Tesla’s June-quarter earnings have more moving parts than usual. The bottom line is the long term growth story is intact, with the negative wild card around how the Street thinks about greater capex. New topics this quarter include expectations around capex, where I expect management to guide higher for next year, and gaining better visibility into whether the surge in June deliveries is sustainable. The traditional focus areas still matter. 1. automotive gross margins excluding regulatory credits, which I expect to come in above the Street’s 18.5% consensus. 2. updates to robotaxi rollout. Tesla has added three cities in July, and I expect management to indicate another three cities before year-end, broadly in line with Street expectations. 3. I expect the Cybercab production ramp to shift from late 2026 into the first half of 2027.

This week, we received September quarter revenue guidance from two key AI infrastructure companies, ASML and TSMC, that came in about 5% above Street expectations. IBM’s small miss was far more significant in the minds of investors. June-quarter software growth came in at 5%, compared with expectations of 10%. Given IBM’s 40-year track record of consistently meeting estimates, that shortfall was treated as a major disappointment and sent shares down 25%. Ironically, the miss was a positive read on how early we are in the AI cycle. The weakness was driven in part by enterprise budgets shifting toward AI infrastructure. Despite all of this good news, AI stocks traded down about 6% this week, compared with a 2% decline in the Nasdaq. The AI trade is tired, which raises the question: What will get these stocks moving higher again? The answer is earnings.

The news that Apple is suing OpenAI to short-circuit OpenAI’s AI device initiatives has a wild undertone: Apple is effectively suing Jony Ive. While the complaint’s person of focus, OpenAI’s Tang Tan, does not report to Jony Ive, the two work together (Ive on design, Tan on hardware) to develop OpenAI’s future AI devices. If Apple deemed AI devices a hobby, it’s unlikely they would have taken this aggressive action against Ive’s initiatives. Bottom line: this is a win for Apple because, at a minimum, this will slow OpenAI’s efforts. At a maximum, it will end their device efforts. As for OpenAI, I’ve always viewed the hardware opportunity as optionality. Therefore, the setback has less of an impact on the company’s near-term valuation.

The framework for assessing the health of the AI trade has become a well-traveled road, centered on Cloud and capex outlook. Both carry equal weight in the conversation. We expect consensus CY27 hyperscaler capex growth estimates to increase from the current 23% y/y to 37%. As for Cloud, we expect upside in June for Google Cloud and AWS growth, and an in-line print for Azure. The bigger question is less about the magnitude of the upside and more about whether investors will reward the AI trade based on the improved outlook. My sense is yes, given these higher expectations should drive AI infrastructure earnings growth that more than offsets multiple compression related to the law of large numbers. P.S. Oracle, the emerging cloud entrant with 4% market share, won't report its August quarter until mid-September.

Tesla shares traded down 6% (Nasdaq down 0.5%) despite a massive June-quarter delivery beat. That reaction looks strange on the surface, given Tesla delivered 480k vehicles, up 25% y/y, compared to the official Street number of 406k, which implied 6% growth. My take is that the selloff comes down to three things: 1) buy on the rumor, sell on the news after strong third-party data that suggested deliveries were up 20%, pushing the stock up 13% over the past five trading days vs. Nasdaq up 4%; 2) investors are questioning how much high gas prices helped this quarter; and 3) investors believe part of the strength was the one-time ending of a DOGE headwind after Elon left in May 2025. Even backing out those one-time benefits, this was still a monster number, likely up 20%-plus compared to 6% in March. The bigger point is simple: the EV winter that started in March 2024 is ending, which means CY27 growth will likely be faster than expectations.

We expect Tesla to deliver 420k vehicles, ahead of the 406k consensus but below the high end of estimates at roughly 460k. If Tesla hits our estimate, we believe shares will respond favorably. In other words, the company does not need to reach the highest expectations for this to be viewed as a positive outcome. At 420k deliveries, y/y growth would be 9%, up from 6% in the Mar-26 quarter and the highest growth rate Tesla has reported since Dec-23. The bottom line is the underlying growth is improving after last year's sunsetting of the EV tax credit.

Micron’s quarter was the latest datapoint that we are still early in the AI buildout, my sense is still in the second inning. Shares of MU traded up about 15% the day following earnings as August guidance came in materially ahead of Street expectations. Revenue in the May quarter grew about 370% y/y, and August guidance implies 340-350% y/y growth versus the Street at 285% underscoring the company is defying the law of large numbers. AI investors can rest well at night knowing Micron signed 16 strategic customer agreements (SCAs) in May, up from one last quarter, seven of which were large 5 year deals. This is important given it singles Micron customers believe the AI buildout has years to run.