Mega-Cap Earnings Aftermath 7/31/26

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**Michael Santoli** (1:16)
And welcome to the Halftime Report. I'm Mike Santoli. In for Scott Wapner today. The tech trade front and center this hour as we track major moves from Apple and Amazon. The Investment Committee is Danny Vi to break it all down. Joining me for the hour, Jim Laventhal, Amy Raskin, Rob Seachen and Stephanie Link. Great to see you all. Let's get a quick check on the markets. I actually started a good deal higher today on the S&P. I've heard of more than half a 1% higher, did go negative. Now we're rebuilding a little bit. Modest moves, 74.50-ish on the Dow Jones Industrial. Small caps continue to underperform. It's a bit of a mega cap led day to the upside. Amazon, in particular, surging, following its earnings up 14%, of course, follows yesterday's 15% gain in Microsoft.
So clearly, guys, we have a lot of these spring-loaded stocks. There were doubts surrounding many of them. We'll talk about Apple down the road, pulling the other direction on its reaction. But talk about Amazon, and Jim, you'll want to get us started, about what was clarified, if anything, about the underlying story and whether it's going to have legs.

**Jim Laventhal** (2:24)
Yeah, I mean, I'm going to simplify this and leave room for the rest of my colleagues to join in here. But there's two things, really. First off, the growth in Amazon Web Services, 37%.
A touch below Microsoft Azure at 43% reported yesterday or the night before that. Nonetheless, these are breathtaking numbers. And every sign is that those numbers are going to continue in the quarters to come. So that's number one, top-line growth at Amazon Web Services. The second thing is overall path to profitability. One of the key data points that I took away from last night's call is that on average, it takes less than three years for the investment by Amazon and one of its data centers to pay off. That's a very short timeframe, especially compared to the depreciable lifetimes of these data centers, which are 30 years. And maybe people are going to say they're not going to last that long. Regardless, the path to recover that cost is less than three years. And that's the path that we're looking for.
The profitability at Azure was of course terrific. And these are in contrast to say a meta, and I don't want to pick on meta, that's not my point, but where the path is less clear to profitability. So I really think it's just that simple. I'm not going to make it harder than that.

**Michael Santoli** (3:34)
I mean, another simple piece of this, Amy, was that Amazon was almost literally dead flat for a year before going into this.

**Stephanie Link** (3:41)
And Microsoft was down for the year. So you're seeing this rotational narrative in AI and it's the losers are now beat expectations that had been beaten down and the winners missed expectations that got too high. I actually don't think this quarter answers a lot of the long term questions with regard to the profitability of AI. Yes, we know AI is generating a lot of data, but still it's not, it's being financed through equity offerings, circular deals and debt offerings. It's not being financed through AI revenue yet. So I don't think we really have the ultimate answer. I think we're going to continue these circular narratives for the next quarter. And there will be at some point that people will be worried that Amazon's spending too much money and Apple will get the benefit of the doubt for not spending the money. And we're just going to keep on this loop. It is, Amazon had a great quarter, obviously cloud growth. They're the leader in cloud. The cloud growth was amazing.