A bumper week of quarterly updates from some of the US technology giants produced a mixed picture, with companies such as Apple showing that the AI rocketship might be starting to sputter.
Apple's shares fell more than 7% in pre-market moves after it warned that a global shortage of memory chips would hit sales and profit in the current quarter, even as iPhone sales rose nearly 22% in the three months to June. Amazon moved the other way, with its shares rising after growth in its cloud computing arm, AWS, hit its fastest pace in 18 quarters.
Investors seem to have grown less willing to reward technology firms simply for spending heavily on AI and focused more on whether that spending is starting to pay off.
Apple
Apple's iPhone strength came despite the company largely sitting out the artificial intelligence spending race that has consumed its rivals. That decision now looks shrewd to some investors, according to Jane Hepburne Scott, investment manager at Aegon Asset Management.
She said the swing in sentiment reflects a shift in how investors judge AI winners, from the firms building the infrastructure to those with the customer relationships to make money from it. Apple's edge, she said, “rests on the company's ability to monetise an installed base of more than 2.5 billion active devices and one of the world's most valuable consumer ecosystems".
The results also confirmed the succession long flagged in the market: chief executive Tim Cook will hand over to hardware chief John Ternus in September and become executive chairman.
Russ Mould, investment director at AJ Bell, said this was not the way Cook would have wanted to sign off, given the scale of the cost pressures now facing the business. But he said Apple's decision to stay out of the AI arms race, once seen as a weakness, “might prove to be a smart and calculated move rather than something which would see the business left behind”.
Amazon
Amazon's cloud business was the standout of its results. Margins improved, its own custom AI chips gained traction, and advertising and e-commerce sales were both strong. Mould said the stronger cloud margins pointed to “a tangible reward from Amazon's heavy AI spending”, adding that investors were willing to look past further increases in capital spending and negative free cashflow because of it.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, went further, saying Amazon had delivered “its clearest evidence yet” that heavy AI investment can pay off, pointing to accelerating growth at AWS, strong margins and a broad base of customer commitments underpinning the new capacity.
At the time of writing, shares had jumped more than 12% in pre-market moves.
Microsoft
Microsoft's shares jumped 15.5% on Thursday following results released after the market close the day before. Its cloud division, Azure, beat expectations and management stuck to its spending plans for the year.
Britzman said the results “eased fears on both sides of its AI dilemma”, calming concern that spending was running ahead of demand while showing progress in defending its software business from AI-driven disruption.
He pointed to a jump in paid subscriptions to Microsoft's Copilot assistant as the most overlooked part of the update, calling it evidence of “a valuable flywheel” strengthening the company's core products.
Meta
Meta's results looked weaker on the surface, with profit falling short of expectations after the company booked charges linked to legal proceedings and job cuts. Its shares fell in response, down 8% on Thursday.
Britzman said “the devil is in the details”: advertising demand stayed healthy, AI continued to improve how Meta makes money from its apps, and the spending guidance was “slightly more reassuring than some might have feared”.
Still, he said, Meta has yet to prove to shareholders that its AI spending can generate revenue beyond the advertising business already benefiting from it.
Other tech and AI-related names
Not every AI-linked earnings report has landed well. South Korean chipmaker SK Hynix reported revenue below expectations this week, triggering a sharp fall in Korean equities that spread through the wider semiconductor sector.
The reaction came as rising bond yields and oil prices have made investors more sensitive to how AI investment is being funded and quicker to punish any company that falls short of very high expectations.
Attention now turns to SpaceX, which reports second-quarter results on 4 August, its first as a listed company since acquiring Elon Musk's AI venture, xAI, in February.
According to AJ Bell, investors will get their first look at how profitable that business is and how much cash it needs, alongside a decision on releasing up to a fifth of employee-held shares that could sharply increase the number of shares available to trade.
Analysts currently expect SpaceX to report a loss for the quarter, meaning the focus will fall less on the numbers themselves and more on how much cash the business still needs to keep growing.
Semiconductor giant Nvidia is also due to release its second-quarter earnings later in August.