Big Wave of Microsoft and Meta Earnings Lifts AI Stocks

Fueled by the beat-and-raise quarters posted by Microsoft MSFT and Meta Platforms META last night, the market is shaking off Fed Chair Powell’s sobering comments about rate-cut prospects and moving higher. 

Despite the market’s rightful focus on those two earnings reports this morning, we believe the uptick in June headline and core personal consumption expenditure figures bring some additional support for Fed Chair Powell’s comments. Given the inflation comments in the July Flash PMI report, we’re going to focus more on what is found on that front in tomorrow’s July Manufacturing PMI reports and next week’s July Service PMI ones. That collective PMI data will also give us another vantage point on the overall economy and its prospects as we move deeper into the current quarter vs. the tail end of the prior one.

In addition to seeing MSFT and META shares moving higher, we are also seeing our shares of Nvidia NVDA, Marvell MRVL, and Eaton ETN move higher. The reason for those moves can be traced back to capital spending comments from Meta and Microsoft. We’ll discuss in greater detail in a follow up note MSFT and META, and, yes, we will be resetting our price targets for those shares.

Microsoft guided Azure growth to 37% year over year in the current quarter and hiked its capital spending for the period to $30 billion, confirming AI demand remains robust and the data center infrastructure shortage continues. With $368 billion of contracted backlog for Azure and Microsoft Cloud, we should see elevated capital spending levels continue. Turning to Meta, during the June-ending quarter, it doubled its capital spending levels year over year to $17 billion, bringing that spending to just over $29 billion for the first half of 2025. While Meta narrowed its 2025 capital spending forecast to $66 billion to $72 billion, up from $39.2 billion in 2024, that implies larger spending in the second half of 2025. Meta management also sees “another year of similarly significant Capex dollar growth in 2026.”

Microsoft, Meta, and Nvidia shares alone account for just over 18% of the S&P 500’s weighting. That explains the level of strength we are seeing in the market this morning. Comments and guidance from Microsoft, Meta, and Alphabet GOOGL last week set the table for Amazon’s AMZN June-ending quarter results and updated capital spending outlook after today’s market close. While it may be a bit premature to say, it sure looks to us like the AI and data center arms race isn’t slowing down. Based on comments already received, we know 2H 2025 capital spending levels will be higher, comments from Amazon will help us better determine how high that spending may be.

Based on the aggregate picture, we’ll revisit our NVDA, MRVL, and ETN price targets. We may also want to revisit our new price target for the First Trust Nasdaq Cybersecurity ETF CIBR. Why? The two largest holdings are Broadcom AVGO and Cisco CSCO, which account for 18% of that ETF's basket. 

Were Qualcomm’s earnings are all that bad?

We are seeing the shares of Qualcomm QCOM get hit following the company’s better-than-expected quarterly results and current quarter guidance that bookended the market consensus. In other words, not a beat-and-raise quarter, and that helps explain the pressure we’re seeing on the shares, especially after their meaningful climb over the last few months.

Our take is that the report was supportive of the business transformation away from smartphones. The market, however, likely wanted more discussion of Qualcomm’s handset business, especially given the modest revenue miss at its chips business for the quarter.

We’ll dig more into the puts and takes for Qualcomm’s quarter in a standalone note this morning, but for those poised to ask, we’re maintaining our $180 price target. And the pullback we’re seeing in the shares this morning will more than likely give us enough room to maintain our One rating. Should support for the shares at the 100-day moving average hold ($150.58), that would catch our interest.

Prepping for Apple’s earnings after today’s market close

In addition to Amazon’s quarterly results, Apple AAPL will also be reporting its June quarter performance, as will a sea of other companies. We expect the usual picking over of Apple’s performance for what is the seasonally weakest for its iPhone business. We expect management to focus on strides in other businesses, but we will be focusing on the mix shift toward the company’s high-margin, recurring revenue Service business.

Our take is that while the market continues to focus on Apple’s hardware business, it is missing the growing influence of the services vertical, which is helping smooth the company’s earnings profile and delivering cash flow. We suspect Apple will remain somewhat tight-lipped about its upcoming device launches, but we also expect management will need to explain a bit more on its AI strategy, which by all accounts has been rather underwhelming thus far. With that in mind, we are curious to see if management shares any AI usage metrics, especially after the ones Qualcomm QCOM discussed last night on its earnings call regarding Samsung:

AI usage in smartphones is increasing. For example, Samsung noted that 70% of Galaxy S25 users are utilizing Galaxy AI, and usage of Google Gemini AI has nearly tripled among S25 users compared to the S24. ~ Qualcomm’s CEO, Cristiano Renno Amon

From our perspective, that comment from Qualcomm reinforces our view that AI adoption in the enterprise, consumer, and government verticals will translate to tight network capacity levels, driving the need for higher enterprise networking and carrier infrastructure spending. Another reason why we are long-term bullish on Marvell shares. 

At the time of publication, the Pro Portfolio was long MSFT, META, AMZN, QCOM, AAPL, NDVA, MRVL, ETN, GOOGL and CIBR.