🦉 The Night Owl Newsletter for July 5th

The Night Owl, From Early Bird Publshing. The 7-point checklist for smarter options trades (From Profits Run)tc pixel Visa’s Open USD Push Puts Circle’s Stablecoin Moat Under Pressure Written by Jeffrey Neal Johnson Illustrated stablecoin tokens including Tether (USDT), USD Coin (USDC), Dai, and TrueUSD scattered across a dark background. The financial plumbing of the global economy is undergoing a rewrite. For the better part of a decade, the issuance of stablecoins, digital dollars living on blockchain networks, was largely monopolized by crypto-native firms. Traditional payment processors appeared to be watching from the sidelines, occasionally announcing small-scale pilot programs. That dynamic was shattered this week. The launch of Open USD by a 140-member consortium marks the aggressive institutional capture of decentralized payment infrastructure. By redistributing reserve interest directly to network partners, traditional financial processors are weaponizing shared-yield tokenomics against early market entrants. Legacy networks are successfully scaling the digital dollar while actively dismantling the proprietary moats of pure-play crypto issuers. The GENIUS Act and the Green Light for Legacy Capital To understand the magnitude of this shift, look back to the July 2025 passage of the GENIUS Act. This regulatory framework provided the federal compliance structure that traditional finance demanded. Legacy players like Visa Inc. (NYSE: V) and Mastercard (NYSE: MA) have never ignored the blockchain space. They were waiting for the legal green light to deploy capital at scale without risking entrenched legacy businesses. With regulatory clarity secured, the broader fintech ecosystem moved rapidly. Stripe laid the operational groundwork by acquiring the stablecoin platform Bridge for $1.1 billion, placing seasoned operators at the helm of a new standard. The result is the Open Standard consortium, a massive alliance featuring Visa, Stripe, BlackRock (NYSE: BLK), Alphabet (NASDAQ: GOOGL), and Coinbase (NASDAQ: COIN). This is not a defensive maneuver by traditional finance. It is an aggressive, calculated infrastructure upgrade designed to own the rails of cross-border money movement. Tokenomics 2.0: Siphoning the Crypto Yield Let us take a moment to unpack the structural evolution introduced by Open USD, as it directly attacks the core business model of first-generation stablecoins. When an institution mints a legacy stablecoin, they hand over fiat currency, and the issuer deposits those funds into short-term U.S. Treasuries. The issuer then keeps the yield generated by those reserves. When interest rates are high, this model prints exceptional cash flow. Open USD operates on a shared-yield architecture. Instead of hoarding treasury interest at the issuer level, the Open Standard consortium redistributes that yield back to the network partners who facilitate transactions. They also eliminated minting and redemption fees. This creates a zero-friction, yield-generating asset for enterprise partners, instantly rendering proprietary, closed-loop stablecoin models uncompetitive. A Leaky Moat: Circle's Margin Compression Crisis This architectural shift presents an existential threat to companies heavily reliant on the legacy model. Circle Internet Group (NYSE: CRCL) generates roughly 99% of revenue from the interest earned on the reserves backing the USDC stablecoin. When the core product is commoditized by a consortium offering better economics to distributors, the resulting margin compression is rapid and severe. The most glaring signal of this structural vulnerability is the defection of primary ecosystem partners. Coinbase previously served as a massive distribution hub for USDC. In 2024 alone, Coinbase extracted $908 million from Circle in distribution and revenue-sharing agreements. With the launch of Open USD, Coinbase has joined the Open Standard alliance. The economic incentive is clear. Rather than taking a negotiated cut from a third-party issuer like Circle, exchange networks and payment processors can utilize Open USD to internalize the reserve yields directly. This supply chain defection forces Circle into an impossible corner. To retain enterprise distributors, Circle must either slash fees to zero or give up reserve yield. Both options eviscerate profitability. $20 Billion Buybacks and Unstoppable Margins The market is already pricing in the collapse of the proprietary stablecoin moat. Shares of Circle Internet Group have faced severe downward pressure, currently trading near $62 after dropping nearly 21% since the start of the year. Circle recently reported quarterly earnings that reflect the strain, with earnings per share (EPS) missing estimates by 6 cents and net margins languishing at negative 2.76%. Institutional sentiment is rapidly souring on the pure-play crypto issuer. Short interest in Circle rose to 45.4% month over month, now representing 10.06% of the public float. A short squeeze requires an underlying bullish catalyst, but the structural degradation of the business model provides exactly the opposite. Internal confidence appears equally shaken. Insiders have executed zero open-market purchases over the last six months, instead heavily distributing shares, dumping over $158 million in stock over the past 90 days. Wall Street analysts are aggressively revising valuation models, with Compass Point aggressively slashing its price target on Circle from $97 down to $55. As capital flees the vulnerable pure-play issuers, it is rotating heavily into the legacy networks, leading the Open USD charge. Visa is one of the primary beneficiaries of this institutional capture. Visa is currently trading near $351 and boasts a market capitalization exceeding $630 billion. Visa is demonstrating exactly how to leverage an entrenched market position to capture new technology. Integrating Open USD into globally ubiquitous payment rails neutralizes the threat that decentralized finance will disrupt cross-border revenue. The fundamentals backing Visa are pristine. Visa recently posted $3.31 EPS, easily beating consensus estimates of $3.10, driven by a 17.1% year-over-year revenue expansion. Profitability metrics remain exceptional, featuring a 51.68% net margin and a massive 65.00% return on equity. A forward price-to-earnings (P/E) ratio of 26.84 is entirely reasonable for a network poised to capture the next generation of digital payments. Analysts are taking note of the expanded moat. Piper Sandler recently upgraded Visa from overweight to a strong buy, citing confidence in its cross-border transaction strategy and resilient consumer discretionary spending. While Circle faces insider distribution, the Visa board is signaling confidence in the current valuation and future cash flows. Visa recently initiated a $20 billion share repurchase program. This authorization acts as a massive macro tailwind for Visa, providing structural support to the share price while management executes the digital asset expansion. Share buybacks of this magnitude tell you exactly how Visa leadership views its own strategic positioning. Plugging the Leaks in Your Crypto Portfolio The era of digital assets existing in a silo outside the traditional financial system is over. The 140-member consortium behind Open USD proves that legacy payment processors possess both the capital and the strategic foresight to absorb disruptive technologies. By weaponizing shared-yield economics, Visa and other legacy giants are capturing the multi-trillion-dollar stablecoin market while systematically dismantling the business models of early crypto-native pioneers. Investors navigating the shifting payments sector might consider evaluating the durability of revenue streams. Portfolios heavily weighted toward single-product crypto firms reliant on proprietary yield models face significant structural risk. Conversely, adding exposure to entrenched, highly profitable networks executing large volume share repurchases offers a compelling way to capture the upside of the digital dollar's global expansion. READ THIS STORY ONLINE Elon’s big $266,000 per second purchase (Ad) tc pixel Elon’s big $266,000 per second purchase Elon Musk bought Super Bowl ad time at $266,000 per second - something he has never done before. 125 million Americans watched, but Whitney Tilson, former manager of a $200 million hedge fund, says most investors missed what it actually means. With 1 in 3 Super Bowl viewers using buy-now-pay-later services and 40% of Americans carrying more credit card debt than savings, Tilson believes Elon's message reveals a major economic current - and a clear signal for where smart money should be positioned. WATCH TILSON'S FREE PRESENTATION TO SEE WHAT HE THINKS YOU SHOULD DO NOW This Under-the-Radar Industrial Is Quietly Powering AI Written by Peter Frank Regal Rexnord logo displayed alongside industrial motors, gears, bearings, and drive components. Regal Rexnord (NYSE: RRX) has spent decades making motors and power-transmission components for factories. It still does. But it also makes automation and motion-control components for data centers. And its stock is up about 50% this year as orders flood in. Analysts rate the company a Moderate Buy by consensus, with most suggesting a Buy. But a rich multiple, rising short interest, and leadership transition do not make this recent winner necessarily low-risk. AI Data Centers Are Driving Demand At its core, Regal Rexnord is a maker of industrial powertrain systems, motion control technology, and power management solutions. In other words, it makes the mechanical and electrical components that move, control, and regulate energy inside machines. For years, its products went into factories, HVAC systems, agricultural equipment, and commercial infrastructure. More recently, though, cloud companies and AI developers began building data centers at a breakneck pace, and they needed the precision power components that Regal Rexnord specializes in. Cooling systems require motion control. Power distribution requires conversion technology. The infrastructure behind an AI data center is, at its core, an industrial engineering problem, and Regal Rexnord is one of the companies solving it. Strong Orders Point to Sustained Growth The first quarter of 2026 provided the evidence. The company reported sales of $1.48 billion, up 4.3% year-over-year, and above analysts’ expectations. GAAP net income rose 11.8% to $64.3 million from $57.5 million in the prior year. Adjusted diluted earnings per share climbed to $2.17 from $2.15, also above what analysts expected. While those top figures were solid, the number that attracted the most attention was found in the order data. Daily orders rose 8.5% from the prior year, and backlog grew 6.7% quarter-to-quarter at the enterprise level. In particular, it was Regal Rexnord's Automation and Motion Control (AMC) segment where orders tied to data-center applications surged. Total AMC segment orders were up more than 34% compared with the prior year, and even when data-center demand is removed, the remaining AMC orders still grew 28%. Overall, net sales for the unit were $457.1 million, up 15.3% from the year-earlier period. The company also said it expects orders to continue increasing. “We’re still very, very bullish,” the company’s CEO said in the quarterly conference call with analysts. “This is a market where we’re nicely positioned.” Strong Results Extend Beyond AI Data Centers The details are telling, as the data center buildout powers serious demand while the rest of the business is also strengthening, with aerospace, defense, and medical applications all contributing. The company’s industrial powertrain solutions saw net sales rise 5.8% to $648.2 million. Its power efficiency solutions operations, hurt by a weakness in residential HVAC sales, saw a decrease of 8.6% to $373.8 million. Management responded by raising its full-year 2026 sales growth expectation to about 4.5%, an increase of roughly 150 basis points from the prior outlook. Its adjusted diluted earnings per share guidance range of $10.20 to $11 for the year stayed level, compared with $9.65 for 2025. Wall Street Sees Limited Upside After Big Rally The stock's performance this year reflects how dramatically the market's perception of Regal Rexnord has shifted. Currently trading at about $212 per share, shares are up about 51% from $140.48 at the start of this year. The 10 analysts who follow the stock have a consensus rating of a Moderate Buy, though the 12-month price target they collectively predict is $237.80, just 310% higher than recent trading prices. With a quarterly dividend of just 35 cents and a dividend yield below 1%, the stock's potential for appreciation is the key driver. Seven of the analysts rate the stock a Buy, while three have tagged it a Hold. The highest price target is $265 per share, and the lowest is $160. Short interest is also something to watch. As of the middle of June, the company had a short interest of 3.35 million shares sold short, about 5% of the outstanding float. That’s more than twice the level from the middle of March. Margins and New Leadership Pose Risks The caution that is evident in some of these numbers is not unsupported. Regal Rexnord competes in markets where Rockwell Automation (NYSE: ROK), Eaton (NYSE: ETN), and Emerson Electric (NYSE: EMR) are also pursuing electrification and digital-infrastructure spending. And though the company has attractive specialties and technological advantages, industrial demand can soften quickly. Despite beating expectations with revenue and earnings, the company also spooked the market as its earnings report showed its margin on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) dropped to 20.6% from 21.8% in the year-earlier period. With tariffs and higher material costs, that margin could also be hit further. Leadership transition adds another variable. Earlier this year, the company announced it had appointed a new CEO. A new president of the company’s Industrial Powertrain Solutions has also been named. A New Industrial Growth Story Is Emerging Regal Rexnord is not an easy call. The surge in stock price followed by an influx of short sellers makes it clear there are two ways to view the company. For investors, it’s a genuinely interesting opportunity in the industrial sector. The company is not a traditional value stock, nor is it a dividend stock. It is a company that is possibly undergoing a real transformation from a legacy industrial company to an AI-boosted supplier. If the infrastructure buildout is just getting started, Regal Rexnord's position, assuming new management can execute, could be in the formative stages. A serious dip in the sector, though, could see its growth unfulfilled. Watch for margins and order flow when it reports its next quarter. Regardless of what happens, Regal Rexnord is no longer easy to ignore. READ THIS STORY ONLINE The 7-point checklist for smarter options trades (Ad) tc pixel The 7-point checklist for smarter options trades Ever been right about a stock's direction and still lost money on the trade? It's almost never bad luck - it's a checkpoint you skipped. The Smart Trade Options Checklist puts the 7 most important pre-trade checks on one page. Normally $29.97, it's free today. Run it in about 30 seconds before any options trade to catch the bad ones before they cost you. DOWNLOAD THE FREE 7-POINT OPTIONS CHECKLIST RIGHT HERE Why Microsoft Looks Like the Best Big Tech Trade for H2 2026 Written by Chris Markoch Microsoft headquarters sign outside modern office campus, reflecting stock pullback and valuation concerns in tech sector. The first half of 2026 is one that Microsoft Corporation (NASDAQ: MSFT) shareholders would just as soon forget. The stock is down approximately 20% as of July 1. As recently as June 24, MSFT hit a 52-week low of $349.20. It hasn’t all been downhill. But every time it looked like MSFT was getting ready to recover, something happened to knock it back. Nevertheless, both fundamental and technical signs, starting with a forward price-to-earnings (P/E) ratio of 22.9x, suggest that Microsoft is due for a reversal. That could make MSFT the best big tech trade for the second half of 2026. When a Strength Became a Weakness The size and scope of Microsoft’s business have worked against it as investors have found multiple reasons for concern. In late 2025, investors were concerned that a hyperscaler like Microsoft would pause or reverse course on its data center capital expenditures. Instead, the company doubled down on its spending and now plans to spend $190 billion in this calendar year. Of course, that turned into a concern that Microsoft and other hyperscalers are now spending too much money, which will either hit their free cash flow or show up on the balance sheet as debt—neither of which is positive for earnings growth. Then, the "SaaSpocalypse" hit. The concern was that the emergence of open-source models like Anthropic and OpenAI would reduce demand for Microsoft’s Copilot. However, in its most recent earnings report, the company noted that Copilot had over 20 million paid seats. One of the latest issues facing the company is the cost of memory. That acutely impacts Microsoft’s gaming division and popular Xbox. It also reminds investors of how interconnected all of these technology companies are, particularly as it relates to the artificial intelligence (AI) infrastructure trade. That’s a lot of noise for investors to drown out. But for those that can, there’s a strong case for growth in the second half of 2026. The Numbers Behind the Noise Let’s start with the fundamentals. Microsoft’s Q3 2026 earnings report undercut the bear case. Revenue grew 18% year-over-year to $82.9 billion, and diluted earnings per share (EPS) rose 23% to $4.27, beating estimates on both lines. The bull case went beyond the headline numbers: Microsoft Cloud revenue climbed 29% to $54.5 billion, with Azure growing 40% year-over-year, an acceleration from the prior quarter. Total AI annualized revenue run rate surpassed $37 billion, up 123% from a year ago. Operating income rose 20% to $38.4 billion. The company returned $10.2 billion to shareholders through dividends and buybacks. None of that sounds like a company in trouble, yet the stock kept sliding after the report. However, that disconnect between accelerating fundamentals and a falling share price is exactly what value-oriented traders look for. It suggests the market is pricing in a worst-case scenario that isn’t backed up by the numbers. MSFT Shows Signs of a Tepid Recovery The chart backs up the reversal thesis. MSFT fell from a 52-week high near $555 in October to the June 24 low of $349.20, a decline of roughly 37%. The RSI sits at roughly 47, climbing back from oversold territory below 30 in April. That April dip marked the stock's sharpest capitulation, followed by a rally above $460 in May before renewed selling pressure returned. Some of that selling pressure is due to a slowdown in institutional buying. To be clear, institutional buying outweighs selling by over 3:1. But it slowed down in the first two quarters of the year, which has given sellers the upper hand. That shows up in the Chaikin Money Flow (CMF) indicator. This quantifies money flowing into or out of a security over a set period, typically 20 or 21 trading days. The reading of -0.04 is essentially neutral after spending most of April through June in a downtrend. A shift into positive CMF readings would confirm institutional money is rotating back into the stock. Shares jumped 3% on July 1, closing at $384.28 on volume of 47.23 million shares, a sign of renewed interest after weeks of drifting lower. A close above the $400 level, which has capped rallies since March, would be the clearest signal yet that the reversal is underway. MSFT chart showing the stock with a ceiling and floor both dictated by the RSI. The Bear Case Still Deserves a Hearing No trade is without risk. Capital expenditures, including finance leases, hit $31.9 billion in the quarter, up 49% year-over-year, and free cash flow fell 22% to $15.8 billion as a result. If AI demand growth slows, that spending will make MSFT more of a margin story than it already may be. Plus, the rising memory prices may not be critical, but they are squeezing the More Personal Computing segment, where Xbox hardware revenue fell 33%. If costs remain elevated into the holidays, that pressure could spread further, despite the company’s recent layoff announcement aimed at addressing some of that inefficiency. Why the Setup Favors Patient Buyers Investors need to weigh the risks against the valuation. Through that lens, Microsoft still looks attractive. A forward P/E near 23x sits below the stock's five-year average and well under high-flying peers like NVIDIA (NASDAQ: NVDA) and Palantir (NASDAQ: PLTR), despite Microsoft posting some of the most durable growth in the group. For investors willing to look past near-term volatility, the combination of accelerating AI revenue, a 20-million-seat Copilot business, and a technical setup stabilizing after a brutal correction makes MSFT worth watching closely as the second half of 2026 gets underway. READ THIS STORY ONLINE The IPO was the distraction. What comes next is what moves the money. (Ad) tc pixel The IPO was the distraction. What comes next is what moves the money. Hedge fund legend Larry Benedict - who delivered a 279% return on cash in 2025 and went on a 20-year winning streak - says the SpaceX IPO wasn't the main event. It was the trigger. He's identified what he calls the 'Final Phase of Elon's Master Plan,' and one specific ticker he believes could see billions forced into it within days. It's not SpaceX, Tesla, or any company you'd associate with Elon Musk. Larry is revealing the ticker free today. WATCH LARRY BENEDICT'S PRESENTATION AND GET THE ONE TICKER NOW The Night Owl is a financial newsletter that provides in-depth market analysis on stocks of interest to individual investors. Published by MarketBeat and Early Bird Publishing, The Night Owl is delivered around 9:00 PM Eastern Sunday through Thursday. If you give a hoot about the market, The Night Owl is the newsletter for you. The Night Owl Newsletter. 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