US Market: Wall Street’s AI rally faces test as Meta earnings loom

Wall Street’s AI-driven rally faces a critical test this week as investors assess whether massive spending on artificial intelligence infrastructure can deliver sustainable returns, with quarterly results from Meta Platforms and major semiconductor companies likely to shape market sentiment, according to a report by Reuters.

AI-linked stocks, which have powered the bull market through its fourth anniversary, came under pressure in recent sessions, with sharp declines in semiconductor makers and technology hardware companies such as Dell Technologies. The weakness dragged the S&P 500 to its biggest weekly decline since June, although the benchmark remained about 2% below its record high set earlier this month.

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According to Reuters, growing concerns over the financing of the AI infrastructure boom have unsettled investors, raising questions about whether the scale of investment by technology companies can be justified by future earnings growth.

The uncertainty has also prompted some market strategists to turn more cautious on the technology sector. Deutsche Bank and RBC Capital Markets have separately scaled back their recommendations on technology stocks, reflecting concerns over valuations and the near-term risk-reward outlook.

However, sectors that had lagged during technology’s recent outperformance, including healthcare and consumer staples, posted gains during the week, suggesting that investors may be looking for opportunities beyond the AI trade.

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Meta to Lead Hyperscaler Earnings

This week marks an important phase of the US corporate earnings season, with investors looking for evidence that strong profit growth can sustain equity valuations despite rising borrowing costs and concerns over AI spending, Reuters reported.

Companies in the S&P 500 are expected to report third-quarter earnings growth of more than 30%, according to LSEG IBES estimates cited by Reuters. Heavy investment in AI data centres, computing infrastructure and related technologies is a major driver of the anticipated increase.

Meta Platforms will be among the most closely watched companies as investors assess the financial implications of its AI ambitions. The company, which has a market capitalisation of about $1.8 trillion, has attracted investor attention following the launch of its Muse AI assistant.

Meta is also among five major AI hyperscalers whose combined capital expenditure is expected to reach approximately $1.2 trillion next year, according to Goldman Sachs estimates cited by Reuters.

The scale of these investments has intensified scrutiny of whether revenue and profits can grow quickly enough to justify the spending. Investors are particularly interested in guidance on capital expenditure, infrastructure costs and the expected returns from AI-related initiatives.

The earnings outlook will matter especially as higher interest rates raise the cost of financing large technology projects. A weaker-than-expected outlook on returns could further pressure stocks that have benefited from the AI investment boom.

Semiconductor Stocks Face Fresh Scrutiny

Semiconductor companies, among the biggest beneficiaries of rising AI infrastructure spending, will also be in focus as investors look for signals about industry demand.

The Philadelphia Semiconductor Index has fallen about 12% this month, although it remains up approximately 57% in 2026. By comparison, the S&P 500 has gained around 12% over the same period.

Results from Lam Research and Texas Instruments, scheduled for Wednesday, could provide broader indications of demand across the semiconductor industry. Lam Research shares have risen 54% this year, while Texas Instruments has gained 59%.

Investors will assess whether strong demand for chips and semiconductor manufacturing equipment can sustain earnings momentum or whether elevated valuations leave the sector vulnerable to further profit-taking.

The recent weakness in technology stocks has also highlighted the concentration of market gains in a relatively narrow group of AI-linked companies. Any disappointment in earnings or forward guidance could intensify volatility across the sector.

Tesla, SpaceX and Netflix Also in Focus

Beyond AI infrastructure and semiconductor companies, investors will monitor results from Elon Musk-led Tesla and SpaceX. Both businesses have significant exposure to technology-driven growth themes, with SpaceX also developing an AI business.

Netflix, consumer products maker Procter & Gamble and aerospace engine manufacturer GE Aerospace are among the other prominent companies scheduled to report results during the week.

Their earnings could offer insights into consumer demand, corporate spending and the broader health of the US economy, helping investors determine whether market gains can broaden beyond technology.

Treasury Yields and Fed Policy Add to Uncertainty

Interest rates remain another major consideration for equity investors. A rise in US Treasury yields and growing expectations of further monetary tightening could add pressure on valuations, particularly for technology companies whose earnings expectations are heavily weighted toward future growth.

Hotter-than-expected inflation data released during the week increased bets on another Federal Reserve rate hike at the central bank’s meeting at the end of October. However, futures pricing still indicated that most investors expected the Fed to wait until December to raise rates for a second time this year.

Higher rates could make the financing of AI infrastructure more expensive, raising the threshold for companies to demonstrate attractive returns on their investments.

According to Reuters, UBS Global Wealth Management analysts said in a recent note that another strong earnings season could help equities withstand moderately higher interest rates.

For investors, this week will therefore be about more than headline earnings growth. The outlook for AI capital expenditure, evidence of improving returns on investment, semiconductor demand and the trajectory of interest rates are likely to determine whether the technology-led rally regains momentum or faces a deeper correction.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)