Following the Fed meeting and the start of the U.S. “Super Earnings Week,” major tech firms are set to report results. With expectations running high, investors are focusing not only on earnings but also on financing and capex, prompting a more cautious tone and continued rotation into traditional sectors.
Major U.S. tech firms reported earnings this week, with markets focused on whether AI investment is translating into revenue. Results were mixed. Meta (META) fell more than 7% after missing earnings expectations, reporting a sharp decline in free cash flow and maintaining elevated full-year capex. Amazon (AMZN) beat estimates on both revenue and earnings, while AWS posted its fastest growth since 2021, sending the stock up more than 9% after hours. Microsoft (MSFT) exceeded expectations on fiscal 4Q revenue, earnings and Azure growth, driving a 15.5% share price rally. Apple (AAPL) beat overall revenue forecasts in fiscal 3Q, but weaker-than-expected Services and Greater China revenue weighed on sentiment, with the stock falling 5.9% after hours.
The Fed kept rates unchanged at its July meeting, with three officials voting for a rate hike. U.S. 2Q GDP growth slowed to an annualized 1.5% from 2.1% in 1Q, missing expectations. The slowdown was mainly driven by AI infrastructure imports and front-loaded inventory building, which reduced net exports and shaved about 1.0 ppt off GDP, while ongoing inventory normalization also weighed on growth. Still, consumer spending rose 3.2% QoQ annualized, supported by Trump’s tax cuts, wealth effects among high-income households, and continued AI investment.
Fed Holds Rates Steady as Expected; Press Conference Reinforces Hawkish Stance
The Fed left the federal funds rate unchanged at 3.50–3.75% at its July FOMC meeting, in line with expectations. The meeting saw the unusual outcome of three regional Fed presidents dissenting in favor of a 25 bps rate hike. Even previously neutral officials adopted a more hawkish tone, suggesting the Fed’s patience with above-target inflation is wearing thin.
Surging demand for AI infrastructure continues to drive higher capex at the five major cloud service providers (CSPs)—Microsoft, Amazon, Alphabet, Meta, and Oracle. However, AI monetization remains uncertain, while operating cash flow growth has lagged investment needs. As a result, the major CSPs are shifting from self-funded expansion to raising external capital.
A surge in bond issuance has lifted yields as investors demand higher compensation for both increased supply and potential credit risk. In July, bond spreads widened sharply across the five major CSPs, while investment-grade corporate spreads remained broadly stable, indicating the move was company-specific rather than a broader IG trend.
