Big Tech companies are soon going to let investors know if all the hype is still worth it.
Amid tariff turmoil and market uncertainty, the tech trade continues to power the S&P 500 higher. With mega-cap tech earnings due to kick off later this month, investors are looking for clues to know if the AI-fueled momentum can keep powering stocks higher.
The launch of DeepSeek—a cost-efficient AI model from a startup in China—was an “existential moment” for the AI trade, according to Eric Sheridan, co-business unit leader of the TMT group at Goldman Sachs.
“There’s an increasing focus on the payoff or the return dynamic,” Sheridan told Business Insider. “How are we seeing enterprises use AI? How are we seeing consumers adopt AI applications in their day-to-day life?
Is AI technology delivering on its promise of increasing productivity and profit margins? Investors will soon be turning to second-quarter earnings season for answers.
Will AI capex continue to soar?
Big Tech companies have poured billions into building out AI infrastructure, and there’s a lot of debate on Wall Street about how much more companies can spend.
As of February, Amazon, Microsoft, Alphabet, and Meta’s total AI investment for 2025 was over $300 billion, a notable increase from the $246 billion spent in 2024.
Competition in the AI space is fierce as Big Tech companies race to develop better large language models. And it’s still early stages, meaning that this level of capital expenditure could persist well into the future.
“There’s still pretty low visibility into what they’re going to spend next year,” Sheridan said of the Big Tech companies.
“I wouldn’t put a high probability on a slowdown,” he added.
Are companies putting AI to work?
A lot of money and effort is being poured into AI tools for companies, but investors want a clearer sign of what it all means.
Investors will look for clues on earnings calls that AI adoption is accelerating. They’re not just interested in whether Nvidia beats consensus expectations; they’re also looking for more widespread adoption of AI among other companies.
Investors have reasons to be optimistic, as there have been green shoots in previous months. The earliest signs of AI adoption have been showing up primarily in the software industry as companies adopt agentic AI to complete tasks autonomously.
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According to Bank of America, earnings calls of Russell 2000 companies have mentioned AI more frequently over the last few quarters. This quarter’s earnings season will be key to determining whether the trend holds.
In June, Bank of America identified software winners, including Microsoft, Salesforce, and ServiceNow. The bank expects monetization to begin taking off in 2026.
For Big Tech, the pressure is on to show strong software margins.
“We think the AI backdrop is a big stimulant for the cloud computing businesses on the revenue side,” Sheridan said. “And we’ll be looking for some proof points around that through earnings season as well.”
Can savings from AI offset tariff headwinds?
First-quarter earnings were stronger than expected despite uncertainty related to tariffs. That’s mostly thanks to Big Tech, and investors are watching to see if the sector can continue to lead to outperformance again.
Nadia Lovell, senior US equity strategist at UBS Global Wealth Management, believes AI will continue to be the primary driver of earnings growth across the S&P 500.
“Yes, there might be vulnerability, but we need to focus on those secular and structural growth stories, like AI power and resources,” Lovell said at the bank’s roundtable on July 8.
Tariffs are putting extra pressure on the AI trade, as investors are worried about higher import costs eating into company margins.
Could AI use cases provide a shield against tariff headwinds? Jeremy Siegel, Wharton professor and senior economist at WisdomTree, thinks firms need to start showing investors that they’re putting AI to use, especially as tariffs drag on consumer sentiment.
“I think they’re going to have to do it very soon, facing some of these tariff price increases,” Siegel said on CNBC on Friday.
