Amazon surges 12%, Apple drops 7% as investors pick AI winners

Amazon shares surged 12% premarket while Apple dropped 7% after investors rewarded cloud growth and punished weak iPhone guidance.

"AWS's strong growth is a clear indicator that its infrastructure investments are meeting market demand rather than outpacing it," Tracy Woo, principal analyst at Forrester, said in a note Thursday.

Apple's earnings, revenue and iPhone sales all topped market expectations, but the company guided current-quarter revenue growth of 9% to 11%, missing the 12% analysts expected, according to LSEG. Apple cited a shortage of memory, a key component in its devices, and competition for chip manufacturing capacity. The company has raised prices on the Mac and iPad, and analysts expect an iPhone price increase this year. Amazon, meanwhile, said revenue at its cloud computing business jumped 37% year over year in the second quarter, the strongest expansion since 2021, and forecast capital expenditures of $220 billion this year, up from a prior $200 billion.

The divergent moves show investors picking AI winners during this earnings season, with mega-cap tech stock moves diverging. On Thursday, Meta sank 8% while Microsoft rallied 15% as investors took different views on their AI strategies. Amazon's stock, up about 4% year to date, has been a laggard, while Apple has risen 23% and touched a $5 trillion market value.

AI Spending Faces a Market Verdict

The reaction extends a pattern in which investors have punished tech companies that spend heavily on AI without clear returns. Meta posted earnings per share of $6.18, below the $7.19 analysts expected, despite record revenue of $60.80 billion, as costs surged 55% on AI infrastructure investment. Microsoft, by contrast, topped estimates with adjusted earnings of $4.74 a share on $90.01 billion in revenue, sending its shares up 16% and pushing its market value above $3.5 trillion.

Apple's guidance shortfall stems from a global memory shortage and competition for chip manufacturing capacity, constraints that have already pushed the company to raise prices on the Mac and iPad. Analysts expect an iPhone price increase this year. Amazon's cloud growth appeared to justify its spending, with investors monitoring AWS as an indication of demand for its AI products.

The moves come as the broader market rebounds from Wednesday's selloff, when the Dow fell 1,153 points, its worst day in 15 months, after the Federal Reserve held rates steady. The 10-year Treasury yield was below 4.67% Thursday, while the S&P 500 rose 1.7% and the Nasdaq gained 2.8%. Information Technology shares led the S&P 500 higher, up 5.1%, while Communication Services fell 2.6%. Oil prices declined as traders assessed U.S. strikes against Iran, with West Texas Intermediate futures down 1.1% at $83.50 a barrel.

Investors have been scrutinizing Big Tech's AI spending as concerns grow that companies are investing ahead of demand. Amazon's cloud growth appeared to justify its outlays, while Apple's supply constraints left it exposed to a memory shortage that has pushed up component costs. The divergent reactions set up Nvidia's late-August earnings as the next test of whether the AI investment cycle can sustain the market's enthusiasm.

This article is for informational purposes only and does not constitute investment advice.