Live Markets: Can big tech afford to disappoint?

Advanced Micro Devices

Today 15:52

Nasdaq tumbles ~2.3%, S&P 500 falls ~1.4%, Dow down ~0.5%
Tech is the weakest S&P 500 sector; staples is the leading gainer
Euro STOXX 600 index off ~0.9%
Dollar up; US crude pares gains, now up >1%; gold down ~2%; bitcoin falls >3%
US 10-year Treasury yield slides to ~5.01%
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CAN BIG TECH AFFORD TO DISAPPOINT?
The AI rally has carried US stocks to record highs, but with expectations stretched and valuations rich, Big Tech earnings are shaping up as the market's biggest reality check yet.
After driving markets higher for much of the past two years, enthusiasm around AI has pushed earnings expectations to levels that leave investors with very little room for disappointment, making the next few weeks of Big Tech earnings as much about future guidance as the numbers companies just posted.
The market's biggest challenge may be the weight of its own expectations, with Jonathan LaBerge, chief strategist at BCA Research, noting that trailing 12-month US earnings growth has reached about 30% and investors are betting on a similar pace ahead, leaving little room for Big Tech to disappoint.
Wall Street got an early taste of that dynamic on Thursday, when Meta META.O surrendered post-earnings gains as investors weighed AI-driven growth opportunities against the rising cost of its AI expansion, highlighting the challenge facing Alphabet GOOGL.O, Microsoft MSFT.O, Amazon AMZN.O, AMD AMD.O and Nvidia NVDA.O as they prepare to report.
Investors have largely shrugged off rising capital expenditure, ballooning data-center costs and aggressive AI spending in the belief that those investments will translate into years of earnings growth, leaving management teams with the task of proving that the payoff remains firmly on track.
According to BCA, the AI trade can keep powering stocks higher if third-quarter tech earnings broadly meet or exceed expectations and executives pair those results with optimistic guidance for 2027, a scenario that should allow investors to remain comfortable paying premium valuations for AI-linked stocks.
The bigger risk is that expectations have become so stretched that even a slight crack in the narrative could unsettle investors, with LaBerge warning that disappointing earnings or softer guidance from Big Tech could spark a swift correction and pull the S&P 500 back toward 7,000 or lower from levels that have seen the index flirt with the 8,000 mark in recent months.
     
(Rashika Singh)
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EARLIER ON LIVE MARKETS:
NASDAQ LEADS DECLINES AS CHIP STOCKS TUMBLE CLICK HERE
BOFA SAYS FEARS OF AI DISRUPTING SOFTWARE ARE OVERSTATED CLICK HERE
NASDAQ'S FIVE-MONTH STALL LEAVES SUPPORT IN THE SPOTLIGHT CLICK HERE
EUROPEAN HEALTHCARE AND CONSUMER STOCKS AS AI HEDGES CLICK HERE
GO LONG GILTS INTO THE BUDGET, UBS SAYS CLICK HERE
LOTS OF REASONS TO SELL EUROPEAN STOCKS ON THURSDAY CLICK HERE
BEFORE THE BELL: LOTS OF COMPANIES REPORTING INTO A SHAKY MARKET CLICK HERE
MORNING BID: FRANCE'S DEBT STRAINS, AI IN FOCUS CLICK HERE