Earnings flood, Fed meeting will test rickety AI market rally

US stock investors are bracing for a critical week, as corporate earnings reports from major AI companies and a Federal Reserve meeting test the fragile rally that has propelled the US equity market to new heights. The Nasdaq Composite slipped slightly on Friday, following its largest single-day drop since June, as technology shares faltered, casting doubt on the sustainability of the AI-driven rally.

AI heavyweights such as Meta, Alphabet, Microsoft and Amazon are due to report earnings next week, with many S&P 500 companies also unveiling their third-quarter results. Nick Giorgi, chief equity strategist at Alpine Macro, warns that investors are closely scrutinizing the spending on AI infrastructure, as the market is reluctant to support companies pouring resources into the sector.

While robust US profit growth has bolstered the stock market's gains this year, concerns over mounting financing costs and the sustainability of AI spending could lead to a deeper correction. Investors are also awaiting clues from Federal Reserve Chair Kevin Warsh, as rate hikes remain uncertain, particularly given the looming midterm elections.