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Wall Street Shocked by AI Surge: What Happened on July 24–25?

Wall Street Shocked by AI Surge: What Happened on July 24–25?

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Wall Street Shocked by AI Surge: What Happened on July 24–25?

U.S. Markets Soar on AI Earnings

Major stock indices powered to fresh record highs on Thursday, July 24, as blockbuster AI-driven earnings ignited a tech rally reuters.com. The S&P 500 edged up 0.07% to notch its fourth consecutive record close, while the Nasdaq Composite gained 0.18% to its own all-time high reuters.com newsandsentinel.com. In contrast, the Dow Jones Industrial Average slumped 0.7%, dragged down by non-tech names less tied to the AI frenzy reuters.com. Investors were buoyed by a perfect storm of upbeat factors – resilient economic data, hopes for trade deal progress, and earnings that far exceeded expectations. “Investors are feeling optimistic about trade negotiations, about the economy, the trend in inflation, as well as the better-than-expected Q2 earnings reports,” noted Sam Stovall, chief investment strategist at CFRA Research reuters.com. With artificial intelligence the standout growth driver, traders poured into tech and AI plays, overshadowing worries about tariffs or recession for now.

Alphabet’s AI Investments Drive Tech Rally

Google’s parent Alphabet (GOOGL) stole the spotlight with robust Q2 results that underscored the payoff from heavy AI investment reuters.com. The company reported a fatter profit than analysts expected and announced a $10 billion boost to its 2025 capital expenditure budget – now $85 billion – largely to expand AI chips and data centers to meet surging cloud demand newsandsentinel.com reuters.com. CEO Sundar Pichai stressed how deeply AI is fueling the business, saying “AI is positively impacting every part of the business” as new AI features drive user engagement theverge.com. Alphabet’s cloud division revenue jumped almost 32% for the quarter, a sign its massive spending on in-house AI chips and the Gemini AI model is paying off reuters.com.

Alphabet’s stock initially spiked over 3% in early trading and closed up about 1% on Thursday, fueling optimism for other AI heavyweights reuters.com reuters.com. “Google came back fighting this quarter,” lauded Bernstein analyst Mark Shmulik, noting investors have been clamoring for a more aggressive AI push reuters.com. The results were seen as a positive omen for cloud rivals Microsoft and Amazon, which each saw their shares climb ~1% or more in sympathy reuters.com. Nvidia – the chipmaker at the heart of the AI boom – also jumped about 1.7% on Thursday, providing the single biggest lift to the S&P 500 thanks to its enormous market cap newsandsentinel.com. In fact, analysts said Alphabet’s strong quarter and spending plans “bode well” for peers across Silicon Valley’s AI ecosystem reuters.com. At least 27 Wall Street firms hiked their price targets for Alphabet’s stock after the earnings, reflecting confidence that AI investments will drive future growth despite higher spending reuters.com reuters.com. Some caution that questions remain – “until there’s more confidence AI integration won’t cannibalise core search revenue… there’s enough uncertainty to cap near-term upside,” one analyst noted reuters.com – but for now, Alphabet’s AI-fueled resurgence has reenergized Big Tech.

Tesla’s Steep Slide After “Rough Quarters” Warning

Not all tech giants rode the wave – Tesla (TSLA) suffered a sharp selloff as its latest results and commentary spooked investors. Elon Musk’s electric vehicle company saw its stock plunge 8.2% on July 24 after reporting one of its most challenging quarters in over a decade reuters.com reuters.com. By the closing bell, Tesla was down the most of any S&P “Magnificent Seven” tech stock this year. On a conference call, CEO Elon Musk delivered a candid warning that U.S. cuts to EV purchase incentives could lead to “a few rough quarters” ahead reuters.com. “We probably could have a few rough quarters,” Musk said, as the company navigates a “weird transition” period where it loses many U.S. EV tax credits newsandsentinel.com.

The results themselves were roughly in line with forecasts, but sliding sales and thinner margins underscored Tesla’s fading growth momentum reuters.com. Revenue fell for a second straight quarter – a rarity for Tesla – and the company gave no update to its full-year vehicle delivery target amid economic uncertainty reuters.com. Meanwhile, Musk’s distractions and controversial forays into politics have begun tarnishing Tesla’s brand, some experts warn. “Musk is the face of Tesla… when his credibility and trust decline, so does the equity of the Tesla brand,” observed Daniel Binns, CEO of branding firm Elmwood reuters.com. Tesla’s aging vehicle lineup is also facing fierce competition from a wave of cheaper EV rivals (especially in China), just as higher tariffs raise costs and Musk’s attention is split with ventures in AI and social media reuters.com.

Analysts say the company’s towering $1 trillion valuation now hinges on unproven bets like robotaxis and humanoid robots reuters.com. A small robotaxi pilot launched in Austin last month, but those initiatives may not contribute meaningfully for years. “Tesla is crossing the chasm to autonomy while absorbing slower volume, EV incentive elimination, tariffs and investing in new initiatives that may not make margins for years,” Morgan Stanley analysts wrote, summarizing the wall of challenges reuters.com. The stark reality check sent Tesla shares to their lowest levels in months – they’re down about 18% year-to-date, making Tesla 2025’s worst performer among top tech stocks reuters.com. Still, Musk urged patience, saying that by late 2026 (once Tesla’s full self-driving “autonomy at scale” matures), the storm should pass finance.yahoo.com. In the meantime, however, the automaker’s stumble was a reminder that not every company will benefit equally from the current AI fervor. Tesla’s slump singlehandedly “kept the market in check” on Thursday even as Alphabet and others climbed newsandsentinel.com.

Chipmakers and Cloud Providers: Nvidia, Intel and More

The semiconductor sector – the backbone of AI computing – saw mixed fortunes. Nvidia (NVDA), whose GPUs power most generative AI systems, added nearly 2% on July 24 alongside Alphabet’s rally newsandsentinel.com. Investors view Nvidia as a prime beneficiary of the AI spending boom, and the company’s stock has roughly doubled in 2025. Other chip names like AMD and Broadcom also ticked up modestly as AI server demand remains red-hot. But industry heavyweight Intel (INTC) grabbed headlines for a different reason: a sweeping restructuring to catch up in the AI race.

Late on July 24, Intel’s new CEO Lip-Bu Tan unveiled plans to slash roughly 15% of Intel’s workforce this year – reducing headcount to ~75,000 by year-end, over a 20% cut from 2024 levels reuters.com. The drastic layoffs (many already completed) are part of Tan’s bid to rejuvenate the struggling chipmaker, which has “virtually no foothold in the booming AI chip industry” dominated by Nvidia reuters.com. Intel’s strategic missteps in manufacturing and AI left it lagging behind Nvidia and AMD, and Tan bluntly told employees there will be “no more blank checks” for moonshot projects reuters.com. “Every investment must make economic sense. We will build what our customers need, when they need it,” he wrote in a memo, emphasizing a new era of cost discipline reuters.com.

As part of this turnaround, Intel is halting or slowing new chip factory projects (including shelving plans for plants in Europe) and focusing on core products reuters.com. The company did beat Q2 revenue estimates (sales were $12.9B vs. $11.9B expected), but it forecast a steeper Q3 loss than Wall Street anticipated reuters.com reuters.com. In after-hours trading Thursday, Intel shares initially rose on the revenue beat but then fell ~4–5% once the deeper loss outlook and restructuring costs sank in reuters.com. Some analysts applauded Tan’s tough-love approach – “this is the painted picture of a new fiscally disciplined base… that’s the right approach,” said Ben Bajarin of Creative Strategies reuters.com. Still, it’s a humbling moment for a Silicon Valley legend: Intel, which “helped launch Silicon Valley,” is now retrenched while demand for AI chips soars and rivals sprint ahead startribune.com reuters.com. The company is effectively betting that painful cuts and focus will eventually return it to competitiveness in AI hardware.

Cloud-computing giants also remain at the heart of the AI story. Microsoft (MSFT) shares rose about 1% Thursday alongside Alphabet reuters.com, as investors expect strong AI and cloud demand to buoy its upcoming results (Microsoft had reported its own earnings earlier in the week, highlighting growth in Azure’s AI services). Amazon (AMZN) likewise gained over 1% reuters.com, since its AWS cloud unit is seeing similar tailwinds. These moves underscore how “AI spending surge is providing a big boost for semiconductor and software giants”, as Reuters noted reuters.com. In fact, the market’s leadership in recent weeks has narrowed to a handful of tech titans – the so-called “Magnificent Seven” – whose heavy investment in AI has driven outsized gains. Those seven companies now account for over 30% of the S&P 500’s value reuters.com. As one fund manager put it, “AI is one of the strongest areas of growth for the economy, and the market mirrors the economy” reuters.com. That dynamic was clearly on display in stock trading this week.

IBM Sees AI Boost – But Software Lags

Old-guard tech firm IBM offered a more nuanced picture of the AI revolution’s impact. IBM reported second-quarter earnings on Wednesday (July 23) that beat Wall Street forecasts, helped by a revival in its mainframe hardware business thanks to new AI-powered models reuters.com reuters.com. Corporate customers snapped up IBM’s latest z16 mainframes (which feature built-in AI acceleration), driving infrastructure revenue to $4.14B (vs. $3.8B expected) reuters.com. IBM also noted its “AI book of business” – a measure of AI-related deal bookings plus revenue – swelled to $7.5 billion this quarter, up $1.5B from Q1 reuters.com. “Clients are looking to integrate AI into their operations, and that’s boosting demand for our high-end systems and consulting,” IBM’s CFO said in so many words. Notably, IBM’s consulting division returned to growth (+3% YoY) after five quarters of declines, as firms sought help deploying AI solutions reuters.com.

However, investors zeroed in on a weaker spot: IBM’s large software segment. Software revenues came in just shy of analysts’ estimates ($7.39B vs. $7.41B expected) and showed signs of slowing growth reuters.com. The shortfall was small, but after a ~30% run-up in IBM’s stock this year, any miss was unwelcome. “You’re seeing the stock pull back, because there’s just not a lot of room to miss,” explained Dan Morgan of Synovus Trust, noting the results confirmed “software is not growing at the pace the Street was expecting.” reuters.com In other words, even as IBM’s AI-focused mainframes sold well, they may have cannibalized some software sales (since customers diverted budgets to new hardware). The company struck a cautious tone on its outlook, declining to forecast next quarter and warning of a “prudently cautious” view on consulting growth given macro uncertainties reuters.com.

Wall Street reacted harshly – IBM shares tumbled about 7–8% between Wednesday night and Thursday’s close reuters.com. The drop underlines how AI optimism alone can’t prop up a stock if other core segments disappoint. Big Blue is balancing on a knife’s edge: its legacy businesses must deliver enough growth to justify investor enthusiasm for its AI initiatives (like its partnership with AI startup Watsonx and the adoption of AI across its software portfolio). This quarter showed both the promise and the pitfall: AI-driven demand boosted some parts of IBM (hardware, AI deals), but legacy software underperformed, spooking the market reuters.com. It’s a microcosm of the broader theme this earnings season: “Businesses focused on artificial intelligence are raking it in… Those catering to actual people, less so,” as Reuters dryly observed reuters.com.

Global Markets React to the AI Buzz

The AI stock surge reverberated beyond U.S. borders. In Europe, London’s FTSE 100 index and the pan-European STOXX 600 pushed near record highs this week on the back of strong U.S. tech earnings and hopes that trade disputes will ease reuters.com reuters.com. Asia initially followed suit: over the week, Japan’s Nikkei 225 climbed to multi-decade highs, and South Korea’s SK Hynix – a major memory chip supplier to Nvidia – beat earnings forecasts and said it sees brighter days ahead thanks to AI demand reuters.com. Hynix even flagged plans to boost its own capital spending to capitalize on the boom reuters.com. Likewise, India’s IT outsourcing giant Infosys surprised investors with an upbeat outlook, citing strong cloud and AI services growth reuters.com. These positive signals show the AI wave is a global phenomenon, lifting tech fortunes from Silicon Valley to Seoul and Bangalore.

By Friday July 25, however, some of the euphoria was cooling as traders locked in profits. World shares pulled back in Friday trading after Wall Street’s overnight records. Japan’s Nikkei fell 0.9% (to 41,456) after two days of strong gains startribune.com. In China, Hong Kong’s Hang Seng lost 1.1% and Shanghai’s CSI 300 slipped about 0.3%, amid questions about Chinese policy support and a breather following the U.S. tech rally startribune.com. European markets also opened lower on Friday – Germany’s DAX was down 0.8% by midday, and Britain’s FTSE 100 off 0.4% startribune.com – even as they remain near recent peaks. Some of the hesitation Friday stemmed from ongoing trade and political uncertainties. (Notably, President Trump set an Aug. 1 deadline for new tariffs, pressuring negotiators in Europe and Asia to strike deals reuters.com.) Still, the fact that markets worldwide have been so buoyant highlights how AI optimism is offsetting many macro worries. “The market is getting friendly with a view that tariffs ending up higher than they’ve ever been in 100 years will not have a negative impact on growth, because we haven’t seen any negative impact so far,” observed Van Luu of Russell Investments, commenting on the seemingly Teflon stock market reuters.com.

Another insight: mega-cap tech dominance. U.S. averages have been buoyed for weeks by the handful of AI-focused giants – Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, Meta – which collectively account for one-third of the S&P’s value reuters.com. Their outsized gains (Microsoft +20% YTD, Meta +22%, etc., versus Alphabet barely above water until this week reuters.com) mean global investors’ fortunes are increasingly tied to Big Tech’s performance. This week, those fortunes rose. The broad MSCI All-Country World Index hit a record high as well reuters.com, exemplifying the global scope of the AI stock surge.

Expert Commentary: Caution Amid the Euphoria

Market veterans are both excited and wary of the AI gold rush underway on Wall Street. There’s no doubt that AI has become “one of the strongest areas of growth for the economy”, as 50 Park Investments CEO Adam Sarhan remarked, and the market’s recent record run “mirrors” that growth reuters.com. The enthusiasm is tangible: companies from cloud providers to chipmakers are touting AI as the key to future profits, and investors are rewarding them with higher stock prices. But some experts warn that expectations are running hot. Stocks are not cheap at these levels – the S&P 500’s forward P/E is around 22, near its peak, and success is already priced in for the AI leaders. “Markets have accentuated the positive,” one Reuters analysis noted, even as economic headwinds like tariffs and high interest rates persist reuters.com reuters.com. If any stumble in the AI narrative occurs, volatility could return.

For now at least, Wall Street is entranced by AI’s promise. Over July 24–25, 2025, that story reached a crescendo: Google’s leap in AI investment, Tesla’s cautionary tone, Intel’s drastic reboot, and a host of other AI-centric developments combined to move markets in a big way. The result was a tale of two markets – “AI good, everything else not so much” reuters.com – and a stock rally that left even seasoned traders amazed. Whether this AI surge is the start of a sustained tech renaissance or a frothy spike remains to be seen. For now, as one headline put it, Wall Street has been shocked (and awed) by the power of AI, and investors around the world are racing to keep up.

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