Why These Earnings Matter
The AI investment boom has been the fuel behind the market’s three-year bull run. But investors are now asking the hard question: when will all that spending actually pay off?
If the tech titans can show that their massive AI capital expenditures are starting to translate into profits, the rally could keep rolling. If not, confidence may wobble. As Talley Leger of Wealth Consulting Group put it, "This week’s performance will determine whether this rebound continues or takes a breather."
So far, earnings season has been strong. Roughly 85% of S&P 500 companies that have reported beat profit expectations—the best showing in four years. That helped push the index back near record highs after October’s early sell-off.
The Big Seven Effect
The so-called "Big Seven"—the five reporting this week plus Nvidia and Tesla—have contributed nearly half of the S&P 500’s gains this year. Their dominance means the market’s fate is tied closely to their performance.
Data shows Microsoft, Alphabet, Amazon, and Meta are projected to spend $360 billion in capex this fiscal year, much of it on AI. Analysts expect that figure to climb to $420 billion next year. These investments have already lifted related sectors, from semiconductors to network equipment to utilities. Nvidia, now the world’s most valuable company, will report on Nov. 19 and is expected to be a major beneficiary.
Cloud, Ads, and Hardware in Focus
- Amazon, Microsoft, and Alphabet are seeing the biggest AI-driven growth in their cloud businesses.
- Meta says AI is boosting advertising efficiency and user engagement.
- Apple faces pressure to show how its hardware ecosystem can keep pace in an AI-driven world.
The challenge: AI spending currently far exceeds revenue. Investors, however, remain patient, betting that dominance in AI infrastructure will pay off in the long run.
Risks and Expectations
The risk is that heavy spending could erode profit growth. The seven largest U.S. tech stocks are expected to post 14% profit growth in Q3, down from 27% in Q2. That’s still nearly double the S&P 500’s 8% forecast, but it’s the slowest pace since early 2024.
Still, these companies have a history of beating expectations. As Leger noted, "There is still room for market expectations to be revised upward, which is bullish for this quarter."
The Bottom Line
For investors, this week’s Big Tech earnings may matter more than the next Fed rate cut. With so much of the market concentrated in a handful of companies, their results will likely decide whether the bull market keeps charging—or finally takes a breather.