This Week: AI Rally Faces Make-or-Break Moment with Big Tech Earnings
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The relentless rally in AI-related stocks has been one of the biggest stories on Wall Street this year. But with key tech earnings on tap this week, investors are about to get a reality check on whether the frenzy is justified or overdone.
The stakes are high, especially for the mega-cap tech leaders like Alphabet, Nvidia, Meta and Amazon that are expected to drive most of the S&P 500's earnings growth over the next year. If their results and outlooks underwhelm relative to elevated AI expectations, it could be the pin that pricks the bubble.
After last week's pullback in tech following an industry-wide outage, the question is whether the sell-off was just profit-taking or a sign of more serious cracks. With valuations stretched in beaten-down growth names like Tesla, there's little room for error.
Here are the key events and earnings that will make-or-break the AI fever this week:
Monday
• Chicago Fed National Activity Index
Tuesday
• Alphabet (GOOGL, GOOG) and Tesla (TSLA) earnings after the bell
Wednesday
• S&P Global U.S. PMI data
• New home sales
• Chipotle (CMG), Ford (F), ServiceNow (NOW) earnings
Thursday
• Q2 GDP (1.9% growth expected)
• Durable goods orders
• American Air (AAL), Honeywell (HON), Intel (INTC) earnings
Friday
• Core PCE inflation (2.5% expected)
• University of Michigan consumer sentiment
With the Fed still concerned about stubbornly high inflation, any upside surprises in the PCE data could reignite worries about more rate hikes. That would threaten to snuff out the recent rotation into more economically-sensitive small cap and cyclical stocks.
The GDP report will also be watched closely for any signs of weakening domestic growth that could dampen the rosy forecasts many tech companies have been providing to justify their lofty valuations.
Ultimately, the high-stakes earnings from Tesla, Alphabet and others will likely be the deciding factor for whether the AI craze continues charging ahead or gets knocked down a peg. After months of FOMO-fueled froth, it's put up or shut up time for the leading AI companies to deliver results that back up the hype.
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