Alphabet, Tesla Results Mulled as Intel Awaited

**Keith Lansford** (0:05)
Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.
I'm Keith Lansford, and here is Schwab's early look at the markets for Thursday, July 23rd. Still mulling earnings from Alphabet and Tesla, investors turn their focus to chip giant Intel this afternoon and continue fretting about inflation as oil reached new one-month highs. Alphabet and Tesla results clashed late Wednesday. Alphabet trounced analysts' earnings per share estimates, and Tesla fell short. Alphabet shares pivoted near unchanged initially in post-market trading. Tesla initially fell nearly 3 percent. Alphabet's second-quarter earnings surged nearly 300 percent annually to $9.11 per share, partly reflecting equity investment gains, while revenue rose 24.2 percent to $119.8 billion. Analysts had expected earnings per share of $2.89 on revenue of $116.9 billion. Alphabet's capital expenditures last quarter were nearly $45 billion, in line with expectations and closely watched due to nerves around AI spending. Alphabet had a solid beat on revenue and cloud growth of 82 percent was stellar, said Nathan Peterson, Director of Derivative Research and Strategy at the Schwab Center for Financial Research. That was sequentially better than cloud's impressive 63 percent first-quarter growth and may have bullish implications for Microsoft and Amazon when they report, assuming Google Cloud didn't take share from them. One possible wrinkle was Alphabet's search business, which rose 17 percent to slightly miss expectations in a category that normally delivers a solid beat. When Alphabet last reported, the company raised its 2026 capital expenditure estimate to as much as $190 billion and said it expects to significantly increase that in 2027 The price release didn't say anything about this metric, so as of this writing, investors awaited the call.
Tesla stock fell in early after-hours trading after the company topped analysts' consensus revenue forecasts but missed earnings-per-share estimates. The EV giant earned 33 cents a share on revenues of $28.2 billion in the quarter versus the expected 51 cents per share on revenues of $25.1 billion. Gross margins also came in well below estimates at 16.8 percent versus the expected 19.4 percent. Active full self-driving subscriptions were a bright spot, surging 56 percent from a year ago to 1.48 million. Texas Instruments and IBM also reported late Wednesday with a solid consensus beat for Texas Instruments and better-than-expected guidance. IBM pre-announced disappointing results last week, but the shares rose more than 3 percent in after-hours trading after the company reported earnings of $2.93 a share. Intel reports later today, keeping focus on chipmakers. The sector has taken some punches lately amid worries that AI spending could level off. Investors will likely want to carefully check Intel's guidance and listen for tone on the earnings call. Three more mega caps report next week. As hyperscalers report, investors look for return on investment from AI that shows spending is paying off with revenue growth, user adoption or other measurable returns.
Beyond mega cap results, lack of progress resolving the war and new threats to oil shipping sent crude prices to fresh one-mump highs Wednesday and putting a cloud over Wall Street. More expensive crude doesn't only show up in gas prices that again topped $4 a gallon nationwide this week. It's also an element of rising treasury yields that make borrowing more expensive. Both short and longer term US treasury yields have risen relentlessly, both to near annual highs. Though it's possible some of the strength reflects solid economic data, inflation worries also play a major part. The European Central Bank or ECB meets today and isn't expected to raise rates. Though a hike appears more likely in September, Reuters reported, the Federal Reserve gathers next Tuesday and makes its rate decision Wednesday but won't issue new economic or rate estimates. Chances of a hike next week have been all over the map, rising to 33 percent by late Wednesday from 11 percent a week ago, according to the CME FedWatch tool. Rate hike chances appear to be tracking oil prices. Oil climbed relentlessly this week and is now above $86 per barrel as Middle East clashes and threats continued.
Looking ahead, traders see much higher chances of a September Fed rate hike and pegged chances of at least one hike before year end at 90 percent. The Fed will likely stay on hold next week at 3.5 percent to 3.75 percent. Volatility is in check too with the SIBO Volatility Index or VIX under 17 by late Wednesday, despite the war's impact. Any move towards 20 might draw attention as that's traditionally a level reached when uncertainty ramps up. Futures trading shows VIX topping 20 by October. Though VIX stayed in its lane, it's not so smooth below the surface. A rotational market is on-going with historically high dispersion and historically low correlations, said Liz Ann Saunders, Chief Investment Strategist at the Schwab Center for Financial Research. Only the energy sector has more than 50% of its stocks trading at four-week highs. All this shows churn as investors seem uncertain where to focus. Earnings season, the Fed meeting and the July jobs report loom, perhaps contributing to the sense of dysregulation. The two-year note yield hit a new 2026 high on Tuesday, and the 10-year yield is just two basis points below its 2026 high at 4.66%, up more than 25 basis points in just a few weeks. The cycle high on the 10-year is roughly 5%, but a move above 4.8% increases the likelihood of a volatility event, Peterson said.