US tech stocks and the AI trade – what's next for investors?

Tech earnings season offered a fresh snapshot of how artificial intelligence (AI) continues to reshape the industry.

From cloud computing to advertising and infrastructure investment, the world’s biggest tech companies are leaning hard into AI – and investors are watching closely to see who’s leading, who’s lagging, and where the next wave of growth might come from.

At the same time, the sector has been under pressure.

New White House trade policies have created uncertainty around global supply chains and future demand, adding another layer of complexity to an already pivotal moment for the industry.

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Cloud Wars

Cloud growth was a bright spot from earnings across the three biggest names in the space.

Microsoft Azure led the charge, growing 33% thanks in large part to demand for AI tools powered by its OpenAI partnership and a growing customer base.

Google Cloud wasn't far behind with 28% growth, leaning on its strengths in generative AI and data platforms.

Amazon Web Services (AWS) still holds the biggest slice of the market at around 30%. But its slower 17% growth raised some eyebrows, as it lags in AI specific revenue streams compared to the other two.

It was important that we saw AI contribute to cloud growth and that was largely the case, we were also keen to find out whether supply had finally caught up to demand.

All three called out a lack of compute supply as holding back growth – that’s a positive tailwind for growth over the rest of the year as more supply comes online.

Tariff trouble

As far as direct impacts go, it’s the hardware giants Apple and Amazon that are the most impacted.

Broadly speaking there hasn’t been any major impact yet, but both companies spoke cautiously about the medium-term.

Apple went as far as to say that the second half of the year was difficult to map and that was one of the reasons the stock fell on the day.

Amazon’s e-commerce business is expected to slowdown in the coming quarter, but we think the guide of 5-9% growth still looks encouraging (quarter one – 9% growth).

There’s an argument that once the initial tariff hit has been absorbed, Amazon could see its competitive position improve as low-cost Chinese competition loses some of its edge.

On the digital side, we felt there was some concern heading into results that ad spend could come under pressure if there’s a general slowdown in economic activity. That’s not gone away, but bigger names like Meta and Alphabet look to be coping well.

Huge customer bases, a broad range of advertiser options, and improving ad targeting with AI are big enough tailwinds to drive impressive ad revenue growth, despite broader challenges.

The capex conundrum

There were some question marks around investment in new AI infrastructure, and whether it might slow as tariff’s muddy the outlook for demand.

However, the US giants continue to view this as pivotal area to invest, not to secure some growth in the coming year ahead, but to enable leadership over the next decade and beyond.

Of the big AI spenders, we saw Amazon, Alphabet and Microsoft keep their AI investment guidance unchanged.

Meta was the outlier, increasing the amount it expects to spend over the next year.

This was all a very good sign for the broader AI trade and for names like NVIDIA, whose chips, in our opinion, are likely to attract a large share of that capital.

The AI trade

Based on what we’ve seen from some of the biggest names in the tech world, the ongoing AI adoption, infrastructure buildout, and new ways of working are accelerating at pace.

We’re seeing cloud growth driven by new AI demand, ad revenue growing as AI tools improve ad targeting and monetisation, and no slowdown in investment.

We think the next innovation cycle, driven by AI, is happening now – and some of the biggest names on the planet are in great shape to capitalise.

There’s of course a lot of uncertainty in the air, and tech names tend to be more volatile than the broader market, so investors should prepare for ups and downs.

The author holds shares of NVIDIA.

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