In this episode, we provide a recap on earnings so far in Q2, which, so far, have been good enough for the market to remain near all-time highs. We also delve a little deeper into some of the megacap earnings, especially as it relates to whether accounting rules are optically improving earnings while cash flow is shrinking as spending on capital expenditures, specifically AI chips, is draining corporate coffers. To wit, free cash flow versus capex for the four biggest spenders (GOOG, META, AMZN, and MSFT) is as follows (in billions): 2024 FCF - $233 Capex - $226 2025 FCF - $207 Capex - $351 2026 FCF - $240 Capex - $445 2027 FCF - $289 Capex - $512 In other words, these businesses, which once generated massive amounts of free cash flow for things like buybacks, are becoming much more capital intensive. However, since 2021, it has been only the 10 biggest stocks that have had earnings that have exceeded inflation; the other 490 have barely kept pace with overall price increases. We also talk about inflation, specifically the shift toward the greater use of estimates versus actual inflation data, as well as the smoke signals from the economic intelligentsia hinting at a shift away from the fed’s long-standing 2% inflation target. In the spirit of government estimates, we also review the recent (abysmal) jobs data, and revisions, and connect that with the demise of certain professions, which ties into the massive AI spending driving corporate earnings and capital expenditures. We close with a look at the strong recent performance of speculative stocks, the historically large nature of the volume in that trading, and why that has historically boded poorly going forward. Of particular note is the recent record flow into the Ark Innovation ETF. Learn more about Formidable Asset Management, Will Brown, and Adam Eagleston by visiting www.formidableam.com.

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