Market Sentiment & Stock Performance
Wall Street’s AI-fueled rally showed no signs of cooling as investors “bought the dip” on Monday after last week’s sell-off reuters.com. U.S. and European futures edged higher following a tariff-induced tumble on Friday that saw AI-heavyweights like Nvidia and Alphabet slide 2.3% and 1.4%, respectively reuters.com. Despite short-term volatility, the S&P 500 remains near record highs (up ~6% year-to-date) thanks to outsized gains in mega-cap tech/AI names reuters.com reuters.com. “Overall it has been mega caps, growth/technology/AI that is driving a lot of the results,” noted Tim Ghriskey of Ingalls & Snyder, emphasizing that the “AI trade” – the thesis that AI will transform future growth – is energizing markets reuters.com. Analysts say any near-term pullback is a buying opportunity, especially in top AI stocks. “If you are trying to beat your benchmark and you were underweight any of the AI names you have to chase them,” observed B. Riley Wealth’s Art Hogan reuters.com.
Global markets mirrored this enthusiasm. Asian tech shares mostly rose on Monday, recovering from a delayed reaction to Wall Street’s rout reuters.com. In Europe, AI chip suppliers and cloud firms ticked higher as investors rotated back into high-growth plays. Even after a summer surge, institutional positioning in equities remains only modestly overweight – meaning plenty of cash could still flow into AI stocks reuters.com. “The big boys are back,” declared portfolio manager Brian Mulberry, whose firm holds all major U.S. cloud providers. “This simply proves the Magnificent Seven is still magnificent at this moment in time” reuters.com.
Large-Cap Earnings & Outlook
Big Tech delivered AI-powered earnings beats. In the recent wave of Q2 results, artificial intelligence drove strong demand across search, cloud and digital ads at giants like Microsoft, Alphabet and Meta reuters.com. This translated into booming profits and share-price gains. Microsoft’s stock jumped 4% last week – briefly crossing a historic $4 trillion market cap (a milestone previously reached only by Nvidia) reuters.com. Meta’s earnings surprise sent its shares up 11.3% in one day, adding about $200 billion in value reuters.com. Even Amazon – which posted mixed cloud results – noted that AI initiatives are keeping its core businesses resilient reuters.com. Overall, 81% of S&P 500 companies reporting so far beat profit forecasts reuters.com, with Q2 earnings growth now near 10% year-on-year – almost double what was expected a month ago reuters.com. “The earnings season has been unambiguously better than expected,” said Art Hogan, adding that robust profits have “reassured investors about the AI trade” despite macro worries reuters.com reuters.com.
Massive AI investments are paying off. To meet surging AI demand, Big Tech is dramatically ramping capital spending – and investors are applauding reuters.com reuters.com. Microsoft told investors it will spend a record $30 billion this quarter to expand AI cloud capacity, after Azure’s revenue beat expectations reuters.com. Alphabet likewise hiked its 2025 capex budget by $10 billion (to $85 billion) to fund AI infrastructure reuters.com reuters.com. These staggering outlays – part of an estimated $330 billion in 2025 capex by the “Magnificent Seven” tech firms – are yielding tangible growth: Microsoft disclosed Azure now generates $75 billion in annual sales, with 800 million users of its AI-powered features reuters.com reuters.com. Meta also raised its spending forecast (now $66–72 billion this year) as it races to catch up in the AI arms race reuters.com. Such numbers once prompted scrutiny over tech’s “ballooning” budgets reuters.com, but sentiment has shifted. “As companies like Alphabet and Meta race to deliver on the promise of AI, capital expenditures are shockingly high… but if their core businesses remain strong, it will buy them more time with investors,” explains analyst Debra Aho Williamson reuters.com reuters.com. In short, Wall Street now views heavy AI spending as not just necessary, but justified by the growth it’s unlocking.
Apple joins the AI spending spree. Long conservative with its purse strings, Apple signaled a strategic pivot toward aggressive AI investment. CEO Tim Cook said the company is “very open to M&A” and willing to buy larger AI players – a departure from Apple’s history of small tuck-in acquisitions reuters.com reuters.com. “We basically ask ourselves whether a company can help us accelerate our roadmap… if they do, then we’re interested,” Cook told analysts reuters.com. On its earnings call, Apple announced plans to significantly increase spending on AI R&D and data centers (beyond the “few billion per year” it historically spent) reuters.com. CFO Kevan Parekh said these outlays will “grow substantially” going forward reuters.com – a notable commitment from a firm known for fiscal discipline. Driving the shift is Apple’s determination to catch up with rivals’ AI achievements: Microsoft and Google are each on track to spend $85–100 billion over the next year on AI, and have attracted hundreds of millions of users to AI-driven services reuters.com reuters.com. Apple, by contrast, has faced rocky results with in-house AI (even delaying a major Siri upgrade to 2026) and leaned on partners like OpenAI for certain iPhone features reuters.com reuters.com. Now, with its stock up 1.7% in pre-market trading after the announcement reuters.com, Apple appears “ready to open its wallet” to ensure it isn’t left behind in the AI race reuters.com. Analysts note Apple’s shift comes at a critical moment: looming antitrust trials could threaten Apple’s lucrative search deal with Google, so building its own AI search and assistant capabilities (even via acquisitions) may be vital reuters.com reuters.com.
AI Investments, M&A and Partnerships
Billion-dollar deals are reshaping the AI landscape. In a blockbuster cybersecurity deal driven by AI concerns, Palo Alto Networks announced it will acquire Israel’s CyberArk Software for $25 billion reuters.com. This is Palo Alto’s largest-ever purchase, aimed at boosting its platform against AI-enhanced cyber threats. CEO Nikesh Arora said the tie-up positions the firm to better secure clients as hackers increasingly weaponize AI – a trend forcing consolidation in the security industry reuters.com. The deal follows Google’s recent $32 billion purchase of cloud security startup Wiz (another AI-driven security bet) reuters.com, underscoring how AI is fueling record M&A in the sector. Investors initially balked at Palo Alto’s price tag – one Reuters Breakingviews analysis said the “$25 bln deal burns value for tech cred” – but the strategic rationale of bulking up AI defenses is clear reuters.com.
Tech giants are also pouring money into AI startups. In an exclusive scoop, Reuters reported that Alphabet’s growth fund CapitalG and Nvidia are in advanced talks to invest in Vast Data, an AI infrastructure startup, at a valuation up to $30 billion reuters.com. The New York-based Vast Data specializes in cutting-edge data storage for AI data centers, helping shuttle information efficiently between Nvidia’s powerful GPUs reuters.com. Its customers already include Elon Musk’s new AI venture xAI and cloud upstart CoreWeave reuters.com. The funding round – said to involve multiple tech giants, private equity and VCs – would make Vast Data one of the world’s most valuable AI startups reuters.com. Analysts say it highlights investors’ hunger for the “backbone” picks-and-shovels of the AI boom reuters.com. “Companies building the infrastructure for the AI boom have come into sharper focus,” as the deal’s high valuation attests reuters.com. (TechCrunch had noted Vast’s fundraising, but not the eye-popping $30B valuation nor Google and Nvidia’s involvement reuters.com.) Nvidia, which already backed Vast in earlier rounds, declined comment on the talks reuters.com. The GPU maker has been on an acquisition spree itself – from networking firm Mellanox in 2020 to software platform Run:ai this year – to expand beyond chips reuters.com. This potential stake in Vast Data suggests Nvidia is also keen to ally with (or eventually acquire) the most promising players in AI data management. Notably, news of the funding discussions came just as Nvidia’s stock fell 2.3% Friday amid a broad tech pullback reuters.com. But bulls argue such investments could extend Nvidia’s dominance across the AI supply chain.
Partnerships are proliferating across the AI ecosystem. Enterprise software maker C3.ai, for example, announced a strategic pact with defense contractor Huntington Ingalls Industries to deploy AI in shipbuilding, helping boost U.S. Navy fleet readiness za.investing.com. C3.ai also teamed up with energy-tech firm Univation to commercialize AI predictive maintenance for petrochemical plants za.investing.com. These alliances show how even smaller AI-focused firms are leveraging partnerships to enter new industries. “We’re expanding our strategic partner relationships,” C3.ai’s outgoing CEO Tom Siebel said recently, framing such deals as key to the company’s next stage of growth za.investing.com za.investing.com. Indeed, Siebel’s decision to step down as CEO – announced due to health reasons – comes as C3.ai attempts to scale up. The company has launched a search for a new chief executive who can “take the company to the next level of growth and success,” Siebel said, noting he will remain executive chairman focused on product strategy za.investing.com. The leadership transition initially rattled investors (C3.ai’s stock plunged about 11% on the news) finance.yahoo.com. However, many on Wall Street see the company’s 25% revenue growth and ample cash reserves as positives za.investing.com za.investing.com. Wedbush Securities even urged investors to “buy the dip,” arguing that a fresh CEO could unlock value and that demand for enterprise AI solutions remains robust (despite C3.ai’s shares being down ~45% from 2025 highs). The coming months will tell if new leadership and partnerships can reinvigorate this high-profile mid-cap AI name.
Small & Mid-Cap Highlights
Outside the mega-caps, AI-focused upstarts are experiencing both euphoric gains and growing pains. Palantir Technologies – often dubbed an “AI darling” of 2025 – has seen its stock soar over 540% in the past 12 months tipranks.com, fueled by optimism for its AI-driven data platforms and a string of government wins. Just last week, Palantir secured a U.S. Army deal worth up to $10 billion over the coming decade tipranks.com, a contract its CEO called the “ultimate confirmation” of Palantir’s technology tipranks.com. Investors are now eagerly awaiting Palantir’s Q2 earnings report, due after the bell on Monday, Aug 4. The company has guided for $934–$938 million in revenue, roughly 40% growth, and consensus expects ~$939.5 million tipranks.com. The key question: can Palantir again beat expectations as it has in recent quarters? One top investor (writing under the pseudonym “Deep Value”) believes so, predicting Palantir will outpace projections yet again – but he also offers a note of caution tipranks.com. “Even though revenue could have a big upside from this [Army] contract, there is a risk of disappointment from a margin perspective,” he warns tipranks.com. The massive government deal, while validating Palantir’s AI, carries lower profit margins that could pressure earnings tipranks.com. Moreover, Palantir still struggles to gain commercial clients overseas (“[CEO Alex] Karp doesn’t have much hope in Europe,” the investor noted) tipranks.com. Wall Street’s optimism is tempered: analysts’ consensus rating on Palantir remains Hold, and the average price target ($111) is ~28% below the current share price – reflecting skepticism about its heady valuation tipranks.com. All told, expectations are sky-high for Palantir’s results and AI commentary, and any misstep could spur volatility.
Other mid-size AI players are navigating turbulent markets as well. C3.ai, as mentioned, saw its stock sink in late July after founder Tom Siebel’s surprise resignation for health reasons. The enterprise AI software maker’s shares are down about 13% over the past week fintel.io and have fallen five days in a row stockinvest.us, erasing some of 2025’s earlier gains. Still, the company’s fundamentals – $389 million in FY2025 revenue (+25% YoY) – indicate accelerating demand aol.com. Bulls like Motley Fool’s analysts argue that C3.ai’s long-term prospects remain intact and that new leadership could refocus the company’s strategy fool.com. Meanwhile, BigBear.ai and SoundHound AI, two smaller-cap AI names that skyrocketed in early 2025, have experienced heightened volatility. BigBear.ai (a defense-oriented AI analytics firm) reportedly faces cash burn concerns and was recently highlighted in a short-seller letter, causing its stock to gyrate reuters.com. And SoundHound (voice AI) continues to trade on heavy momentum as it seeks to prove its business model. Analysts caution that many of these hyped AI startups still need to translate buzz into sustainable profits. But that hasn’t deterred traders – in fact, retail investors on platforms like Reddit’s WallStreetBets have flocked to these high-beta AI plays, undeterred by the risk. The result is see-saw price action: for instance, BigBear.ai surged 20% one day in late July only to drop 15% the next, reflecting a tug-of-war between speculators and skeptics. With sentiment in the broader AI sector still bullish, even smaller AI stocks are attracting outsized attention, albeit with rollercoaster swings.
Regulatory & Policy Developments
As investment pours into AI, regulators worldwide are scrambling to set ground rules. In Europe, officials are moving swiftly to rein in AI while encouraging innovation. Brussels is finalizing its landmark AI Act, and in the interim has introduced a voluntary “AI Code of Practice.” Alphabet’s Google confirmed it will sign onto the EU’s code, which was drafted by independent experts to guide companies on complying with forthcoming AI rules reuters.com. The code includes provisions like requiring firms to disclose training data sources for generative AI models and to respect EU copyright laws reuters.com. Google’s global affairs president Kent Walker said the company will join the effort “with the hope that this code… will promote European citizens’ and businesses’ access to secure, first-rate AI tools” reuters.com. However, Google also voiced serious concerns that the EU’s strict approach could backfire. Walker warned that aspects of the AI Act “risk slowing Europe’s development and deployment of AI,” citing potential deviations from EU copyright law and onerous approval processes that “could chill European model development… harming Europe’s competitiveness” reuters.com. Notably, Microsoft has signaled it will likely sign the EU code as well (per President Brad Smith), whereas Meta Platforms declined, citing “legal uncertainties” for AI developers under the draft rules reuters.com. The EU’s aggressive stance – coming before U.S. regulators have acted – underscores the global policy divide on AI: Europe is choosing precaution, while U.S. officials so far rely on industry self-regulation.
Regulators are also taking antitrust action tied to AI. In Italy, the competition authority (AGCM) opened an investigation into Meta over the integration of a WhatsApp AI chatbot reuters.com. The watchdog alleges Meta abused its dominant messaging platform by rolling out its new “Meta AI” assistant on WhatsApp without user consent, potentially crowding out rival AI services reuters.com reuters.com. Since March, WhatsApp’s search bar has included Meta’s AI, offering chatbot-style answers – a feature the regulator says might unfairly “steer its user base” toward Meta’s own AI ecosystem reuters.com reuters.com. Meta pushed back, noting the AI assistant is free and optional: “Offering free access to our AI features in WhatsApp gives millions of Italians the choice to use AI in a place they already know, trust and understand,” a Meta spokesperson said reuters.com. Nonetheless, Italian enforcers (in coordination with EU authorities) conducted raids at Meta’s Milan offices as part of the probe reuters.com reuters.com. If found guilty of abusing a dominant position, Meta could face fines up to 10% of its global turnover reuters.com – a potentially multi-billion dollar penalty. This case illustrates how competition regulators are scrutinizing the bundling of AI features, especially by Big Tech firms with entrenched platforms. It’s also one of the first major antitrust actions explicitly linked to AI deployment. Other countries are watching closely: any precedent set in Europe could influence how regulators worldwide police AI integrations for consumer harm or market abuse.
Meanwhile in Washington, D.C., U.S. lawmakers are weighing AI oversight, though concrete action has been slow. The Biden administration convened Big Tech CEOs in July to extract voluntary “AI safety” commitments (such as testing AI systems for security risks and watermarking AI-generated content). But Congress has yet to pass AI-specific legislation. That may change as election season approaches: there are bipartisan calls for an AI Bill of Rights to protect consumers, and for tighter export controls on advanced AI chips to rivals like China. Indeed, export restrictions remain a flashpoint. Chipmakers like Nvidia and AMD have been caught in the crossfire of U.S.-China tech tensions, with sales of high-end AI chips to China curbed. Notably, AMD hinted last month that these headwinds could soon ease, telling analysts it plans to resume exports of its MI300 series GPUs to China pending U.S. approval investopedia.com. That optimism – alongside expectations of strong data-center demand – led UBS to boost its price target for AMD to $210 (from $160) ahead of earnings investopedia.com. Any policy tweak on chip exports will significantly impact AI hardware stocks. For now, the regulatory landscape is patchwork: a mix of voluntary codes, isolated investigations, and evolving export rules. The only certainty is that AI regulation is coming – and fast. As one EU official put it, “We’re setting the guardrails now, because the AI gold rush is underway.”
Expert Commentary & Outlook
Financial experts and industry veterans provided colorful commentary on the AI stock boom over the past two days. Many see a fundamental transformation underway. “AI is emerging as a primary growth engine,” observed a research note from Bernstein, which pointed to surging adoption of AI in cloud computing, online advertising, and e-commerce reuters.com reuters.com. The firm noted that just a year ago, investors doubted whether monetization would catch up to AI hype – but the latest earnings “offer the clearest sign yet” that AI is driving real revenue and profit gains reuters.com reuters.com. This has shifted market psychology from fear to greed. Viresh Kanabar of Macro Hive remarked that earlier worries about softening AI demand now “appear overblown”, given the robust results from key players reuters.com. He argued that while pockets of the economy may weaken, at the “index level” the dominance of AI-centric firms means the market can power through reuters.com. In other words, as long as Alphabet, Microsoft, Nvidia, Amazon, Meta (and a handful of others) keep outperforming, broader equity indices are insulated reuters.com. It’s a stark reminder of how concentrated the AI trade has become – those five names alone now make up roughly a quarter of the S&P 500’s weight reuters.com.
Still, some seasoned strategists urge caution amid the euphoria. BCA Research, for instance, warned clients that AI stocks may be “pricing perfection,” leaving little margin for error if growth hiccups. They highlight that August–September are historically volatile months, and after a 2.2% rally in July, a late-summer pullback would be normal reuters.com. Art Hogan agrees seasonality could bring short-term turbulence, but he frames it as healthy: “Any near-term market pullback should be seen as a buying opportunity, especially in some of the mega-cap tech names,” he advised reuters.com. That mindset – buying dips in AI leaders – has repeatedly been rewarded this year. Indeed, Monday’s modest rebound following Friday’s sell-off showed dip-buyers at work again reuters.com. Analysts at Morgan Stanley note that hedge fund positioning in top AI stocks is still below 2021 highs, suggesting further room for upside if performance chasers pile in. On the flip side, valuations are undeniably stretched by traditional metrics. For example, Palantir’s stock now trades around 687× earnings, a multiple one investor quipped “pales in comparison” to its actual contract value growth tipranks.com. “It’s not all sunshine and rainbows,” that investor cautioned, arguing that without faster commercial adoption abroad, such lofty valuations will be hard to justify long-term tipranks.com tipranks.com.
Wall Street forecasts continue to be revised upward in light of AI momentum. Case in point: Ahead of its Tuesday earnings, AMD received multiple target upgrades – with Bank of America seeing a path to $200 (up from $175) on expectations it can seize >30% of the CPU market by 2026 thanks to AI-driven share gains investopedia.com investopedia.com. And just last week, Evercore ISI raised its 12-month target for Nvidia to $220 (implying a >25% upside) as channel checks showed sustained “insatiable” demand for Nvidia’s AI accelerators from cloud giants and startups alike. Meanwhile, some skeptics are doubling down: noted short-seller Jim Chanos recently reiterated his bearish stance on certain “second-tier” AI names, calling their valuations a “castle in the air” unsupported by fundamentals. Chanos singled out smaller software names with heavy losses, suggesting the AI tide may not lift all boats forever. However, being short anything AI in 2025 has been painful – a basket of popular AI shorts is down over 30% this year as those stocks surged.
Looking ahead, the broader market sentiment around the AI sector remains optimistic yet watchful. The coming days will bring key updates – from Palantir’s results and AMD’s outlook, to any surprise announcements (industry chatter hints OpenAI might formally launch GPT-5 shortly, an event that could spark another mini-rally reuters.com reuters.com). Traders will also monitor Washington for an expected executive order on AI oversight before month’s end. But for now, the narrative is clear: AI is the driving force of this market. As one market strategist put it, “If you were underweight AI, you’re underperforming – simple as that.” reuters.com Investors large and small have internalized that message, fueling what some call an “AI gold rush” on Wall Street. So far, that bet is paying off handsomely – and as long as the earnings keep delivering and the innovations keep coming, the AI stock boom looks set to charge ahead into the fall reuters.com reuters.com.
Sources: Recent financial news and analysis from Reuters, Yahoo Finance, Investopedia, and other market reports reuters.com reuters.com reuters.com tipranks.com reuters.com, covering developments through Aug 4, 2025.
