Tuesday night in the US was like the opening night of the Academy Awards week for the big tech companies as the first of the quarterly results gave sharemarkets the opportunity to judge their performance.
It is proving to be one to test the mettle of artificial intelligence bulls against the band of investors who are nervous about the hundreds of billions being spent in the AI arms race and the potential for returns on this investment.
It was a mixed bag that partly rewrote the rules of reward for performance and exposed the fickle nature of investors.
The earnings announcements of Elon Musk’s Tesla and Mark Zuckerberg’s Meta were greeted with share price gains while Microsoft’s strong result proved insufficient to convince investors who are jumping at shadows around its mega-spend in AI.
Meta’s move to supercharge its investment in AI was given a massive tick by investors after it blew past earnings expectations.
Meanwhile, investors had the opportunity to judge Amazon on this week’s move to terminate 30,000 jobs. Usually, cutting jobs is viewed positively by investors, but instead the decision spooked those who worried that the cost-cutting exercise was needed to raise funds for AI.
The “magnificent seven” technology companies – Microsoft, Alphabet, Meta, Tesla, Amazon, Nvidia and Apple – have such outsized impact on the US sharemarket that their performance is forensically dissected for imperfections and opportunities.
Curiously, given the rise in Tesla’s share price, there was a lot to dislike about its result, the only positive being that it was not as bad as expected.
Net income in the quarter plunged 61 per cent to $US840 million ($1.2 billion) from a year earlier as operating expenses jumped 39 per cent.
Its overlord Musk’s narrative was one of reinvention. While companies typically move from start-up to maturity, Tesla is turning corporate evolution on its head.
The mature electric vehicle company is morphing its focus to become a human robot and autonomous vehicle enterprise. Revenue in its fourth quarter dropped 3 per cent, but tellingly the auto segment slumped 11 per cent.
Musk is moving to end production of its Model S and X vehicles. But ever the magician, the world’s richest man is diverting investor attention to his shiny new toys – human robots and self-driving cars. He says the company will start selling its Optimus robot (capable of cleaning and babysitting) to the public next year.
Tesla’s history of living up to the hype on autonomous vehicles is one of missing many deadlines.
In 2025, Tesla launched a robotaxi-branded ride-hailing app and has been running a pilot service in Austin, Texas. Last week, Tesla executives said they had taken human safety supervisors out of a handful of cars in the Austin fleet to conduct driverless passenger rides.
On the other hand, Microsoft, a stalwart earnings outperformer, was punished for its better-than-expected revenue and profit. Its revenue for the December quarter rose 17 per cent.
While its cloud business, Azure, demonstrated strong growth with revenue up a massive 39 per cent, some had even bigger expectations and that, combined with AI expenditure anxiety, sent shares 6 per cent lower in aftermarket trading.
Growing revenue in this division at this pace and off an already massive base is the definition of a true growth stock.
Microsoft said its remaining performance obligations, which is the backlog of contracts that it expects to be paid for in the future, is $US625 billion – more than double what it was a year ago.
More than anything, this appeared to unsettle investors who were concerned about payment.
Sentiment loomed large as did inconsistency in reactions to the fortunes of the “magnificent seven”.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
