Big Tech Earnings Week Puts AI Spending to the Test

U.S. stock futures edged higher on Monday as crude oil prices eased from last week's surge, opening a week in which big tech earnings arrive alongside the Federal Reserve's interest rate decision, according to Reuters.

Dow E-minis rose 257 points, or 0.49%, in early trading, while S&P 500 E-minis gained 0.3% and Nasdaq 100 E-minis added 0.25%, Reuters reported.

About one-third of companies in the benchmark index report results during the week, including Alphabet, Microsoft and Amazon, whose figures will be examined for signs that heavy spending on artificial intelligence infrastructure is paying off.

A crowded calendar

The Federal Reserve is due to announce its decision on Wednesday, October 28, at 2 p.m. ET, followed by a press conference half an hour later. Investors widely expect policymakers to hold the benchmark rate in a range of 3.75% to 4.00%, according to TipRanks, citing CNBC.

Microsoft and Alphabet report after markets close that same evening, while Amazon follows after the close on Thursday. The timing means traders will absorb a monetary policy decision and a pair of cloud results within a few hours.

Analysts expect Microsoft to report revenue of about $90.6 billion, Alphabet to report about $128 billion and Amazon to report about $202 billion, according to consensus estimates reported this week.

Microsoft has guided Azure to growth of 45% in constant currency for the quarter, a target that sets a high bar for its cloud business. Constant currency removes the effect of exchange-rate movements, so the figure reflects underlying growth rather than currency shifts.

Cloud computing divisions matter because they rent computing power and storage to other businesses, and their growth is now treated as a gauge of demand for artificial intelligence services.

The three companies' latest filings list $1.71 trillion of commitments between them, according to an analysis by FourWeekMBA based on those filings, with Microsoft's purchase commitments primarily relating to data centres.

Why cloud results carry weight

Last week's reports set a cautious tone. Meta fell after raising its annual artificial intelligence spending forecast again and saying it would sell new stock to help pay for it, while Tesla also fell after its results, Reuters reported.

"Strong AI demand alone may no longer be enough. Markets want evidence of monetization, margins and cash flow," Charu Chanana, chief investment strategist at Saxo, said in comments reported by Reuters.

The trade in artificial intelligence shares has stumbled this month as fears grow that debt-funded data centre spending could prove unsustainable if borrowing costs stay high. CoreWeave has fallen 41% since October 6, according to a market summary published Monday.

Reuters reported that CoreWeave and Nebius have each lost more than 30% of their market value during October, and that shares in both companies fell about 3% in premarket trading on Monday, while IREN dropped 2.6% and Applied Digital dropped 1.5%.

Elon Musk said in a post on Sunday that markets had almost entirely shut off access to money for companies without substantial revenue independent of artificial intelligence data centres, and predicted consolidation among neocloud providers, Reuters reported.

Crude prices eased on Monday after rising sharply on Friday amid escalating tensions in the Middle East, with Brent down 2.04% and West Texas Intermediate down 2.44%, according to TipRanks.

Most megacap and growth stocks rose on Monday after the broad market index recorded losses for the previous two weeks, Reuters reported, with Tesla leading the advance with a 2.1% rise in premarket trading.

Last week, the broad index fell 0.47% and the Nasdaq Composite fell 0.71%, while the Dow Jones Industrial Average gained 0.41%, according to TipRanks.

Boeing, Visa and Starbucks also report during the week. An advance estimate of third-quarter gross domestic product and September personal income and outlays, which includes PCE inflation, are due Thursday morning at 8:30 a.m. ET.

For savers, the week matters because index funds and pensions hold many of these companies, and borrowing costs set by the Federal Reserve feed into mortgages, loans and credit card rates.

Apple reports the following Monday, extending the earnings season into a second week for the largest technology companies.

Sources: Reuters report on U.S. stock futures, TipRanks market update and TheStreet live market update.