Weekly Buzz: Big bills and big earnings from Big Tech

Four of the largest US tech companies – Microsoft, Meta, Amazon and Apple – reported their earnings last week. For much of the year, the market worried that spending on AI has been running ahead of returns; these results gave investors a clearer read.

What’s going on here?

Microsoft made the strongest case for its infrastructure spending. Its cloud business grew 43% and passed $100 billion USD in annual revenue. The company also held its spending plans steady at around $175 billion USD for the year. Shares rose more than 15%, adding around $480 billion USD, the largest one-day gain any company has recorded.

Meta faced more scrutiny. Revenue grew 28% to $60.8 billion USD, but almost all the cash the business generated went into capital spending, leaving free cash flow at $784 million USD against $8.6 billion USD a year earlier. The company also raised the floor of its spending plans for the year, to between $130 billion USD and $145 billion USD.

Amazon, meanwhile, lifted its capital budget for the year to $220 billion USD, and shares still rose as its cloud service grew 37%, its fastest pace in more than four years. Apple, which spends comparatively little on AI, has been the group's best performer this year, but its shares slipped after slower growth in its services business.

What’s the takeaway?

Investors have shifted from asking how much these companies are spending on AI to asking what it earns. Microsoft was down about 19% this year on doubts about its spending, before the last quarter turned things around. For long-term investors, owning the theme across companies, rather than trying to pick which one clears the bar next quarter, is the more dependable way to benefit from future growth.

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In Other News: This US jobs report has a lot riding on it

The US monthly jobs report lands this Friday, and it carries more weight than usual. Hiring in the world's largest economy slowed to 57,000 in June, about half what economists expected, and the previous two months were revised down by a combined 74,000.

Americans have also been stepping away from work, with the share of people employed or looking for a job falling to its lowest since March 2021. Early signs from Tuesday's job openings data point to a steadier picture: vacancies eased to 7.36 million in June, but were in line with expectations. All in all, economists expect around 100,000 jobs added in July, with unemployment holding at 4.2%.

A cooling jobs market should give the Federal Reserve (the Fed) room to cut interest rates, but US inflation is still well above the Fed's 2% target, at 3.5% in June. The central bank held rates at 3.5% to 3.75% last week for a fifth straight meeting, but that decision wasn't a comfortable one: three officials broke ranks and voted to raise rates instead.

So Friday's numbers will be something to chew on. Too strong, and the case for higher rates gets louder. Too weak, and the economy looks to be stalling just as the Fed weighs further tightening. Either way, the direction for US rates will set the tone for global markets.

Past performance is not an indicator of future returns. These articles were written in collaboration with Finimize.

過往表現並非未來回報的指標。本文與 Finimize 合作撰寫。