Companies

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.

Two Apple updates announced today have implications for FY27 estimates: Tim Cook mentioned to the Wall Street Journal that some product price increases are coming because of higher memory costs, and Bloomberg’s Mark Gurman reported Apple will stagger next year’s iPhone launch between the fall and following spring. My take is the pricing change is the bigger news, likely resulting in gross margins in FY27 around the 49.2% just reported in March. The Street is currently at 48% for FY27.

The elephant in the room going into this year’s WWDC was: Does Apple have the chops to build a compelling personalized AI? While the demo of the new Siri AI lived up to the hopes of personalized AI, the vague details around timing (US, Europe and China will be staged) sent shares down 4.9% intraday, underscoring that they still have measurable work to do to crack the AI code. Next stop: a beta late this year, which lands the timing of a full version at best in spring 2027. The good news is, since no competitor can offer compelling personalized AI today, Apple likely has two-plus years to get it right.

Monday is the most important WWDC in its 43-year history. Investors have given the company almost two years to get the new Siri right, a feature that is code-named for AI competence. The waiting is over, and now it’s time for Apple to convince investors that future products will be infused with compelling AI features that only Apple can pull off. If they do that, the AI narrative on AAPL will flip from follower to leader, and shares should undergo a measurable rerating. If they fail, investors can sleep well at night knowing that the personalized AI revolution has not begun, and while investors may not wait around, Apple’s loyal base will.

Google Search has been under threat ever since AI chatbots changed how people discover information late in 2022. That matters because Search drives about 55% of the company's revenue. At Google's I/O 2026 developer conference this week, it was clear that Google has solved for the chatbot headwind. The company is increasingly turning Search into an AI-native action layer, with agents, commerce rails, and subscriptions. All that means that Search can continue to grow at 10% plus for the next few years (compared to 19% in March, and around 11% on average over the past three years).

Nvidia’s April quarter was another reminder that the AI infrastructure trade is still in the second inning. While shares trading down 1.7% in trading the following day, hides the bigger point. Nvidia’s core revenue growth accelerated to 109% y/y in April from 89% in December, adjusting for China, and July guidance implies about 95% growth before what will likely be another beat. The harder question is not whether Nvidia’s business is exceptional, it is whether the stock can keep outperforming given the law of large numbers.

The U.S. approval for Nvidia to sell H200 GPUs into China creates a call option for an incremental 3-5% of revenue in CY26 and CY27. At the high end, I believe China could add 10% to CY27 estimates. I caution that, even though China can drive some upside, the unpredictable nature of future China revenue likely means NVDA won't get credit for that upside. In the end, Nvidia doesn't need China because growth has accelerated without China. In the April quarter that will be reported this Wednesday, May 20, the Street is expecting revenue growth of 79%. Removing the China revenue from April of last year to get an apples-to-apples growth rate, sales are expected to be up 100% y/y, up from 89% growth reported in the recent January quarter, adjusting for China.