Are the hyperscalers too cheap to keep selling?

**Darius Dale** (0:00)
Happy Wednesday out there, team 42, it's your skipper here, Darius Dale, to present our Macro Minute for Wednesday, July 29th, 2026 As always, we'll start with the executive summary from today's Lead Off Morning Note, so let's dive right in. Today's key macro question is, are the hyperscalers too cheap to keep selling? The short answer is yes, if you believe these are still the capital-light, high gross margin, high free cashflow machines that they have been for a decade plus.
No, they're not too cheap to keep selling, if you correctly believe that they are collectively racing to transform their business models into capital-intensive machines that must increasingly and perpetually pay top dollar to overcome real-world bottlenecks like compute, energy, cooling, and enterprise sovereignty. In terms of analytical nuance, SK Hynex fell 19 percent of the multi-billion dollar CapEx plans and deepening AI over capacity fears. CapEx guidance rose 50 percent to a minimum of 45 trillion won or 31 billion dollars, following a six-fold quarterly profit jump. Gross margins topped 80 percent in Q2, a record, as memory shortages lifted pricing to buyers including Apple and Nintendo. Shares dropped 19 percent Wednesday, amid mounting worries that US hyperscalers like Meta platforms and peers are overbuilding data centers. Management dismissed the concerns Wednesday, citing long-term contracts and open-ended demand.
Microsoft and Meta platforms report after the close with CapEx plans and focus. Both firms confront waning investor tolerance for unmitigated AI expenditures and shrinking free cash flow. The AI bubble has become an acute source of stock market risk, with the largest spenders accounting for the largest drags on index performance. Recall that Alphabet's Google beat across key metrics last week, yet suffered its steepest one-day drop in over a year on its first ever negative free cash flow as a public company, driven by positive revision to its CapEx projection. Lastly, our read-through on the wide dispersion of news regarding today's FOMC event is that this uncertainty is by design. By unanchoring the Fed's decisions from prior forward guidance, the worst Fed may be deliberately injecting volatility into the rates market, particularly on the short end of the curve. This will allow the markets to respond more quickly to cyclical shifts in the neutral rate and R star, thus limiting the possibility of the Fed falling too far behind the curve with respect to its price stability and maximum employment mandates. If so, this is brilliant. This is a brilliant strategy and something we strongly support, given the legacy of socially destabilizing distortions that were created throughout the past two plus decades of K-shaped monetary policy. Transition to our 42 Macro dashboard, as always, a wrap up with a question from our community. This one's titled, Is Trump Calling the Place in the Coach's Box? Yesterday, an Air Force One reporter asked Trump about today's FOMC meeting. Trump calling Warsh fantastic while throwing the political board, the politicized board under the bust, is the ultimate political shield. It gives Warsh the cover to hold or tighten cyclically without taking direct White House heat, allowing him to fake the hawkish past now, so the Fed can eat structurally later without destroying the bond market. Boom.
Boom.
Boom.
Kudos. Fantastic question. Absolutely. This is exactly what's happening. We told you guys a while back that Treasury Secretary Scott Bess, a former client, probably grabbed POTUS around the, you know, just put his arm around POTUS and said, come walk down the hall with me.
We got to talk about this bond market, bro.
You can't keep begging the Fed to cut interest rates because you know what's going to happen to the long end of the Treasury curve, the price will go down and the yield will go up. When you run monetary policy that is loose or easy relative to the market's estimate of R star neutral, then what you're essentially saying to the market is that you are trying to financially repress them. And you know what the market does when it fears financial repression? It goes, well, I guess I'm going to sell bonds and buy stocks or buy other asset classes that allowed me to get an ex ante, a higher ex ante unit of return for the risk that I'm taking in my portfolio because you're financially pressing us in a way that is likely to contribute to higher nominal GDP growth, either on an absolute basis or relative to expectations. And so this is why we've been saying for months that the Fed is likely to play the action pass, i.e. tighten cyclically in order to set up the run. Most people when they think football that coaches want to set up the run, they want to set up, they want to run to set up the pass. But that's not actually how football works in the modern era or with as sophisticated defenses that the kinds that we see today. The defenses, they understand how to take away anything and everything. They can't take away anything and everything at every given time. And so ultimately you have to trick them. You have to use their rules against them. The brightest offensive minds, the Sean McVeigh, the Kyle Shanahan, those types of guys, they understand how to take the defenses, manipulate the defenses and force them to into their rules against them. And so this is why we've been saying that's got to play action past. They have to trick the bond market into believing that that is serious about price stability. And if you successfully do that, you create more scope to run the football, which is deliver President Trump exactly what he wants, which is lower and lower rates on the short end of the curve. And hopefully, it may or may not be accompanied by lower rates on the longer end of the curve, but at least this will give them scope, tightening cyclically will give them scope to at least attempt that, especially in the context of where we think this is all headed in the context of Chair Warsh's five task forces. Recall that we believe on a net basis, the recommendations from those committees, either at the end of the year or the beginning of next year, will be very dovish on a net basis. And so if it's very dovish on a net basis, and you try to go from today's inflation problem to very dovish monetary policy, the risk in that transition is that the bond market says, absolutely not, no way, I'm not here. And so, especially in the context of a rising R star in neutral policy rate, according to our market implied a thin neutral rate model. So we're wrapping up there. Darius Dale here presenting our Macro Minute for Wednesday, July 29th, 2026 Best of luck out there today. We will catch you back here tomorrow.