Microsoft and Meta shares jumped after both companies delivered strong earnings reports despite concerns about the economy.

• The companies gave no indications of a growth slowdown as the AI economy continues to surge.

By the numbers: Microsoft posted quarterly revenue of $70.1 billion, up 13% from a year ago, and net income of $25.8 billion, up 18%. Both figures beat S&P Capital IQ analyst expectations.

• Facebook parent Meta recorded quarterly revenue of $42.3 billion, up 16%, and net income of $16.6 billion, up 35%. Both marks exceeded analyst expectations.

Zoom in: Meta raised its expectations for CapEx this year, projecting to spend between $64 billion to $72 billion in 2025, up from its previous range of $60 billion to $65 billion.

• The increased spend reflects "additional data center investments to support our artificial intelligence efforts as well as an increase in the expected cost of infrastructure hardware," the company said.

What we're watching: Microsoft noted in its earnings presentation that inventory levels in its Windows OEM and Devices segment remain "elevated due to tariff uncertainty."

The impact: Microsoft's stock rose 5.8% in after-hours trading at 5pm, while Meta was up 5.6%.

• 👀 Both companies will answer questions on analysts calls this afternoon.

President Trump appeared to acknowledge today that toy shortages are possible as his tariff hikes ripple through the economy.

• Driving the news: "Somebody said, 'oh, the shelves are gonna be open,'" Trump told reporters at a cabinet meeting. "Well, maybe the children will have two dolls instead of 30 dolls, and maybe the two dolls will cost a couple of bucks more."

The big picture: American retailers are growing worried that the president's trade war and increased volatility will lead to empty shelves, higher prices and store closures as Chinese imports screech to a halt.

🎄 Zoom in: Toy Association CEO Greg Ahearn told the New York Times this week that the industry is facing "a frozen supply chain that is putting Christmas at risk."

• "If we don't start production soon, there's a high probability of a toy shortage this holiday season," Ahearn said.

Go deeper

🐛 Caterpillar says it expects slightly lower sales in 2025 if President Trump's tariffs remain in effect. The company also projected additional second-quarter costs of $250 million to $350 million from tariffs. (Bloomberg)

🫰 Shares of social media company Snap plummeted after the company said it's tracking an advertising slowdown in the second quarter. The company flagged the closure of the de minimis tariff loophole that benefited low-cost retailers like Temu and Shein for part of the advertising pullback. (Reuters)

🌮 Taco Bell sales continue to surge for Yum Brands, but the company's Pizza Hut brand extended its sales slump. The economic environment favors Taco Bell, Yum Brands CEO David Gibbs said. (CNBC)

Toyota today announced a preliminary partnership with Waymo that could result in the Japanese automaker collaborating with the Alphabet unit on autonomous vehicle technology.

Why it matters: As the world's second largest automaker by sales and an industry leader in manufacturing efficiency, Toyota has the heft and the industrial prowess to make new technology a reality.

• And Waymo is widely considered a leader in autonomous vehicle operations, with operations in several U.S. cities.

How it works: The partnership would call for Toyota and Waymo to "combine their respective strengths to develop a new autonomous vehicle platform."

• "In parallel, the companies will explore how to leverage Waymo's autonomous technology and Toyota's vehicle expertise to enhance next-generation personally owned vehicles," Waymo said in a statement.

💭 Nathan's thought bubble: Toyota is an earth shaker in the automotive industry, so this could be huge.