As Yields Climb Higher Still, AI’s Profits Migrate to Software

Dear readers,

Yesterday we described 30-year Treasury yields tearing through 2007 highs and a Middle East standoff souring risk appetite. That pressure hasn’t relented: the long bond has now pushed to 5.33 percent, and German financing costs have followed with fresh multi-year highs of their own. But while the bond market keeps grinding higher and chip stocks whipsaw on the headlines, a quieter and arguably more consequential story is playing out in corporate earnings. Call it the second wave of the AI trade — and this time, the money isn’t landing in server farms. It’s landing on software balance sheets.

ServiceNow and the End of Per-Seat Pricing

As recently as the first quarter of 2026, hedge funds were pulling capital out of software names and piling into semiconductors. ServiceNow’s latest quarter explains why that rotation is now reversing. The IT services provider posted revenue of $3.77 billion, up 22 percent year-over-year and comfortably ahead of the $3.75 billion consensus, alongside non-GAAP earnings of $0.97 per share that matched estimates exactly. Shares are trading near $120 in European dealings on the back of it.

The headline beat isn’t really the story, though. What matters is the mechanism underneath it: AI agents are quietly displacing human workflows inside enterprises, and that is starting to break the old SaaS business model built on charging by the seat. Companies that have retooled their pricing around usage — rather than headcount — are unlocking margin that doesn’t depend on their customers ever hiring another employee. For investors, the screening question going forward isn’t “who has the best AI features,” but “who has already rebuilt their billing model to capture them.”

Hardware’s Nerves and a $28.6 Billion Buyback

If you want to see how jittery investors have gotten about pure infrastructure plays, look at memory chips. Micron and SanDisk shares have both come under renewed pressure, and SK Hynix’s response tells you how seriously the industry is taking it. The South Korean giant approved the repurchase and cancellation of 40 trillion won — roughly $28.6 billion — of its own stock, the largest treasury share cancellation in the history of Korean listed companies. It also lifted its shareholder return target for 2025-2027 to more than half of cumulative free cash flow.

Rating agencies have been moving in lockstep with SK Hynix’s improving balance sheet all year: S&P upgraded the company to BBB+ on February 5, Fitch matched that rating with a stable outlook on April 30, and Moody’s went further still, raising it to A3+ with a stable outlook on August 3. Meanwhile at Nvidia — trading around $220 — options markets are bracing for an 8 to 12 percent swing around next week’s earnings. The message for portfolios is straightforward: hardware companies now need enormous capital actions just to hold their valuations steady, while the actual margin expansion in AI is migrating toward the software layer.

Should investors sell immediately? Or is it worth buying Target?

Target Proves the Consumer Isn’t Dead

Away from tech, American retail delivered its own surprise. Target reported earnings of $4.11 per share against analyst estimates of $2.33 — a gap wide enough to raise eyebrows on its own. Some of that came from nearly $1 billion in tariff refunds, but the underlying business was genuinely strong too: revenue climbed 5.3 percent to $26.54 billion, with customer traffic rising alongside it. Management raised full-year guidance to a range of $9.90 to $10.90 per share, and the stock jumped to around $154 in afternoon European trading in response.

Paired with solid results from Home Depot, the read here is simple: the American consumer, repeatedly declared exhausted this year, keeps showing up. In a market unsettled by rates and tech volatility, defensive retail names are functioning as exactly the anchor investors have been looking for.

Crypto’s Quiet Pivot Toward AI Infrastructure

Bitcoin is holding near $64,500, a level that has proven remarkably stable even as everything around it moves. But the more interesting development in crypto isn’t the price — it’s the growing overlap between blockchain rails and AI agents. Industry participants increasingly expect autonomous AI systems to begin transacting directly on-chain as more traditional assets get tokenized, a shift that could multiply blockchain transaction volume anywhere from 10 to 100 times current levels. That’s pushing sophisticated crypto investors to look past Bitcoin as a pure store of value and toward the infrastructure protocols built to handle machine-to-machine transaction flow at that scale.

The Takeaway

Nvidia’s earnings next week will be the real test of whether hardware can still justify its premium, but the software results already in hand suggest the market doesn’t need to wait for the answer. ServiceNow’s pricing transition, Target’s operational beat, and even crypto’s slow pivot toward AI-native infrastructure all point the same direction: the monetization of artificial intelligence has moved well past the chip layer and into the businesses that put it to work. For portfolios still weighted toward pure infrastructure plays, this is the moment to ask whether that exposure is still where the next leg of margin growth actually lives.

Best regards,
The StocksToday.com Editorial