Apple Slides on Chip Shortage, Amazon Soars on Cloud Blowout

**Zaid Admani** (0:00)
Public.com presents The Rundown, your daily market update in 10 minutes. My name is Zaid Admani, and today is Friday, July 31st. In today's episode, we'll break down Thursday's massive tech rebound and how an AI hedge fund blowup may have contributed to the July sell-off. We'll also recap earnings from Apple and Amazon and why the market is having two very different reactions. Then stick around to the end of the show to find out why YouTube could be the ultimate winner of the streaming wars. We got a great show for you today.
Let's go.
Stocks had an epic bounce back on Thursday after the Wednesday sell-off. The S&P 500 jumped 1.7% yesterday, and the NASDAQ popped 2.8% thanks to a surge in AI in chip stocks. Some of the notable names include Sandisk, Micron, Nebius, CoreWeave. They're all up around 20%.
And Microsoft might have been the biggest winner. Their stock popped 15% following their earnings. They added $450 billion in market cap, which is the largest one-day market cap gained by any US company ever. So tech names had a great day, and they carried the overall market. But if you look under the surface, nearly two-thirds of the S&P 500 stocks actually finished in the red. So yesterday was one of those days there was a rotation into tech stocks from other sectors of the market. And one reason for this tech rally might be because of a blow up of an AI hedge fund called situational awareness. This story was the talk of the town yesterday. It's a fund that was started by a 25-year-old wonder kid and former OpenAI employee Leopold Aschenbrenner. This guy turned $225 million into $20 billion in like two years by investing big on AI infrastructure names. This entire story is pretty crazy. It might be the story of the year. Now, we don't have time to get into all the details right now. And honestly, some of the facts are still coming out. So we'll likely do a deep dive on it at some point. But the gist of the story is that the situational awareness fund made massive leverage bets on AI infrastructure stocks. And those leverage bets worked out incredibly well for most of the year. The fund was reportedly up more than 400% through June. But the problem with using leverage is that the losses can be just as brutal. When the AI sell-off hit in July, the fund lost roughly two-thirds of its value, and they were forced to sell most of their stock portfolio to Citadel this week. Some of the stuff that I'm reading about is pretty crazy. I can't wait for the four-part Netflix stock. Now, the reason the story matters to the overall market is that some people think that a forced unwind of a hedge fund like this could be a sign that the worst of the AI sell-off is over. Now, once a big leverage seller is finally out of the market, you remove a major source of selling pressure. So we'll see if that was the bottom in the AI trade. We'll continue to stay on top of that story, along with everything else happening in the markets. We still got a ton of earnings to get through over the next couple of weeks. So definitely get subscribed to the podcast and tune in every day to stay in the loop.
Let's run through some headlines, starting with Apple. Apple reported a strong quarter last night, but the stock is still trading lower today for a few reasons. Let's talk about the numbers first. Revenues jumped 16% to $109.4 billion. That's a record for the June quarter. iPhone sales were up 22% as demand for the iPhone 17 lineup continues to stay strong, and Mac sales were up nearly 30% thanks to that new low-cost MacBook Neo, which has been flying off the shelves. Overall profits for the quarter came in at $29.8 billion, which exceeded expectations. So that was the good stuff from the earnings, but there were a few weak spots as well. Services revenue grew 12% to $30.7 billion, which looks pretty solid on the surface, but it did slightly miss estimates. Apple blamed some of that miss on weaker App Store gaming revenue and also currency headwinds. China also came in softer than expected with revenues of $18.8 billion, which was below the estimates of roughly $19.6 billion. But I think the biggest problem from Apple's earnings was their forecast. Management expects sales to grow between 9% to 11% this quarter, which is below the roughly 12% growth that Wall Street was looking for. And the reason for the soft guidance isn't demand. Apple says it's because of supply constraints. Apple can't seem to make enough devices to meet the demand because they're struggling to secure enough processors and memory chips and other components for their iPhones, Macs, and iPads. You know, the AI boom that we're experiencing right now has resulted in a massive supply shortage of these components, and now Apple has to wait in line for supply to catch up. I guess the good news for Apple is that this is a supply problem and not a demand problem. The bad news though, is that supply constraints are much harder for Apple to fix quickly, especially when every AI company in the world is competing for the same chips. In the meantime, Apple has raised prices on the Macs and iPads because of the memory supply crunch. And some people think they're going to keep raising prices and they're expected to raise prices on the new iPhone when it launches in September. So yeah, Apple stock is taking a hit today because of the weak guidance and concerns around the supply crunch. Shares are down around 7% this morning at the time of this recording. Not gonna lie, I'm kind of surprised to see the stock down so much. If you zoom out though, Apple stock has been on a tear over the last couple of months because they've essentially become the anti-AI tech company. See, unlike their big tech peers, Apple isn't spending hundreds of billions of dollars on AI CapEx. And now that the AI trade has started to sour, investors are jumping into Apple as an AI hedge. In fact, Apple's market cap crossed $5 trillion for the first time ever this week, and they overtook NVIDIA to be the most valuable company in the world again. They might be giving that crown back though because of the stock price tanking today. By the way, this was also Tim Cook's final earnings call as CEO. After 15 years and a 14X run in the stock price, he hands the keys over to John Ternes starting on September 1st. And I gotta say, Ternes is taking over at an interesting time. I mean, the business itself is doing well, but the company is dealing with major supply chain issues and higher costs. So there's gonna be a lot of pressure on JT as he takes over the company.