At Jackson Hole, Fed Chair Warsh stressed that inflation remains above the 2% target and that price stability should remain the top policy priority. His hawkish stance boosted expectations for a September rate hike, weighing on equities, with semiconductor stocks leading the decline.
At the G20 finance ministers’ meeting, Fed Chair Warsh stated that AI-related companies are increasingly competing with U.S. Treasuries for global capital through large-scale bond issuance, contributing to higher Treasury yields and U.S. financing costs. The remarks pushed yields higher, with the U.S. 10-year Treasury yield briefly exceeding 4.8%, while government bond yields in Japan, the UK, and Germany also reached multi-decade highs, leading to broad declines across global bond markets.
Broadcom reported 3Q26 revenue of US$29.6 billion, up 86% YoY and above market expectations. AI semiconductor revenue reached US$16.7 billion, up 221% YoY and accounting for more than half of total revenue. However, the stock traded choppily as 4Q26 revenue and operating margin guidance only modestly exceeded already elevated market expectations.
As AI capex continues to rise, free cash flow across the AI ecosystem is facing increasing pressure. Since the AI investment cycle began in late 2022, the gap between earnings and cash flow has widened. As of 2Q26, the four major CSPs generated combined TTM net income of US$599bn, while free cash flow stood at only US$169bn.
2Q26 results showed continued growth in AI-related capex among the four major CSPs, alongside higher two-year guidance. AI capex is expected to reach US$907bn by end-2026 and exceed US$1.2tn by end-2027, driven by strong demand for AI computing infrastructure. Major CSPs continue to raise spending plans, sustaining the AI investment race and supporting industrial sector growth.
