Stock Market Prays Tech Earnings Are Up Because of AI

Technology companies are gearing up for their latest batch of earnings reports, and Wall Street will be looking for proof that artificial intelligence (AI) investments are paying off.

Investors will be watching closely for capital expenditure updates.

Investors want to see how these companies are monetizing AI—especially given the massive spending on the fast-growing technology, Angela Palumbo and Paul R. La Monica reported for Barron’s Daily.

Amazon.com reports the week of Oct. 21, while Apple, Microsoft, and Meta Platforms follow a week later.

Rising tech valuations are fueling concerns about an AI bubble. Five of the “Magnificent Seven” stocks now trade at higher forward price-to-earnings ratios than their five-year averages.

The biggest tech companies need to demonstrate accelerating cloud revenue growth to prove they are making money from AI. This includes Microsoft’s Azure cloud business, Alphabet’s Google Cloud, and Amazon Web Services. Beating expectations is imperative for investors.

These large tech firms have also committed tens of billions of dollars to building AI infrastructure that provides the computing power needed to support major advances.

Investors will be watching closely for capital expenditure updates.

By the time the focus shifts to tech, earnings season will already be in full swing. It kicks off with the big banks next week, and optimism abounds.

According to data from FactSet Research Systems, Wall Street expects an 8% earnings increase for the S&P 500 from a year ago.

The realization that trade policies may not be as harsh as initially feared could also boost sentiment. Strategists at 22V Research analyzed recent earnings conference calls and found that corporate sentiment has rebounded after dipping in the second quarter.