Big Tech stocks extend rally on Chinese tariff pause
Even with an uncertain outlook thanks to tariffs, Big Tech executives are still ramping up their AI investments
Chung-Hao Lee/Shutterstock and Adobe modified by Blockworks
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Thanks to the early signs of a trade deal with China and a better-than-expected April CPI print, Big Tech (and just about everything else) is up this week.
The S&P 500 North American tech sector index is up 8.4% over the past five trading days. The Nasdaq Composite has gained 6.3% in that time.
Even Microsoft and Nvidia — despite their respective headwinds (which we’ll get into later) — are in the green. They’re up 3% and 13%, respectively, in the past five days.
The way I see it, there are two main forces poised to significantly impact Big Tech: tariffs and AI. These two forces just so happen to be intertwined.
In an overgeneralized nutshell, higher tariffs mean many Big Tech companies may have to raise prices. While most consumer electronics are currently exempt from tariffs, Trump insists the relief is temporary.
On the AI side, tariff-fueled supply chain disruptions for semiconductors and other infrastructure also make investing in AI more expensive. Still, the biggest names in the space say they’re forging ahead with massive AI budgets.
Alphabet plans to spend $75 billion on AI and data center infrastructure, marking a 43% increase from 2024. Meta similarly upped its AI budget by 44% — bringing its 2025 target range between $60 billion and $65 billion.
Microsoft, which revealed on Tuesday it would cut ~3% of its global workforce, said it will have spent $80 billion on AI expansion by June (when the company’s fiscal year ends).
Grain of salt here. If tariffs make the tools to build out AI operations more expensive, of course the budgets will have to increase. But the budgets are growing by a lot. This signals companies are still on the offensive and see scaling AI models as an essential part of their businesses, even though this now costs much more.
Nvidia shares have gained more than 10% since Monday’s open, on news that the US and China had reached a temporary truce in the trade war. The chipmaker’s market cap is back above $3 trillion for the first time since February, even as its AI server maker, Foxconn, downgraded its 2025 outlook.
A prominent theory in recent years has been that AI will improve productivity, and a new report published by the St. Louis Fed yesterday backs this up.
See “Information” on that chart? That’s technology, and according to the St. Louis Fed, the industry has become about 5% more productive each year between 2019 and 2024.
But what about the labor force? Isn’t AI coming for jobs? Yes and no. General consensus seems to be that AI will both create and destroy jobs. For now, I’d argue the biggest impact the Big Tech push into AI has had on the labor market isn’t that humans are being replaced by machines. It’s that their salaries are being redirected to fund those machines.
The St. Louis Fed’s report notes that manufacturing jobs now make up a smaller share of overall employment, but productivity has increased. Economic growth happens when either more people are employed or when productivity increases. In a perfect world, we get both.
Also, in a perfect world, ChatGPT doesn’t come for this journalist’s job. Here’s hoping.
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