Value Pick of the Week

No pick this week.

The past two weeks we’ve been holding off on any kind of picks due to four of the “Magnificent 7” reporting earnings last week. Here’s a summary of what happened:

📉 Meta Platforms (META) — The disappointment. Revenue was up 28% year-over-year, but expenses surged 55% and net income fell 14% — EPS of $6.18 badly missed the $7.18 estimate. Meta fell 6.5% on the week.

📉 Apple (AAPL) — Beat Street estimates on both the top and bottom lines, a steady-as-she-goes quarter for 2026’s best-performing Magnificent 7 stock (up roughly 23% year-to-date), with the company recently touching the $5 trillion market cap level. Apple guided fiscal Q4 revenue growth lower, to 9–11%, while analysts had estimated more than 12% — and the stock fell 7.2%.

📈 Microsoft (MSFT) — The clear winner of the week. Revenue up 17.75%, with Intelligent Cloud at 32% growth, Azure growing 43% and crossing $100 billion in full-year revenue for the first time, and commercial remaining performance obligations jumping 84% in contracted future revenue.

📈 Amazon (AMZN) — Revenue rose 20% and AWS grew 37% — its fastest growth in 4-½ years — sending shares up nearly 9%. The headline 245% earnings explosion ($5.15/share) came with a footnote — it included a $53.4 billion “other income” boost, much of it tied to Amazon’s Anthropic investment — a paper gain, not operating profit.

Market Summary

The S&P 500 rose 1.0% for the week ending July 31, closing at 7,489.72 — a resilient finish to a volatile month that marked the index’s first negative July since 2014.

  • Mega-cap earnings winners did the heavy lifting — Microsoft (MSFT) delivered the week’s signature move, surging ~16% after Azure grew 43% and crossed $100 billion in annual revenue, adding roughly $450 billion in market cap — the largest single-day value gain in stock market history. Amazon (AMZN) jumped ~10% after AWS grew 37%, its fastest pace in 18 quarters, with revenue topping $200 billion for the first time. Alphabet (GOOG) rose ~7% Friday, recovering from its prior-week selloff.

  • The market’s message was selectivity, not euphoria — the same week produced history’s largest single-day value gain (MSFT) and one of its largest single-day value losses (AAPL, ~$390 billion). The AI trade is no longer rewarding everyone equally; it’s rewarding proven monetization.

  • Rising yields were the headwind stocks climbed through — the 10-year Treasury yield hit 4.73%, its highest since January 2025, and the 30-year touched its highest since 2007, as investors questioned new Fed Chair Kevin Warsh’s inflation commitment after the Fed held rates steady. Oil rose (WTI ~$85) as the Strait of Hormuz traffic faltered on renewed Iran tensions.

How Our Picks Fared

Our past picks fell 0.6% against the S&P 500, despite some strong performances (and a couple of weak ones):

📉 Textron (TXT) fell 10.8%

  • Q2 adjusted EPS of $1.62 beat the $1.54 estimate with revenue in line at $3.8 billion, but investors focused on manufacturing cash flow falling 54.2% from a year earlier.
  • Textron warned that without additional fiscal 2026 funding for the MV-75 military program, adjusted EPS could take a hit and cash flow could fall by $150–250 million — that contingent guidance overshadowed the beat — investors dislike uncertainty.
  • GAAP earnings were only $1.42 per share versus the $1.62 non-GAAP figure, free cash flow declined from $395 million to $235 million year-over-year, and guidance came in slightly below expectations.

📉 Carrier Global (CARR) fell 10.3%

  • A beat-and-raise that fell anyway: EPS topped estimates and Carrier raised its full-year outlook, yet the stock dropped for the week — while peers JCI, TT, and LII barely moved, making it clearly company-specific.
  • The problem was profitability direction: adjusted EPS fell from a year earlier and operating margin declined 1.8 points to 13% — a per-share profit decline of 6.5% despite the beat, with the raised target leaning heavily on the back half of the year.
  • At a P/E of 44.2 versus the building products industry median of 21.6, a shrinking-profit quarter gave the premium valuation nothing to stand on.

📈 CDW Corporation (CDW) rose 10.5%

  • No company news — CDW doesn’t report until August 5. This was a pure sector-sentiment move: the same enterprise-IT halo that lifted it after Dell’s blowout in May.
  • The catalyst chain: Microsoft’s historic surge and the four hyperscalers guiding to $720–745 billion in 2026 capex validated the entire IT infrastructure supply chain, and CDW is a direct beneficiary as the integration/deployment layer.
  • Analysts expect Q2 EPS to be up 7.7% year-over-year, so some of the move is likely positioning ahead of Wednesday’s report — but the stock now has a higher bar to clear.

📈 Alphabet (GOOG) rose 11.8%

  • Twice-recommended Alphabet jumped after Microsoft’s and Amazon’s results proved the cloud/AI spending pays off — and Alphabet got repriced upward with them.
  • At a P/E of 17.9, it was the cheapest of the mega-caps heading into the week — the natural landing spot for investors rotating into the AI trade after MSFT and AMZN got more expensive.

📈 Oracle (ORCL) rose 12.9%

  • A sharp reversal after three brutal weeks (down ~35% YTD at the lows). The hyperscaler earnings changed the narrative: if Microsoft can turn a $678 billion backlog into 43% Azure growth, Oracle’s $638 billion backlog looks more like an asset than a liability again.
  • The capex validation cut both ways for Oracle — the market had been punishing it for spending, and MSFT/AMZN proved the spending model works.
  • With the consensus price target near double the share price, even a modest sentiment shift produced an outsized bounce — short covering likely amplified it.

📈 InterDigital (IDCC) rose 18.0%

  • Q2 revenue of $260.2 million obliterated guidance of $139–143 million, with non-GAAP EPS of $4.62 versus guidance of $1.41–1.60, driven by a new agreement with Amazon plus $103.7 million in catch-up revenue.
  • The Amazon deal covers Amazon’s services and devices including Prime Video — with final terms to be determined by binding arbitration — and drove annualized recurring revenue to a record $626 million. It’s InterDigital’s first streaming and cloud services agreement, opening a licensing category beyond its traditional wireless base.
  • Full-year 2026 guidance was raised to $10.85–12.81 EPS versus the $9.17 consensus, on revenue of $775–845 million.

📈 IES Holdings (IESC) rose 18.9%

  • Fiscal Q3 EPS beat consensus by 39%, with revenue topping estimates by 15%, both riding exploding data center demand. Revenue rose 40% year-over-year with operating income up 60%.
  • The data center concentration is the story: the three segments serving data centers generated 92% of segment operating income — this is a pick-and-shovel play on the same AI buildout theme that ran through the whole week.
  • The board approved a two-for-one stock split (record date August 14, distribution August 21), adding a liquidity/confidence signal on top of the beat. After losing some ground early in the week, the stock jumped 30.3% on Friday alone.

Five of the seven moves (CDW, GOOG, ORCL, IESC, and arguably IDCC via Amazon) trace back to the same catalyst — the hyperscaler earnings validating the AI capex supercycle — while the two losers (TXT, CARR) were classic beat-and-punish reactions to cash flow and margin details.

Have a great week!

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