AHEAD of this quarter’s crop of tech earnings, I predicted companies would be reluctant to offer much in the way of forward guidance, given the almost Covid-like upheaval of the global economy thanks to President Donald Trump’s tariffs. I was half right: There was some guidance – though it arrived with a large asterisk.
“It’s hard to tell what’s going to happen with tariffs right now,” Amazon.com chief executive officer Andy Jassy said on Thursday (May 1). “It’s hard to tell where they’re going to settle and when they’re going to settle.” His company gave itself characteristically large wiggle room with its operating income projection of US$13 billion to US$17.5 billion.
Jassy acknowledged that, with the majority of its e-commerce sales handled by third parties, it was difficult to know exactly how tariffs would affect prices on its store. “When you’ve got two million-plus sellers,” Jassy said, “they’re not all going to take the same strategy if there ends up being higher tariffs. I mean, there are going to be plenty of sellers that decide to pass on those higher costs to end consumers.”
But Cook warned the estimate “should not be used to make projections for future quarters”. Cook reminded analysts that the company could be subject to additional tariffs down the line once the Commerce Department finished its investigation into the semiconductor sector. (“Good luck”, came the instinctive response from Morgan Stanley’s Erik Woodring.)
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Even some of the companies that came out of this earnings season with a boosted stock price hinted at trouble to come. Meta Platforms could experience turbulence with its advertising business as Chinese companies pull back and European regulators turn the screws. Google reported a similar softening in ad spending, too.
The only company that offered what felt like universally good news was Microsoft Corp. It was justly rewarded, on Friday overtaking Apple to retake the crown as the world’s most valuable company. Its shares are up more than 14 per cent over the last month – comfortably the Magnificent Seven’s best performer.
The surge can be attributed in part to its relative insulation from tariffs – it mostly sells software, not devices – and extremely strong performance in its cloud segment. Microsoft’s cloud revenue was up 20 per cent compared with last year, much of the boost attributed to the Azure platform and artificial intelligence’s (AI) use within that.
CEO Satya Nadella took the opportunity to play down reports that its adjustments on data centre roll-out constituted a reining in of ambition. “I feel very, very good about the pace,” Nadella said. After several quarters of woolly numbers on the return on investment from AI, this was music to investors’ ears and will help steady Wall Street nerves around Big Tech, even in this tumultuous year.
There had been talk, in this column and elsewhere, that one way to placate tariff concern might have been for tech companies to ease their blistering spending on AI. In this round of earnings, at least, there is no no sign of that. Instead, CEOs are leaning into their AI ambitions as a reason to stick with them through tariff uncertainty in anticipation of the bigger prize.
Microsoft expects capital expenditures for its 2025 fiscal year (which ends in June) to be at the US$80 billion level it outlined earlier in the year. Investment will grow again in 2026, the company said. Neither Alphabet nor Amazon announced any changes to their capex projections of US$75 billion and US$100 billion for the year, respectively.
Meta went as far to increase its estimates: It now expects a new high of US$72 billion, up from US$65 billion. The increase is being attributed to expanding its plans, while acknowledging that tariffs might make data centres more broadly expensive to build.
So if there is a takeaway from this decidedly mixed bag of earnings, it is that the uncertainty swirling the tech sector has so far been unable to pierce the AI bubble. Whether that can hold for the next few quarters is largely down to the actions of one man. The tone of this year’s tech earnings season was this: We are weathering this storm so far, but please, Mr President, no more surprises. BLOOMBERG
