NEWS + VIEWS – 31/07/2026
MARKETS
Globally, investors have navigated a busy week of central bank decisions, with the US Federal Reserve leaving interest rates unchanged but providing little clarity on its next move. Corporate earnings from major US technology companies reinforced that AI remains the dominant investment theme: strong results from Microsoft and Amazon boosted confidence that AI spending is generating growth, while earlier concerns following Alphabet's and Tesla's results highlighted how sensitive markets have become to the cost of AI investment.
The ASX 200 experienced volatility as higher global bond yields, changing oil prices and inflation concerns weighed on investor sentiment, particularly in the materials and consumer discretionary sectors. At the same time, the local technology sector outperformed following Microsoft's results, while financial stocks remained relatively resilient. Investors also focused on domestic inflation data and the Reserve Bank of Australia's policy outlook.
REPORTING SEASON
The domestic reporting season has begun with most companies announcing their full-year results in August. Rio Tinto (RIO) on Wednesday reported a strong first-half 2026 result, driven by higher prices for copper, aluminium and lithium, improved operating performance and productivity gains across the business. Underlying earnings increased 43% to US$6.85 billion while free cash flow increased 75% to US$3.8 billion, enabling the company to lift its interim dividend to US$2.11 per share, maintaining its 50% payout ratio.
The result highlighted RIO’s ongoing strategic shift towards future-facing commodities. Copper, aluminium and lithium contributed more than half of its earnings, reflecting strong demand linked to AI, electrification and renewable energy, while iron ore remained the largest earnings contributor despite operational challenges in Canada. The share price closed 3.7% higher following the release.
MAGNIFICENT SEVEN QUARTERLY RESULTS
In the US, the reporting season is well underway with six of the ‘Magnificent Seven’ reporting their second quarter results this week. Since the Magnificent Seven account for more than 30% of the value of the S&P 500 index, such heavy concentration of capital in a small number of stocks means a handful of companies have the power to swing the broader US share market, potentially leading to sharp declines and increasing volatility.
Google’s parent company Alphabet delivered another strong quarter, beating analyst expectations on both revenue and earnings, driven by continued strength in Google Search and an 82% year-over-year surge in Google Cloud revenue. However, the company substantially increased its planned AI infrastructure spending, lifting annual capital expenditure guidance to around $195–205 billion. While management argued that the investment is needed to meet booming AI demand, investors focused on the higher spending, sending the share price lower despite the strong operating performance.
Tesla reported weaker-than-expected profitability, with earnings missing Wall Street forecasts even though revenue exceeded expectations. The results reflected ongoing pressure on automotive margins, while the company highlighted growth in its energy storage business and continued investment in AI, robotics, and autonomous driving. Investors remained concerned about profitability and execution, leading to a sharp decline in the share price following the release.
Microsoft delivered a standout quarter, exceeding expectations on revenue, earnings, and cloud growth. Azure revenue grew 43%, well above analyst forecasts, reinforcing confidence that the company's heavy AI investments are translating into commercial success. Management also provided stronger-than-expected guidance for the next quarter, while highlighting rapid adoption of Microsoft 365 Copilot and continued expansion of its AI infrastructure. The results eased investor concerns about AI spending, and the stock rose strongly in after-hours trading.
Meta Platforms reported revenue that exceeded expectations, reflecting continued strength in digital advertising and user engagement, but earnings per share missed forecasts due to large legal expenses and restructuring costs. The company also raised its outlook for operating expenses and AI infrastructure investment, while providing revenue guidance for the next quarter that was slightly below market expectations. Although CEO Mark Zuckerberg emphasized AI as the company's long-term growth driver, investors reacted negatively to the earnings miss and rising costs, sending the share price lower after the announcement.
Amazon reported a very strong quarter, comfortably beating analyst expectations on both revenue and earnings, led by Amazon Web Services’ (AWS) best growth in more than four years. AWS revenue increased 37% year over year as demand for AI computing accelerated, while the advertising business also delivered robust growth. Management responded by increasing its planned 2026 capital expenditure to $220 billion, saying customer demand for AI infrastructure still exceeds available capacity and much of its compute capacity is already committed through 2028. Although free cash flow turned negative because of the investment surge, investors welcomed the evidence that Amazon's AI spending is translating into stronger cloud growth, sending the shares sharply higher after the announcement.
Apple also exceeded Wall Street's expectations, with revenue of $109.4 billion driven by stronger-than-expected iPhone and Mac sales. While Services revenue was slightly softer than analysts had forecast, the core hardware business remained resilient, reinforcing Apple's position as the most defensive of the Magnificent Seven during this earnings season. Despite the earnings beat, the shares fell in after-hours trading as investors looked for more evidence of Apple's AI strategy and weighed the outlook beyond the strong quarter.
The biggest theme across all seven this quarter is whether their rapidly increasing AI-related capital spending is translating into meaningful revenue and profit growth. Recent market reactions suggest that investors are demanding stronger evidence of returns on those investments than in previous quarters. NVIDIA is due to report its results on the 26th of August.
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