Buckle on up: Alphabet, Amazon, Microsoft and Meta all report earnings on Wednesday — that’s about 19% of the S&P 500 by market cap — are all reporting after the closing bell, just a couple of hours after what is expected to be Powell’s swan song of a press conference announcing the Fed is holding rates steady yet again. Just 24 hours later, Apple also reports earnings.
Of course, we don’t have a crystal ball to know what’s in those reports or how investors will react to them. But here is some important context: Wall Street’s AI fever appears to be back (if it ever went away, and we’ll get to that in a minute), and that makes these particular tech earnings much less about money coming in than money going out.
Investors will be laser-focused on capital expenditures, aka how many dump trucks full of money the companies are committing to their AI buildouts. The “Magnificient 7” stocks that have been propping up the broader market — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla — are expected to raise their combined capex by 30% from last year to at least $680 billion in 2026.
“If they say, 'we're going to continue spending at the pace we’ve been spending, or a faster pace,' that sort of vindicates the the crazy move we've just had in the SOX index,” Steve Sosnick, chief strategist at Interactive Brokers, told me.
ICYMI: There’s a gauge called the Philadelphia Semiconductor Index, or SOX, that tracks the 30 largest US-traded semiconductor companies (like Nvidia, Advanced Micro Devices, Qualcomm, etc). That index has been on a tear, shooting up 45% in just four weeks. Why? Eh, why not.
Strong earnings and positive forward guidance from a few key players helped, but “no new fundamental or technological development justified re-rating the group nearly 50% higher in the span of a month,” Mike O’Rourke, chief market strategist at JonesTrading, said in a note Sunday.
“We talk about bubble valuations and the market's pricing mechanism being broken — behavior like this clearly reinforces that thinking.”
Marketplace's analysis of the day's trading made the same "less about money coming in than money going out" point.
The AI landscape is only able to maintain its shape through a constant infusion of cash through endless funding rounds, mountains of debt, and, most importantly, spigots of money from some of the biggest and most profitable companies in the world, such as Microsoft and Alphabet/Google.
If investors truly believed that things were about to turn around and this bottomless money pit was about to become a gusher (sometimes when you get on a metaphor kick, you just can't stop yourself), they shouldn't be that excited one way or the other about whether or not Microsoft et al. keep the air pumps running. Instead, the mentality seems to be: how long do we have until the music stops?
As with so many things, it sounds better when Jeremy Irons says it.
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