Less Risk Is Rewarded
In college, I read that time is money (shout-out to Ben Franklin) and that more risk means more return (shout-out to Lehman Brothers).
My grey hairs have since taught me how valuable time really is, and how incomplete my understanding of risk was.
The market is actually rewarding less risky business models right now.
Initially, the stocks that were growing the fastest and investing the most in the future of AI were getting rewarded.
Then Mr. Market quickly changed his mind and found those business models too risky.
Semiconductor stocks tell this story clearly.
Through late June, semiconductor stocks had outperformed software, the S&P 500, and the Nasdaq on literally 100% of trading days this year.¹
Then, the narrative quickly changed.
Since the June 22 peak, semis have fallen into a bear market.
Bespoke Investment Group shows in the table below that, of the 30 largest semiconductor stocks, only Nvidia has been positive since then, and barely.
Some are down 30% or more.
The paradox is that the share of U.S. households paying for AI subscriptions has climbed to 2.2%, roughly ten times where it stood three years ago (see chart below):
Subscribers now spend an average of $31 a month, up from $22 two years ago.2
The question isn’t whether people use AI. It’s whether the investments to build it will pay off.
AI hyperscalers are expected to spend $769 billion this year, up 87% from last year, and potentially hitting almost $1 trillion next year.
All of that spending is eating up their free cash flow, which is forecast to swing from $191 billion last year to negative this year.
Negative free cash flow is business as usual for Amazon, which has never paid a dividend.
It’s a new look for Microsoft, Alphabet, and Meta, and it puts their buybacks at risk.
The market has noticed.
Guess which company is the best performer among the Magnificent 7 this year, up over 20% and sitting near record highs?
>drum roll<
Apple.
They’ve sat out the AI arms race.
Apple spent just $4.3 billion on capex in the first half of its fiscal year compared to the hundreds of billions Amazon, Meta, Microsoft, and Alphabet have spent.
For being boring (#sarcasm), Apple has reclaimed the title of the world’s most valuable company this week.
We’ll find out what else Apple has been up to when it reports earnings later this week.
Right now, the market is rewarding less risk.
Tides turn quickly in markets. When they do, you need a compass.
As financial writer Adam Smith once wrote
If you don’t know who you are, the market is an expensive place to find out.
Without a compass or a plan, the investment tides can take you places you didn’t want to go.
Keep learning. Keep growing. Keep going.
1: Source: Bluekurtic Market Insights. July 21, 2026.
2: Source: a16z. PNC Research, Internal Data (July 13, 2026). Charts of the Week: Software’s Selective Sell-Off. Moses Sternstein.
Now here’s what I’ve been reading, listening, and watching:
Should You Invest All at Once or Over Time? What History Actually Shows | Compounding Wisdom | Ludacka Wealth Partners
Why Young Men Choose to Be Alone | Prof G Podcast | Scott Galloway
Jean-Pierre Aubry: The State of Retirement Research | Rational Reminder
The Retirement Savings Time Bomb Ticks Louder by Ed Slott
The Pursuit of Happiness by Jeffrey Rosen
The Valuation Treadmill by James Park
A few posts on Faith:
