Google parent Alphabet (GOOGL) absolutely crushed earnings estimates yesterday after the closing bell.
Revenues climbed 24%– a massive jump for a company of Alphabet’s size – while its cloud business surged 80%, blowing past Wall Street’s expectations.
You might have expected investors to reward that performance with a standing ovation.
Instead, the shares fell after hours.
The reason?
Alphabet raised its full-year estimate for capex to $205 billion, up from $190 billion last quarter. Even in an age of multitrillion-dollar valuations, that’s still a lot of money.
Investors are simply uncomfortable with that amount of AI-related capital spending.
And here’s the catch…
Today’s capex eventually becomes tomorrow’s depreciation expense.
Those massive investments in AI infrastructure will be spread across future earnings, creating a headwind unless the AI boom generates enough revenue to justify the cost.
More than anything, Wall Street sees Alphabet and its peers trapped in a capex bubble with no easy off-ramp.
So, should we be buying the dip in Alphabet?
My Green Zone Power Ratings system indicates it’s worth considering.
Alphabet still earns a “Bullish” rating, and it boasts exceptional scores of 99 and 98 for growth and quality, respectively.
But given the growing skepticism toward AI infrastructure spending, this isn’t the time to bet everything on one megacap tech name.
Diversification still matters.
And that brings us to today’s focus.
It’s Thursday, which means we’ll be looking at stocks that recently crossed into “Bullish” territory by earning a Green Zone Power Rating of 60 or higher.
Let’s start with the newest additions from the S&P 500 Index.
S&P 500 New Bulls
I ran my usual screen for S&P 500 companies that popped up as “Bullish” this week, and this is what I came up with:
Financials have been popping up regularly on the New Bulls list over the past several weeks, so I’m not at all surprised to see PNC Financial Services (PNC) and State Street (STT) make the cut this week.
Johnson & Johnson (JNJ) – arguably the most conservative stock in the entire S&P 500, also made an appearance.
I mentioned in Tuesday’s issue that AI infrastructure stocks were officially in bear market territory. If this weakness spills over into the broader market, then conservative dinosaurs like JNJ will likely be the best place to hide.
Henry Schein (HSIC) offers another interesting defensive play.
Schein is the world’s largest provider of products and services for medical, dental and veterinary practices. It’s effectively a “one-stop shop,” supplying over 300,000 products ranging from basics like bandages to highly specialized practice management software and even financial services.
Medicine is about as defensive and recession resistant as any industry can be, and Schein is a critical supplier that your doctor, dentist or veterinarian can’t live without.
The company rates a “Bullish” 61 and rates particularly strongly on its momentum, volatility and quality factors.
New Bulls Outside the S&P 500
Let’s cast the net a little wider and look at the newly “Bullish” stocks outside of the S&P 500. I ran a screen for the top 20 stocks with the largest score increases over the past month, and this is what popped up:
Wall Street may be growing skeptical about the gargantuan sums of money being spent on AI infrastructure, but that doesn’t mean there aren’t intriguing potential opportunities in the AI space.
For instance, Simulations Plus (SLP) markets itself as a leader in “model-informed and AI-accelerated drug development.” Its core software offerings, such as GastroPlus, use AI and machine learning to predict drug absorption, toxicity and pharmacokinetics.
I wouldn’t recommend buying SLP today because the company is in the process of being acquired by a private equity company. But I mention it to drive home a point: AI is permeating everything.
The real winners from the AI revolution won’t necessarily be the companies making the massive investments in data centers. They will be companies like SLP that have put others’ AI investments to practical use.
Moving on, one stock that lines up particularly well with my research is Yellow Cake PLC (YLLXF), a UK-listed investment company that buys and holds physical uranium.
I’m so bullish on uranium that I recommended four distinct uranium plays in my premium newsletter 10X Stocks. Every stock I recommend in that newsletter is one that I expect to rise by a factor of 10. That’s how big I believe the opportunity in uranium is.
It’s not hard to understand why.
The AI data centers being built across the country are rapidly increasing electricity demand, prompting utilities and tech giants to invest in nuclear power.
The Trump administration has reinforced this trend with executive orders aimed at quadrupling U.S. nuclear capacity to 400 gigawatts (GWs) by 2050.
That’s a lot of uranium…
Finally, let’s take a look at Hochschild Mining plc (HCHDY), a British precious metals company with over 50 years of operating experience in the Americas.
Hochschild explores, mines, processes and sells silver and gold, and its main assets include the Inmaculada mine in southern Peru, the San José mine in Argentina and the Mara Rosa open-pit gold mine in Brazil.
Gold prices are down about 20% from their recent highs, due mostly to the belief that the Federal Reserve will keep interest rates elevated for longer.
That may be, of course, but let’s not forget why. Inflation isn’t slowing down.
By some measures, it’s actually accelerating, and the Fed is terrified that it will become endemic.
Gold is historically a strong inflation hedge. It’s also a currency hedge and a broader crisis hedge. Given that the federal debt has just surpassed $40 trillion, it may be only a matter of time before we see a real dollar crisis.
If that’s the case, you’ll want to make sure you own at least a little gold… and maybe a few gold miners to boot.
To good profits,
Adam O’Dell
Editor, What My System Says Today
