Stocks are facing their first major test of the summer on Thursday following another surge in global crude prices and a big bump higher in spending plans from Google parent Alphabet.

Alphabet topped Wall Street’s heady earnings forecasts, with revenue rising firmly to just under $120 billion, but said its 2026 capex would rise to $205 billion, more than double last year’s tally. 

That was enough to ignite new concerns about the pace of AI spending, and the lack of visibility in how it will be returned in the form of profits. This has become the most expensive tech-led arms race in history.

Shares in the company, which carries a market cap of more than $4.1 trillion, are set to open lower along with fellow Magnificent Seven peer Tesla, which posted its first negative free cash flow in more than two years.

Compounding those declines are a worrying surge in global crude prices, which topped $98 a barrel for the first time since early June as Iran-backed Houthi rebels in Yemen opened fire on Saudi Arabian vessels in the Red Sea.

The massive 36% surge in crude since the start of the month has stoked inflation concerns, spiked bets on a September Federal Reserve rate hike to around 80% and took benchmark Treasury yields to multi-year highs in early Thursday trading.

And with more big tech earnings next week, a Fed rate decision, and early reads on July inflation pressures, the summertime outlook for stocks is starting to look murky.

—Martin Baccardax

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Google parent Alphabet’s knockout second-quarter earnings may have been overshadowed by its forecast for even heavier capital spending on AI. While Google’s cloud revenue jumped 82% from the prior year to $24.8 billion, capital spending is seen potentially reaching over $200 billion this year.

• The search giant’s adjusted earnings of $9.11 a share beat expectations, as did revenue of $199.8 billion. Wall Street was only expecting cloud revenue to rise 63%. Investors have been looking for accelerating cloud revenue as proof companies are spending on AI services. 

• Advertising revenue rose to $81.6 billion, above analysts’ estimates, while search revenue of $63.3 billion was just below. Alphabet reported negative free cash flow for the quarter of $5.9 billion, driven by the capital spending. 

• Capex for the quarter was $44.9 billion, up 101% from the same period last year as Alphabet spends to build out the infrastructure needed to power artificial intelligence. CEO Sundar Pichai said the spending is redefining what’s possible across every part of the business. 

• Google has unveiled three cheaper versions of its Gemini model: 3.6 Flash; 3.5 Flash-Lite; and 3.5 Flash Cyber, which is focused on cybersecurity. Google recently announced a $75 million AI research plan with A24, the independent movie studio behind the Gen Z-directed hit Backrooms. 

What’s Next: Google now expects to spend between $195 billion and $205 billion on capex this year, compared with its prior guidance of $180 billion to $190 billion. Meta Platforms and Microsoft both report financial results on July 29, while Amazon.com and Apple both report on July 30.

—Angela Palumbo and Janet H. Cho

Like Alphabet, Tesla’s massive spending sent its free cash flow into negative territory in the second quarter, but also like the computing giant, the company cast the spending as paying off big down the road. CEO Elon Musk says it’s a capex year that will lead to “incredible returns.” 

• Musk told analysts how Tesla is spending money, including production of the Tesla Semi truck, the pending production of Megapack three, its third generation lithium battery pack; plus the lithium refinery. Musk called it “the most ambitious buildout of advanced infrastructure manufacturing capacity.”

• He said Tesla’s Full Self Driving driver-assistance product will help sell cars, especially when Tesla is allowed to sell it in more geographies outside the U.S. Optimus robot production will start soon, he says. The bottleneck remains the supply chain.

• Tesla’s second-quarter earnings were 33 cents a share, missing analyst estimates despite shipping some 480,000 cars in the quarter, up 25% from a year ago. Costs to produce vehicles were roughly flat compared with the first quarter and a year ago.

• Musk outlined new plans for a Tesla “Megapod” that has an x86 computer with a Tesla AI4 computer “in a box.” The idea would be to have an “AI compute” without needing a huge, dedicated power source. Think modular AI data centers anywhere in the country.

What’s Next: Capital spending rose to $5.8 billion, up 142% from a year ago, and free cash flow was a negative $1.1 billion. Tesla plans to spend more than $25 billion on new plants and equipment this year, building out its AI ambitions, according to its CFO’s comments.

—Al Root and Liz Moyer

The Trump administration is set to roll out more tariffs to replace the temporary 10% ones expiring on Friday, imposed on goods from abroad after the Supreme Court declared its global tariffs illegal. Administration officials have vowed to use other tools to bring in about the same level of revenue.

• One unfair trade practices investigation targeting 60 economies and affecting more than 90% of U.S. trade has been completed, with the U.S. proposing a 10% tariff on goods from places that have under-enforced provisions to target forced labor. That includes Canada, the European Union, Mexico, Cambodia, and Malaysia.

• This week the administration conjured up the rarely used Section 338 of the Trade Act to place tariffs on $20 billion of goods, citing Canada’s retaliatory trade measures against U.S. autos, cheese, and alcohol. Unlike previous threats, these didn’t exempt goods covered by the U.S.-Mexico-Canada Trade Agreement.

• Companies are perturbed that the tariff uncertainty hovers over them still, clouding investment and strategic decisions. They are addressing the uncertainty by shrinking their products without reducing the price, cutting back their variety, and scaling down innovation, says National Foreign Trade Council’s Tiffany Smith.

• The administration’s 25% Section 301 tariffs on Brazilian imports that began Wednesday exclude coffee, beef, oranges, orange juice, and other products considered critical to U.S. supply chains. But the pain could be severe for footwear, machinery, wood products, paper, sugar, and ethanol industries. 

What’s Next: Still looming is the U.S. Trade Representative’s Section 301 investigation into excess capacity, targeting China and other economies, and a bill in Congress to give the president discretion to impose secondary tariffs on the top five buyers of Russian oil, including American allies like Japan and France.

—Reshma Kapadia, Evie Liu, and Janet H. Cho

Revelations that OpenAI’s artificial intelligence models went rogue and hacked another company could increase the focus on cybersecurity stocks, which may be well positioned to stop AI threats.

• OpenAI revealed on Tuesday that its models, while being tested for cybersecurity capabilities, “cheated” by breaking out of their sandbox, accessing the internet, and hacking the servers of AI group Hugging Face in search of test answers.

• Government authorities have warned over AI’s predilection for cheating. The U.K.’s AI Security Institute said Tuesday that advanced models get very creative when stumped and often cheat on tests.

• Rising concerns around AI-enabled hacking could bring tailwinds for cybersecurity stocks. Shares in CrowdStrike, Palo Alto Networks, and Okta have seen benefits, with all three stocks gaining in recent months to trade at high multiples.

What’s Next: While cybersecurity stocks have already benefited from AI worries, there may be more room to run, with signs that full AI inflection tailwinds have yet to kick in. Maybe the Hugging Face incident will wake people up to the problem.

—Jack Denton and Adam Levine

The dire prediction of $150 a barrel oil at the start of the Iran war never came to pass, leaving industry watchers much more circumspect with their price predictions now that hostilities have reignited. That said, record-setting prices aren’t out of the question, either.

• Despite President Donald Trump’s latest threat to destroy an Iranian bridge or power plant whenever Iran “shoots at a ship in the Strait of Hormuz,” Brent crude futures remained around $94 a barrel, up nearly 30% since the war started, but also far below their March 9 peak of $119.50.

• Prices hitting $150—breaking the July 3, 2008, record of $146.08—would be the result of a “full regional war,” notes RBC Capital Markets’ head of global commodity strategy Helima Croft. While she says that isn’t her base case, “it isn’t a black swan either given the trend line over the past ten days.”

• Hostilities have escalated sharply. They include 11 consecutive days of strikes on Iran by the U.S., missile and drone attacks by Iran on oil tankers in the Strait of Hormuz, and the threat by Iran-allied Houthis in Yemen to block the southern entrance to the Red Sea, the export hub for Saudi Arabia’s oil.