After a jam-packed week of earnings reports from megacap technology companies, one thing is clear: As profits slow, investors are not impressed by artificial intelligence (AI) promises anymore. They want to see results.
With six companies inside a group known as the “Magnificent Seven” already having reported, year-on-year earnings growth has slowed to nearly 30 percent in the second quarter, down from 50 percent in the previous period.
Analysts said they expect that rate to decelerate further, to about 17 percent for those companies in the third quarter.
Photo: Bloomberg
Results from Microsoft Corp, Meta Platforms Inc, Amazon.com Inc and Apple Inc last week signaled that the biggest companies in the world are still heavily investing in AI.
However, shares of Microsoft and Amazon slid after their reports because of fears that those AI investments are not paying off for them — at least not yet — echoing the slip in Alphabet Inc’s stock a week earlier.
“Investors are entering a ‘show me’ phase, seeking concrete evidence of AI’s impact on revenue and productivity,” 50 Park Investments founder and CEO Adam Sarhan said. “This is causing some skepticism and volatility.”
Tesla Inc’s July 24 report also disappointed investors, while Nvidia Corp is due to release results later this month. The latest prints and commentary this week added to existing volatility.
Investors had already been shifting from large, trusted stocks into smaller, riskier parts of the market to lessen exposure to Big Tech.
The earnings results, combined with the US Federal Reserve signaling that a September rate cut might be on the table and a weaker-than-expected jobs report sent the NASDAQ 100 Index spiraling.
On Friday, the tech-heavy index closed down 11 percent from its peak last month, entering a correction. Investors fled AI stocks and bid up bonds, sending US Treasury yields lower.
The bond market is “telling us we’re going to have to bring this sucker down real fast, and that’s kind of worrying everybody,” Bokeh Capital Partners LLC chief investment officer Kim Forrest said. “Lower interest rates work for equities, except when it’s being done in a hurry because things are bad.”
Amazon’s results, alongside reports from consumer names such as McDonald’s Corp and Starbucks Corp signaled a weakening US consumer, adding to concerns about a weaker macroeconomic backdrop, she said.
Investors were already concerned about hype versus reality in the tech sector, which contributed to sharp reactions when major companies underperformed, NFJ Investment Group LLC managing director Burns McKinney said.
“Some of the earnings results that have come in over the last couple of weeks have reminded investors that there’s a lot of really high expectations baked into these valuations,” he said.
There were some bright spots last week that signaled the AI trade is not completely dead.
Investors cheered Meta’s results, including comments from chief executive officer Mark Zuckerberg that signaled investments in AI helped drive targeted ad sales. Advanced Micro Devices Inc spurred a rally in chip stocks on Wednesday last week after it gave a rosy revenue forecast.
“Essentially what companies are saying is that they have to do this and if they don’t, they could risk being irrelevant in the future,” Deepwater Asset Management LLC managing partner Gene Munster said of the increased capital expenditures on AI.
The sharp market reaction does not necessarily mean the AI trade is over, Sarhan said.
“Instead, it suggests a recalibration of expectations,” he said. “We’re seeing a shift from pure hype to a demand for tangible results.”
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his
ADVERSARIES: The new list includes 11 entities in China and one in Taiwan, which is a local branch of Chinese cloud computing firm Inspur Group The US added dozens of entities to a trade blacklist on Tuesday, the US Department of Commerce said, in part to disrupt Beijing’s artificial intelligence (AI) and advanced computing capabilities. The action affects 80 entities from countries including China, the United Arab Emirates and Iran, with the commerce department citing their “activities contrary to US national security and foreign policy.” Those added to the “entity list” are restricted from obtaining US items and technologies without government authorization. “We will not allow adversaries to exploit American technology to bolster their own militaries and threaten American lives,” US Secretary of Commerce Howard Lutnick said. The entities
Minister of Finance Chuang Tsui-yun (莊翠雲) yesterday told lawmakers that she “would not speculate,” but a “response plan” has been prepared in case Taiwan is targeted by US President Donald Trump’s reciprocal tariffs, which are to be announced on Wednesday next week. The Trump administration, including US Secretary of the Treasury Scott Bessent, has said that much of the proposed reciprocal tariffs would focus on the 15 countries that have the highest trade surpluses with the US. Bessent has referred to those countries as the “dirty 15,” but has not named them. Last year, Taiwan’s US$73.9 billion trade surplus with the US
Prices of gasoline and diesel products at domestic gas stations are to fall NT$0.2 and NT$0.1 per liter respectively this week, even though international crude oil prices rose last week, CPC Corp, Taiwan (台灣中油) and Formosa Petrochemical Corp (台塑石化) said yesterday. International crude oil prices continued rising last week, as the US Energy Information Administration reported a larger-than-expected drop in US commercial crude oil inventories, CPC said in a statement. Based on the company’s floating oil price formula, the cost of crude oil rose 2.38 percent last week from a week earlier, it said. News that US President Donald Trump plans a “secondary
RSS