AI Got Bigger. Iran Took Back the Tape.

GOOD MORNING, Wall Street started Tuesday focused on earnings and AI, then ended it focused on Iran. Amazon's new Anthropic deal tied up to $25 billion of fresh investment to more than $100 billion of future AWS spending, another sign that the AI infrastructure race is becoming a financing race as much as a technology race. But stocks gave up early gains after U.S.-Iran peace expectations deteriorated, while energy was the only S&P sector to finish higher. The economy added another complication: March retail sales jumped 1.7%, but a record surge at gasoline stations did much of the work. Growth still looks resilient. The oil shock is making it harder to tell how much of that resilience is real.

MARKETS | TLDR

Wall Street reversed early gains as Iran concerns returned: The Dow fell 0.59% to 49,149.38, the S&P 500 lost 0.63% to 7,064.01 and the Nasdaq dropped 0.59% to 24,259.96 after reports that Vice President JD Vance cancelled a Pakistan trip tied to possible peace talks.
Energy was the only major S&P sector to rise: The S&P 500 energy index gained 1.31% as renewed Middle East risk pushed crude higher and outweighed an otherwise supportive earnings backdrop.
Retail sales jumped 1.7%, but gasoline distorted the signal: March sales posted their biggest gain in a year, while gasoline-station receipts surged a record 15.5%; excluding gasoline, sales rose a much smaller 0.6%.

AI CAPITAL LOOP

Amazon and Anthropic Just Made the AI Financing Loop Bigger

Amazon will invest up to $25 billion more in Anthropic as part of a broader agreement under which the Claude maker expects to spend more than $100 billion on Amazon cloud technology over the next decade. Amazon will put in $5 billion immediately, with another $20 billion tied to future commercial milestones. That comes on top of the $8 billion Amazon had already committed.

The structure matters because Amazon is simultaneously investor, cloud supplier and chip provider. Anthropic plans to reach 1 gigawatt of capacity using Amazon's Trainium2 and Trainium3 chips by year-end and eventually scale to 5 gigawatts. If Anthropic grows, Amazon can benefit through the value of its equity stake, AWS revenue and demand for its custom silicon. The arrangement gives Amazon multiple ways to earn from the same AI expansion.

The caveat is that the loop also makes demand quality harder to read. Amazon is helping fund a customer that is committing to buy enormous amounts of Amazon infrastructure. Unlike some AI megadeals, the additional $20 billion is milestone-based, which reduces but does not eliminate that concern. The bigger signal is that frontier-model economics increasingly depend on capital structures that connect the model developer, cloud provider and chip supplier together.

GASOLINE GDP

Retail Sales Looked Stronger Than the Consumer Did

U.S. retail sales jumped 1.7% in March, the largest monthly increase in a year and above the 1.4% gain economists expected. On the surface, that looks like a consumer acceleration. The composition tells a different story. Gasoline-station receipts surged 15.5% as the Iran war pushed pump prices higher, while sales excluding gasoline rose just 0.6%.

That distinction matters because retail sales are measured in dollars, not inflation-adjusted volumes. When gasoline becomes much more expensive, households can spend more without consuming more. In fact, the same energy shock that boosts nominal retail sales can reduce discretionary purchasing power by forcing consumers to allocate a larger share of income to fuel.

Tax refunds also supported spending in other categories, which means March may overstate the durability of demand going into the second quarter. Economists still upgraded first-quarter growth estimates after the report, but many also expect activity to slow as refund support fades and higher energy costs bite. For the Fed, that creates an awkward signal: headline spending looks strong while the underlying consumer may already be losing room.

HEADLINES

Warsh says he made no rate-cut promises to Trump: The Fed-chair nominee used his Senate hearing to promise monetary-policy independence while also signaling broad institutional changes if confirmed.
Warsh wants a smaller Fed balance sheet: He argued the central bank's roughly $6.7 trillion portfolio is too large and said he would work with Treasury to shrink it gradually, potentially changing how liquidity and long-term rates are managed.
UnitedHealth's turnaround gets its first real proof point: Q1 revenue reached $111.7 billion, adjusted EPS was $7.23 and management raised full-year adjusted earnings guidance above $18.25 per share, helping shares rally sharply.
GE Aerospace shows where the oil shock hits next: The company maintained a strong profit outlook but cut its expectations for flight-departure growth as elevated jet-fuel costs pressure airline customers.
Apple names John Ternus as Tim Cook's successor: Ternus will take over as CEO on September 1 while Cook becomes executive chairman, handing Apple's next leader the task of closing the company's perceived AI gap without disrupting one of the world's most profitable hardware franchises.

UPCOMING

IBM earnings — April 22: IBM will test whether enterprise AI demand is accelerating software and consulting growth or whether new AI tools are beginning to pressure legacy revenue faster than Watsonx can offset it.
ServiceNow earnings — April 22: The report will provide another read on whether AI automation is expanding enterprise software budgets or threatening seat-based SaaS economics.
Texas Instruments earnings — April 22: Analog and embedded-chip demand will show how broadly the data-center buildout is reaching beyond GPUs and high-bandwidth memory.
Intel earnings — April 23: Intel enters the report with investors looking for evidence that AI inference can revive CPU demand and improve utilization across its manufacturing network.

DEEP INSIGTHS

Amazon's $25 Billion Anthropic Bet

Read this for the structure rather than the headline valuation. Amazon's investment is tied to a much larger long-term AWS commitment and growing use of Trainium chips, making it a useful example of how AI capital, cloud revenue and custom silicon demand are increasingly bundled together.

Kevin Warsh's Balance-Sheet Case

Warsh's hearing matters beyond the next rate decision. His argument for shrinking the Fed's balance sheet suggests a potential change in the plumbing of U.S. financial markets — reserves, Treasury holdings and liquidity management — that could influence rates and risk assets long after Jerome Powell leaves the chair.