AI Spending Verdict Meets Powell's Fed.

Mazen Al Sabbagh

— 8 min read
Share

TL;DR

  • Market Concentration & Monetary Policy: Four Magnificent Seven companies report earnings today, representing unprecedented AI capital expenditure commitments. Simultaneously, the Federal Reserve maintained rates at 3.50-3.75%, a decision marked by unusual dissent, while Chair Powell confirmed he will remain a governor post-term.
  • OpenAI Litigation Intensifies: Elon Musk continued testimony in the OpenAI trial, asserting he was "a fool who provided them free funding" for a now-$800 billion entity. Sam Altman appeared in court, with cross-examination by OpenAI's counsel pending.
  • Anthropic's Federal Re-entry: The White House is drafting an executive action to circumvent Anthropic's current supply-chain risk designation, enabling federal agencies to deploy its Mythos model despite earlier Pentagon blacklisting.
  • New Contender in Coding AI: Poolside launched its initial coding models, Laguna M.1 and the open-weight Laguna XS.2, alongside an open-source terminal agent, establishing itself in a competitive field.
  • EU AI Act Stalemate: European Union AI Act trilogue negotiations failed after twelve hours, leaving the August 2, 2026, high-risk compliance deadline firmly in place, with the next session scheduled for May 13.

Lead Story: Market Crucible: Earnings, the Fed, and the AI Infrastructure Bet

After the market closes today, Alphabet, Microsoft, Meta, and Amazon will release quarterly earnings within what Bloomberg identifies as an "80-second window" — a confluence of results from companies collectively representing over $15 trillion in market capitalization and more than $600 billion in committed AI infrastructure spending for 2026. This is not merely an earnings report; it is a critical juncture for validating an unprecedented corporate investment cycle.

The financial backdrop was set at 2 PM ET, when the Federal Reserve affirmed its decision to hold rates at 3.50-3.75%. While anticipated, the vote included unusual dissent, signaling internal division on future monetary policy direction. In what is likely his final press conference as chair, Jerome Powell indicated that persistent 3.3% inflation, exacerbated by elevated energy prices stemming from the Iran conflict, remains a concern. Notably, Powell also stated he would remain on the Fed board as a governor "for a period of time" post-May 15, ensuring a measure of continuity as the Senate Banking Committee confirmed Kevin Warsh as his successor.

Market scrutiny will center on specific metrics: Alphabet's Google Cloud revenue, where expectations hover at $18.4 billion, reflecting approximately 50% year-over-year growth. Microsoft's Azure growth rate, guided at 37-38% in constant currency, will be a key performance indicator. Meta’s estimated $55.5 billion in revenue will be dissected to ascertain if its advertising AI initiatives are justifying a near-doubling of capital expenditure to $115-135 billion. For Amazon, AWS growth, particularly against CEO Andy Jassy’s recently disclosed $15 billion AI revenue run rate, will face intense examination; any figure below 24% could suggest market share erosion.

The immediate context amplifies the gravity of these reports. Tuesday's Nasdaq sell-off, sparked by the Wall Street Journal's report on OpenAI missing revenue and user targets, shifted market sentiment from speculative spending to a demand for tangible results. Goldman Sachs further underscored this pressure with a note drawing parallels between current AI-linked valuations and the dotcom bubble. Markets opened lower Wednesday—S&P 500 down 0.2%, Nasdaq down 0.5%—as traders positioned themselves ahead of these twin events. Despite this, the S&P 500 maintains an 8.4% gain for April.

Capital expenditure figures warrant as much attention as revenue. Alphabet has guided $175-185 billion for the full year, Amazon targets $200 billion, and Meta's range peaks at $135 billion. These are long-dated infrastructure bets, preceding the revenue they are intended to generate by years. Concurrently, Bloomberg reported that US core capital goods orders surged in March by the most since mid-2020, primarily driven by AI-related investment, indicating an accelerating, economy-wide spending trend beyond just Big Tech. Strong cloud growth and clear AI monetization signals from tonight's earnings will validate this spending race; disappointment, however, will position the OpenAI miss as the prelude to a broader market correction.

The Federal Reserve has rendered its decision. Earnings reports will follow after 4 PM ET. The market’s verdict awaits.

In Other News

Musk's Courtroom Offensive. Day three of Musk v. OpenAI brought Elon Musk back to the stand, where he characterized his early funding of OpenAI as a misstep, stating he was "a fool who provided them free funding to create what would become an $800 billion company." His testimony underscored his claim that OpenAI has deviated from its original non-profit, open-source mission. Sam Altman's presence in court, seated beside Greg Brockman, marked his first appearance during the trial, contrasting with his virtual engagement at an AWS launch event the prior day. Musk, who now leads xAI, also claimed AI would surpass human intelligence by next year, a statement that simultaneously supports his argument about OpenAI's existential power and highlights the competitive threat posed by his own venture. He is seeking substantial damages and the removal of Altman and Brockman from OpenAI's board, in a trial anticipated to feature testimonies from key industry figures, including Satya Nadella. (NYT Live Updates, The Verge)

Administration Reworks Anthropic Access. The White House is formulating guidance, potentially including an executive action, to bypass Anthropic's current supply-chain risk designation. This move would permit federal agencies to onboard advanced AI models such as Mythos, despite earlier blacklisting by the Pentagon. The Axios report indicates that the administration is conducting "table reads" of proposed guidance this week, involving cross-sector companies to inform the policy. This initiative follows recent meetings between Anthropic CEO Dario Amodei and senior White House and Treasury officials, signaling a strategic reversal aimed at re-integrating Anthropic's capabilities into government operations, driven by agency demand for Mythos's dual cyberattack and cyber defense automation prowess. (Axios, Reuters)

Reasoning vs. Reliability: The AI Agent Dilemma. A paper presented at ICLR 2026, "The Reasoning Trap," reveals a critical trade-off in AI agent development: models trained for enhanced reasoning capabilities through reinforcement learning exhibit a proportional increase in tool-hallucination rates relative to task accuracy gains. This implies that as models become more adept at reasoning, they also become more confidently deceptive in inventing non-existent tool calls. While prompt engineering offered marginal improvement and direct preference optimization (DPO) provided greater, yet insufficient, mitigation, this finding challenges the reliability of AI agent deployment, especially given that 47% of enterprise AI users have made significant business decisions based on hallucinated content, and 96% of enterprises now utilize AI agents. (Asanify, ICLR 2026)

EU Targets Gemini's Android Dominance. European Commission regulators have issued draft rules under the Digital Markets Act, compelling Google to open Android's AI integration layer to rival services. Currently, Google's Gemini maintains exclusive access to device-level functionalities—such as email composition, order placement, and hardware adjustments—a condition the proposed regulations seek to rectify. The new framework would enable users to invoke third-party AI assistants like ChatGPT or Claude via custom triggers, granting them access to app data for context-aware recommendations. Google has resisted, labeling the intervention "unnecessary." The Commission has six months to finalize these rules, with potential penalties reaching 10% of Google's global annual revenue. (Bloomberg, The Next Web)

X / Social Pulse

The social media gag order in Musk v. Altman is a dominant topic within tech circles, sharpened by the striking contrast of Tuesday's events. While Elon Musk testified in Oakland, alleging a betrayal of OpenAI's mission, Sam Altman appeared via pre-recorded video at an AWS event across the Bay, announcing OpenAI's models landing on Amazon Bedrock. The optics of launching a multi-cloud enterprise strategy amidst a high-stakes lawsuit from a co-founder generated predictable, often acerbic, commentary on strategic alignment and market opportunism.

Concurrently, the "Dead Internet" discourse has resurfaced following research from Imperial College London, Stanford, and the Internet Archive, which concluded that over one-third of new websites are now AI-generated. Gizmodo's framing—"Dead Internet Theory is 17% of the way to becoming reality"—captures the growing unease regarding digital authenticity and the perceived saturation of the internet with synthetic content.

One to Watch

Coding AI: The Fourth Pillar Emerges. Poolside's Laguna launch warrants close attention beyond its benchmark performance. The company’s approach is distinct: models trained from scratch specifically for code, not general-purpose LLMs fine-tuned, and a commitment to open-sourcing both models and its internal agent training environment. The Laguna XS.2 model, at just 3 billion activated parameters, achieves 68.2% on SWE-bench Verified, a score that would have represented state-of-the-art performance less than a year ago.

The coding agent market now fields four significant, well-funded contenders, each pursuing fundamentally different strategic trajectories. Anthropic's Claude Code leverages the scale of its large general-purpose models. OpenAI's Codex capitalizes on ChatGPT's extensive distribution, now amplified by its availability on AWS Bedrock and "Managed Agents, powered by OpenAI," extending its reach beyond Azure for the first time. Cursor retains a substantial valuation via SpaceX's $60 billion acquisition option and a robust, developer-centric IDE. Poolside now enters with purpose-built, open-weight models and a terminal-first agent. Each player's strategy reflects a distinct theory on where value accrues: general intelligence, distribution, developer experience, or specialized domain expertise in the evolving business architecture of software development.

Quick Hits

  • NXP Reports Strong Q1, Robust Outlook: NXP Semiconductors exceeded Q1 estimates, with a Q2 revenue forecast surpassing consensus, signaling sustained demand within the automotive and industrial sectors for AI-enabling semiconductor solutions. (GlobeNewsWire)
  • EU AI Act Stalemate Confirms August Deadline: A protracted 12-hour trilogue on the EU AI Act concluded without consensus on delaying high-risk compliance, solidifying the August 2 enforcement date. Companies now face immediate strategic adjustments for regulatory adherence. (Reuters, Politico)
  • Q1 2026 Venture Funding Sets Record: Global venture funding reached an unprecedented $300 billion in Q1 2026, driven by foundational AI startup investments which alone doubled the total for all of 2025. (Crunchbase)
  • Warsh Confirmed as Fed Chair; Powell Remains Governor: Kevin Warsh's confirmation as the next Federal Reserve Chair establishes a new leadership era, though Powell's unusual decision to stay on the board ensures a degree of institutional continuity and influence. (CNBC, Reuters)
  • FISA 702 Reauthorization Faces AI-Enabled Surveillance Scrutiny: The House prepares to vote on reauthorizing FISA Section 702. Concerns over AI-enabled warrantless surveillance capabilities, alongside a 34% increase in FBI searches on Americans in 2025, fuel bipartisan opposition to the measure. (Time)

The earnings reports landing tonight will either validate or undermine the largest corporate infrastructure bet in modern history. The Federal Reserve has already rendered its decision—a steady hold, but with internal dissent—and Powell’s intent to remain a governor ensures continuity even as the chair changes hands. The White House is quietly drafting a path to reintegrate Anthropic’s most powerful model into government operations, the very model the Pentagon sought to blacklist. In a courtroom south of San Francisco, the individual instrumental in initiating the AI race testified to being "a fool" for funding the company he now seeks to dismantle, while simultaneously projecting AI's surpassing of human intelligence by next year. And in Brussels, regulators invested twelve hours attempting, unsuccessfully, to defer critical AI rules, leaving an August compliance deadline that many had presumed flexible now firmly in place. The core inquiries continue to converge: who ultimately captures the value generated by AI, who governs its deployment, and is the trajectory of this transformative technology truly within anyone's control?

Sources

Lock in. M. mazen@thorterminal.com

Read more