"Tech Seven Sisters" financial report phenomenon: The market doesn't care about how to make money, only cares about how to spend money

Recently, Microsoft, Google, Meta, and Tesla, known as the "Big Seven" in the US stock market, have successively announced their first-quarter financial results. Among them, three companies reported profits and sales that exceeded Wall Street's expectations, while the fourth company's performance fell significantly below expectations.

However, investors are not reacting much to these direct financial results. They are more concerned about the investment and spending plans of these four companies in the future, rather than just their current profitability. Data shows that these four companies have a total cash reserve of $275 billion, which can be freely used for various investments and developing new technologies.

Overall, there is a strong demand for AI infrastructure, and these companies have all increased their capital expenditures on AI:

• Meta: Annual capital expenditures have been raised from $300-370 billion to $350-400 billion to build data centers to support AI business;

• Google: It is expected that capital expenditures in each quarter of 2024 will be over $12 billion, with a year-on-year increase of at least 49% to maintain a leading position in AI infrastructure;

• Microsoft: With a greater demand for computing power cards than supply, it has decided to expand its AI investment scale, with capital expenditures of $14 billion this quarter (expected $13.14 billion), and a significant increase in capital expenditures is expected in the next quarter.

The statements of these companies regarding future spending plans have directly caused significant fluctuations in stock prices. In particular, Meta announced an increase of up to $10 billion in AI infrastructure investment this year. This news caused its stock price to drop by 11%, marking the largest single-day decline since October 2022. While Microsoft has also invested heavily in the AI field and its stock price has been affected, it quickly rebounded after announcing its financial performance.

Dan Morgan, portfolio manager and analyst at Synovus Trust, said:

"Meta, Microsoft, Tesla, and Google have a combined cash balance of $275 billion at the end of the first quarter. Investors are putting pressure on these companies' cash usage, focusing on how the companies can strategically use their huge cash reserves for acquisitions and whether they can achieve good returns through investments. Investors do not want these companies to spend a lot of money on projects that ultimately cannot be realized."

Some analysts point out that investors are closely monitoring the spending plans of these giants, partly because these companies' investment decisions can directly affect the direction of the stock market. According to data from S&P Dow Jones Indices, the "Big Seven" in the US stock market account for nearly 30% of the S&P 500 index's market value, and they have contributed over 40% to the index's return since the beginning of the year. Therefore, investors are very attentive to every financial action and plan of these companies On the other hand, facing the weakening expectations of a rate cut by the Federal Reserve and the issue of overvalued tech stocks, investors are gradually losing patience. At the beginning of the year, the market was optimistic about the Fed's potential quick rate cut, but in recent weeks, due to inflation data showing a more challenging situation than many investors expected, this optimism has waned. At the same time, against the backdrop of continuously high valuations of tech stocks, investors' patience is being tested. Bob Doll, Chief Investment Officer of Crossmark Global Investments, stated:

"Investors have limited patience for overvalued tech stocks, they expect quick returns. Although the bull market in tech stocks remains strong, investors have clearly indicated that they are raising their standards."

In the coming days, investors will shift their focus to the performance of other members of the "FAANG" group. Amazon is scheduled to announce its financial results next Tuesday, Apple will announce on Thursday, and Nvidia will announce on May 22nd. In addition, they will also pay attention to the Federal Reserve's policy decision next Wednesday and Chairman Powell's press conference to assess the possibility of a rate cut in the short term