Weekly Report 33/2026

Disinflation is picking up speed

The most important news of the past week was about falling prices. For example, consumer prices in the USA dropped sharply in June. In terms of the statistics, this led to inflation declining from 4.2% to 3.5%. The decline in producer prices was even more pronounced, from 6.0% to 5.5%; excluding energy, the figure was as low as 5.1%.
Of course, Federal Reserve Chairman Kevin Warsh had to emphasize that this did not mean the monetary policy mission of price stability had been achieved yet. At the same time, it became clear to all market participants that any interest rate increases were off the table. The yields on two-year government bonds fell by more than ten basis points within a week, while those on ten-year bonds also dropped significantly.
Disinflation has been clearly noticeable recently. Inflation expectations have fallen, causing consumer confidence to rise more sharply than expected, according to the University of Michigan. In fact, beneath the surface, the US equity markets probably look healthier than the current sell-off in semiconductor stocks would suggest. A defensive rotation is underway, shifting away from the narrow focus on “AI” and towards a broader scope. This is evidenced by the fact that the equally-weighted S&P 500 Index closed at a record high last Thursday, even though the tech-heavy Nasdaq fell significantly and global chip manufacturers experienced a downturn.
Incidentally, this is also related to the rapid improvement in Chinese open-source large language models and associated valuations. One of the obvious reasons behind the slump in semiconductor share prices is that the faster the capabilities of affordable language models improve, the less hardware will be required. However, the exact opposite can actually be expected: the low cost of AI accelerates its rapid adoption across all business processes, in turn necessitating even greater computing and storage capacity.
This is exactly the kind of scrutiny that we consider our responsibility: we analyze technological advances as well as each business model and each component in detail. For example, Apple’s capital expenditure is relatively modest. The company’s free cash flow is increasing this year and is expected to continue to rise next year as well. Conversely, Alphabet and Amazon are “sacrificing” their current liquidity for significantly higher investments and the prospect of much more distant returns. Due to skepticism regarding the rapid monetization of data center investments, Apple’s share price, for example, has risen in recent weeks—coinciding with the start of the defensive rotation—while the share prices of Amazon and Alphabet have fallen.
We will be paying particular attention to Alphabet’s quarterly reporting. At the end of the first quarter, the company reported an order volume of 468 billion dollars, 99% of which was attributable to Google Cloud. 40% of these orders come from a single customer (Anthropic), who has committed to spending 200 billion dollars on Google’s cloud services and chips over five years. The order books of Amazon and Microsoft contain similar customer risks. However, if these customers face competition from Chinese rivals, these orders could vanish into thin air.