AI race heats up

Three of the Magnificent 7 companies – and ASML – released their Q4 earnings yesterday and the numbers were ... mixed. First, ASML announced better-than-expected results and more importantly a strong order book confirming a continued strength in AI business for the coming months. The share price gained more than 5.5% in Europe and regained the levels pre the DeepSeek selloff.

The announcements were less outright great from the three others’. Microsoft reported a significant boost in its AI segment, with an annual revenue increase of 175% year-over-year. However, the growth rate in Azure and other cloud services was 31%, slightly below 31.8% expected by analysts. Note that the company faces challenges in meeting the rising AI demand due to data center capacity constraints – the reason why they plan to invest around $80bn in AI this year. But investors were not enchanted by the cocktail of high spending and slowing growth, and sent the stock price more than 4.50% in the afterhours trading.

Meta exceeded both revenue and earnings expectations, but its current quarter forecast disappointed. More importantly, the company doubled down on its planned $60-65bn AI investment this year – defying the DeepSeek-triggered skepticism about AI costs – and Zuckerberg said that 2025 will make Meta’s AI accessible to over a billion users. There you go – you can’t have such ambitions and buy less than Nvidia’s most premium chips. The stock price first fell on disappointing current-quarter forecast then rebounded more than 2% in the afterhours. If Meta pulls off this AI story successfully, they have an incredible potential to grow as they have so much data in their hand! Meta's AI ambitions are as convincing as its metaverse bet was unconvincing.

And oh, Alibaba stepped out of the darkness saying that it’s AI model is the greatest of the world and is performing better than Meta and DeepSeek. A giant like Alibaba should be taken as a bigger threat than DeepSeek as the company can back it up with real-world applications and wide adoption. Enthusiasm from investors remains surprisingly underwhelming. Alibaba is a solid candidate for Chinese AI bets.

Overall, the AI race is intensifying, with strong demand and limitless potential. While competition might drive prices down, the sector is definitely on track for another impressive year of growth.

Last but not least: Tesla missed both earnings and revenue expectations last quarter, but... the company said that it will launch the robotaxi and pilot production of the Optimus as early as this year. Musk said that ‘Teslas will be in the wild with no one in them in Austin in June’. It was a rollercoaster ride in the afterhours trading. The stock price first fell nearly 4%, then rebounded to print a more than 4% jump. I should all admit that Musk is impressive encouraging price rallies with lower-than-expected results. But be careful, his implication in politics is a risk.

Apple is due to report earnings today.

Keeping up with the central banks

Zooming out, the US equity markets were down yesterday, but the futures are up this morning. The Federal Reserve’s (Fed) decision went according to the plan. Fed members decided to maintain the rates where they are but there was some confusion about the inflation outlook. The statement cited that inflation remains ‘somehow elevated’ bit removed a reference regarding the progress toward the 2% goal. The latter immediately got investors’ attention as a significant hawkish shift and sent stock prices lower. But then, Powell said that the language tweak was only to shorten the sentence and wasn’t meant to send a signal. So the Fed removed a big chunk of the most important information to markets from a sentence to shorten the sentence (?!) and investors partially bought into the rectification...

Overall, the fact that ‘inflation remains elevated’ and the fact that it does not necessarily trend toward the 2% target, combined with the healthy US jobs market and robust growth/earnings, topped with Trump’s tariff threats led to an unsurprisingly hawkish Fed announcement. The probability of a no cut in May rose to around 55%. And the first rate cut from the Fed is now expected for June – the earliest. But the data could change that.

Beyond the borders, the Bank of Canada (BoC) cut its rate by 25bp BUT refrained from giving any guidance due to Trump uncertainties. The USDCAD remains under the pressure of Trump risks to the Canadian growth that could need the BoC’s help to navigate the agitated waters, and the European Central Bank (ECB) will certainly announce a 25bp cut today, and repeat that if the data allows, there will be further support. The EURUSD is under pressure and is inclined to extend losses.