Microsoft and Meta were the primary catalysts behind today’s tech earnings rally. Microsoft reported Q4 revenue of $76.44 billion, beating analyst expectations of $73.89 billion. Meta followed suit with Q2 revenue of $47.53 billion, significantly ahead of forecasts.
In addition to strong revenue, both companies raised capital expenditure guidance, emphasizing long-term investments in AI. Meta now expects to spend $66–$72 billion in 2025, while Microsoft confirmed continued infrastructure investments tied to AI and cloud services.
These announcements reassured investors that the tech titans are committed to growth, even amid macroeconomic headwinds.
Economic Data Offers Mixed Signals
Despite the tech earnings rally, broader economic data released today painted a more nuanced picture.
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U.S. weekly jobless claims came in at 218,000, slightly better than expected.
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June personal spending rose just +0.3%, below forecasts of +0.4%.
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The core PCE price index, the Federal Reserve’s preferred inflation gauge, rose +2.8% year-over-year, slightly higher than the expected +2.7%.
Meanwhile, the Q2 Employment Cost Index also came in hotter than forecast, increasing by +0.9%, another sign of lingering inflationary pressures.
While the labor market remains strong, weaker consumer spending and sticky inflation metrics could influence the Fed’s policy trajectory.
Tariff Threats Loom, But Markets Focus on Tech
President Donald Trump announced a 15% tariff on imports from South Korea and hinted at upcoming trade deals with Taiwan, Thailand, and Cambodia. Despite potential risks to global trade, investors largely ignored geopolitical tensions in favor of the tech earnings rally dominating headlines.
Still, the August 1 deadline for sweeping tariff changes remains a wildcard that could inject volatility into markets by week’s end.
What’s Ahead: Apple and Amazon to Report
The spotlight on tech earnings is far from over. Apple (NASDAQ:AAPL) and Amazon.com (NASDAQ:AMZN) are scheduled to report earnings after the bell today. These companies make up part of the “Magnificent Seven,” and their performance will be key in determining whether this tech earnings rally has staying power.
According to Bloomberg Intelligence, S&P 500 earnings are now on pace to rise +4.5% year-over-year in Q2, far exceeding the earlier forecast of +2.8%. Early reports show 82% of companies have beaten profit expectations, further fueling investor optimism.
Conclusion: Tech Leads, But Caution Remains
The tech earnings rally has proven a powerful force in driving markets to record highs, with Microsoft and Meta showing the path forward through innovation and aggressive AI investment. However, with potential trade disruptions, high valuations, and Fed uncertainty, investors should stay alert.
If Apple and Amazon can deliver similarly strong results, the rally may gain even more momentum—propelling the broader market higher in the coming weeks.
Still, even with tech in the driver’s seat, investor caution is warranted. High valuations, especially in the AI and semiconductor sectors, leave little room for error. Any disappointing guidance from upcoming earnings could quickly trigger a reversal. Moreover, inflationary pressures and tariff uncertainty may weigh on sentiment, particularly if macroeconomic indicators soften further.
Another wildcard remains the Federal Reserve’s next move. With mixed signals from inflation and labor data, markets remain split on whether rate cuts could arrive this fall. A dovish shift would likely fuel risk-on sentiment, but hawkish commentary could cap gains—even for high-flying tech names.
In the near term, all eyes will be on Apple and Amazon. Longer term, the sustainability of the rally will depend on whether tech earnings growth can outpace rising expectations and deliver in a tightening macroeconomic environment.
If Big Tech continues to exceed forecasts, it could justify current valuations and attract further institutional buying. But if earnings momentum slows or macro headwinds intensify, volatility could return quickly. For now, optimism prevails—but smart investors will stay alert, watching guidance, margins, and economic data just as closely as headlines.
Featured Image: Megapixl @ Alexandersikov
