The implications of Amazon’s $25B bond sale, and Microsoft’s evolving AI model strategy
Every weekday, CNBC Investment Club with Jim Cramer publishes Homestretch, an actionable afternoon update just in time for the final hour of trading on Wall Street. There is a major fork in the market on Tuesday. The S&P 500 was only slightly lower on the session, while the tech-heavy Nasdaq 100 fell more than 1% amid a selloff in artificial intelligence chip leaders and data center infrastructure stocks. Four trading sessions into July and the third quarter, the market already looks very different from the spring. The Philadelphia Stock Exchange Semiconductor Index (SOX) traded lower in three of those four sessions, with down days being harsh, with an average decline of 5.3%. New narratives like Club name Meta’s plan to sell AI computing have created some unease about the longevity of hyperscalers’ AI capex cycle, and investors have responded by selling year-to-date tech winners and parabolic moves that formed in late June. But as far as we can see, nothing fundamentally changed last week. Another headline is that Amazon plans to raise at least $25 billion through an eight-part bond sale. Hyperscalers raising money to fund AI investments isn’t a new concept, and Amazon raised nearly $64 billion through offerings earlier this year. But what’s notable is that the company doesn’t plan to issue any more debt this year, sources told CNBC’s David Faber. If this is the last debt raise in 2026, does that mean Amazon won’t raise its capital spending expectations again this year? Or if Amazon stops raising debt this year, will stock sales also come into play, as we saw with Alphabet? It may take a lot of time to come to the right conclusion, but we’ll get more clarity when the company reports earnings in a few weeks. Amazon shares were up about 0.7% in afternoon trading. Here’s another topic to focus on: According to a report by Bloomberg News, Microsoft has started to replace OpenAI and Anthropic models with internal models such as Excel and Outlook in Microsoft Office products. The aim here is to reduce dependence on external models, which can be costly. This should come as no surprise to anyone who read CEO Satya Nadella’s interview with The Wall Street Journal last month. We discussed this on Homestretch on June 22, noting that Microsoft was looking for lower-cost alternatives. It’s simple: Microsoft users don’t always need access to the most powerful models to complete tasks in software products like Outlook. The company trying to cut AI costs isn’t enough to make us more bullish on the stock, but it’s worth noting as others may follow suit. Elsewhere in the market, US benchmark WTI crude rose above $70 a barrel after Iran reportedly attacked an oil tanker in the Strait of Hormuz, the vital waterway for global energy trade. The rise in oil, combined with the New York Federal Reserve’s one-year survey of consumer inflation expectations in June, pushed it from May to its highest level since September 2023 and pushed bond yields higher. The yield on 10-year Treasury bonds is on track to close above 4.5% for the first time since June 22. There are no significant US gains after Tuesday’s closing bell or before Wednesday’s opening bell. Weekly mortgage applications and minutes from the June Federal Reserve meeting will be available Wednesday. We expect investors to scan Fed minutes for clues about how the Kevin Warsh-led central bank is thinking about monetary policy in the second half of the year. (See here for a complete list of stocks in Jim Cramer’s Charitable Trust.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.
