Equity investors are learning a harsh lesson this corporate earnings season: Not all artificial intelligence trades are created equal.
While profits at S&P 500 and Stoxx Europe 600 constituents as a whole are tracking one of the best quarterly increases in years, traders have been much more discerning about how much cash is being spent on developing generative AI.
Shares of tech heavy-hitters such as Meta Platforms Inc. and Alphabet Inc. have been penalized after the companies signaled even more capital expenditure, while the likes of Microsoft Corp. have been rewarded for preserving their cash reserves.
The semiconductor supply chain has also felt the ripple effects, with Lam Research Corp., Schneider Electric SE and Prysmian SpA among the outperformers on robust demand for their technology that enables AI.
“Earnings have remained resilient, but investors have become much more disciplined about paying ever higher valuations for large-cap technology,” said Violeta Todorova, senior research analyst at Leverage Shares. “On the other hand, Europe has quietly delivered improving profit expectations across a broader range of sectors.”
S&P 500 firms are on track to post a 29% surge in second-quarter earnings per share, among the highest on record outside of post-crises recovery years, according to data compiled by Bloomberg Intelligence. And yet, the S&P 500 has gone nowhere since the season began in mid-July, weighed down by the largely underwhelming response to big tech.
