As AI rally wobbles, stock market’s spotlight turns to earnings

The upcoming week will be dominated by earnings reports from key players in the tech sector, as Wall Street assesses investor confidence in the AI rally. Companies such as Meta Platforms, Lam Research, Texas Instruments, SpaceX, and Tesla are set to report their quarterly results, with particular focus on Meta Platforms due to its massive investments in AI data centers.

AI-linked stocks have experienced sharp declines in recent days, causing concerns over the sustainability of the bull market that has been in place for four years. Investors are wary of the financing risks tied to the AI build-out boom, which has lifted profits for many companies and contributed to economic growth. Deutsche Bank and RBC Capital Markets have reduced their recommendations for the tech sector, citing a rotation away from tech and a less favorable risk-reward ratio.

Despite the headwinds, other sectors have shown solid gains, including healthcare and consumer staples. The S&P 500 posted its biggest weekly drop since June, but remained about 2% below its record high. Investors are closely watching the results from Meta Platforms, which has been spending heavily on AI infrastructure and expects to increase its capital spending to around $1.2 trillion by 2027. The profitability of these investments will be crucial in building investor confidence.