Since the last public company earnings cycle, dispersion in the S&P 500 has been elevated. For example, in the last 90 days, Microsoft’s stock price outperformed Google’s by 30%; two extremely large companies with otherwise very correlated revenue and profits. AI, and how companies are spending their cash to pursue it, is driving high volatility in share prices.
Market Updates
Capital expenditures still growing, but more slowly. This quarter, there was not a unilateral commitment to increase capex. Microsoft flatlined commitments, and Amazon grew theirs just 10%. The market rewarded this prioritization of revenue growth.
Anthropic (Claude) and OpenAI (ChatGPT) are going public. S-1 disclosures for Anthropic are expected in September, revealing unit economics for a foundation model company. OpenAI has filed confidentially but is pushing its listing into 2027.
Long term interest rates up 0.3%. Inflation is headed back up due to high oil prices. Bonds underperformed in the period from this change.
Largest Holdings
Mid Cap Equities: Up 8% relative to the S&P’s 5% over the last 90 days. Energy and industrial companies are benefiting from elevated capex spending by larger companies.
Google: Capital expenditures exceeded operating cashflow driving negative free cashflow for the first time since going public in 2004.
S&P 500: Microsoft was the top contributor, after being the biggest laggard for several quarters.
Apple: The stock remains at a historically high earnings multiple. Demand in China and Asia remains strong, but is decelerating quarter-over-quarter.
Constellation: The company’s rate of acquisitions has recovered, but slow performance in its healthcare segment slowed organic growth from 6% to 3%.
Adyen: Growth in payment volumes has accelerated for four straight quarters since dropping CashApp as a client one year ago.
Valuation Table
Footnotes
Earnings Yield is 1-year forward earnings per share divided by stock price
Revenue Growth based on 2027 analyst consensus estimates, S&P from Factset
1 Year Return is the total return including dividends
We remain focused on funds and businesses with durable economics and disciplined capital allocation.
Upholdings
Planning and investment decisions from a modern wealth manager.