Disappointing Microsoft results wiped $340 billion in value from AI competitors, while Nvidia rallied after AMD’s results.
Chipmaker gains and customer losses highlight an AI landscape divide; investors now question if Wall Street’s AI rally is overextended.
“Microsoft reported some deceleration in its core cloud business, but a huge increase in capex. That represents a transfer of wealth from Microsoft shareholders to Nvidia shareholders,” said Gil Luria, senior software analyst at D.A. Davidson.
Microsoft’s report noted Intelligent Cloud revenue rose 19% to $28.5 billion, missing analysts’ $28.7 billion estimate, LSEG data showed.
Its capital expenditure, including finance leases, surged 78% to $19 billion, as Microsoft expands data centers to meet AI demand.
Meta Platforms fell 3%, and Amazon dropped 2.8%. Meanwhile, Apple, Alphabet, and Tesla each declined around 0.5%.
Investors eagerly await results from significant AI investments, noted Daniel Morgan, senior portfolio manager at Synovus Trust.
“That’s what messing up the whole thing. The stocks traded way up in anticipation of these reports,” Morgan said.
The rising AI arms race costs, combined with Alphabet’s unexpected capex increase for generative AI, heightened investor fears.
Technology companies face high expectations this earnings season; analysts predict nearly 10% earnings growth for S&P 500 tech firms.
Concerns about rising AI infrastructure costs and lower-than-expected revenue have contributed to the Nasdaq dropping 8% since July 10.
The Nasdaq fell more than 1% on Tuesday, ahead of Microsoft’s announcement.
While Microsoft’s results pulled Big Tech down, AMD surged over 6% on a forecasted Q3 revenue boost, driven by strong AI chip demand.
Shares of Nvidia, the AI computing leader, rose 2.6%, while Broadcom, Intel, and Qualcomm saw gains between 1% and 1.4%.
“We’re still in a tough macro environment. AI is absolutely real, but requires a lot of investment and that is visible in the capex numbers,” said Rishi Jaluria, an analyst at RBC Capital Markets.
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