Weekly Buzz: 🤖 Magnificent earnings – magnificent AI spending

It's been busy – we're deep in earnings season, the US elected their president (our full CIO Update coming this afternoon will cover this), and the Federal Reserve announced another rate cut (here’s what it means for your investments).

Amid all this, we got a clearer picture of Corporate America's health – companies representing nearly 42% of the S&P 500's market value reported their earnings last week. US stocks are trading at premium valuations, so the pressure was on for strong results.

Rising to the occasion, the tech giants – Alphabet, Apple, Microsoft, Meta, and Amazon – each “magnificently” beat analyst expectations. Here's how they performed:

• Amazon delivered $158.9 billion in revenue and a hefty profit improvement, fueled by its advertising and AWS cloud businesses, which both grew 19% year-on-year.

• Apple reported $94.9 billion in revenue, up 6% year-on-year. And it’s not just the “iPhone company” anymore – the firm’s services business alone would land around 40th on the Fortune 500.

• Alphabet, Google’s parent company, posted revenue growth of 15% to hit $88.3 billion, well ahead of analyst expectations.

• Microsoft grew its revenue 16% compared to the same time last year to $65.6 billion, powered by its cloud division.

• Meta increased revenues by an impressive 19%, raking in $40.6 billion. But its popularity took a hit, with weaker-than-forecasted user growth.

But the markets responded with scepticism. The tech-heavy Nasdaq fell 2.8% for the week, while the S&P 500 slumped 1.9% – their worst showing in almost two months.

That’s partly because of investor scrutiny over the massive amount of money spent on AI. Amazon, Alphabet, Microsoft, and Meta are projected to have spent $56 billion on infrastructure like data centres in the third quarter alone, up 52% from the same period last year.

💡 Investors’ Corner: The nuclear solution to AI's power problem

Global electricity demand is amping up with power-thirsty AI data centres. In its latest outlook, the International Energy Agency (IEA) says we’re entering a new “age of electricity”. Between 2023 and 2035 alone, demand is expected to grow by almost 1,000 terawatt hours annually – equivalent to adding the entire electricity consumption of Japan each year.

The next frontier for nuclear energy

With policymakers also racing to reduce carbon emissions, nuclear energy finds itself uniquely positioned. Global nuclear power capacity is projected to expand as much as 144% by 2050.

Here's where things get interesting: 'small modular reactors' (SMRs) – widely regarded as the next frontier for nuclear energy – will account for about a quarter of the capacity added. These next-generation reactors are designed to be built in factories and assembled on-site, unlike traditional nuclear plants that require years of construction. 

Their key advantage? They can be placed right where power is needed, supplying clean electricity directly to energy-intensive facilities like data centres. And Big Tech’s taken notice. Google plans to bring its first reactor online by 2030, with more to follow through 2035, while Amazon has set a target of 5 gigawatts of SMR-generated power by 2039.

What’s the takeaway here?

Nuclear power is a long-term investment theme driven by the global transition to clean energy – so you’ll want to approach it with a similarly forward-looking perspective. If you're looking to gain exposure to this structural shift, you can use our Flexible Portfolios to invest in the Global X Uranium ETF (URA), which covers companies across the nuclear value chain, from uranium mining to nuclear component manufacturing.

These articles were written in collaboration with Finimize.

🎓 Simply Finance: Analyst expectations

Think of analyst expectations as corporate forecasts. Just as meteorologists study atmospheric patterns to predict tomorrow's weather, financial analysts study company performance, economic trends, and industry data to forecast earnings and growth. And like weather forecasts, these predictions – while informed – aren't guarantees.