Note: I am travelling for another 2 weeks. Postings may be fewer and shorter.
Investors now seem to have accepted two realities:
- Compute demand is really, really strong and accelerating while capacity can’t keep up.
- Barring a surprise last Trump strike, the US-Iran war is nearly over. Hormuz and the Red Sea will soon allow the free flow of commodities. Nobody really knows how and exactly when a Trump face-saving formula will pop up, but Trump is out of reasonable options to win this war. This is why the price of oil barely rises with new Trump threats that everybody knows are just that.
1- The AI Capital Expenditure (Capex) Supercycle Is Accelerating
From @ARKInvest
Last week, earnings from Alphabet, Microsoft, and Amazon highlighted the continued surge in demand for AI and cloud infrastructure, prompting the hyperscalers to add to their investment in data centers, custom silicon, and computing capacity.
During the second quarter, cloud revenue growth accelerated at all three companies: Google Cloud from 63% on a year-over-year basis during the first quarter to 82%; Microsoft Azure from 39% to 43%; and Amazon Web Services (AWS) from 28% to 37%, its fastest growth in 18 quarters.
Management commentaries also indicated that infrastructure remains a constraint as companies scale increasingly compute-intensive AI workloads.
As a result, Alphabet raised its guidance for this year’s capital spending from $180–190 billion to $195–205 billion across its vertically integrated AI stack, from custom tensor processing units (TPUs), Axion central processing units (CPUs), and cloud infrastructure to Gemini’s frontier models. Amazon increased its capital spending guidance for 2026 from ~$200 billion to $220 billion, highlighting AI infrastructure investment and memory costs as well as semiconductors, robotics, and satellites.
Amazon gave the clearest indication of the imbalance between demand and available infrastructure. CEO Andy Jassy said that, even at ~$220 billion in spending, the company will not have enough capacity to meet demand, an imbalance that could persist into 2027. Amazon also reported that its AI and chips businesses had exceeded annual revenue run rates of $25 billion each and are growing at triple-digit rates on a year-over-year basis.
Vertical integration is becoming an increasingly important source of differentiation among the hyperscalers. Alphabet is combining proprietary TPUs and CPUs with Gemini and Google Cloud; Microsoft is integrating cloud infrastructure, both proprietary and third-party AI models, software distribution, and enterprise relationships; and Amazon is pairing AWS with Trainium, Inferentia, Graviton, Bedrock, and a broad selection of third-party models. Those integrated stacks should enable them to optimize performance, capacity, and cost across the entire AI computing system.
While questions abound about capacity utilization, depreciation, free cash flow, and the ultimate return on investment, the results thus far suggest that hyperscalers believe insufficient capacity—not excess capacity—is the immediate constraint.
A block buster Q2 after a booming Q1 confirms that compute demand is accelerating with all four hyperscalers reporting revenue acceleration despite being supply-constrained. Alphabet’s CFO said that cloud revenue would have been higher if the infrastructure had been in place to meet it.
- Google Cloud revenue grew 82% YoY (+$11.2B) to $24.8B in Q2. Its cloud backlog jumped nearly $50B in a single quarter to reach $514B. Revenues up $11B, backlog up $50B!!
- AWS, the largest cloud provider, grew 37% in Q2, its fastest pace in 18 quarters. In the call, management said that most of its AI capacity is contracted on multi-year terms, with breakeven reached in less than 3 years. Amazon’s AI services and chips businesses each crossed a $25-billion-plus annual revenue run rate in Q2, both growing at triple-digit rates on a YoY basis. Amazon’s backlog rose by $110B in Q2 to reach $496B in Q2, also growing at triple-digit rates YoY. Amazon said that demand already booked for 2028 is “striking”.
- Microsoft said Azure demand exceeds available supply.
Goldman Sachs:
This quarter’s strategic conversation inside all four companies has shifted decisively. Rather than debating whether to build, management teams are now focused on sequencing: committing early to long-lived assets — land, data center shells, power infrastructure — while deferring final decisions on short-lived assets, primarily chips, until a few months before deployment, when demand signals are clearer.
By separating long-life from short-life asset commitments, hyperscalers lock in grid capacity and construction timelines years ahead while preserving flexibility on the most expensive components. It also explains why the supply constraint is now primarily a power constraint rather than a chip constraint.
Only approximately 50–60% of data center capacity scheduled for 2027 is expected to come online on time, because the binding constraint is power delivery, not equipment.
2- Getting it Strait:
“Trump also asserted that the U.S. Navy had complete control over Hormuz. “Nothing gets through to Iran, unless we want it to,” he wrote [on X Sunday].
Windward on Sunday:
The maritime conflict is now defined by two parallel escalations, plus a widening geographic footprint.
Iran is tightening its grip on Hormuz, with a second Qatari LNG carrier hit, IRGC-claimed disabling actions against U.S.-escorted transits, and a forced real-time U-turn recorded in the southern corridor.
The Houthis are tightening their grip on the Red Sea, with four Saudi tankers struck over the reporting window, Yanbu operating fully dark since July 27, and Saudi-flagged VLCCs now routing via the Cape of Good Hope.
Underneath both escalations, a differential access framework is now visibly operating for Chinese-linked shipping. 22 Chinese vessels crossed Bab el-Mandeb and called at Saudi ports without incident over the same window in which four Saudi tankers were struck. (…)
The conflict’s third front, the Damietta drone strike on July 29, has extended Iranian retaliation beyond the Gulf and Red Sea for the first time, tied to the Ukraine-Caspian retaliation cycle rather than the Houthi campaign. Egypt is now on the active threat picture.
Windward assesses the operational risk environment across the Strait of Hormuz, Red Sea, Gulf of Aden, northern Arabian Gulf, and eastern Mediterranean as critical, with kinetic escalation now spanning three theaters simultaneously, differential access rules visibly operating for Chinese-linked tonnage, and structural commercial disruption compounding across the region.
The WSJ:
U.S. Treasury Secretary Scott Bessent on CNBC today expressed optimism that the U.S. is nearing a deal with Iran, sending oil prices lower.
“We are in talks with the Iranians and I think there is a chance we may have a deal today or tomorrow to open the Strait and move towards a more normalized position in this conflict,” he said.
Asked today on CNBC whether a deal to reopen the Strait of Hormuz would allow Iran to charge ships a toll for transit, U.S. Treasury Secretary Scott Bessent said:
“I think it would be freedom of movement. Even though things are still a little dicey there over the past few days, we saw quite a few ships coming out even now so I’d expect the energy prices to settle back down.”
Based on Windward’s objective monitoring and assessment, those “quite a few ships coming out” were Chinese. China is back in buying mode.
In the same WSJ:
Even as negotiators continued to talk with Iran about opening the Strait of Hormuz, the Islamic Revolutionary Guard Corps, the paramilitary group that protects Iran’s regime and enforces its hold on the strait, had yet to formally respond to the latest proposal, mediators said. Some Revolutionary Guard officials told mediators they wouldn’t allow any deal that doesn’t acknowledge their claim to control the strait, and asserted Tehran was in a position of strength and ready for months of renewed conflict, mediators said.
If mediators can strike an agreement to reopen the waterway, they will then try to revive the memorandum of understanding the U.S. and Iran signed in June to start the process of winding down the war. The agreement broke down last month as Washington and Tehran clashed over Iran’s assertion of control over Hormuz.
The FT:
Donald Trump trapped between escalation and an Iran deal on Tehran’s terms
(…) Since attacking Iran in February, Trump’s immediate demands have shrunk from a sprawling list of concessions involving Tehran’s nuclear ambitions, ballistic missile production and support for proxy militias to just one: that Iran allow the Strait of Hormuz to return to its prewar state.
“The denuclearisation of Iran is the ultimate deal,” US secretary of state Marco Rubio told reporters on Tuesday.
“The immediate deal, and the one that you’ve seen a lot of focus on, is the strait.”
In itself, that would mark something akin to strategic humiliation, say critics. Iran exploited its strategic leverage over the strait only after Trump launched the war. (…)
“I do not see right now a way to create a balance of interests where the Trump administration walks away with something that normal humans would regard as a win,” [Aaron David Miller, a former Middle East peace negotiator for both Republican and Democratic administrations] said. (…)
Even if Iran agrees “today or tomorrow to open the strait”, as US Treasury secretary Scott Bessent predicted to CNBC on Tuesday, it would not amount to the kind of prewar “freedom of navigation” that he described, analysts said.
Iran and Oman were working on “protocols for the future management” of the strait’s traffic, said Tehran’s foreign ministry spokesperson, Esmaeil Baghaei, on Tuesday.
Any agreement would be provisional and cover “inbound and outbound shipping routes” while talks on a final settlement played out, he said. (…)
“It’s not really a deal between Iran and the US,” said Ali Vaez, an Iran expert at the International Crisis Group. “This is a deal between Iran and Oman.” (…)
The Iran-Oman arrangement, which two people said still required approval from Tehran’s senior leadership, would provide that vessels enter the strait through Iranian waters and leave through mostly Omani waters. (…)
Ships would not be charged fees during the temporary arrangement, people briefed on the talks said. Tehran insists that it will eventually charge ships “service fees” for passage, a provision that Gulf states reject. (…)
The risk is that Trump, frustrated with limited good options to end his war, and under pressure from critics, lurches back towards escalation — repeating the pattern of recent months. (…)
For a good wrap-up of the conflict, listen to John Meirsheimer:
https://www.youtube.com/watch?v=nRAtD7iAgwY
Straight strait?
Wall Street finds new edge behind Trump’s presidential paywall
For years, Truth Social was President Trump’s money-losing megaphone.
Now his company is charging Wall Street up to $1.2 million a year for a split-second edge on posts that can — and frequently do — jolt global markets.
Trump has transformed his second term into the most lucrative venture of his entire career, raking in more than $2.2 billion in 2025 from his family crypto empire, legal settlements and various licensing deals.
Truth API is the logical endpoint of that profiteering: the presidency’s unrivaled power to move markets, packaged and sold as a subscription.
The new real-time feed from Trump Media & Technology Group (TMTG) went live Aug. 1, delivering Truth Social posts directly to institutional clients in milliseconds.
- A source familiar with the matter tells Axios that access to the platform’s 10 top-trending accounts costs between $60,000 and $100,000 per month. Customers seeking a broader range of accounts could pay more.
- At least five clients have signed up, according to The Wall Street Journal. Trump Media says its customers include financial news organizations and high-frequency trading firms. (…)
The product offered a live demonstration of its value almost immediately.
- Hours after Truth API launched, Trump announced that he had canceled massive planned strikes on Iran. Oil prices fell nearly 5% when markets reopened.
- A March 23 post postponing strikes on Iranian energy infrastructure sent Brent crude tumbling nearly 11%.
- Trump’s March 2025 announcement of a U.S. crypto reserve drove XRP up 27% and added roughly $300 billion to the global crypto market.
- His threat last October to impose massive new tariffs on China sent the S&P 500 down 2.7%.
Customers are buying an advantage measured in fractions of a second. Truth API gives trading algorithms a direct, machine-readable feed that they can act on before most investors receive a push alert or refresh their screens.
In many ways, the arrangement distills the defining conflict of Trump’s second term: The same presidential power that moves markets is feeding a business empire that enriches the president.
- Congressional Democrats have launched an investigation into and asked the SEC, CFTC and Office of Government Ethics to probe whether the feed creates conflicts of interest or enables market manipulation.
- Sen. Mark Warner (D-Va.) introduced legislation Monday to ban the practice altogether. “The president’s company selling prioritized access to the president’s market-moving posts is corrupt and erodes public confidence,” he said.
TMTG says the posts are already public when they reach the API. What the company is selling is the latency gap — the brief interval between publication and widespread awareness.
- The company explicitly markets the service to firms for which “the cost of a delay in information” is highest.
- A TMTG spokesperson told Axios: “Senate and House Democrats continue to mischaracterize Truth API either out of ideological opposition to free markets or a failure to grasp the distinction between public and nonpublic information.” (…)
The White House denies any conflicts of interest. (…)
Polling shows the broader pattern of self-dealing is taking a toll: 60% of Americans say Trump is using the presidency for personal gain, while approval of his handling of government corruption has plummeted to record lows.
Everyone knows President Trump plays the role of political populist, but sometimes all you can do is laugh. Take his lashing Monday of American oil companies for “making too much money.”
Mr. Trump is worried about gasoline prices going into the midterm election, and the President needs someone to blame. Voila, Big Oil.
“When you look at one company where they made 12 times what they made the year before, they ought to give some of that back to the public,” Mr. Trump said Monday. (…)
As it happens, oil and gas giants are distributing their profits to the public via dividends to shareholders, many of whom are retirees. Chevron this week announced a bonus for its employees. But speaking of someone making much more than the year before, would the President care to comment on his profits from his cryptocurrency plays and other ventures while in office?
Mr. Trump’s recent financial disclosure report showed he made some $1.4 billion last year on crypto alone. His Truth Social platform last Saturday launched a service that sells faster access to his often news-breaking posts. Oil prices—to take one example—often gyrate in response to his posts about the war.
Oil and gas giants make money by producing a valuable commodity. Some uncharitable populist might say Mr. Trump is commoditizing the Presidency.
Not totally unrelated:
The real message in the yen intervention The dollar’s status as a reserve currency is not what it used to be
There is an important message behind the joint intervention on the yen by the US Treasury and the Japanese Finance Ministry last week. It’s just not the one the markets have been receiving. (…)
The Japanese authorities have intervened in the yen foreign exchange market before, of course, most recently just three months ago.
Thus, the notable fact is that the US Treasury also participated in the intervention, its first joint operation with Japan in more than 15 years, and that it bought yen using euros, not in exchange for dollars. Last week’s intervention thus contains troubling information about the dollar.
The message is that US Treasury secretary Scott Bessent & Co worried that selling dollar securities to prop up the yen would put additional strain on the long end of the US Treasury market. This was already feeling pressure following Federal Reserve chair Kevin Warsh’s poorly received press conference last week.
Selling euros partly reflected what the US had to hand to divest from its currency stabilisation fund. But it is also a way of not asking the market to swallow additional Treasuries sold to reduce dollar exposure, which would have aggravated an already delicate situation.
Likewise there was a similar signal in Japan’s statement it would use a Federal Reserve tool called the Foreign and International Monetary Authorities Repo Facility, or Fima. This is meant to provide an alternative but limited form of liquidity rather than selling US Treasuries outright.
Both moves are an indication that the dollar’s status as a reserve currency is not what it used to be.
Central banks are accustomed to holding foreign reserves in dollars because markets in US Treasury securities are liquid. Central banks hold US Treasuries because they can be freely bought and sold and used in interventions. But not now, at least not in unlimited quantities.
Instead, we see the US Treasury stepping in with euro sales as part of its contribution to the intervention, thus limiting the volume of dollar sales needed by the Japanese authorities. (…)
The bottom line is that Washington, fearing the consequences for US financial markets, is reluctant to see foreign central banks use their dollar reserves.
This is telling us that the dollar is not the attractive reserve currency it once was. When this message sinks in, other countries will redouble their search for more attractive, readily usable alternatives. Reserve diversification is apt to gather steam.
BTW:
The Dollar’s Hidden Dependence on the AI Trade
Source: Apollo