AI Dominates, Big Tech Impresses, and Earnings Flood In

Markets Regain Confidence

Over 150 companies reported earnings this week, and despite a shaky start to the season, markets have recovered strongly. The major indexes are now up double digits for the year.

Early in the week, optimism about a potential trade deal between the United States and China pushed markets to record highs. However, the final agreement turned out to be just a one-year truce.

On Wednesday, the Federal Reserve cut interest rates by 25 basis points for the second time this year. Chairman Jerome Powell hinted that another cut may not come soon, which disappointed investors briefly.

Even with that, stocks kept rising. Nvidia hit a market cap of 5 trillion dollars, while Apple and Microsoft both crossed 4 trillion. For comparison, the largest company in Europe is still below 500 billion. The gap between the U.S. and Europe keeps growing.

The AI Story Keeps Getting Bigger

If anyone still thinks the AI boom is slowing, this week proved otherwise.

Oracle, AMD, and PayPal all announced new partnerships with ChatGPT, and their stocks jumped on the news. Nvidia revealed a one billion dollar investment in Nokia to develop 6G networks powered by Nvidia chips, which sent Nokia shares higher

Qualcomm also signed a chip supply deal with Humane, a Saudi AI startup building data centers. However, Humane already has larger deals with Nvidia and AMD, so the actual upside for Qualcomm may be limited.

Meanwhile, Amazon said it will lay off 14,000 corporate workers as it invests more heavily in AI. The job impact of automation is starting to show.

Big Tech Earnings Impress

The big three — Meta, Google, and Microsoft — all beat expectations on both revenue and earnings. But the market reactions were mixed. Google’s stock rose around 7 percent after hours, Microsoft fell about 4 percent, and Meta dropped 7 percent.

Google plans to spend over 90 billion dollars in 2025, Microsoft around 80 billion, and Meta roughly 70 billion. The key difference is that Google and Microsoft are already earning revenue from AI-related cloud services, while Meta’s spending is focused on developing new products.

Meta’s cash reserves have fallen from 77.8 billion at the end of 2024 to 44.4 billion now. Google and Microsoft, on the other hand, have both increased their cash holdings. Investors seem to believe that Google and Microsoft can handle the heavy AI investment more comfortably than Meta.

Amazon and Apple Deliver Strong Results

Amazon posted excellent numbers, with earnings per share of 1.97 dollars compared to 1.57 estimated. Both AWS and advertising revenue beat expectations, sending the stock up more than 10 percent after hours.

Apple also beat estimates, reporting earnings per share of 1.85 dollars versus 1.77 expected. iPhone sales missed slightly, but services revenue came in higher. The company expects double-digit iPhone sales growth next quarter, which would be the strongest in its history.

Apple still lacks a clear AI strategy, but its stock has recovered sharply and is now up 11 percent for the year.

Mixed Results Across Other Sectors

Homebuilders: D.R. Horton reported weak results with revenue down 3 percent year-over-year and earnings per share down 22 percent. Higher incentives to attract buyers are hurting margins.

Healthcare: UnitedHealth’s revenue was up 12 percent, but margins dropped sharply from 5.6 percent to 2.1 percent. Its Optum Health division saw profits collapse as government reimbursement issues persist.

Payments: Visa showed that consumers are still spending, with revenue up 12 percent and payment volume up 9 percent. But Fiserv reported terrible results, missed every target, replaced management, and cut its long-term outlook. The stock fell more than 40 percent in a day and is down over 60 percent for the year.

Solar: Enphase reported 410 million dollars in revenue, its best in two years, but management warned of a sharp decline next year as federal tax incentives phase out. The stock fell 11 percent and has lost most of its value since 2022.

Telecom: AT&T and T-Mobile delivered solid reports, while Verizon lagged behind. Investors worry Verizon may lower prices to stop losing market share.

Restaurants: Chipotle reported weak revenue and lowered its growth outlook again. Customer visits are down across all income levels, and the company will not raise prices to offset inflation. Shares dropped 15 percent and are down 45 percent this year.

Starbucks showed small same-store sales growth for the first time in two years, but earnings missed slightly. The stock was up modestly but remains down 8 percent this year.

Pharma: Eli Lilly continues to dominate the weight-loss drug market. Earnings came in at 7.20 dollars per share versus 5.69 expected, and revenue hit 17.6 billion dollars. The stock moved higher after the report.

Autos: Carvana, once written off by many investors, has staged a massive comeback from 3.50 dollars in 2022 to over 400 dollars this year. But this week, the company missed earnings and reported pressure on margins, causing the stock to fall 10 percent.

Final Thoughts

The U.S. stock market continues to show remarkable strength, fueled by big tech, consumer spending, and enthusiasm around AI. Still, challenges remain in housing, healthcare, and payments, and the impact of AI on jobs is just beginning to unfold.

Next week, we’ll feature an interview with the management of a cannabis company, a sector that could see renewed attention after recent positive comments from political leaders.