Saying the technology sector has had a mixed start to earnings season would be an understatement. The rise of artificial intelligence is still the tide driving tech, but a chip shortage and doubts about AI’s impact on the software sector are creating as many losers as winners.
Microsoft was hit by a double-whammy of skepticism about AI spending and souring sentiment toward software, driving a $357 billion loss in market value on Thursday. Its choice to allocate some chip resources toward
internal purposes rather than its Azure cloud-computing business proved costly. Investors instead flocked toward Meta Platforms and its comparatively clean story of AI driving user engagement
and advertising revenue.
Meanwhile, memory-and-storage companies such as Sandisk, Western Digital, Seagate and Micron Technology are booming amid overwhelming demand for their products. Analysts at LPL Financial noted that the software sector is now trading at its largest discount to semiconductors since 2021.
While, traditionally, tech investors have been wary of chasing cyclical businesses such as memory chips, the hopes of an AI supercycle have turned sentiment on its head as investors look for companies poised to benefit immediately from hardware spending. Even Apple, which has largely sidestepped the AI spending debate, can’t escape entirely as its impressive iPhone revenue was offset by worries about surging memory prices.
Still, some of the recent trading feels frothy rather than driven by fundamentals. Software company ServiceNow looked harshly treated by a 10% drop for earnings that beat expectations. Meanwhile, cybersecurity company Cloudflare got a short-lived boost of nearly 20% for a somewhat indirect association with viral AI assistant Moltbot (formerly called Clawdbot), before giving back almost all its gains.
From a situation where the rising AI tide was lifting all boats, now it’s buoying some tech stocks while leaving others stranded. For
investors, it’s worth checking whether there might be some value in the wrecks and being wary of those sailing close to the wind.
—Adam Clark
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Trump Picks Warsh to Head the Fed
President Donald Trump announced Kevin Warsh as his nominee for the next chair of the Federal Reserve, in a social media post Friday. It ends months of speculation over who Trump would pick to replace Jerome Powell.
- The president settled on Warsh after interviewing several candidates for the job. Others included top White House economist Kevin Hassett, BlackRock executive Rick Rieder, and current Fed governor Christopher Waller.
- Warsh, 55, is a former Fed governor who now works for
investor Stanley Druckenmiller’s Duquesne Family Office. He has said he supports the president’s desire to cut interest rates.
- Trump’s pick is a fellow at Stanford University’s conservative-leaning Hoover Institution. He was an economic advisor to President George W. Bush, who nominated him for a seat on the Fed’s
board. He served from 2006 to 2011. In 2017, Trump considered Warsh for the chair job that ultimately went to Jerome Powell.
- Warsh is likely to face questions from senators about his independence from Trump. The president has said that lower interest rates are a litmus test for the next chair.
What’s Next: Powell’s term as chair expires May 15. He is entitled to stay in his seat on the Fed’s Board of Governors through January 2028 but earlier this week declined to answer questions about whether he will.
—Matt Peterson
Senators Reach a Deal to Avert Government Shutdown
Democrats reached a deal with the White House to avert an extended government shutdown. Senate lawmakers rushed to pass it Thursday evening, but it’s unclear how quickly House members vote on it as the deadline for government funding to lapse approaches early Saturday morning.
- Trump said lawmakers have come together to get the vast majority of the government funded through September, and temporarily extend funding for the Department of Homeland Security, which became a flashpoint after Border Patrol agents killed a second person in Minneapolis last weekend.
- The deal would pass five of six spending bills that have cleared the House already and extend DHS funding for two weeks while lawmakers hammer out proposed restrictions on immigration enforcement. Democrats started talking about carving out DHS funding last weekend as the contours of a compromise emerged.
- Minority Leader Chuck Schumer said Democrats wanted reforms to pass DHS funding, including requiring Immigration and Customs Enforcement agents to remove their masks and to require judicial warrants for searches and arrests. Majority Leader John Thune said Republicans were open to some of the changes.
- Trump, eager to avoid the disruption caused by last fall’s federal shutdown, which ended up being the longest in history, urged lawmakers to agree to the deal. “Hopefully, both Republicans and Democrats will give a very much needed Bipartisan ‘YES,’” he said.
What’s Next: The House is in recess this week, meaning lawmakers have essentially no time to avoid at least a short government-funding lapse for some operations beginning at 12:01 a.m. Saturday morning. But unlike the 43-day shutdown last fall, this lapse is likely to be short.
—Joe Light and Janet H. Cho
Apple’s Earnings Beat Spurred By iPhone’s Best-Ever Quarter
