cashing in.

📊 The jobs report comes due today. July payrolls are expected to rise by 97,500, which would be above the trailing 12-month average of 42,200. (FactSet)

📈 Jamie Dimon sees market leverage is surging. He said margin debt is at an all-time high and hidden borrowing through prime brokerages and Treasury arbitrage could amplify any market shock. (CNBC)

📉 HubSpot stock fell 24% after cutting full-year guidance. The software company reported $912 million in Q2 revenue but added just 7,000 net new customers versus the 9,000 to 10,000 range it had guided. (Barron’s)

Steve Sosnick is the chief strategist at Interactive Brokers, where he has spent three decades since the firm's options market-making days. He joins Phil Rosen on Full Signal whether the massive AI capex bet pays off, value stocks beating growth and his favorite sectors right now.

Tune in on Spotify, Apple Podcasts, or YouTube.

🗓 August 7, 1990: President George H.W. Bush ordered US troops to Saudi Arabia in Operation Desert Shield after Iraq invaded Kuwait. Oil prices climbed and the S&P 500 fell into a bear market that coincided with the 1990-91 US recession.

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