The AI roadmap: What to watch as Big Tech earnings kick off

The next big test for the markets comes this week as Big Tech reports Q2 results. OpenAI-backer Microsoft (NASDAQ:MSFT) is on tap after Tuesday’s closing bell, while Meta will publish quarterly numbers on Wednesday, followed by Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) on Thursday. As in past quarters, the group of Mag7 stocks is estimated to account for the majority of earnings for the entire S&P 500 Index (SP500), but this time around, the accompanying commentary should be more of an important indicator of sentiment due to the recent rotation.

Early innings: Optimism over AI has clearly been one of the biggest drivers that has propelled market indices to continuous record highs. The biggest tech players in the industry are flush with cash, so it makes sense to deploy capital to areas they see as the next engine for growth. Their core businesses are also doing extremely well, so it makes sense to keep one eye on the long term and build out the infrastructure necessary for the anticipated revolution.

However… Investors also now want to hear how all that spending will lead to profits, and understand artificial intelligence use cases and productivity models. The Big Tech giants don’t necessarily have to show off revenues related to AI just yet, but painting that picture should be enough to keep shareholders in gear until that materializes. Successful conference calls and earnings commentary should separate capex spending from actual operating results, while outlining the need to go big at first and following up with more cost discipline (similar to the internet buildout in the 1990s and the cloud buildout that followed).

Cases in point: A stock can immediately benefit when following that prescription, especially for tech leaders that clearly outline their vision. A great example of this happened last month at WWDC 2024, when Apple (AAPL) portrayed how its new suite of products would lead to a consumer AI revolution, with the stock soaring by 13% since the conference. Contrast that to Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), whose shares fell 7% over the past week following an earnings call that largely steered clear of AI specifics and centered more on its legacy businesses (Search, Ads, YouTube, Cloud, etc.).

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