Believe it or not, the chaos in the Middle East is actually helping to boost the growth of many energy stocks as well as defense contractors. Not only is the U.S. the largest producer of crude oil and natural gas in the world, but a strong U.S. dollar continues to attract international capital to the U.S.
What is amazing to me is that while China and the U.S. are in a race to dominate AI, the European Union (EU) remains hell-bent on fining U.S. technology companies and recently imposed a $1 billion fine on Google. President Trump is now threatening additional tariffs on EU imports due to the EU fine on Google, so the war between the EU and American technology companies persists.
Growing order backlogs remain the most important development this year for data center-related companies. After Google () announced 24% second quarter sales growth and 294% earnings growth that was a whopping 208.8% higher than analyst estimates, the company also said it now expects to spend between $195 billion and $205 billion on AI infrastructure, up from its prior guidance of $180 billion to $190 billion. Naturally, this higher AI infrastructure spending bodes well for many data center-related stocks. Right now, the order backlog is so big that the data center boom is expected to persist through at least 2029.
As the second quarter earnings unfold and shore up fundamentally superior stocks, the stocks without earnings or disappointing results are being crushed. In case it had not been obvious, Tesla () and SpaceX () have been a drag on the overall stock market recently. Despite strong sales, Tesla’s operating margins are collapsing, and the company now has negative cash flow as it ramps up the manufacturing of the Optimus robot that is initially designed for factories. SpaceX has declined approximately 50% from its highs and is not expected to be profitable until late 2027 or 2028.
This is why money managers that “bet the ranch” on Elon Musk, like Ron Baron and Cathie Wood, have negative year-to-date returns. The bottom line is we are in the midst of a strong earnings announcement season, and the stock market has no patience for companies that are not announcing strong sales, earnings, surprises, and guidance.
