The first day of Q3 split the AI trade in half. Meta surged 10% after announcing it would build a cloud business and sell its AI computing power to outside customers. Microsoft gained 3%. Apple added 2%. The hyperscalers — the companies that own the data centers and sell access to AI — had their best day in weeks. And the companies that build the hardware for those data centers? Micron fell 8%. SanDisk fell 8%. Nvidia lost 3%. CoreWeave dropped 11%. Nebius sank 13%. The S&P lost 0.6%. The Nasdaq fell 1.5%. The Dow gave back 250 points from yesterday's record. ADP came in at 98,000 jobs — below expectations, down from 122,000 last month. And in Portugal, two Fed officials said opposite things about AI: Warsh said it will bring prices down. Hammack said it's pushing prices up. The market, the labor market, and the Fed are all telling you three different stories. Tomorrow's jobs number picks the winner.
The Close
Down day to start the half. The S&P fell 0.6%. The Nasdaq dropped 1.5%. The Dow pulled back 250 points from yesterday's all-time high at 52,319. The market opened lower on weak ADP data, recovered at midday on Meta's cloud announcement, then sold off into the close as chip stocks fell apart. By 4 PM, the session had a clear shape: hyperscalers up, infrastructure down, everything else mixed.
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| Meta (META) | cloud launch | +10% | ||
| Micron (MU) | gave back gains | −8% | ||
| ADP Jobs | 98,000 | below 110K est | ||
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| Comm. Services | +2.0% | |||
| Consumer Staples | +0.8% | |||
| Health Care | +0.4% | |||
| Utilities | +0.2% | |||
| Financials | −0.2% | |||
| Real Estate | −0.4% | |||
| Materials | −0.6% | |||
| Industrials | −0.8% | |||
| Consumer Disc. | −1.0% | |||
| Energy | −1.2% | |||
| Info. Technology | −2.0% | |||
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Meta was the story of the morning. The company announced it would launch a cloud business, selling excess AI computing power to outside developers and enterprises. The stock jumped roughly 10% — its best day in months. The idea: Meta has been spending tens of billions building AI data centers. Now it wants to rent out the spare capacity. Microsoft rose 3%. Apple added 2%. The companies that OWN the AI infrastructure rallied because they're finding new ways to make money from it.
The companies that MAKE the infrastructure didn't share the enthusiasm. Micron fell 8% — giving back almost half of last week's post-earnings surge. SanDisk dropped 8%. Nvidia lost 3%. CoreWeave fell 11%. Nebius sank 13%. The chip and AI infrastructure names that led the rally in May and early June are now leading the decline. Remember the picks-and-shovels trade from last Thursday's issue? The shovel makers had a bad day. The miners — Meta, Microsoft, Apple — are the ones finding gold now.
ADP reported 98,000 private-sector jobs added in June — below the 110,000 expected and down from 122,000 in May. ADP's chief economist said hiring is slowing in both supply and demand. The official number — June nonfarm payrolls — comes out Thursday morning at 8:30. The consensus is 115,000. If it misses the way ADP did, the labor market story shifts from "strong" to "cooling" heading into the long weekend.
Nike fell 3% after last night's earnings. CEO Elliott Hill said the turnaround is "progressing more slowly than expected." China sales dropped 12%. UBS said there's no good entry point. General Mills jumped 8.8% on a solid quarter. Bending Spoons — the Italian software company that owns AOL and Vimeo — went public on the Nasdaq and popped 42% on its first day.
What The Market Is Pricing In
Meta rose 10%. Micron fell 8%. Same day. Same AI trade. Opposite directions. And the gap between them is the market telling you the AI cycle just entered a new chapter.
Here's what happened. For the last six months, the AI trade was simple: the companies building AI infrastructure — Micron, Nvidia, CoreWeave, SanDisk, the chip equipment makers — went straight up. Demand was so strong that Micron's revenue hit $41 billion in a quarter and it guided for $50 billion next. The picks-and-shovels trade worked perfectly. But today the market started asking a different question. Not "who's building the AI infrastructure?" but "who's making money from it?" Meta's answer — "we're going to sell our AI computing power as a cloud service" — was worth a 10% pop. That's the market saying: the next phase of the AI cycle isn't about who spends the most building data centers. It's about who figures out how to charge for what's inside them.
The companies still building — still spending billions on memory chips, servers, and cooling systems — fell because the market is worried about how much it all costs. Cleveland Fed President Beth Hammack, a voting member, said Tuesday from the same stage as Warsh in Portugal that AI infrastructure spending is creating a new kind of inflation. She said hyperscalers "will pay almost any price" for computing equipment, and that the Fed may need to raise rates if it continues. Think about that. The AI boom is so intense that it's driving up the cost of building materials, electricity, and specialized equipment — and a Fed official is saying it's inflationary enough to warrant a rate hike.
Meta rose 10% on a plan to sell AI computing power, Micron fell 8% as the cost of building that power came under pressure, and the market is telling you the AI trade has split into two lanes — the builders who are spending and the sellers who are charging — and the second half of 2026 will be about which lane wins. Warsh said in Portugal that "prices are too high" but declined to signal what the Fed will do in July. Hammack said the Fed may need to hike. That's two voting officials on the same stage saying different things about whether AI helps inflation or hurts it. The market is listening to both.
I watched the shale oil boom in 2014. The companies that drilled the wells spent billions building infrastructure. When oil fell from $100 to $45, the drillers went bust. But the companies that used cheap energy — airlines, trucking, manufacturing — thrived. The infrastructure builders overspent. The infrastructure users profited. Today's AI trade has the same shape: the builders (Micron, CoreWeave) are leveraged to spending. The users (Meta, Microsoft) are starting to charge for what was built. If spending slows — and Hammack's rate-hike warning is a reason it might — the builders feel it first.
What's Next
Two things tomorrow, one over the weekend:
01 — June nonfarm payrolls Thursday July 2 at 8:30 AM
ADP came in at 98,000. The consensus for the official number is 115,000. If payrolls beat — say, above 150,000 — the economy-is-strong narrative holds, the broadening continues, and the market rallies into the long weekend. If it misses below 100,000, the ADP signal was right and the labor market is cooling faster than anyone expected. That changes the Fed calculus: a weak jobs number makes Hammack's rate-hike case harder to sell. A strong one validates it. This is the last data release before a four-day weekend — traders will position hard in either direction.
02 — Warsh's full Sintra transcript
Warsh said "prices are too high" and declined to hint at July. But the market is parsing every word. The full transcript of his panel will be dissected overnight. If he pushed back on Hammack's structural-AI-inflation thesis — even subtly — the hike trade softens. If he echoed it, the July meeting becomes live. The Fed is split on whether AI is deflationary (Warsh's baseline) or inflationary (Hammack's view). Tomorrow's transcript tells you which side is winning.
03 — SpaceX joins the Nasdaq-100 Monday July 7
Markets are closed Friday. When they reopen Monday, SpaceX will be in the Nasdaq-100 for the first time. JPMorgan estimates $4.3 billion in passive buying from index funds. The stock is at $161 after falling from $219. If the inclusion day pops, the post-IPO correction is over. If it sells into the news — the way every other recent addition has — the $135 IPO price gets closer. Either way, Monday is a new chapter for the biggest IPO in history.
The first day of Q3 split the AI trade: builders down, sellers up. The Fed split too: Warsh says AI brings prices down, Hammack says it pushes them up. Tomorrow's jobs number decides which side gets the next move. One number. Then a four-day weekend to think about it.
That's it for today. See you tomorrow after the close.
