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Viking Narrator
Viking committed to exploring the world in comfort.
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Business Analyst
Journey through the heart of Europe on.
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Viking Narrator
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Azhar Sukri
Markets gain on trade optimism as the US announces a flurry of deals. But Trump casts doubt on an accord with Canada, citing Ottawa's plans to recognize Palestinian statehood. And investors cheer cheer on Microsoft and Meta over their artificial intelligence spending plans.
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Business Analyst
You kind of have this leap of faith going on where there's so much money going out the door, but clearly the business is doing well and even improving. So the company's kind of saying, hey, take our word for it because look at the results. And so far Wall Street's been willing to do that.
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Azhar Sukri
It's Thursday, July 31st. I'm Azhar Sukri for the Wall Street Journal. Here is the AM Edition of what's news, the top headlines and business stories moving your the US Is announcing a flurry of trade deals ahead of tomorrow's deadline for reciprocal tariffs to come into force, with at least three agreements confirmed overnight.
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Donald Trump
We're going to build ships in America. We're going to build semiconductors in America. We are going to finally take care of the core of America. And it's led by Donald Trump's trade policy.
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Azhar Sukri
That was Commerce Secretary Howard Lutnick who went on Fox News. Hannity liked last night announcing new deals with Cambodia and Thailand.
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Donald Trump
The magnet of the world is the US Consumer, right? You know, remember the saying the customer is always right. US Customer is the greatest buyer in the world. And Donald Trump understands how to harness that customer and show that customer to everybody and say, if you want to play in our sandbox, you've been treating us badly for years. Come on and play.
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Azhar Sukri
And just hours ago, the US And South Korea agreed to a trade deal that'll see the US apply 15% tariffs tariffs to Korean goods. In Seoul, Journal bureau chief Timothy Martin says South Korea is holding up the deal as the end of trade uncertainty.
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Viking Narrator
With the US South Korea saw the writing on the wall and that's because if South Korea did not come to an arrangement with the US it could be left behind because its export heavy economy competes against many other major trading nations. And if we look at the deals between Japan and South Korea, they're very similar in terms of reciprocal tariffs, the levies on autos. They also share this investment commitment. And Japan has pledged $550 billion to the U.S. south Korea will have a $350 billion investment fund. About 200 billion will be earmarked for things like semiconductors, batteries, nuclear energy, biopharmaceuticals. The remaining 150 billion is saved for shipbuilding. And that's been a top priority not only for the US But President Trump.
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Azhar Sukri
As part of the agreement, Seoul won't open its market further to American rice or beef, moves that would have sparked significant backlash inside South Korea. We do not yet know what was agreed with Cambodia and Thailand, though we have learned that Malaysia is due to announce a trade deal tomorrow as well. Asia Business editor Peter Landers says these last minute tie ups are crucial for for the massive supply chain in Southeast Asia.
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Peter Landers
All of these countries have a strong trading relationship with the United States, from things like clothing up to parts of the semiconductor supply chain are centered in Malaysia. So like Japan, like Korea, like the European Union, they all want to keep up their trade with the US and they're trying to do deals before tariffs go up to rates around 25%. And so we have a little more certainty certainly than we did at the beginning of July in terms of what the rate is going to be. And it's 15% in many cases Japan, South Korea and the European Union. And so I think markets have welcomed that. It's much higher than the tariffs that the US has traditionally charged on goods from these countries. On the other hand, it's not so high that it would rule out many of the existing trading relationships.
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Azhar Sukri
And with more deals expected today, Peter says it'll be particularly tough on the countries who miss out.
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Peter Landers
Trump has suggested deals are not forthcoming with a number of big trading partners. With India, he said they're going to face a 25% tariff and criticized India for trading with Russia. He criticized Canada, saying that Canada was prepared to recognize statehood for Palestine. And Trump said that would make it difficult for the US to do a trade deal with Canada. And here also in the case of Brazil, he has been connecting trade to non trade issues such as Brazil's pursuit of a former president. Some of these political issues he is bringing together with the trade issue and saying, I can't do a trade deal if you're not satisfying my demands in other areas.
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Azhar Sukri
Now, as Peter just mentioned, Canada is saying it intends to recognize a Palestinian state if conditions including a peace deal with Israel are met. It follows similar moves by France and the UK and as Journal editor David Luno explains, potentially creating a cascade effect among other Western nations on the ground.
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David Luno
It's not going to make any difference in the Palestinian territories or to Israel. Palestine won't be any closer to having a state nobody even knows. For example, where their borders would run. But this is very symbolically important and more importantly, it suggests a direction of travel that could be quite negative for Israel. I mean, Western allies could become increasingly frustrated and then begin to resort to things like economic embargoes, sanctions, sanctioning, growing numbers of Israeli politicians, which has already started to happen, and, you know, not letting Israel into certain international fora. So this could be a signal that those kinds of things, if this doesn't work, are up next, as it were, and that could be quite damaging to Israel.
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Azhar Sukri
This comes as the US Senate has rejected efforts to block American arms sales to Israel. The proposal was led by Senator Bernie Sanders and takes on new prominence following international outcry over images of malnourished babies and children in Gaza. Democratic support for blocking weapons sales has grown in recent months, with both of Wednesday's measures drawing the backing of a majority of the Democratic caucus. However, no Republican in the GOP controlled chamber supported either measure. And in a growing sign of tensions between Washington and Beijing, China's cybersecurity regulator has summoned representatives of Nvidia to discuss the security risks of artificial intelligence chips it sells in the country. Nvidia said earlier this month that it could resume its H20AI chip sales in China, months after the US Commerce Department restricted those sales. The Cyberspace Administration of China wants Nvidia to explain what it described as the backdoor security risks associated with its H20 chips. Nvidia didn't immediately respond to a request for comment. Earlier this week, US And Chinese trade negotiators discussed potentially extending a tariff truce over two days of talks, but haven't yet come to an agreement. Their truce is set to expire on August 12th. Coming up, Microsoft and Meta rally in off hours trading. With Microsoft Nearing that $4 trillion valuation, we look at their earnings and just how these tech giants are managing to leverage AI. That's after the break.
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Azhar Sukri
Microsoft and Facebook parent Meta have rallied in off hours trading after the tech giants reassured investors that billions of dollars in outlays to AI aren't hurting their bottom line. In fact, core business growth was surprisingly strong. Dan Gallagher is the Journal's tech columnist. Dan will get to Microsoft in a moment. First, Meta's shares have surged 11% off hours following those earnings. What has gotten investors so excited?
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Business Analyst
Well, two things. They're making a lot of money and they're spending a lot of money. Now, I think the key to the reaction that we're seeing to this report is that we already know they were spending a lot of money. There had been reports over the last month that Mark Zuckerberg personally is like, recruiting AI people, researchers paying them $100 million salaries, which are huge even for tech. And so people knew there was a lot of money going out the door. But met his actual business is actually doing really well. The ad revenue grew up strong. Everything was like, well ahead of where Wall street expected it to see. And so I think we were seeing this kind of relief that the core business is doing strong. And when that happens, I think investors tend to be okay with a lot of money going out the door for AI.
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Azhar Sukri
Right. So does it seem like those results have reassured investors that all that AI spending will pay off?
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Business Analyst
It's still way too early to tell now. I mean, if you talk to them on their earnings call, you know, they do talk about how they are seeing the benefits already in, like, the AI is helping, like, target ads better, helping boost user engagement. The trick for Meta is that that's not stuff that you can like, necessarily break out on an income statement. In the same way that companies like Microsoft and Amazon can give, you know, put some dollar amount on what their customers are spending specifically on AI, it's harder for Meta to do that right now. I mean, just as an example, Meta's capital spending is going to be around $70 billion this year, over a third of its revenue, which is really, really high even for. And their projection is that's going to top 100 billion in 2026, which would be over 40% of what Wall street expects for revenue. So they're making very heavy investments relative to their size, even though they are a very big company that makes a lot of money. These are really big bets.
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Azhar Sukri
And how do those big bets compare to competitors like Microsoft, which, of course, also had some strong results out yesterday?
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Business Analyst
You know, these are two very different businesses, Meta and Microsoft. You know, Microsoft makes most of its money selling, you know, very large software packages and contracts to large corporations. And a big way they're trying to make money off AI is to sell AI services to those kinds of companies. So you have very different businesses. But similar to Meta, Microsoft is making big big spending relative to its size this year, their capital spending is going to be over 30% of their revenue, which is really high for them. They've typically been in the mid teens that way. So it's a major bet for them as well. But they didn't project as strong of a jump for their next fiscal year here. So I think they're trying to send a message that their spending's not going to maybe be going up quite as much. And that's a good sign for investors, I think, obviously, because the business is doing well. But I think if the business can do well while they spend a little less, that's always a good thing.
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Azhar Sukri
So spending a little less but also outperforming and essentially sending Microsoft on track for that $4 trillion valuation.
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Business Analyst
It seem Microsoft does seem to be on track to finally hit this $4 trillion valuation because their stock rose in the off hours trading following the report. So if it goes that way, in the formal session, they'll officially be at that line. They'll still be a little bit below Nvidia. But to have these two companies both at 4 trillion is interesting because Nvidia has been the main beneficiary of all this AI spending so far because most of it's going to chips that Nvidia sells. And for Microsoft, its investments in AI are still kind of a ways from paying off. It's still a very small part of their business. And so we're still waiting for that kind of payoff to come. So to have both these companies in this 4 trillion range for Microsoft, it still signifies quite an act of faith from investors.
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Azhar Sukri
Wall Street Journal tech columnist Dan Gallagher, thanks ever so much.
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Business Analyst
Thank you for having me.
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Azhar Sukri
And we'll get more clues on how AI is disrupting big tech when we hear from Apple and Amazon later today. Check out wi usj.com for all the earnings coverage. And that's it for what's news for this Thursday morning. Today's show was produced by Kate Bullivant and Daniel Bark. Our supervising producer is Sandra Kilhoff. I'm Azhar Sucri for the Wall Street Journal. We'll be back tonight with a new show. Until then, thanks for listening.