Good morning. Regular readers of this newsletter will be familiar with the term “circular deals,” and the debate about whether AI market demand is being artificially inflated by AI firms investing in each other and buying each other’s goods (take Nvidia’s investment in cloud provider CoreWeave, which buys Nvidia chips; Or Microsoft’s investment in OpenAI, which uses Microsoft’s cloud services).
Leave it to Elon Musk to take it to the next level. As Tesla revealed in its earnings on Wednesday (discussed in more detail below), the Musk-led company has purchased a $2 billion stake in xAI, the artificial intelligence startup owned by Musk. Now that’s some extreme circularity. Or is it corporate inbreeding?
Today’s news below.
Alexei Oreskovic
@lexnfx
alexei.oreskovic@fortune.com
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Microsoft and Meta earnings get different reactions
Call it a tale of two Ms.
Meta and Microsoft both reported earnings on Wednesday, talking up their AI businesses and vowing to pump ever more astounding sums into the data centers and infrastructure that powers the technology.
Investors loved Meta, which grew revenue an impressive 24% year-over-year, to $59.89 billion in the last three months of the year. The credit, the company said, goes to AI, which is helping Meta target users with content and ads more effectively than ever before. Meta forecast its AI-focused capital expenditures could rise to as much as $135 billion this year, nearly double the $72 billion it reported in 2025. Shares of Meta jumped 7.5% in response.
No such luck for Microsoft, which posted $81.3 billion in revenue, up 17% year-over-year and ahead of analyst expectations. Like Meta, Microsoft is investing aggressively in AI infrastructure: cap-ex was $37.5 billion in its fiscal second quarter, up from $34.9 billion in the preceding quarter. Investors were pickier with Microsoft though, finding fault with its Azure cloud business growing at a slightly slower pace than in previous quarters (despite the fact that it still grew a healthy 39%). Microsoft shares fell more than 5% in after-hours trading.—AO
Tesla swaps 'sustainable energy' for 'amazing abundance'
Tesla's Q4 earnings report was full of surprises, none of which had much to do with its actual results (revenue of $24.9 billion was down 3% year-on-year, but ahead of Wall Street targets).
The real news, as Fortune's Jessica Mathews reports, was the basket of surprises that CEO Elon Musk unveiled. Among them, a $2 billion Tesla investment in one of his own companies (the artificial intelligence firm xAI), the elimination of the Model S and the Model X vehicles from its lineup to make room in the factory for building Optimus robots, and a new mission statement that replaces "sustainable energy" with "amazing abundance."
The moves underscore the profound transformation underway at the car maker as it loses ground in the EV market to Chinese rivals. “It’s time to basically bring the Model S and X programs to an end with an honorable discharge, because we’re really moving into a future that is based on autonomy,” Musk said. —AO
Tech CEOs break their silence on Minneapolis shootings
After days of pressure from employees, tech leaders are finally speaking up about the fatal shooting of Alex Pretti—an ICU nurse and U.S. citizen who was killed by a Border Patrol agent in Minneapolis over the weekend.
In a company Slack message, OpenAI's Sam Altman said "ICE is going too far" and cited an "American duty to push back against overreach." Anthropic CEO Dario Amodei similarly condemned the "horror we're seeing in Minnesota" and emphasized "the importance of preserving democratic values and rights."
Apple's Tim Cook told staff in a note he was "heartbroken" and called for de-escalation, adding he'd discussed the situation directly with President Trump. (The note comes after Cook faced backlash for attending a documentary screening at the White House the same evening as the shooting.)
The statements follow mounting pressure from within the industry. Earlier this week, more than 850 tech workers from companies including Google, Meta, Amazon, OpenAI, and Salesforce backed a letter that urged their CEOs to condemn ICE operations, cancel any agency contracts, and demand federal agents leave U.S. cities.
The timing is also notable: Trump on Tuesday announced a leadership reshuffle in Minnesota, dispatching border czar Tom Homan to replace Border Patrol commander Gregory Bovino as the lead official on the ground—just as the Silicon Valley pushback intensified.—Beatrice Nolan
More tech
—Samsung's outsider: Meet chief design officer Mauro Porcini.
—Amazon's massive layoffs. 16,000 roles affected.
—ServiceNow posts strong results, but CEO can't change narrative.
—IBM tops earnings targets. Big Blue touts AI bookings.
—Google brings more Gemini to Chrome. AI browsers rage on.
—Why Ashley St. Clair is taking on Elon's empire.
