Businesses focused on artificial intelligence continued to be successful in the most recent quarter.Dado Ruvic/Reuters
Businesses focused on artificial intelligence are raking it in so far this earnings season. Those catering to actual people, less so.
The AI spending surge is providing a big boost for semiconductor and software giants like Google parent Alphabet Inc. GOOGL-Q, while companies from airlines to restaurants and food manufacturers are struggling to navigate an erratic U.S. trade policy which is boosting costs, upending supply chains and hurting consumer confidence.
Along with Alphabet, SK Hynix and India’s Infosys exceeded market forecasts on Thursday and predicted brighter days to come, with Alphabet and SK Hynix both flagging plans to boost spending. SK supplies the world’s most valuable company Nvidia Corp. NVDA-Q, the AI chipmaking giant that recently surpassed US$4-trillion in market value.
By contrast, executives at many consumer names were less enthusiastic, from luxury bellwether LVMH, packaged food giant Nestle, to toymakers Hasbro and Mattel and airlines Southwest and American. They, along with automakers and giants like Coca-Cola, have indicated that some segments of the buying public have pulled in their spending as prices and interest rates remain high. The dichotomy is evident in IBM’s results.
Sales in Big Blue’s “AI book of business” grew 25 per cent in its most recent quarter to US$7.5-billion, while its software segment fell short of expectations and the company sounded cautious about how much its consulting segment might grow this year. The equity market has accentuated the positive. News that the U.S. had struck a trade deal with Japan and was closing in on a deal with the European Union ahead of an Aug 1. deadline boosted markets. The broad S&P 500 notched another record this week and the Eurostoxx was just a few points shy of that mark.
“The market is getting friendly with a view that tariffs ending up higher than they have ever been for 100 years will not have a negative impact on economic growth, because we haven’t seen any negative impact on economic growth so far,” said Van Luu, head of solutions strategy, fixed income and foreign exchange at Russell Investments.
Whether companies continue to absorb that hit remains to be seen. So far, companies have reported over July 16-22 a combined full-year loss of as much as US$7.8-billion, with automotive, aerospace and pharmaceutical sectors hurt the most by tariffs, according to a Reuters tariff tracker.
U.S. averages have been buoyed by the so-called Magnificent Seven, a group of tech giants that has benefited heavily from spending plans on artificial intelligence, and currently accounts for more than 30 per cent of the value of the S&P.
“AI is one of the strongest areas of growth for the economy, and the market mirrors the economy,” said Adam Sarhan, chief executive of 50 Park Investments. To be sure, the market’s reaction may be in part because a larger-than-normal percentage of companies are clearing a lowered bar for estimates.
At the beginning of April, the market expected 10.2 per cent year-over-year S&P earnings growth, but by July, that number had dropped to 5.8 per cent, according to LSEG data. With about 30 per cent of constituents reporting results, the blended earnings growth rate sits at 7.7 per cent.
AI-focused businesses continued to print money in the most recent quarter. Nvidia supplier SK Hynix posted record quarterly profit, boosted by demand for artificial intelligence chips and customers stockpiling ahead of potential U.S. tariffs. Indian IT services provider Infosys raised the floor of its annual revenue forecast range to 1 per cent to 3 per cent, from flat to 3 per cent, matching analyst expectations.
“The tech community is going ahead full speed ahead … and banks are in a very strong position now,” said Bill George, former chairman and CEO of Medtronic and executive education fellow at Harvard Business School. “Other companies will struggle to get growth.”
Consumer companies have been less upbeat. Nestle, the world’s biggest packaged food maker, reported softer demand as it struggled to win thrifty shoppers to its big brands.
U.S. airlines Southwest and American Airlines warned that Americans are travelling less, the latest signal that U.S. consumers are remaining cautious about their spending. Toymakers Mattel and Hasbro both said uncertainties around tariffs are acting as a headwind. Carmakers are among firms dealing with the most difficulty. The auto giants are resisting raising prices, eating the cost of tariffs that may cost them millions or billions of dollars. Levies on metals, copper and auto parts made it harder to navigate changing tariff policies.
South Korea’s Hyundai Motor on Thursday posted a 16-per-cent decline in second-quarter operating profit, saying U.S. tariffs cost it 828-billion won (US$606.5-million) in the second quarter, with a bigger hit expected in the current quarter. General Motors still expects a US$4-billion to US$5-billion hit to its bottom line this year. On Wednesday, Tesla chief executive Elon Musk said U.S. government cuts in support for electric-vehicle makers could lead to a “few rough quarters,” as his firm reported its worst quarterly sales decline in over a decade.
Big numbers often get thrown around in the aftermath of legal battles, as judges hand down judgements—or attorneys arrange settlement amounts—in the tens, or hundreds, of millions of dollars. Still, even jaded legal observers can occasionally run into a genuinely daunting number while parsing this stuff. Like, say, the $1.5 billion settlement that AI company Anthropic has agreed to pay in the ongoing class-action suit against it, launched by authors who said the company infringed on their copyrighted works by feeding them as training data to its “AI assistant” Claude. Sure, parts of that sum (calculated at $3,000 per work for a staggering number of works, and with its first $300 million installment due just five days after the settlement is approved) might potentially vanish in a puff of future bankruptcy. But it’s still the “largest publicly reported copyright recovery in history,” according to legal documents from the authors’ attorneys.
That being said, the win here on the wider AI front is quite a bit less clear than “hand our clients the annual estimated GDP of Grenada” might suggest. Yes, U.S. District Judge William Alsup set the stage for Anthropic to eat that massive price tag by ruling that the company clearly violated copyright agreements via how it acquired the books it fed into its own personal woodchipper. (I.e., downloading pirated datasets of millions of books that had been floating around the internet.) And, yes, the settlement will require Anthropic to destroy those “shadow library” datasets in its possession. (But notably, with no actual changes to the Claude large language model itself.) Most critically, though, back in June, Alsup also ruled that “reproducing purchased-and-scanned books to train AI” falls under fair use, calling the case “exceedingly transformative” as a justification for the designation.
As such, both sides in the fight issued statements claiming a form of victory today, with the authors’ side focusing mostly on the massive size of the settlement amount. Anthropic, meanwhile—which has been backed in the past with more than $6 billion in contributions from Amazon and Google—focused its statements on the legal precedent it achieved in the case: “In June, the District Court issued a landmark ruling on AI development and copyright law, finding that Anthropic’s approach to training AI models constitutes fair use. Today’s settlement, if approved, will resolve the plaintiffs’ remaining legacy claims.” What this likely means is that AI companies aren’t going to slow down—especially with, say, a $1.5 billion mortgage suddenly hanging over their heads—but simply become a lot more choosy about how they get their training data.
At 84, veteran mogul John Malone is still a power broker, hinting at “further consolidation in the media industry” following a recent sit down with David Ellison. Should we be on the lookout for a Warner–Paramount merger? Meanwhile in Vegas, the Sphere’s $100 million Wizard of Oz reimagining leans on AI to expand the visuals and even slip in cameos of David Zaslav and James Dolan. The Directors Guild did not take kindly to the stunt. Partners in Banter Kim Masters and Matt Belloni pull back the curtain on the Sphere’s Emerald City sideshow.
Plus, Masters speaks with Runway co-founder Cristóbal Valenzuela about the role of artificial intelligence in Hollywood. The Chilean-born developer acknowledges that AI may lead to some job losses, but he argues it will ultimately benefit filmmakers. He explains why studios including Lionsgate, Netflix, and Disney are already using Runway’s tools. Plus, he compares the current backlash against AI to the upheaval that followed the introduction of sound in film.
