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Good morning and happy Friday.
The workplace hasn’t been this stable since The Beatles were in the studio. The number of Americans who applied for jobless benefits fell to the lowest level in 57 years last week, according to Labor Department data released Thursday. The 187,000 applications received in the week ending July 18 were 22,000 less than those submitted in the previous seven-day period. The total was also well below the 215,000 consensus estimate from analysts surveyed by FactSet, signaling the labor market has stood up to the pressure of $4 gas, 3.5% inflation and $35 IMAX tickets for The Odyssey.
While job creation has been modest in recent months, the historically slow pace of layoffs and decreasing labor force participation have kept unemployment lower. Plus, employers still need their staff to make up for all the hours they spent in the last month secretly watching World Cup games in an incognito browser at their cubicle.
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Blackstone knows what the characters on The Walking Dead took a couple of seasons to learn: In a zombie apocalypse, you should always have an exit plan.
The investment giant announced blowout earnings on Thursday, driven in part by a healthy rate of private equity exits and realizations. That makes it the envy of the private equity industry, which is contending with a record number of unsellable “zombie funds” that have lived on far past their intended lifespan, per an analysis in The Wall Street Journal.
Lifespan-Maxxing
Blackstone’s secret? Selling the one thing that’s hot: AI infrastructure. In particular, offloading a trio of data center assets last month to Digital Realty Trust for $3.5 billion, enough to drive its real estate division’s highest revenue in four years. The firm netted $31 billion in realizations in the quarter, and $144 billion in the past 12 months. “Our outstanding results are proof of our early, strategic decision to lean into AI, its infrastructure and compute shortage,” President Jonathan Gray said Thursday. Paired with appreciation of other AI investments, the exits helped boost distributable earnings 26% year-over-year to $1.98 billion, or $1.52 per share, blowing past analysts’ expectations of $1.35 per share.
It’s a stark contrast with the stagnation elsewhere in the private equity universe. Frenzied dealmaking in the ultra-low-interest-rate past and overly optimistic valuations are coming back to bite, with buyers now reluctant to pay high prices and, worse, high interest rates. It’s creating a historic bulk of unsellable assets and aging portfolios:
- The industry held an estimated $3.9 trillion of unsold portfolio companies as of last year, according to Preqin data seen by the WSJ, meaning some three-quarters of all North American private equity assets on balance sheets were locked up. The net value of assets stuck in funds at least a decade old is now at a record $348 billion, 100 times as high as the amount in 2005.
- That’s led to funds existing past their intended lifespan, hence the “zombie fund” label. A June survey from Coller Capital found that 54% of firms expect the number of such funds in their portfolios to increase in the next two years.
  Is This The Real World? Gray acknowledged one of the reasons for the industry’s struggle: Nobody wants to buy businesses offering software, information or professional services right now. But he also maintained there’s potential for exits outside of the AI world. “If you’re a medical-supply business, if you’re a fast-food chain, people want to own those kinds of businesses … So there is interest in the real world away from the AI trade,” Gray said. Unlike SaaS, french fries never go out of style.
Written by Brian Boyle
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Photo via Polymarket
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Each morning, hundreds of thousands of traders gather on Polymarket. They’re not scoring political points or likes.
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Join 1,631,376 readers who get their news on Polymarket.
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It was starting to look as if a kamikaze drone had blown up what some were calling a defense sector bubble. Heading into yesterday, shares in US defense contractors RTX and Lockheed Martin had fallen 3.8% and 22%, respectively, since the Iran war began on February 28. Investors fretted that defense spending could be nearing its peak, with the Trump administration’s latest Pentagon budget request marking the biggest ask since the nation held “fireside chats” with FDR.
After RTX and Lockheed reported Thursday, the fretting turned to buying as both firms revealed how today’s geopolitical environment could pay dividends for years.
‘Where is Your Upside?’
The Trump administration has asked for a 44% increase in military spending in 2027, bringing the Pentagon budget near $1.5 trillion. The Center for Strategic and International Studies estimates that would be “the highest level of funding in a single fiscal year since World War II.” On top of that, NATO members agreed last year to a massive rearmament plan requiring member states to raise defense spending to 5% of GDP by 2035.
“Where is your upside to a +50% annual DoD budget request, with an unexpected military conflict on top?” Vertical Research Partners analysts wrote in April. On cue, both companies delivered a stellar second quarter. Lockheed Martin sales rose 11% year over year to $20 billion, and the company hiked its full-year revenue forecast to as much as $81.75 billion; shares rose 11%. RTX sales jumped 14% to $24.7 billion, and the company boosted its revenue forecast to as much as $96 billion. Shares gained 7.4%.
The two firms also showed that this is no blip, with demand so strong it’s creating years’ worth of backlog:
- The combined backlog at both companies is now more than half a trillion dollars. Lockheed’s rose to a record $230 billion, up from $186 billion at the end of the first quarter, while RTX’s hit a record $289 billion, up from $271 billion.
- Demand for military equipment and technology far exceeds the industry’s production capacity: RTX’s backlog, for example, is more than three times its $88.6 billion in sales last year.
Patriot Games: If Trump’s Republican Party loses control of the next Congress, Pentagon spending plans will likely face greater scrutiny. But when it comes to missiles and ammunition, which Lockheed executives highlighted as one of the company’s main sources of growth, there’s bipartisan support for procurement and especially high demand for interceptors to counter drone attacks.
Written by Sean Craig
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Photo via Cytonics
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Final days to invest. Stanford-trained orthopedic surgeon Dr. Gaetano Scuderi discovered the therapeutic potential of a naturally occurring blood protein to treat osteoarthritis. He started Cytonics to translate this discovery to a $560B market. For a few more days, you can join 7,500 others who have invested in Cytonics.*
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A deal permitting Saudi Arabia to use American technology to launch a civil nuclear program is looking suddenly unstable, jeopardizing billions of dollars that might otherwise flow to US industrial giants.
Cool Heads, Cooler Isotopes
At issue is a late-breaking demand from the US that Saudi Arabia join the Abraham Accords as a step to normalize relations with Israel, though questions remain over safeguards and guarantees to prevent the country from reprocessing nuclear material into weapons.
If the 30-year agreement, the product of years of negotiating and multiple US presidential administrations, holds, it could give US nuclear giants a shot at decades of high-margin sales:
- Most likely to benefit is Westinghouse, whose AP1000 nuclear reactor, capable of powering small cities and/or massive data centers, is at the center of the deal.
- Also likely to benefit are Bechtel, Centrus and BWX Technologies, which would each be approved to sell nuclear equipment to the Middle Eastern country. The VanEck Uranium and Nuclear ETF has risen roughly 6% in the past five trading sessions as news trickled out that a deal might be imminent, despite losing momentum on Thursday after the White House imposed a new condition on the agreement.
If negotiators from both sides ultimately reach consensus, Congress will still have a chance to review the pact, though blocking it would require an unlikely veto-proof majority.
Both Foreign and Domestic: The potential deal is far from the US government’s only move to bolster the country’s domestic nuclear industry. Last month, the Department of Energy announced it would offer $17.5 billion of low-interest loans to utilities looking to finance orders of the Westinghouse AP1000. That’s enough money to help build 10 reactors.
Written by Brian Boyle
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- Stream Dream: Amazon Executive Chairman Jeff Bezos is pressing for an overhaul of the company’s Prime Video streaming service that would prominently showcase artificial intelligence.
- Road Trip to Spain: Chinese carmaker Geely will build electric vehicles at Ford’s plant in Valencia, Spain, as part of a joint venture in which the two are developing a new model together.
- 3.5 Million Americans Just Fired Their Boss. Or rather, filed to become their own boss. New business formations hit a record high in H1, up 14% from last year. At this pace, Main Street is headed for a banner year. See which states are booming in the latest formation report by Registered Agents Inc.**
**Partner
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Disclaimer
*This is a paid advertisement for Cytonics Regulation CF offering. Please read the offering circular at https://cytonics.com/.
Forward-looking statements are subject to risks and uncertainties. There is no guarantee of performance. Past performance does not predict future results. All investments involve risk, including loss of principal.
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