Four members of the Magnificent Seven Big Tech companies reported robust first-quarter earnings yesterday, making it one of the most consequential days of the earnings season. The four companies – Amazon, Alphabet, Microsoft and Meta – account for 17% of the S&P 500 market capitalisation and are bellwethers for the direction of Artificial Intelligence (AI) investment, adoption and monetisation across the broader economy.
Alphabet outperformed with a 30% profit growth and a 63% surge in Google Cloud revenues. Amazon posted a 15% year-on-year profit increase and racked up 28% growth in its AWS cloud division, its fastest rate in four years. Microsoft beat revenue expectations with a 16% increase and profits rising 23%, while Meta’s diluted earnings per share jumped 62%. Tesla set the tone last week with earnings that beat Wall Street expectations (Apple reports today, and Nvidia in May).
The results support the thesis that AI is not only set to generate revenue and disrupt markets in the future but is already fuelling growth for the tech giants. Their cloud businesses are booming, enterprise AI products are gaining traction, and the companies are demonstrating an ability to monetise their AI investments. But there is a significant caveat for the quarters to come.
Amazon, Alphabet, Microsoft and Meta are, between them, forecasting capital expenditure in the region of $725 billion this year, an increase of 77% over last year’s $410 billion. The unprecedented rate of spending is rattling some investors, who are looking for clearer timelines on returns. Free cash flow, margin compression and the sustainability of AI infrastructure could cause anxiety in the months ahead.
Aside from US Big Tech, emerging markets have also accelerated in the AI slipstream. The MSCI Emerging Markets Index has climbed 16% in April alone, recovering from March’s losses and slightly surpassing its previous peak. Nearly half of those gains came from three Asian chipmakers: TSMC, Samsung, and SK Hynix. This signals that investors are looking for opportunities to get into AI at more attractive valuations.
Despite the blowout earnings results, US equity indices have traded relatively flat so far this week. The S&P 500 and Nasdaq have held their ground rather than rallied, with the results only released after the US close on Wednesday. However, the context is important. April has been a bumper recovery for our investors so far, in most cases erasing the losses of the early weeks of the war.
What’s more, the geopolitical backdrop remains unresolved. The standoff in the Strait of Hormuz continues with no clear end in sight and oil prices are edging higher. The US Federal Reserve held interest rates steady this week amid concerns about higher prices at the pump and more expensive grocery bills. This adds a layer of macro uncertainty beneath the tech euphoria.
“With the potential payoff of AI leadership seemingly so high, the companies continue to make those bets, forcing investors and customers alike to assess how their interests are impacted.”
– Lee Sustar, analyst at Forrester Research
“Stocks are again trading at record highs, reflecting strong investor confidence, but the S&P 500’s heavy concentration in the Magnificent Seven technology leaders elevates downside risk should earnings fall short, as valuations leave little margin for error.”
– Chris Brigati, chief investment officer at SWBC
Global News
- Big Tech set the pace for markets on Wednesday as Microsoft, Alphabet, Amazon and Meta Platforms reported earnings that reinforced the sector’s role as the primary driver of the equity rally, with strong cloud and AI-led performance supporting momentum. The group, representing roughly $12 trillion in market value, continues to underpin a significant share of S&P 500 gains, with profit growth still running well ahead of the broader market. While results varied and drove some share price volatility, the updates confirm technology’s outsized role in market gains, even as Meta’s higher capital spending highlights rising investor scrutiny around the scale and returns on AI investment.
- Emerging-market stocks have rebounded from early losses amid the Iran war, reaching a record high, fuelled by a strong rally in Asian semiconductor companies linked to the AI boom. The MSCI Emerging Markets index has risen more than 16% in April, surpassing its February peak, outpacing the roughly 10% gain in the S&P 500 over the same period. Nearly half of the gains have come from just three chipmakers, Taiwan Semiconductor Manufacturing Company, Samsung Electronics and SK Hynix, which now account for close to a quarter of the index, underscoring the growing concentration of AI-driven tech stocks in emerging markets.
- US-Iran peace talks stalled over the past weekend as the conflict neared its two-month mark, after US President Donald Trump cancelled a planned envoy trip and Iran refused to negotiate under threat. On Wednesday, the US signalled it would maintain its naval blockade of Iranian shipping as it seeks to intensify pressure on Tehran, with officials indicating there are no plans to ease restrictions despite ongoing diplomatic exchanges. The measures are aimed at curbing Iran’s oil exports and limiting revenue flows, reinforcing Washington’s strategy of sustained economic pressure alongside negotiations. The impasse keeps the Strait of Hormuz effectively shut, sustaining pressure on oil markets and global supply flows.
- The UAE announced on Tuesday that it would exit OPEC and the wider OPEC+ alliance from 1 May, ending decades of membership to pursue a strategy that allows greater control over its oil production. The move follows ongoing tensions over output quotas and comes amid disruption to global oil markets linked to the Iran conflict. As a major producer, the UAE’s exit could weaken OPEC’s supply coordination over time, while enabling the country to increase output and compete more aggressively for market share.
- Oil prices have surged to their highest level in four years, supported by ongoing supply risks linked to the Iran conflict and the continued US naval blockade, while traders also assessed the implications of the UAE’s decision to leave OPEC+. Oil has surged more than 90% this year, with Brent crude trading at $121 a barrel as at the time of writing.
- The Fed left interest rates unchanged at its Wednesday meeting under Chairman Jerome Powell, but the decision exposed growing divisions within the policy committee, with multiple officials dissenting over the central bank’s easing bias. The split reflects growing disagreement over the outlook for inflation and the appropriate path for interest rates, with some policymakers resisting signals of future rate cuts while others favour easing.
- The decision comes as Trump nominee Kevin Warsh moves closer to succeeding Powell, after the Senate Banking Committee voted along party lines to advance his nomination on Wednesday. Warsh has argued for a firm approach to inflation and has criticised what he views as overly accommodative monetary policy in recent years, positioning himself as a more hawkish candidate. Powell is expected to remain on the Board as a governor.
- The World Bank said in its latest Commodity Markets Outlook, published on Tuesday, that global commodity prices are projected to rise by about 16% this year to their highest level since 2022, driven largely by surging energy costs linked to the Iran conflict as well as increases in fertiliser and key metals. The report noted that this would mark the first annual increase since the post-Ukraine war spike, with higher prices expected to add to inflationary pressures and weigh on growth in developing economies, particularly those that are heavily reliant on commodity imports.
- King Charles III urged the US to reject isolationism and maintain its global leadership role in a landmark address to Congress on Tuesday, emphasising the importance of supporting NATO and Ukraine while reinforcing the long-standing UK-US alliance. In a notably direct speech for a monarch, he appealed to shared democratic values, history and international responsibilities, warning against inward-looking policies at a time of heightened geopolitical tension. The address comes amid strained transatlantic relations and broader global instability, positioning the UK as advocating continued Western coordination on security and defence issues
- The Bank of England is expected to hold interest rates steady ahead of its Thursday meeting as it assesses the economic impact of the war in Iran, with policymakers weighing how higher energy prices will feed through to inflation. Uncertainty over persistent price pressures is keeping officials cautious as they monitor incoming data. The market has priced in a quarter-point increase in July, another in September and a small chance of a third by year-end.
- Meta raised its 2026 capital expenditure forecast to between $125 billion and $145 billion on Wednesday, well above earlier guidance and analyst expectations, driven by higher component costs and increased investment in AI infrastructure. Despite strong revenue performance, the higher spending outlook weighed on investor sentiment, with shares declining amid questions about the near-term impact on margins and free cash flow. The updated guidance highlights the escalating scale of AI-related investment across Big Tech, while highlighting investor sensitivity to the balance between aggressive capital deployment and profitability.
- Alphabet reported first-quarter revenue and profit that exceeded expectations on Wednesday, supported by strong performance in its cloud division as demand for artificial intelligence products and enterprise services accelerated. Google Cloud delivered robust growth, reinforcing the role of AI-led demand in driving earnings momentum. While the results also eased investor concerns that advances in chatbots could erode the company’s core search business, as Alphabet continues to evolve its search platform and leverage its data to build AI models and tools.
- Amazon reported its fastest cloud revenue growth since 2022 on Wednesday, driven by strong demand for AI computing power and expanded data centre capacity. AWS sales rose sharply, highlighting accelerating enterprise spending on AI infrastructure, although the growth has been accompanied by a significant increase in capital expenditure as the company invests to meet demand. The results highlight the scale of infrastructure expansion required to support AI demand, reinforcing the central role of cloud computing in Amazon’s growth strategy.
- Microsoft reported stronger-than-expected growth in its Azure cloud computing unit, driven by continued demand for AI services, according to Wednesday’s results. While cloud revenue growth exceeded analysts’ forecasts, the results also highlighted concerns that the company may not be fully capturing the scale of AI demand amid capacity constraints and rising competition. The company plans to spend about $190 billion on capital expenditure, largely on data centres, through to December. Microsoft’s AI business has surpassed a $37 billion annual revenue run rate, more than doubling year-on-year, with 20 million customers now paying for its Copilot AI assistant, up from 15 million in the previous quarter.
- China blocked Meta’s $2 billion acquisition of AI startup Manus, ordering the deal to be unwound after its top economic planning body reviewed it on Monday. The ruling is likely to send a chill through China’s AI sector and may deal a setback to Meta as it looks to compete in AI against rivals. Beijing’s move reflects the importance of AI to China’s technological ambitions and its efforts to prevent the leakage of homegrown technology abroad, particularly to the US.
- As at Wednesday’s close the S&P 500 was 0.4% down for the week.
Local News
- The South African Reserve Bank signalled it will remain firmly committed to its 3% inflation target despite rising price pressures, with economists warning that two interest rate hikes may be needed amid a global oil shock that is driving fuel costs higher. Governor Lesetja Kganyago emphasised on Monday that the bank will not deviate from its target, citing lessons from past policy missteps, even as inflation, which had recently eased to target, is expected to rise in the near term.
- Iran has offered to supply crude oil to South Africa amid the global energy disruption caused by the ongoing Middle East conflict. The proposal was communicated to officials at the Department of Mineral Resources and Energy in April. Pretoria has given no indication that it will accept the offer, with Mineral and Petroleum Resources Minister Gwede Mantashe declining to comment, while officials have said the country’s fuel supply remains stable and diversified and is not at risk despite rising costs.
- National Treasury announced on Tuesday that it will extend the temporary R3 per litre reduction in the general fuel levy on petrol until early June, while increasing diesel relief by 93 cents to R3.93 per litre, effectively reducing the diesel levy to zero to cushion the impact of sharply rising prices. The measures, introduced in response to global oil price pressures, will be partially phased out in June, with relief halved as the government moves to normalise levies before July.
- Washington remains open to “constructive engagement” with South Africa where interests align, US Secretary of State Marco Rubio said on Monday. This marks his first formal public outreach to Pretoria in months. The message, issued to coincide with Freedom Day, follows a period of strained relations that included the freezing of US aid and diplomatic tensions. South Africa has taken steps to ease tensions, including appointing a new ambassador and submitting revised trade proposals.
- S&P Global on Tuesday warned that climate-related risks are mounting for South Africa, with physical threats such as water stress and extreme weather increasing pressure on infrastructure and economic stability. The ratings agency said that stronger investment in resilience and adaptation measures will be critical to limit long-term economic and fiscal damage. S&P acknowledged the government’s steps to strengthen its climate policy framework, including the Climate Change Act and the Climate Risk and Vulnerability Framework.
- South Africa plans to overhaul its exchange control regime to attract foreign investment and strengthen its role as a regional financial hub, according to National Treasury. The reforms include easing capital flow restrictions, expanding offshore investment allowances, enabling asset managers to operate foreign-currency funds locally, and introducing regulation for crypto assets. The JSE estimates the changes could unlock up to R10 trillion in investment over time, as the government seeks to modernise outdated legislation and stem capital outflows.
- Foreign arrivals to South Africa rose by 8.4% year-on-year in March to just over 1.2 million visitors, according to Statistics South Africa data released on Wednesday, reflecting continued recovery in the tourism sector. The increase was driven by stronger arrivals from key international markets, although visitor numbers remain vulnerable to infrastructure constraints and broader economic conditions. The gradual rebound in tourism activity is supporting economic growth, employment and foreign exchange earnings as the sector continues to regain momentum.
- Chinese car brands are rapidly climbing South Africa’s sales rankings and beginning to challenge established leaders such as Toyota and Volkswagen, according to data reported on Sunday. While Toyota remains the clear market leader and Volkswagen second, the combined sales of Chinese marques, including Chery, Omoda and Jaecoo, are now rivalling Volkswagen’s volumes. The shift reflects growing demand for competitively priced, feature-rich vehicles, positioning Chinese manufacturers as increasingly significant competitors in the local market.
- Following a data breach disclosed in March, Standard Bank told customers this week that its transactional systems were not accessed and remain secure. The bank said it continues to strengthen controls and monitoring in line with industry standards and has reported the incident to regulators and law enforcement while cooperating with ongoing processes. After the breach, the Financial Sector Conduct Authority called for a shared intelligence network, arguing that financial institutions are increasingly outmatched by more sophisticated cyber threats.
- As at the time of writing, the rand was 1.5% weaker against the dollar, and the ALSI was 0.2% down for the week.
Sources: Dynasty, Bloomberg, Business Day, Reuters, CNN, Daily Maverick, ITWeb, Business Report, The Financial Times, etc.
