Tech Giants Ride an AI-Fueled Earnings Wave
Major technology companies delivered blockbuster results powered by artificial intelligence, lifting stock indexes to fresh highs. Google parent Alphabet set an optimistic tone with a better-than-expected profit and surging cloud revenues in Q2, driven by heavy investment in AI. The company announced it would boost 2025 capital expenditures by $10 billion (to $85 billion) primarily for AI chips and data centers, underscoring how “AI spending is climbing, but so are the returns” reuters.com latimes.com. Alphabet’s stock jumped over 3% at one point and closed up about 1% Thursday after earnings, fueling optimism across the AI sector ts2.tech latimes.com. “Google came back fighting this quarter,” lauded Bernstein analyst Mark Shmulik, noting investors had been clamoring for a more aggressive AI push reuters.com. At least 27 Wall Street firms hiked their price targets for Alphabet after the results, reflecting confidence that its AI investments will drive future growth despite the higher spending reuters.com ts2.tech. However, some cautioned that questions remain – “until there’s more confidence AI integration won’t cannibalise core search revenue… there’s enough uncertainty to cap near-term upside,” one analyst warned reuters.com.
Alphabet’s strong report bodes well for its cloud rivals. Microsoft and Amazon – both reporting earnings next week – saw their shares climb ~1% in sympathy ts2.tech ts2.tech. Investors expect booming demand for cloud AI services to bolster these companies’ results as well. Microsoft’s earlier earnings call highlighted that Azure’s AI services contributed significantly to growth, and Amazon’s AWS is seeing similar AI-driven tailwinds ts2.tech. “AI is positively impacting every part of the business,” Alphabet CEO Sundar Pichai said on the company’s call, as new AI features drive user engagement across Google’s products ts2.tech. Likewise, Meta’s ad sales and Microsoft’s and Amazon’s cloud units are anticipated to benefit from the AI boom, reinforcing the notion that businesses leveraging AI are “raking it in” this earnings season reuters.com reuters.com.
Not every tech name rode the AI wave, however. Tesla – which has tried to brand itself as both an EV and AI company – shocked markets with an 8.2% plunge after Elon Musk warned of “a few rough quarters” ahead for the auto business latimes.com ts2.tech. The EV maker’s margins and sales disappointed, reminding investors that even inclusion among the “Magnificent Seven” tech giants doesn’t guarantee immunity. Tesla’s slump “kept the market in check” on Thursday, limiting broader index gains even as Alphabet and others climbed ts2.tech. Old-guard tech firm IBM likewise revealed a mixed picture: it reported a 25% jump in its “AI book of business” to $7.5 billion, as clients snapped up new AI-powered mainframe systems ts2.tech ts2.tech. But IBM’s large software segment underperformed, and after a ~30% stock run-up this year, even a slight miss spooked investors. “You’re seeing the stock pull back, because there’s just not a lot of room to miss,” explained Dan Morgan of Synovus Trust, noting the results confirmed that “software is not growing at the pace the Street was expecting” ts2.tech. IBM shares tumbled 7% on the week, showing that AI optimism alone can’t prop up a stock if other core segments disappoint ts2.tech.
Chipmakers Soar as AI Demand Skyrockets
Semiconductor stocks – the backbone of AI computing – extended their torrid run. Nvidia (NVDA), the GPU powerhouse at the heart of the AI boom, climbed another ~1.7% Thursday, pushing the Nasdaq Composite to a record high latimes.com. Nvidia’s stock has roughly doubled in 2025, and the company recently became the world’s most valuable chipmaker – surpassing a $4 trillion market cap reuters.com. Its shares hit an all-time high around $174 this week, giving Nvidia an eye-popping $4.23 trillion valuation as investors “view Nvidia as a prime beneficiary of the AI spending boom” ts2.tech techi.com. Analysts attribute Nvidia’s premium (near 50× earnings) to its dominant role supplying the GPUs for everything from ChatGPT to self-driving cars techi.com. “Most people think the fundamentals support the premium, considering its disproportionate role in AI,” TECH<span style=”font-variant: small-caps”>i</span> noted, even as some warn the stock is overbought techi.com. So far the AI euphoria shows no sign of cooling – Nvidia’s 86% revenue surge and 70% margins speak to its ability to convert AI leadership into profits techi.com techi.com.
The race for the “next Nvidia” is fully on. Rival Advanced Micro Devices (AMD) has emerged as a credible challenger in AI chips, and its stock has been on a tear. AMD shares have soared almost 80% in the past three months and nearly 2.7% on Friday alone, buoyed by optimism around its upcoming MI300 series accelerators fool.com. Analysts are growing bullish: HSBC recently upgraded AMD to “Buy” with a $200 target, citing strong demand for its new MI300X and MI350 chips and the company’s $5 billion AI revenue goal for 2025 economictimes.indiatimes.com. Big-name customers are jumping on board – “Meta, Microsoft, and OpenAI are adopting AMD’s latest AI GPUs,” the Economic Times noted, “fueling growth in its AI business” economictimes.indiatimes.com. Confirmation of large orders for AMD’s MI300X/Mi350 from those tech giants sent AMD’s stock higher this week stockevents.app. Investors now believe AMD is well-positioned to challenge Nvidia’s dominance in data center AI, as its forthcoming MI350 chips reportedly offer competitive performance at lower cost economictimes.indiatimes.com.
Even Intel (INTC), long seen as lagging in the AI race, grabbed headlines with sweeping moves to reorient toward AI. Late Thursday, new CEO Lip-Bu Tan unveiled a bold restructuring: 15% headcount cuts (to ~75,000 employees) and a pause on expensive new fabs, aiming to free up resources for AI and regain lost ground ts2.tech ts2.tech. Intel has “virtually no foothold in the booming AI chip industry” today, Tan admitted, and told staff there will be “no more blank checks” for moonshot projects ts2.tech. “Every investment must make economic sense. We will build what our customers need, when they need it,” he wrote in a memo emphasizing a new era of cost discipline ts2.tech. Intel did beat Q2 sales estimates ($12.9 B vs $11.9 B expected), but it forecast a larger Q3 loss than anticipated as it spends to reposition for AI ts2.tech. Initially Intel’s stock rose on the revenue beat, then fell 5% after hours once the deeper loss outlook sank in ts2.tech ts2.tech. Some analysts applauded Tan’s tough-love approach – “this is the painted picture of a new fiscally disciplined base…that’s the right approach,” said Ben Bajarin of Creative Strategies ts2.tech. Still, it’s a humbling moment for the once-dominant Silicon Valley icon. Intel, a company that “helped launch Silicon Valley,” is now retrenching while demand for AI chips soars and rivals sprint ahead ts2.tech. The hope is that painful cuts and focus will eventually restore Intel’s competitiveness in AI hardware.
Meta’s Big AI Bet and the Talent Arms Race
Meta Platforms (META) made waves of its own in the AI arena – not with earnings (its results come next week), but by poaching top talent. CEO Mark Zuckerberg announced that Shengjia Zhao – a co-creator of ChatGPT and GPT-4 – has joined Meta as chief scientist of its new “Superintelligence” AI lab reuters.com. “In this role, Shengjia will set the research agenda and scientific direction for our new lab working directly with me and Alex,” Zuckerberg wrote on Threads, referring to Meta’s Chief AI Officer Alexandr Wang (whom Meta hired after taking a big stake in his startup Scale AI) reuters.com. Zhao is one of several prominent researchers to defect from OpenAI to Meta in recent weeks, highlighting a fierce talent war in AI. Meta has been offering some of Silicon Valley’s most lucrative pay packages and striking deals with startups to lure top AI experts, a strategy born out of urgency after the underwhelming reception of its LLaMA 4 model reuters.com. This aggressive recruitment “arms race” aims to close the gap in advanced AI: Meta recently consolidated its efforts into the new Superintelligence Lab to accelerate development of artificial general intelligence (AGI) systems, separate from its main AI research division (FAIR) reuters.com. Zhao, now a co-founder of the lab, will help Meta push toward Zuckerberg’s ambitious goal of achieving “full general intelligence” and open-sourcing the results – a bold stance that has drawn both praise and concern in the AI community reuters.com.
Beyond hiring talent, Big Tech is investing deeply in the broader AI ecosystem. Chipmakers and cloud firms are plowing capital into startups and partnerships to secure an edge. Notably, Nvidia and AMD themselves joined a $2 billion funding round this month for Thinking Machines Lab, the new AI venture started by former OpenAI CTO Mira Murati – valuing the barely year-old startup at a staggering $12 billion techcrunch.com techcrunch.com. The deal, one of the largest seed rounds in Silicon Valley history, underscores massive investor appetite to back “the next OpenAI.” Murati has hinted her stealth startup will unveil a “significant open source” AI product in the coming months, aimed at helping others build custom models techcrunch.com. Meanwhile, Meta has been cutting venture checks too – taking a stake in Scale AI (Alexandr Wang’s data platform) as part of a partnership, and reportedly even exploring an acquisition of Murati’s startup before it raised funds techcrunch.com. All of this reflects the frenzied competition among tech giants to secure AI expertise and innovation – whether by hiring top researchers or investing in promising labs. As one industry insider quipped, “AI is the new space race” and no one wants to be left behind.
Market Momentum and Sector-Wide Trends
Thanks to these AI-driven tailwinds, the stock market’s momentum has been extraordinary. The S&P 500 index notched its fourth and fifth consecutive record closes on Thursday and Friday, while the tech-heavy Nasdaq Composite hit fresh all-time highs ts2.tech. Each day seems to bring a new milestone: on July 24 the S&P edged up 0.07% to 6,363, and the Nasdaq gained 0.18%, both record finishes ts2.tech latimes.com. Even the Dow Jones Industrial Average – which lacks many high-flying tech names – briefly crossed 45,000 for the first time before profit-taking trimmed its gains ainvest.com ainvest.com. Traders describe a “perfect storm” of factors fueling the rally: resilient economic data, hopes for resolution to trade tariffs, and above all earnings that far exceeded expectations in AI-exposed industries ts2.tech. “Investors are feeling optimistic about trade negotiations, about the economy, the trend in inflation, as well as the better-than-expected Q2 earnings reports,” observed Sam Stovall, chief investment strategist at CFRA Research ts2.tech. With artificial intelligence the standout growth driver, money has poured into tech and AI plays, overshadowing lingering worries about tariffs or recession for now ts2.tech.
Analysts note that market leadership has narrowed to an elite group of mega-cap companies – often dubbed the “Magnificent Seven” – that have disproportionately benefited from the AI boom. Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta now account for over 30% of the S&P 500’s entire value ts2.tech ts2.tech. Their outsized gains (Microsoft +20% year-to-date, Meta +22%, Nvidia +~100%, etc.) have powered indexes higher even as many smaller stocks lag behind. “The AI spending surge is providing a big boost for semiconductor and software giants,” Reuters noted, but it has also led to narrow breadth in the market ts2.tech. This dynamic raises questions about sustainability – yet so far, the strategy of betting on Big Tech’s AI prowess has paid off handsomely. “AI is one of the strongest areas of growth for the economy, and the market mirrors the economy,” said Adam Sarhan, CEO of 50 Park Investments reuters.com, explaining why investors keep piling into these names. Indeed, the euphoria around AI has proven remarkably durable, seemingly offsetting many macro risks. “The market is getting friendly with a view that tariffs… will not have a negative impact on growth, because we haven’t seen any negative impact so far,” noted Van Luu of Russell Investments, commenting on stocks’ Teflon-like resilience in the face of trade worries ts2.tech ts2.tech.
The AI stock frenzy is global in scope. In Europe, the UK’s FTSE 100 and Europe’s STOXX 600 index hovered near record highs this week, lifted by U.S. tech earnings and AI optimism spilling across the Atlantic ts2.tech. In Asia, Japan’s Nikkei 225 climbed to multi-decade highs after strong results from U.S. and local tech firms – chipmaker SK Hynix in Korea beat earnings forecasts and projected “brighter days” ahead thanks to red-hot AI memory demand ts2.tech. Hynix even flagged plans to boost its capital spending to capitalize on the boom ts2.tech. Likewise, India’s IT giant Infosys surprised investors with an upbeat outlook citing strong cloud and AI services growth, reversing its recent guidance cut ts2.tech. However, by Friday some of this euphoria cooled as traders took profits: after soaring mid-week, Japan’s Nikkei fell 0.9% and European indices slipped modestly on July 25 ts2.tech. Questions about Chinese stimulus and the approaching U.S. tariff deadline also prompted a breather in global markets ts2.tech ts2.tech. Still, the fact that markets worldwide remain near peaks highlights how powerful the AI narrative has been in outweighing macro concerns.
Even the ETF industry is racing to capitalize on the AI mania. On Friday, Defiance ETFs launched the Defiance AI & Power Infrastructure ETF (ticker: AIPO) – the first fund focused on companies that supply the electrical power and data center hardware underpinning AI tech etf.com. This niche ETF targets the “unprecedented energy demands” of AI by investing in electric grid equipment makers, data center operators, and chip firms benefiting from AI’s surging power needs etf.com etf.com. Its debut is a testament to the broader investment boom around AI: from software to semiconductors to now even power utilities, every corner of the market is being revalued through the AI lens. Global assets in AI-focused funds have already skyrocketed to $38 billion (up sevenfold in five years) as of Q1 2025 etf.com, and that figure is likely higher now as new money floods in. “Themes are replacing sectors when it comes to investing strategies,” BlackRock’s ETF head observed recently, with AI at the forefront of that shift bloomberg.com. Indeed, AI-themed ETFs are among this year’s top performers, and active managers are also leaning into AI-heavy portfolios to chase the outsized returns.
Analysts and Experts Weigh In
With AI stocks on a scorching run, market veterans are debating how much further this trend can go. Many remain bullish, pointing to genuine earnings growth from AI and huge addressable markets. “This isn’t 1999 – these are real revenues,” one fund manager told CNBC, arguing that the likes of Nvidia and Microsoft are backing up the hype with profits and guidance. Wall Street’s consensus year-end targets for the S&P 500 are already being revised upward to account for the AI momentum. But valuations are undeniably rich. Several of the AI darlings trade at 30–50× earnings, and the AI trade is increasingly crowded. The market’s extreme dependence on a few names has drawn comparisons to past episodes of narrow leadership. “Markets are priced for perfection…‘It could have been worse’ is not a good foundation for a rally,” warned Brian Jacobsen of Annex Wealth, noting that investors may be complacent about potential pitfalls reuters.com reuters.com. If economic growth falters or AI adoption hits any speed bumps, the high-fliers could be vulnerable to a pullback.
For now though, sentiment remains firmly in “buy the dip” mode for AI. Every time skepticism creeps in, these companies seem to deliver something – a blowout quarter, a new product, a big partnership – that reaffirms the growth story. Case in point: after a brief wobble in early July, Nvidia’s stock roared back on reports of overwhelming demand for its GPUs (with some customers placing orders a year in advance amid shortages). And when Google appeared to lag last year in the chatbot race, it responded with a flurry of AI updates and is now touting 100 million users for its “AI Mode” assistant and 450 million for its Gemini model reuters.com reuters.com. Investors have taken notice that these giants “have all the right tools to lead in AI – cutting-edge models and massive distribution,” as Hargreaves Lansdown analyst Matt Britzman put it reuters.com. The key question is execution: can they integrate AI into their core businesses without eroding other revenue streams (like Google’s search ads), and can they maintain their lead as competition intensifies? So far, the market is giving them the benefit of the doubt.
Expert opinions run the gamut on where AI stocks go from here. Bulls argue we are in the early innings of a multi-year “AI supercycle” that could justify even higher valuations. They point to the transformative potential of generative AI across every industry – a wave of productivity and innovation that could lift global GDP (and corporate earnings) significantly over the next decade. Bears counter that much of this rosy future is already priced in, and that we’ve seen similar enthusiasm before (from dot-com to 3D printing to crypto) end in painful corrections. “This AI boom will eventually face reality checks – regulation, saturation, something – but predicting the turning point is hard,” admitted one strategist on Bloomberg TV. For now, Wall Street strategists advise staying nimble: enjoy the AI rally, but keep an eye on earnings quality and guidance for any cracks. “The stock market has essentially become an AI market in 2025,” joked a Financial Times columnist – and like any market dominated by a hot theme, it could either power further into record territory or cool off quickly once the narrative shifts.
In summary, the past two days underscored just how central AI has become to markets. From trillion-dollar tech giants down to fresh startups, everyone is vying for an AI edge, and investors are rewarding those with a convincing story (and punishing those without). As the week’s news showed – whether it’s Alphabet’s cloud surge, Nvidia’s valuation milestones, Meta’s talent grabs, or AMD’s rising star – AI is the driving force of the 2025 stock market. “AI is one of the strongest areas of growth for the economy, and the market mirrors the economy,” as Sarhan noted reuters.com. That mirror is shining brightly on AI right now. The challenge ahead will be living up to the sky-high expectations that are now built into prices. But for the moment, the AI bulls clearly have the upper hand, and it’s been a golden summer for AI-focused investors. Every new chip order, model launch or breakthrough research announcement is feeding the enthusiasm. If this keeps up, we may soon be talking about the market in terms of “before AI” and “after AI.” For traders and analysts alike, the mission is to figure out how to ride the wave – without getting caught when the tide eventually turns.
Sources: Bloomberg; Reuters; CNBC; Financial Times; TechCrunch; Los Angeles Times; et al. reuters.com latimes.com reuters.com economictimes.indiatimes.com reuters.com reuters.com
