Tech Giants Inflate Valuations with AI Stakes as Old-Economy Sectors Feel the Squeeze

Tech Sector's AI Windfall Faces New Scrutiny

Renewed confidence that heavy spending on AI is producing tangible revenue, not just costs, helped push major US stock indices to new heights. Major technology firms continue to post impressive results, though a closer examination shows that investments, rather than core business operations, are fuelling much of the excitement. Amazon, for instance, saw its market value surge past the $3 trillion mark for the first time after extending its post-earnings rally. A considerable portion of this financial muscle, however, stems from its holdings in private artificial intelligence firms like Anthropic and OpenAI.

This pattern is consistent across the sector. Microsoft and Alphabet have also registered large investment gains from their interests in these AI start-ups, whose private market values have soared. While this boosts headline figures, it can obscure the true state of a company’s operational health.

Palantir's Commercial Surge Offers a Different Path

Data analytics firm Palantir stands out with its recent success driven by strong demand for its AI-powered platforms. Shares in the company jumped after it reported what its CEO Alex Karp called an "otherworldly" quarter. Palantir's overall revenue grew an explosive 93% to $1.935 billion from the same period a year ago, powered by a remarkable 149% surge in its US commercial revenue to $764 million. Following the strong results, the company raised its full-year revenue guidance to around $8.15 billion. This growth was spurred by major deals for its Foundry AI platform. Karp has voiced his opposition to the large AI model labs like OpenAI, criticising their approach even as Palantir's own software supports a wide range of AI models.

Government Scrutiny and Security Risks

Adding another layer of complexity, the US government is now taking a closer look at the potential dangers of advanced AI. The Trump administration is meeting with industry leaders, including Anthropic, to develop a framework for assessing national security risks before new AI models are released. This move was partly prompted by a recent disclosure from OpenAI that its AI agents had successfully hacked into systems at Hugging Face, raising alarms about the technology's potent hacking capabilities. The meeting also takes place against a backdrop of intensifying competition, with data suggesting that Chinese AI models are being used more heavily than their US counterparts.

The View from the AI Frontier

This government focus comes as some industry insiders warn the West may be losing its edge. Chinese tech giant Alibaba recently stoked these competitive fires by launching Qwen3-Max, its most powerful AI model to date, which reportedly outperforms top rivals in coding and reasoning tests. This follows comments from Clément Delangue, CEO of the AI firm Hugging Face, that China is now "clearly dominating on open models." He projected that China could achieve parity with the US in creating top-tier AI models by the end of this year or next, highlighting a rapid pace of progress built on a more open development culture.

SpaceX's Landmark Debut Under the Microscope

In one of the most watched corporate events of the year, SpaceX is set to publish its first accounts as a listed company. Wall Street expectations are broad, with consensus for revenue sitting between $6.7 billion and $7.0 billion, highlighting the difficulty in forecasting the private space pioneer's performance.

The report's timing is critical. Just two days after the results, a lock-up period expires, freeing roughly 911.5 million shares for trading—a figure significantly larger than the company's current public float. Investors are betting on a very large price swing following the announcement. Historical precedent suggests caution; of the last 18 mega-cap companies to report for the first time after listing, 16 saw their shares fall, regardless of the quality of the results.

Old Economy Giants Grapple with Real-World Pressures

Outside the technology sphere, traditional industries are navigating a world of geopolitical strain and constrained supply chains, which is translating into higher prices and substantial profits.

Banking and Oil Profits Surge

HSBC, a major European bank, delivered a second-quarter pre-tax profit of $10.1 billion, marking a 60% year-on-year rise that surpassed analyst forecasts. The bank gained from higher lending income and increased fees.

Meanwhile, Saudi Aramco announced a significant increase in its second-quarter profits, and BP reported its strongest quarter since 2022 with underlying profits more than doubling to $5.73 billion. These firms have benefited from elevated fossil fuel prices, driven upward by ongoing hostilities between the United States and Iran. These tensions have prolonged the uncertainty that keeps oil prices high and fuels global inflation concerns, with knock-on effects for industries like aviation where jet fuel costs remain stubbornly high.

The bumper profits in the energy sector have not gone unnoticed in Washington. Following banner results from firms like ExxonMobil and Chevron, President Trump publicly stated that the companies were "making too much money based on a shortage," signalling potential political headwinds for US-based oil majors.

US Factories Roar Back to Life

In a sign of robust health in the industrial sector, American manufacturing activity expanded at its fastest pace in over four years. The closely watched ISM manufacturing index rose to 55.6 in July. Any reading above 50 indicates growth. More significantly, the survey's employment gauge rose above 50 for the first time in 33 months, signalling that factories have stopped shedding staff and have started hiring again. This strength could complicate the outlook for interest rate cuts.

Paper and Packaging Market Tightens

The cardboard box industry is experiencing a major market squeeze. A wave of mill closures in 2025 removed almost 10% of North America’s capacity for containerboard, the raw material for boxes. This has driven factory operating rates to nearly 95% and pushed stock levels to a 15-month low.

In reaction, major producers are raising their prices:

• Packaging Corporation of America ($PKG) initiated a $140 per-ton increase.
• International Paper ($IP) followed with an $80 per-ton rise, its third in 2026.

Despite International Paper's sales reaching $6 billion in the second quarter, rising costs led to a minor net loss. The company's CEO noted that geopolitical uncertainty might dampen the positive effects of these price increases.

A Long-Term Innovation

Looking ahead, Kimberly-Clark ($KMB) has revealed a potential breakthrough after two decades of research. It has pinpointed the hesperaloe desert plant as a workable, and possibly better, substitute for wood fibre in paper products. The company is investing approximately $250 million to commercialise this innovation, with a pilot facility scheduled for next year.

UK Bets on Hydrogen for Future Energy

In a significant move for UK energy, global investment firm Essar is investing $4.3 billion to transform its Stanlow refinery into a major hydrogen production hub. Hydrogen is a key component for cooling the powerful computer chips used in AI data centres, linking this old-economy industrial play directly to the future of technology.

Gold Bugs Hold Firm Amid Market Uncertainty

Despite a difficult year, some analysts maintain a positive outlook on gold. Deutsche Bank has held its year-end price target of $4,600 per ounce for the metal, which currently trades near $4,064. The bank's model indicates a 'fair value' of $4,700 based on the S&P 500, bond yields, and currency exchange rates.

Gold has underperformed this year, declining over 20% since the start of the US-Iran conflict. Because it pays no interest, gold is less appealing when interest rates are high. However, the recent pause in rate hikes by central banks has offered some support, allowing the metal to achieve a 1% gain in July and break a five-month losing streak.

Corporate Strategy & Shifting Consumer Habits

Several other developments highlight key shifts in corporate strategy and consumer behaviour across different sectors.

Consumer Giants Feel the Pinch

Fast-food behemoth McDonald's offered a more cautious view of the consumer landscape. While its profits beat analyst estimates, the company missed its revenue targets. More tellingly, its US same-store sales—a key metric tracking performance at established restaurants—grew by a sluggish 0.8% as declining customer traffic offset higher prices. In response to the slowdown, the company has appointed a 26-year veteran, Skye Anderson, to lead its US business and revitalise domestic growth.

Pharmaceutical Merger Rumours Shake Sector

Talk on the City's trading floors centres on a potential mega-merger, with rumours that Bristol Myers Squibb is considering an acquisition of rival drugmaker AstraZeneca. A deal of this magnitude, reportedly valued as high as $400 billion, would fundamentally reshape the pharmaceutical industry. However, both companies have publicly denied any such discussions are taking place.

Visa Steps Up Anti-Fraud Game

In a significant move to combat digital crime, Visa announced its acquisition of BioCatch, a specialist in behavioural biometrics, for $2.4 billion in cash. BioCatch's technology analyses online user behaviour, such as keystroke patterns and mouse movements across 19 billion banking sessions a month, to differentiate between genuine customers and criminals. Analysts see this as a strategic acquisition to bolster Visa's value-added services business, which generated $10.9 billion last year.

Travel Boom Cools Amid Rising Costs

The post-pandemic travel surge appears to be losing momentum as consumers face rising costs. International flight bookings from the US fell 8% year-on-year, coinciding with a 12% jump in airfares to Europe. A weaker dollar further strains holiday budgets, while airlines like Delta and United have warned that elevated jet fuel prices may persist for some time.

Nostalgia and New Ventures

• MySpace Comeback: In an unexpected move, the owners of early social media site MySpace are planning to relaunch the platform, positioning it as a less intense alternative to today's dominant apps.
• Snap's AR Bet: Social media company Snap is seeing renewed optimism after better-than-expected user numbers and a 9% rise in advertising sales. The company is making a major push into wearable technology with its augmented reality glasses, called Specs.
• Secondhand Fashion: As households seek to cut costs, the pre-owned apparel market is expanding. Retail giants like Gap are now launching their own trade-in schemes to participate in this growing sector.
• Micro Cars: Changes in US regulations may soon allow for smaller, cheaper vehicles. Stellantis is exploring this market with its Fiat Topolino, aiming for a price point around $15,000. These electric low-speed vehicles (LSVs) are more advanced than golf carts but face looser regulations than cars, a concept that has also drawn positive attention from President Trump.

Currency Market Intervention

A noteworthy event took place in currency markets, where the United States and Japan acted jointly to support the Japanese yen. In an unusual tactic, the US is thought to have sold euros to finance the purchase of yen, rather than using its own dollars. This was likely done to avoid disrupting the market for US government bonds. Japan spent about ¥5.33 trillion (roughly $34 billion) in a single session at the end of last week to prop up its currency.

Real Estate and Insurance Markets Adapt to New Risks

Key sectors of the economy are showing signs of stress as higher interest rates and new environmental challenges take hold.

Homebuilders Pull Back as Construction Spending Falters

Spending on residential construction in the US fell for a fourth consecutive month in June, a clear sign the housing market is cooling. The annual pace of spending slid to $889.3 billion, a drop of 4.7% from the previous year. The slowdown in sales, driven by mortgage rates remaining above 6.5%, has prompted builders to reduce new construction projects and permit applications.

Wildfire Bonds See Record Demand

In a sign of the growing financial impact of climate change, the market for insurance-linked bonds tied to wildfires is on track for a record year. Sales of these so-called "catastrophe bonds" have already reached $2 billion in 2026. Insurers are keen to transfer wildfire risk off their books, while investors are attracted to the high yields these specialised debt instruments offer.

Rise in Rental Scams Exploits Gig Workers

A worrying new trend has emerged in the property market, where fraudsters are hiring US-based freelancers to post fake rental listings. This tactic helps them bypass platforms' security systems, which are often triggered by foreign-based posters. Consumers lost an estimated $65 million to around 65,000 rental scams between 2020 and mid-2025, with many originating from fraudulent adverts on Facebook.

Digital Assets and Crypto Markets Show Signs of Froth

Activity in the cryptocurrency space has surged, though much of it appears driven by short-term incentives rather than fundamental demand, while major players face financial headwinds.

Tokenised Trading Hits Record, But Is It Real Growth?

Trading in tokenised shares—digital versions of real-world stocks—reached a record-breaking $11.3 billion during July, a monthly increase of 288%. A closer look reveals a distorted picture: a single token from Binance, known as QQQB, made up $9.27 billion of this volume. This spike was directly linked to a temporary promotion offering zero fees and inflated trading volume calculations for certain users. Excluding this one-off event, the rest of the tokenised stock sector actually contracted by 30% from June.

Security Flaws and Sell-Offs Rattle Crypto Holders

The perceived safety of offline crypto storage was challenged after a bug in some versions of the Coldcard hardware wallet allowed attackers to drain more than 1,000 Bitcoin, worth an estimated $89 million. The coding mistake reportedly made users' recovery phrases guessable.

At the same time, some major crypto holders are reducing their positions. The company Strategy disclosed it recently sold 1,638 bitcoin for about $105 million. The sale was notable as the firm sold at an average price of $63,957, well below its average cost of $75,419. Elsewhere, a crypto firm linked to Donald Trump posted a $47 million loss in its latest quarter, reflecting a broader slump in the market.

Stablecoins and Decentralised Finance Developments

The market has also seen significant developments from key players:

• Tether's Reserves Shrink: The excess reserves held by stablecoin issuer Tether dropped from $8.2 billion to $4.1 billion in the second quarter of 2026, largely due to a fall in the value of its Bitcoin and gold holdings.
• Uniswap Revenue Jumps: After activating a new fee mechanism, decentralised exchange Uniswap saw its daily revenue jump from approximately $114,000 to around $325,000.
• BlackRock Enters On-Chain Finance: BlackRock's new government money market fund will be accessible via the Tempo blockchain, a move aimed at connecting traditional cash management with the digital payments world.

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NOTE: This content is for informational and educational purposes only and does not constitute financial advice. Always do your own research. Not financial advice (NFA).