Alphabet and Microsoft defended their AI spending in different ways. Why that matters

Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Markets rebound: Technology stocks are finding some relief Wednesday after a pullback Tuesday thanks to a slew of better-than-expected results. The Nasdaq Composite surged more than 2%, fueled in large part by a jump in semiconductor stocks; the biggest of those chip names, Club holding Nvidia, is up more than 11%. The tech-heavy Nasdaq is doubling the gains of the Russell 2000 , which has been a big winner during the July market rotation into small-cap stocks. Wednesday's rally continued after the Federal Reserve announced at 2 p.m. ET that it was leaving interest rates unchanged , while noting there's been additional progress on moderating inflation in recent months. During a Wednesday afternoon press conference, Fed Chair Jerome Powell said if data continues to boost the central bank's confidence that inflation is slowing, an interest rate cut "could be on the table" at its next policy meeting in September. Powell also said the Fed is believes the U.S. labor market is normalizing and not a source of inflationary pressure in its current condition. Alphabet vs. Microsoft: One of the key debates coming into earnings season was whether the torrid pace of artificial intelligence investments will continue, or whether the megacap tech firms would back off their spending if they weren't getting a return on their investment. So far, we've seen earnings from Club holdings Alphabet and Microsoft . Even though both companies said they expect capital expenditures to increase next year, the two companies took different approaches to answer the question. Last week, Alphabet responded that the risk of under-investing is greater than the risk of over-investing. This may have spooked the market because it implied uncertainty on the duration of customer demand. Microsoft explained a much different story Tuesday night. The company isn't investing out of fear of falling behind. It is spending because it won't meet the demand without increasing capacity. We think this difference is why the semiconductor stocks couldn't rally when Alphabet issued its higher capex guide last week compared with Wednesday's surge, due in part to Microsoft. Up next: We're past the midpoint of second-quarter earnings season, but still have plenty of companies on tap later. In the portfolio, Meta Platforms is scheduled to report after the closing bell Wednesday. Some other names of interest are Arm Holdings , Qualcomm , Lam Research , Western Digital , Carvana , eBay , and MGM Resorts . On Thursday morning, Club stock Eaton reports its earnings, and we'll be looking for updates on how the AI buildout is boosting its data-center business. Other companies reporting are Crocs , ConocoPhillips , Hershey , Biogen , Dominion Energy , Air Products and Chemicals , Becton Dickinson and Quanta Services . (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street.