(Reuters) -Businesses focused on artificial intelligence are raking it in so far this earnings season. Those catering to actual people, less so.
The AI spending surge is providing a big boost for semiconductor and software giants like Google parent Alphabet, while companies from airlines to restaurants and food manufacturers are struggling to navigate an erratic U.S. trade policy which is boosting costs, upending supply chains and hurting consumer confidence.
Along with Alphabet, SK Hynix and India’s Infosys exceeded market forecasts on Thursday and predicted brighter days to come, with Alphabet and SK Hynix both flagging plans to boost spending. SK supplies the world’s most valuable company Nvidia, the AI chipmaking giant that recently surpassed $4 trillion in market value.
By contrast, executives at many consumer names were less enthusiastic, from luxury bellwether LVMH, packaged food giant Nestle, to toymakers Hasbro and Mattel and airlines Southwest and American.
They, along with automakers and giants like Coca-Cola, have indicated that some segments of the buying public have pulled in their spending as prices and interest rates remain high.
The dichotomy is evident in IBM’s results. Sales in Big Blue’s “AI book of business” grew 25 percent in its most recent quarter to $7.5 billion, while its software segment fell short of expectations and the company sounded cautious about how much its consulting segment might grow this year.
The equity market has accentuated the positive. News that the U.S. had struck a trade deal with Japan and was closing in on a deal with the European Union ahead of an Aug 1. deadline boosted markets. The broad S&P 500 notched another record this week and the Eurostoxx was just a few points shy of that mark.
“The market is getting friendly with a view that tariffs ending up higher than they have ever been for 100 years will not have a negative impact on economic growth, because we haven’t seen any negative impact on economic growth so far,” said Van Luu, head of solutions strategy, fixed income and foreign exchange at Russell Investments.
Whether companies continue to absorb that hit remains to be seen. So far, companies have reported over July 16-22 a combined full-year loss of as much as $7.8 billion, with automotive, aerospace and pharmaceutical sectors hurt the most by tariffs, according to a Reuters tariff tracker.
U.S. averages have been buoyed by the so-called Magnificent Seven, a group of tech giants that has benefited heavily from spending plans on artificial intelligence, and currently accounts for more than 30% of the value of the S&P.