As the AI trade wobbles, the market is turning its attention to the upcoming earnings season for answers on whether this unprecedented wave of technology investment can deliver returns.
Meta Platforms will be first to report quarterly results next week, becoming the first among hyperscale tech companies to face the market's scrutiny as the "AI capex sample."
Goldman Sachs forecasts that the combined capital expenditures of the five largest hyperscalers, including Meta, will rise to roughly $1.2 trillion next year. Investors are eager to find signals in Meta's earnings on whether these massive outlays can translate into sustainable profits. Meanwhile, the Philadelphia Semiconductor Index has fallen 8% so far this month, and AI cloud company CoreWeave's financing risk alarm over roughly $50 billion in debt has made market sentiment even more fragile.
Against this backdrop, Meta's earnings carry significance far beyond a single company's performance—it will set the tone for subsequent tech giant earnings and directly test whether the market's pricing logic for AI return on investment can hold up.
AI Trade Shows Cracks, Market Sentiment Turns Cautious
The AI-led trade that has underpinned this bull market for four years has recently shown clear signs of faltering. Sharp pullbacks in semiconductor companies and tech hardware firms such as Dell Technologies have weighed on market confidence.
According to Reuters, strategists at Deutsche Bank and RBC Capital Markets have recently downgraded their recommendations on the tech sector in succession. Deutsche Bank strategists noted on October 9 that the rotation in the tech sector "has gone quite far, and the short-term risk-reward ratio is no longer attractive."
Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions, said, "The market narrative is clearly a bit unsettled right now, and there is significant uncertainty about where AI stands." He also noted that this is an "either-or" market—"when the AI trade works, it sucks the oxygen out of everything else."
Although tech and AI-heavy stocks are under pressure, the S&P 500 Index is only about 1% below the record high set this month, with other sectors that had lagged the tech sector filling the gap.
CoreWeave Debt Crisis Sounds Alarm on AI Financing
Market concerns about the financing risks of the AI buildout boom have intensified sharply due to the CoreWeave incident. The AI cloud company carries roughly $50 billion in debt, and its stock plunged this week, triggering widespread questions among investors about the sustainability of AI infrastructure financing.
As capital costs rise, the "capex frenzy" of hyperscale tech companies is becoming increasingly expensive. Chuck Carlson, CEO of Horizon Investment Services, noted, "Rising capital costs mean this capex explosion will become more expensive, which raises the bar for returns. Meta will be the first company to try to provide answers on this issue."
Meanwhile, rising U.S. Treasury yields and expectations of further Federal Reserve rate hikes continue to trouble equity investors. This week's hotter inflation data reinforced market bets that the Fed will raise rates again at its late-October meeting, although futures pricing shows most investors still expect the Fed to wait until December for a second hike.
Meta Earnings: The First Big Test for Hyperscale Spending Returns
Meta has a market value of approximately $1.9 trillion, and its stock has continued to climb recently with the launch of its Muse AI assistant. As one of the five largest hyperscale tech companies, Meta's massive investments in AI data centers and infrastructure are one of the core drivers behind the overall jump in corporate earnings.
According to LSEG IBES data, third-quarter earnings for S&P 500 constituents are expected to grow more than 30% year-over-year, with AI-related capital expenditures an important support for this profit surge.
Kevin Shea, senior equity analyst at BNY Wealth, said, "One of the most important things to watch this earnings season is whether hyperscale tech companies can grow profitability faster than their capital expenditures."
Goldman Sachs forecasts that the combined capital expenditures of the five largest hyperscalers will reach about $1.2 trillion next year. Against this backdrop, whether Meta can demonstrate a clear outline of its AI monetization path will directly influence the market's judgment on the sustainability of the entire AI investment cycle.
Semiconductor and Other Tech Giant Earnings Also in Focus
Chip companies are among the biggest beneficiaries of this AI capex boom, but their stocks have cooled noticeably recently. The Philadelphia Semiconductor Index has fallen 8% this month, although it is still up more than 60% year-to-date, far outpacing the S&P 500's roughly 13% gain over the same period.
Investors will watch earnings from Lam Research and Texas Instruments next Wednesday for broader signals on overall semiconductor demand. Both companies' shares have risen about 60% this year.
In addition, earnings from high-profile companies including Tesla, Netflix, Procter & Gamble, and GE Aerospace will also be released next week, together forming an important observation window for this earnings season.
Analysts at UBS Global Wealth Management noted in a Thursday report that "another strong earnings season should help the stock market withstand moderately rising interest rate pressure." However, with confidence in the AI trade already showing cracks, whether Meta can be the first to deliver a convincing report card will largely determine whether the market narrative of this trillion-dollar AI bet can continue.
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