Goldman Says Buy the Dip. I Agree.

Dear Reader,

This is Dylan Jovine with Behind the Markets.

Happy Monday.

Today is Monday, July 6th.

I hope you had a wonderful Fourth of July weekend with your family.

I hope you didn't eat too much or drink too much beer.

This is my last week before vacation.

I've talked about it for a while, but I'm hitting the road with the family.

America's 250th birthday.

We're driving all around the country.

I want to show my kids how beautiful this place is — especially the parts of the country we don't usually get to.

I'm really looking forward to it.

Anyway, today I want to talk about a note out of Goldman Sachs.

Goldman's been putting out some interesting notes lately, and this one caught my attention.

They're advising investors to capitalize on the recent tech sell-off by buying hyperscalers.

Their argument is that hyperscalers look cheap heading into earnings season, which kicks off around the 13th.

I happen to agree with them.

What's Been Happening

The hyperscaler index Goldman tracks is down 17% since June 1st.

If you own Amazon, Microsoft, Google, Meta, or Oracle, you've been feeling that pain.

We've talked about why.

Investors are fatigued.

These companies are spending enormous amounts of money on CapEx — data centers, chips, software, building out that full five-layer AI stack — and it's not yet clear what the return on that investment looks like.

So the stocks aren't being hammered exactly.

They're deflating.

There's a difference.

A hammered stock panics people out.

A deflating stock just grinds you down until you give up and sell.

That's the tale of two cities here.

Earnings keep climbing.

Stock prices keep drifting lower.

And the gap between the two is entirely about capital spending.

You get the sense that if these companies stopped spending tomorrow, their stock prices would double overnight.

Why I'm Still Interested

Hyperscaler valuations are now trading at lows similar to Liberation Day last year and the geopolitical lows we saw at the start of the Iran war.

Those were the two critical lows of this bull market.

Both times, big money stepped in and said, "They're giving this thing away."

I think we're close to that moment again.

Meta irritates me, honestly.

Zuckerberg is brilliant, but he needs to put out a clearer plan.

That said, with a billion people looking at Facebook, Instagram, and WhatsApp every day, and AI making the ads faster and more targeted by the week, the earnings are soaring.

I can see it in my own social media exposure — the ads are getting smarter in real time.

Speed wins in warfare.

Speed wins in business too.

The companies that can monetize their customers the fastest are going to win this thing.

Microsoft looks cheap to me.

Amazon and Google look interesting.

Meta looks good.

Oracle is the one name on this list I'd stay away from.

Slower business, weaker economics, not my cup of tea.

The others have dominant consumer and enterprise franchises with high gross margins and strong returns on capital.

That's where I want to be when a sector is on sale.

And while everyone's debating which hyperscaler wins this race, I keep coming back to the same thought.

Every chip Microsoft builds runs on the same blueprint.

Every chip Google builds runs on the same blueprint.

Amazon, Meta — same blueprint.

And one little-known company in the background collects a royalty on all of it, no matter who comes out on top.

If you missed our webinar on them, make sure you watch it now before the earnings season kicks off.

Watch the replay here.

I bought a little more Microsoft this week.

I nibbled.

I'm already in the others pretty strong, and they're up from where I got in.

But at these prices?

Microsoft looks stupid cheap to me.

Have a wonderful day.

I'll see you tomorrow.

“The Buck Stops Here,”