The Overnight Report: Chips To The Rescue

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This story features BEACH ENERGY LIMITED, and other companies.
For more info SHARE ANALYSIS: BPT
The company is included in ASX200, ASX300 and ALL-ORDS

A sharp rebound in semiconductor and memory stocks lifted the Nasdaq and the S&P500 overnight, while oil prices moved higher as US-Iran strikes continued.

The Australian market closed flat for a second consecutive day.

On Wednesday morning, ASX200 futures are pointing to a positive start.

Good Morning,

The Australian market recovered intraday losses on Tuesday and finished broadly flat on the day at 8,793.

Six of eleven sectors closed lower with Healthcare down -1.1%. Tech gained by 3.2%.

Looking ahead to today, several quarterly updates are on the calendar, including Beach Energy ((BPT)), Lynas Rare Earths ((LYC)), Paladin Energy ((PDN)) and Westgold Resources ((WGX))

FNArena Calendar: https://fnarena.com/index.php/financial-news/calendar/

Today’s Big Picture, J.L. Bernstein extract

Chips Lead The Bounce

Semiconductors did the work today after last week’s beating.

Memory was where the money went, with Micron, Western Digital and Seagate all moving together.

This is positioning, plain and simple.

Nobody wants to be light on AI hardware going into Alphabet, Tesla and IBM tomorrow.

Beating Estimates Is Now The Price Of Admission

Nearly nine in ten of the roughly 66 S&P500 companies reporting so far have topped profit estimates.

3M and General Motors beat and got paid for it. Equifax guided its next quarter a little light and lost seven dollars a share by afternoon.

Bret Kenwell at eToro put it well: good results are not always good enough anymore.

Oil Closes Above Ninety For The First Time Since June

Brent settled just over ninety one dollars after Yemen’s Houthi militia threatened to blockade Saudi shipping at the mouth of the Red Sea.

That matters because the Strait of Hormuz is already shut to through-traffic, which made the Red Sea the pressure valve for Gulf crude.

Goldman Sachs thinks Brent clears one hundred twenty dollars in the fourth quarter if Hormuz stays closed.

ANZ Bank, Australian Morning Focus, extract

Tech led equities higher. The S&P500 was up 0.9% and the Dow up 0.7%. In Europe, the EuroStoxx50 rose 0.9% and the FTSE100 was 0.6% higher. 

The yield on the US 10y Treasury note rose 3.8bp to 4.63%. 

Oil prices were higher, with WTI up 2.9% to US$84.9/bbl. Gold rose 0.5% to US$4,080.5/oz.

UK jobs data beat expectations: UK labour market data were stronger than expected. In the three months to May, employment rose by 148k, well above expectations for an 80k increase. 

The unemployment rate was unchanged at 4.9%, while private sector average earnings growth excluding bonuses eased further to 2.9% y/y from 3.0% y/y. 

Overall, there remains little evidence of inflationary pressure emanating from the UK labour market. 

UK fiscal headroom appears limited: As Prime Minister Burnham’s government settles in, June’s public sector finance data highlighted its fiscal challenges. 

Outstanding public debt rose to GBP2.99trn, up GBP122.3bn from a year earlier. Debt-to-GDP increased to 94.9%, 0.4ppt up on a year ago, while spending on social benefits in June rose 8.4% y/y to GBP28.7bn. 

Given the government’s commitment to its fiscal rules, there is limited fiscal headroom to pursue an agenda of greater state involvement in essential services. 

With the next general election due in August 2029, the political outlook is uncertain. If fiscal pressures intensify and political support weakens, the possibility of an early election in 2027 cannot be ruled out. 

ECB policymakers are particularly sensitive to movements in oil prices. Prior to the latest resurgence in Middle East tension, it appeared that members of the ECB Governing Council were becoming more dovish, citing the absence of material second-round effects from earlier energy price shocks. 

Consequently, market expectations had shifted towards the view that the ECB might not need to tighten policy further. That assessment has since changed. Higher oil prices, driven by renewed geopolitical tensions, have complicated the inflation outlook and prompted a reassessment of the policy path. 

While no change in interest rates is expected at this week’s meeting, markets are now pricing in close to two 25bp rate increases by year-end.

Such an outcome would leave policy in restrictive territory and would likely weigh further on already subdued economic activity.

The euro remains under pressure, possibly reflecting ongoing concerns about the region’s growth outlook.

Kimi K3 Shock: US$392 Billion now Wiped from Expected Valuations of OpenAI and Anthropic, Tony Sycamore, IG

The implied valuations of Anthropic and OpenAI have come under pressure. The trigger was Friday’s release of Chinese startup Moonshot AI’s new Kimi K3 model.

By early accounts, Kimi K3 is already competitive with America’s best closed systems and is challenging the long-held view that US frontier models enjoyed a comfortable six-to-nine-month lead over their Chinese counterparts.

What makes Kimi K3 particularly disruptive is that it’s an open-weight model. Once the full weights are released, anyone with sufficient compute can download, run, modify, and fine-tune it — essentially democratising frontier-level performance.

By contrast, OpenAI and Anthropic operate closed, proprietary systems. Users can only access them via API or hosted platforms, with no ability to self-host at scale or customise the underlying model. You’re locked into their pricing, policies, and rate limits.

Kimi’s emergence is therefore raising serious questions around the business models of OpenAI and Anthropic — and it’s already showing up in IG’s pre-IPO markets, which reflect their expected Day 1 market caps at the COB.

• Anthropic’s pre-IPO implied market capitalisation (which peaked at US$2.22 trillion in early June) last traded at US$1.557 trillion, down from Thursday’s pre-Kimi close of US$1.789 trillion — a loss of around -US$232 billion.
• OpenAI’s pre-IPO implied market capitalisation (which peaked at US$1.75 trillion in mid-June) last traded at US$1.163 trillion, down from Thursday’s pre-Kimi close of $US1.322 trillion — a loss of around US$160 billion.

All up, roughly -US$392 billion has been wiped from the combined implied market caps of the two US leaders since Thursday. That’s an increase of -US$78 billion in losses over the past 24 hours alone.

All of this is now calling the business models of OpenAI and Anthropic into serious question. If high-performing frontier AI can be accessed as an open-weight model, the case for sky-high private valuations and massive IPOs becomes much harder to justify.

It also casts real doubt on the idea that America can simply “win” the AI race through closed, proprietary systems — which in turn raises some big questions for policymakers in Washington.

Takeaways by The Dark Side of the Boom, Stephen Innes

-Deutsche Bank’s Adrian Cox argues that the open-versus-proprietary contest is becoming the next major technology format war.

-Open models challenge the scarcity, pricing power and capital-intensity assumptions embedded in leading AI valuations.

-Cheaper models could pressure proprietary-model economics without ending the broader AI capex and adoption cycle.

-China’s open-model ecosystem is becoming a genuine challenge to the durability of the US technological moat.

-The most defensible value may lie in proprietary data, distribution, product design, security, and workflow integration.

-Regulation could protect users, entrench incumbents or inadvertently weaken Western competitiveness.

The New Battle for AI

The latest tremor through the AI complex was not caused by investors suddenly losing faith in artificial intelligence. It came from a more uncomfortable question: what happens to the economics of the boom when increasingly capable models become cheaper, lighter and easier to distribute?

That question returned with the release of another Chinese open-weight model, reviving memories of the original DeepSeek shock.

The first episode forced markets to confront the possibility that a competitive AI system could be trained with older chips and considerably less capital than investors had assumed.

The latest release has pushed the same argument back across the trading desk, placing semiconductor demand, hyperscaler spending, and proprietary model pricing power under renewed scrutiny.

In a report examining the contest between open and proprietary AI, Deutsche Bank strategist Adrian Cox argues that the technology industry is entering another defining format war.

The stakes extend well beyond which model performs best on a benchmark. The larger battle concerns who controls the ecosystem, where profits settle, and whether the enormous capital commitments supporting today’s AI valuations can continue to earn an acceptable return.

The initial market reaction was hardly subtle. The Magnificent Seven weakened, semiconductor shares extended their decline and investors again began questioning plans by Google, Microsoft, Amazon, Meta and Oracle to spend roughly $700 billion building AI capacity this year, around 70 percent more than last year.

The market is not arguing that AI demand is about to disappear. It is asking whether the tollbooths constructed around that demand will remain as profitable as expected.

Corporate news in Australia:

• Franchise Equity Partners has acquired a majority stake in BravoFit to fund the expansion of Planet Fitness across Australia
• The Perich family has launched a $737m bid to take Noumi Limited ((NOU)) private and delist the company from the ASX
• Straight Bat has sold most of its stake in Kase Group and marked down the value of its remaining investment
• AMP Ltd ((AMP)) has appointed UBS to advise on potential sale discussions for its banking division
• Michael Cassel has repurchased a majority stake in his entertainment business from Silver Lake and is seeking new investors to support global expansion
• Ramsay Health Care ((RHC)) is selling non-core assets and preparing for the demerger of Ramsay Sante to improve capital returns
• AirTrunk is planning a Singapore IPO for a data centre vehicle to help fund further expansion
• SpaceX faces a major share unlock from August, with up to US$116bn of stock becoming eligible for sale

On the calendar today:

-JP June Trade Bal

-UK June CPI, PPI

-BEACH ENERGY LIMITED ((BPT)) Qtrly Update

-LYNAS RARE EARTHS LIMITED ((LYC )) Qtrly update

-PALADIN ENERGY LIMITED ((PDN)) Qtrly update

-WESTGOLD RESOURCES LIMITED ((WGX)) Qtrly update

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days…

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

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