Divided Tech, Divided Fed: Navigating AI Capex Scrutiny and Mixed Macro Signals

• Microsoft's Azure grew 43% with AI business exceeding $37B run rate, while Meta's free cash flow plunged 91% to $784M due to AI infrastructure costs and legal charges
• Q2 S&P 500 earnings growth jumped to 47.4% with 61% of companies reported; Amazon's AWS surged 37% justifying potential $220B capex by 2026
• Fed's rare 9-3 split vote and mixed GDP data (1.5% growth vs. 3.9% private demand, 5.1% PCE inflation) signal stagflation risks ahead of critical August 7 jobs report

Market Summary: Tech Earnings Divergence and Macro Uncertainty

Big Tech AI Spending Divide

Major technology earnings revealed a sharp split in market reaction to AI capital expenditures. Microsoft (MSFT) surged 9% on $90 billion revenue and 43% Azure cloud growth, with AI business exceeding a $37 billion run rate. Amazon jumped 8% following 37% AWS growth, with potential capex reaching $220 billion by 2026.

Conversely, Meta (META) plunged 9% as operating costs crushed free cash flow 91% to just $784 million despite revenue beats. Apple similarly underperformed despite beating estimates. The clear message: investors now demand direct AI monetization, not just spending promises.

Earnings Progress

Q2 S&P 500 earnings show robust momentum with 61% of companies reported. Blended EPS growth surged to 47.4% (from 37.9% prior week), while revenue growth reached 14.1% (up from 13.2%).

Stagflation Concerns Emerge

The Federal Reserve held rates steady at 3.50%-3.75% in an unusual 9-3 vote, with three hawkish dissents favoring immediate increases. Q2 GDP disappointed at 1.5% annualized (vs. 2.0% estimate), down from Q1's 2.1%. However, private domestic demand surged 3.9% and PCE inflation accelerated to 5.1%, creating a stagflationary backdrop.

Week Ahead

Focus shifts from mega-cap tech to industrials, healthcare, and consumer sectors. Key reports include Palantir (PLTR), Vertex Pharmaceuticals (VRTX), Tyson Foods (TSN), and SpaceX's (SPCX) debut public earnings. August 6 represents peak earnings week with 1,018 companies reporting.

Four S&P 500 companies—Alexandria Real Estate (ARE), Kimberly-Clark (KMB), Host Hotels (HOST), and Keurig Dr Pepper (KDP)—are reporting later than historical patterns, typically signaling negative surprises.

All eyes turn