🤖 Big Tech’s big beats

Three stalwart members of the Magnificent 7 reported earnings last night, and while it was beats all around, the market reaction showed that capital expenditure on the AI race is still certainly on investors’ minds. First, the numbers: 

• Microsoft beat on earnings and revenue with ​​$81.3 billion in revenue for the quarter, topping analysts’ expectations of $80.31 billion.

• Meta saw sales come in at a record high of $59.9 billion, well above the $58.4 billion Wall Street had expected.

• Tesla’s revenue was $24.9 billion, compared with Wall Street’s call of $24.7 billion, a solid performance after Tesla posted disappointing delivery numbers earlier this month.

But what does it all mean? Well, let’s look under the hood here. 

• Over at Microsoft, capital expenditure for the quarter was $37.5 billion, up 66% year on year and ahead of analysts’ consensus forecast of $36.6 billion. 

• Meta’s capex outlook for 2026 is $115 billion to $135 billion, exceeding the $110.6 billion estimate from analysts. Full-year estimated expenses of $162 billion to $169 billion are also much more than the consensus call for $151 billion.

• Tesla’s capital expenditures will increase substantially this year, exceeding $20B, well above analysts’ expectations of $11B, as the company invests in new factories and AI infrastructure. Tesla also revealed it’s invested $2 billion in xAI. 

For the first time, Tesla released the number of Full Self-Driving subscriptions, saying it had 1.1 million active subs, up from 0.8 million in the same quarter last year. That’s just above 12% of cumulative Tesla deliveries, similar to what Tesla disclosed last year. 

The Takeaway

Hyperscalers have been boosting their capital spending as they pour money into the data centers required to fuel their AI ambitions.

Meta’s capex had been growing faster than its revenue, something that has been raising investor scrutiny more than it has for the tech giant’s peers, which have cloud business revenue to more directly offset their spending on AI. But this time, it was Microsoft’s ballooning capex that worried investors, while Meta’s record revenue washed away investors’ fears — for now.

As the AI boom rumbles into its fourth year of dominating the market, retail traders, professional investors, and Wall Street analysts alike have largely settled on a simple strategy for catching the next wave of gains: find an emerging bottleneck in the build-out of massive data centers that power AI. Then buy lots of it.

Why wafers are in focus

• 🏛️ Fed: The Federal Reserve held its policy rate at a range of 3.5% to 3.75% at its January meeting, as all eyes turn to the next Fed meeting in March. Markets* are pricing in a 91% chance the Fed maintains the rate again and a 9% chance of a 25-basis point cut.

• 🎬 Best International Feature: This year at the Oscars, the Best International Feature category is absolutely dominated by Neon, a studio that distributed four out of the five nominees. In a sign that this category will be hotly contested this year, for the first time ever, all four of the Neon nominees have at least one nomination in another category. Right now prediction markets say the movie with the best chance to win is “Sentimental Value” (70%), followed by “The Secret Agent” (23%) and “It Was Just An Accident” (8%), all of which are Neon movies.

• 💰 Fed Chair: Yesterday also saw Rick Rieder of BlackRock lose a step in the running for President Trump’s pick for Fed chair, with his market-implied chances dropping from a high of 53% as of Saturday to 36% last evening. Meanwhile, Fed Governor Christopher Waller — who dissented at this week’s meeting and wanted a rate cut — saw his chances increase from 9% on Tuesday to 16% at market close on Wednesday.

Which occupations do Americans consider the most and least trustworthy?

Check your answer.

Earnings expected from Apple, Mastercard, Caterpillar, SAP SE, Lockheed Martin, Altria, Nasdaq, Nokia, Comcast, Visa, Western Digital, and Sandisk