By Tae Kim

During a stretch of just 36 hours this past week, we learned more about the state of tech tariffs and artificial intelligence than perhaps we had in all three months prior. That's thanks to a quick succession of earnings from Microsoft, Meta Platforms, Apple, and Amazon.com.

While all four companies reported better-than-expected earnings, the stock reactions following their results underscored that, in a global trade war, digital bits win over atoms. Shares of Microsoft and Meta Platforms both surged following their results, while Apple and Amazon underperformed.

Apple CEO Tim Cook said tariffs would add about $900 million to the company's costs for the June quarter. Amazon CEO Andy Jassy said the company had yet to see significant impact from the levies.

That said, both Apple and Amazon sell many physical products and couldn't give much clarity about the potential tariff impact for the rest of the year.

Beyond tariffs, the reports offered an important update on artificial intelligence: The reports of its demise have been greatly exaggerated.

Heading into earnings season, some on Wall Street were worried that companies would reduce their plans to spend hundreds of billions to build out AI infrastructure this year. Concern about return on investment, combined with economic weakness, led some to think the big AI spending trend was done. Not even close.

In fact, spending is actually picking up. The fundamental story around AI hasn't changed. AI demand continues to accelerate beyond expectations. And the so-called hyperscalers all still plan to invest aggressively.

On Wednesday, Microsoft said it was increasing European data center capacity by 40% over the next two years, putting to bed speculation that the software giant was cutting back overseas. The company also reaffirmed its prior guidance to spend $80 billion on data center capacity this fiscal year ending in June.

Microsoft said it has been capacity-constrained for Azure AI services, meaning the company doesn't have enough AI GPU servers to meet demand. Microsoft said it would remain supply-constrained beyond June, which is longer than management expected. That is clear evidence of robust AI demand from enterprises.

In the biggest surprise of the week, Meta went a step further than Microsoft and boosted its already hefty 2025 capital expenditures forecast to a range of $64 billion to $72 billion versus a prior outlook of $60 billion to $65 billion. And that still may not be enough.

Even with its increase in AI computing capacity, Meta Chief Financial Officer Susan Li said the company doesn't have the resources to meet the demand of its internal AI projects.

On the earnings call with investors, Meta CEO Mark Zuckerberg laid out a clear vision for five areas where he sees big opportunity for AI: improved advertising outcomes; new types of interactive content; a WhatsApp for customer support and sales; voice conversation and more personalized recommendations; and, finally, better devices. Zuckerberg sees a huge number of people wearing AI-enabled glasses within five to 10 years.

"We don't need to succeed in all of these areas to have a good ROI," Zuckerberg said, using the shorthand for return on investment. "But if we do, then I think that we will be wildly happy with the investments that we are making."

Similarly, Amazon sees potential for AI to transform all parts of its operations. It's already using AI to improve productivity in fulfillment, e-commerce, and advertising. "We're not dabbling here," Jassy said on the earnings call. "As fast as we actually put the capacity in, it's being consumed."

Jassy said the company's AI business was growing at more than 100% year over year, a figure that would be higher with more capacity. Jassy sounded especially optimistic about the potential for AI agents, which are programs with the ability to take simple directions and complete multistep tasks.

Jassy cited two start-ups using agents to code that are suddenly significant Amazon Web Services customers, the type of demand that wasn't foreseen even a few months ago.

"I would say we're not even at the second strike of the first batter in the first inning. It is so early right now," Jassy said.

Of course, a prolonged trade war could change everything. Sales at large technology companies would eventually be affected as consumer spending and enterprise tech budgets all deteriorate.

Even then, AI might thrive. In times of uncertainty, smart companies with long-term horizons invest to gain market share. Earlier this year, Nvidia CEO Jensen Huang said that if there is a recession, companies would shift more investment toward AI because it's an area with the most promise and a source of potential efficiencies.

Zuckerberg agrees. During downturns, "I'm going to do things like build out even more GPU infrastructure to serve businesses and people better," he said in a Stratechery podcast interview this past week.

AI increasingly looks like a once-in-a-generation paradigm shift for computing. Even a recession may not bring it to a halt.

Write to Tae Kim at tae.kim@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

May 02, 2025 16:43 ET (20:43 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.