Big Tech Earnings Will Test Investors’ Fervor for A.I.

Can A.I. keep Big Tech booming?

Nasdaq futures are up on Tuesday morning, ahead of a Big Tech earnings bonanza that kicks off when Microsoft and Alphabet report second-quarter results after the closing bell. One question is at the top of many investors’ minds: Is the hype around artificial intelligence, which has propelled tech giants’ stock prices sky-high in recent months, justified, or is it another bubble in the making?

Wall Street is deeply divided about the A.I. rally. Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, apologized to clients on Monday, writing that his pessimistic stock market calls failed to spot the surge in A.I.-related stocks. (The chip maker Nvidia, for example, has seen its stock triple in value since January.) And analysts at Citigroup are sticking to their bullish thesis for such companies.

On the other hand, Marko Kolanovic, JPMorgan Chase’s chief market strategist, is unconvinced that tech fervor will help the markets avoid a sharp decline this year.

All eyes will be on Microsoft and Alphabet, which are at the forefront of commercializing generative A.I., the technology behind chatbots like ChatGPT that have captured the public’s imagination. Both are incorporating A.I. into a wide array of their products, with Microsoft — which has invested billions in OpenAI — hoping that the technology can help it gain ground on Google in key businesses like search.

Meta’s turn is Wednesday. The parent company of Facebook and Instagram is also betting big on the technology, including by making the code for its most advanced A.I. project free for public use. (Analysts also want to know more about how Meta plans to make money from Threads, its new rival to Twitter, the company rebranded as X.)

Macroeconomic factors are still weighing on these companies. Inflation and an uncertain outlook hit them hard last year, as customers cut back on buying software and spending on advertising, spurring them to lay off thousands of workers.

Recent data shows that inflation has begun to moderate, lifting these stocks in recent weeks, but investors will want to see proof that the sector is through the worst of it. The Fed is widely expected to increase interest rates by a quarter percentage point at its rate-setting meeting on Wednesdau, but Wall Street isn’t sure whether the central bank will stop there or continue raising borrowing costs and risk a recession.

And it won’t just come down to tech stocks. This is the busiest week of the current earnings season, with 39 percent of S&P 500 firms announcing results. The next few days will provide an important look at the overall health of corporate America. Consumer bellwethers including Coca-Cola and McDonald’s and industrial titans like Boeing will be reporting.

HERE’S WHAT’S HAPPENING

Unilever says that inflation has peaked. Shares in the consumer goods giant rallied on Tuesday morning after it reported a strong second-half sales outlook, with the company forecasting that slowing price increases will translate to higher consumer purchases. But it warned that the war in Ukraine could send agricultural commodity prices higher, raising costs.

UBS agrees to $387 million in fines over Credit Suisse missteps. UBS reached a deal with U.S. and British regulators to resolve inquiries into the oversight failures that led to Credit Suisse losing $5.5 billion in the collapse of the investment firm Archegos in 2021. UBS bought its ailing rival this year, inheriting its thicket of legal troubles.

Senators cast new scrutiny over Leon Black’s ties to Jeffrey Epstein. The Senate Finance Committee is investigating whether a $158 million payout from Mr. Black to the disgraced financier for tax and estate planning services was part of a tax-avoidance scheme, The Times reports. Separately, the U.S. Virgin Islands accused JPMorgan Chase of reimbursing a former executive, Jes Staley, for trips to meet Epstein.

The I.R.S. ends surprise visits to homes and businesses. The agency said that it would stop the practice, which was a mainstay of efforts to collect unpaid taxes. The move comes as the I.R.S. rethinks its operations, and faces increased political scrutiny by Republicans and threats to its employees.

The U.S. reportedly scrutinizes Abu Dhabi’s takeover bid for Fortress Investment Group. The Committee on Foreign Investment in the United States is examining whether the $3 billion deal by Mubadala, an Emirati sovereign wealth fund, poses national security concerns, according to The Financial Times. At issue are the United Arab Emirates’ ties to China.

Crypto has major questions about the S.E.C.

Cryptocurrencies and climate change have been linked as issues before in terms of how carbon-intensive it is to produce new digital tokens. But the crypto industry is also hoping to piggyback off a legal doctrine at the heart of a Supreme Court decision involving the Environmental Protection Agency last year.

Coinbase is seizing on an E.P.A. loss as a legal defense. Last summer, the Supreme Court struck down an emissions rule by the environmental agency, citing the so-called major questions doctrine, a principle asserting that Congress hasn’t given regulators power to decide significant political or economic issues on their own.

Now, Coinbase is arguing that the S.E.C. can’t prosecute it because it lacks the power to regulate crypto. Moreover, the exchange says, Congress is actively working on legislation to oversee its industry. “It’s never been clearer that the Supreme Court has particular focus on major questions and the role of regulators in our economy,” Paul Grewal, Coinbase’s chief legal officer, told DealBook.

The S.E.C. counters that Coinbase is missing the point. Agency lawyers wrote in a recent court filing that the E.P.A. case was about rule-making, not the regulator’s power to prosecute. Critics add that it’s not clear that regulating crypto counts as a major-question issue, given that the industry’s total market capitalization is less than that of Apple, Microsoft or Alphabet.

Business advocates appear undeterred by those arguments. “The major questions doctrine seems built for crypto at this moment,” Katie Haun, the crypto investor and former federal prosecutor, tweeted recently.

Separately, the U.S. Chamber of Commerce, which represents businesses more broadly, has expressed eagerness to use major-questions arguments in court to limit the power of a proposed Federal Trade Commission ban on noncompete clauses.

‘Barbenheimer,’ by the numbers

Led by “Barbie” and “Oppenheimer,” the North American box office had its biggest weekend since 2019 and its fourth-best ever. Here’s how the phenomenon stacks up to other weekend performances, which were each dominated by a single blockbuster.

Has X’s debut hit its mark?

Though Elon Musk’s rebranding of Twitter as X came as a surprise over the weekend, the abrupt name change is playing about as well as could have been expected these days. Users and advertisers were divided on the wisdom of the move, which eliminated the company’s longtime bird logo, even if pulling down the old signage ran into some hiccups.

The change was reflected at Twitter’s headquarters immediately. Inside the San Francisco office, X logos were projected in the cafeteria, while conference rooms were renamed with words including “eXposure” and “s3Xy,” according to The Times.

But efforts to remove the Twitter name from the building encountered difficulties, when the San Francisco Police Department stopped workers for performing “unauthorized work.” As of this morning, the letters “er” remain visible from the street.

People can’t agree on whether the move will cost the company dearly. Skeptics said ditching the Twitter name and famous bird logo — which Twitter once identified as among its most recognizable assets — could cost as much as $20 billion in value. (Among them: Esther Crawford, the former Twitter executive who was briefly among Mr. Musk’s top lieutenants.) Some users bemoaned the switch to the more generic-sounding X.

Others said that the rebranding could help the company shed years of baggage associated with the Twitter name, a line of thought shared by none other than Jack Dorsey, the company’s co-founder. Some ad executives said that the change wouldn’t meaningfully drive away potential advertisers, while others said that Musk had at least succeeded in drumming up publicity for his platform after Meta’s Threads made a splashy debut.

Speaking of Meta … the Facebook parent company owns an X trademark with regards to social networking, though it relates to a specific blue-and-white logo. Mr. Musk’s company now uses a black-and-white mark, though trademark lawyers said the reliance on a simple letter almost certainly invited legal challenges.

THE SPEED READ

Deals

A Saudi soccer team majority-owned by the kingdom’s sovereign wealth fund has offered a record $332 million to sign Kylian Mbappé, the French star. (NYT)

Blackstone’s flagship real estate fund agreed to sell Simply Self Storage for $2.2 billion as it continues to limit investor withdrawals. (Bloomberg)

Johnson & Johnson said it planned to reduce its stake in Kenvue, the consumer-health business it spun off this year, by at least 80 percent through an exchange offer. (CNBC)

Policy

The F.D.I.C. admonished banks for tweaking their deposit numbers to suggest that they had fewer uninsured accounts. (WSJ)

Senator Mitt Romney, Republican of Utah, urged Republican donors not to back presidential candidates with no hope of winning — or risk Donald Trump locking up the party’s nomination. (WSJ Opinion)

“​​Microsoft and Google may have to surrender people’s data to Saudi Arabia after signing huge deals there.” (Insider)

Best of the rest

Despite the threat of extreme weather, Americans are moving to regions at risk of blistering heat or flooding in search of cheaper housing. (Bloomberg)

Tech companies hungry for office space powered a boom in New York City real estate. Now they’re pulling back, leaving the city in an economic hole. (NYT)

“Could the Next Pandemic Start at the County Fair?” (NYT)

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Andrew Ross Sorkin is a columnist and the founder and editor at large of DealBook. He is a co-anchor of CNBC’s “Squawk Box” and the author of “Too Big to Fail.” He is also a co-creator of the Showtime drama series “Billions.” More about Andrew Ross Sorkin

Bernhard Warner joined the The Times in 2022 as a senior editor for DealBook. Previously he was a senior writer and editor at Fortune focusing on business, the economy and the markets. More about Bernhard Warner

Sarah Kessler is a senior staff editor for DealBook and the author of “Gigged,” a book about workers in the gig economy. More about Sarah Kessler

Michael de la Merced joined The Times as a reporter in 2006, covering Wall Street and finance. Among his main coverage areas are mergers and acquisitions, bankruptcies and the private equity industry. More about Michael J. de la Merced

Lauren Hirsch joined The Times from CNBC in 2020, covering deals and the biggest stories on Wall Street. More about Lauren Hirsch

Ephrat Livni reports from Washington on the intersection of business and policy for DealBook. Previously, she was a senior reporter at Quartz, covering law and politics, and has practiced law in the public and private sectors.   More about Ephrat Livni

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