29 Jul 28th July 2025
Index Movement Last Week
| S&P500 | +1.5% |
| Nasdaq | +0.9% |
| Aussie ASX200 | -0.7% |
We are still making new all-time highs every week as traders gain confidence from trade agreements. And there were a couple of big ones last week.
Japan – 15% tariffs on most things but additionally Trump says Japan will invest $550billion in the US and the US will keep 90% of the profits. Quite what this means no one seems to know. The Japanese have said only 1 – 2% of it will be investments and the rest will come as loans or loan guarantees. It is all very confusing and opaque so I’m not going to waste too much time dissecting it.
Europe – a similar 15% and again no real detail of what it means.
China is the big one everyone is waiting for. Trump as said he wanted it done by August 1st which is this Friday but I suspect the current terms will be extended another three months while they work it out.
No one is still really sure how all these tariffs will play out. We are not seeing an impact yet in inflation although everyone expects it to happen (a little aside here. In the US a HUGE portion of their inflation number comes from what they call “Shelter” inflation. It’s kind of like house prices and it is over 40% of the total number. Therefore, what happens to houses has a MUCH bigger impact on inflation than just the goods bought from Japan. It is possible tariffs won’t have much impact on the inflation number at all)
The market clearly likes the deals being struck as it pushes stock prices higher with every announcement. Therefore, I think we can proceed with confidence that the tariffs are not going to cause a problem for the stock market.
If we assume the macro backdrop is nothing to be concerned about, all we need to do is look at the micro environment. Which is good as we are now in the thick of earnings season so let’s take a look at the numbers being reported.
Tesla
Global deliveries just fell 13%, their steepest quarterly drop ever. Revenue is declining, margins are compressing, and cash flow has dried out. TSLA is now down over 30% from its December 2024 peak, while the broader market is hitting new all-time highs.
But, Tesla is not a car company. Yes, I know they make cars but no-one cares about that. A car company trades on a PE of 10. Tesla trades on a PE of 180. The market thinks it is a tech company and not a car company.
If you are a Tesla Bull then you are betting they will solve autonomous driving. If they can’t then the stock is worth close to zero.
The problem with this bet is timing. If they solve the problem next year then maybe you can justify buying Tesla now. But if it takes them 10 years??????? Then there are the other issues like regulatory approval and competitors trying to beat them to it.
An old trader once said to me “being too early is the same as being wrong”. I think you are better waiting for Tesla to get closer to achieving the goal before buying. Because there is no guarantee they will.
Alphabet (Google)
Alphabet (GOOGL) reported blowout financial results, helped by artificial intelligence integration. Sales and profits are surging as the internet giant reinvents its Google Search business.
Everyone thought AI would end Google’s existing business. Why search through links when AI can give you the answer?
The problem with this argument is it ignores Google’s ability to change. If you know the history of the company and the moves it has made over its 26 year history you would be confident they will adapt to the new world of AI.
Rather than losing business to AI, Google is gaining from it. Management said:
“AI is positively impacting every part of the business”
The company reported $96.43 billion in second-quarter sales, up 14% year-over-year. Google Search had $54.19 billion in Q2 sales as the business continued to grab market share. Overall profits swelled to $28.2 billion, up nearly 20% from a year ago.
Sales at Google Cloud reached $13.62 billion, up a staggering 32% year-over-year. For good measure, Pichai said he was happy to announce that OpenAI has recently selected Google Cloud as a partner.
That is extemely significant because OpenAI has taken on significant investment from Microsoft so would have been pressured into using the Microsoft Azure for cloud. But they chose Google Cloud. There is a reason for that.
Oracle (ORCL)
Oracle has long been an essential database software supplier, posting fairly steady and boring single-digit revenue growth for years. That is now changing in a big way as it ramps up its Oracle Cloud Infrastructure business. This cloud business competes directly with Amazon Web Services and Microsoft Azure.
Overall cloud revenue jumped 27% in the most recent quarter. But this is just the start.
“We hit double digit revenue growth and it’s only going up from here as the company gets bigger”
That was from CEO Safra Catz in the latest earnings call. She predicts cloud revenue will grow 40% in the next twelve months. She went on to say….
“Oracle is well on its way to being not only the world’s largest cloud application company, but also one of the world’s largest cloud infrastructure companies.”
But what really interests me is the way Oracle let’s its existing customers use AI on their own data. Oracle customers can train LLMs on their own data sets held inside the Oracle databases. No other company can offer that and it gives Oracle a unique offering in the large AI space.
Oracle is a buy now as this new AI business adds to the existing database business and also increases the desire of an Oracle database over competitors.
OpenAI vs Netscape
This last piece is copied from Bespoke Premium and is their original work, not mine. They have been tracking the performance of the Nasdaq index since November 2022, around the data OpenAI lauched ChatGPT to the public and comparing it to how the Nasdaq performed from December 1994 when Netscape was launched.
The idea is, the launch of Netscape as an internet browser and search engine in 1994 changed how the world operates. Imagine what the world would be today if the internet was never invented? There is similar hype about how AI is going to change the world. Therefore you could take the past from 1994 and use it to predict how things might play out in 2025. A tenuous link, but analysts love doing things like this. I say tenuous, but it is amusing how similar the index movement has been and if you believe this stuff, then, far from having missed out on the profits, we are just at the start of the curve with many more to come.
Warning
Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.