Big Tech earnings put AI spending under the microscope

Corporate earnings took centre stage on Wall Street this week, with results due from a cluster of technology and industrial heavyweights including Alphabet, Tesla, IBM, ServiceNow, Texas Instruments and AT&T.

The reports arrived with markets trading close to record levels. The S&P 500 finished a recent session at around 7,499, with the Nasdaq Composite near 25,691 and the Dow Jones Industrial Average roughly flat close to 52,219 — small moves that mask a bigger question hanging over the season.

That question is artificial intelligence. Investors have poured money into companies building AI infrastructure, and the biggest technology firms are spending at record levels on data centres, chips and research. This earnings round is testing whether that spending is translating into revenue and profit fast enough to justify lofty valuations.

Alphabet's results, in particular, were expected to sharpen scrutiny of its AI outlays, which are projected to hit new highs this year. Analysts want to see evidence that heavy capital expenditure is producing durable demand rather than an arms race with uncertain payoffs.

Beyond the tech giants, the week offered other signals about the health of the economy. In the United Kingdom, inflation cooled to 2.6% in the year to June, slightly below expectations — a modest relief for households and a data point central bankers will weigh. Oil prices, meanwhile, extended a recent rally amid geopolitical tensions that have raised concerns about supply.

For all the focus on individual companies, the underlying story is the same one that has driven markets for months: how much are investors willing to pay today for the promise of an AI-powered future, and how quickly will that promise show up on the bottom line?