Defense IPO delay signals peak. Google fined $6bn, Meta disrupts cloud.

Transcript

Tom Buddy, when the tank makers start pulling their twelve-billion-dollar IPOs, you know the defense trade is getting a little sweaty.

Marie Wait — wait a second, Tom. It's not just 'sweaty,' it is a full-blown reality check for a sector that has been priced for perfection for two years.

Gerald Yeah look, KNDS pulling that listing after investors balked at the valuation is the first real crack we have seen in European defense sentiment.

Tom No way, Gerald — BAE Systems jumped nearly three percent in the last session because the UK government is fast-tracking their next-gen fighter jet.

Gerald Fair enough, but that is a specific catalyst for BAE, whereas the broader aerospace and defense exchange-traded fund is sitting just three percent below its all-time high.

Marie Exactly. There is almost no cushion left there.

Tom One hundred percent.

Gerald That is the whole story right there.

Marie It’s the same story with Google losing that final appeal on the four-billion-dollar EU fine — plus they have to hand over two billion to Klarna.

Tom Six billion dollars in regulatory costs? For real? That’s basically just a long weekend of ad revenue for them, Marie.

Gerald Ha — fair enough, Tom, but the market does not like the cumulative overhang.

Marie No, but that is exactly my point — it’s about the narrative, not just the cash.

Gerald Honestly, the thing is, Alphabet is still trading at a forward price-to-earnings ratio of nearly twenty-five, so it is not like it is priced for a regulatory apocalypse.

Tom See, this is what I mean about the big tech names — they just absorb these hits and keep grinding.

Marie Wait — hold on, Tom, let’s talk about Meta because they are the ones doing the hitting right now.

Tom Oh, the cloud move? That was savage.

Gerald It was brutal. Meta moves into selling AI compute and suddenly CoreWeave is down fourteen percent and Nebius drops seventeen percent in a single session.

Marie Look, I am going to push back here on the idea that these neocloud companies are 'disrupted' — they are being erased.

Tom For real! If Meta decides to rent out its infrastructure, why would anyone pay a premium to a startup with a negative eighty-seven price-to-earnings ratio?

Marie Right —

Tom Yeah, yeah.

Gerald Spot on.

Marie And Meta is sitting there at a seventeen forward price-to-earnings ratio, which looks like an absolute steal if this becomes a real revenue stream.

Gerald Alright, but let's be real — Meta is a social media company that is basically building a cloud business out of spare parts and hubris.

Tom Pff, okay Gerald. You said the same thing about their pivot to short-form video and look how that turned out.

Gerald Hah — yeah, yeah, I’ll take that one on the chin.

Marie Look, if we are talking about value, we have to look at Japan.

Tom Oh, Gerald’s favorite topic. Here we go.

Gerald The thing is, while the global tech trade was wobbling last week, Japanese retail investors were buying the dip in record size.

Marie That is a huge contrarian signal, Gerald. Bloomberg is reporting this as a record amount of local buying.

Tom Wait, really? Domestic investors are that bullish while the rest of the world is freaking out about semi-conductors?

Gerald Honestly, they are seeing value where others see risk. The Japan equities exchange-traded fund is at a price-to-earnings ratio of about nineteen.

Marie See, THIS is what I mean about the rotation — people are moving out of the crowded defense and niche cloud trades and into these stable, under-owned markets.

Tom I’m still bullish on the big US names though. Microsoft is down thirty-one percent from its fifty-two-week high.

Marie Not so fast, Tom. Did you see the EU just dropped those strict climate rules for data centers?

Tom Exactly! That’s a massive win for Microsoft and Amazon. Lower compliance costs means more margin for Azure and AWS.

Gerald Yeah look, lobbying works. But let's keep it professional — as always, none of this is investment advice.

Marie Right, but look at the gold call from the Journal — five thousand dollars an ounce by twenty-twenty-seven?

Gerald Five thousand dollars? Analysts revising price targets that far out is basically a free retirement plan for their credibility.

Marie Oh, that's brutal.

Tom Hey, I like gold as a hedge, especially with oil being so volatile.

Gerald Oil is interesting. Americans are heading into the most expensive July fourth on record for gasoline, but the oil exchange-traded fund actually fell three percent last session.

Marie Wait — wait a second. If the price at the pump is at a record but the commodity is stalling, that tells me the geopolitical risk is already fully priced in.

Tom Right, and if we get any de-escalation in the Middle East, oil could fall off a cliff.

Gerald Exactly. It is all about the rotation today. We are seeing a move away from the 'peak' trades like defense and into these bombed-out big tech names and Japan.

Marie Honestly, the trade of the day has to be long Meta versus short CoreWeave. It’s the ultimate David versus Goliath story, except Goliath has a better price-to-earnings ratio.

Tom Ha — Goliath also has a few billion extra in the bank. I’m with you on that one, Marie.

Gerald Alright, let's see if the bond market agrees. Yields are still grinding higher, which usually makes everyone a little nervous.

Tom Gerald, your bond doom-loop returns! We should probably wrap before you start talking about the inverted curve again.

Gerald Alright, alright — I’ll save the yield curve for the next episode.

Marie Good call. If you’re just finding us, hit follow on Spotify or check out investment flash dot com for the full digest with all the charts.

Tom Definitely. We’ve got a big day ahead.

Gerald We'll see how these trades settle out.

Marie We are back for tomorrow's London Edition at seven-thirty a.m. London time.

Tom See you then, buddy!