Market outlook on artificial intelligence Optimism surrounding the prospects of (AI) continues to drive Nvidia's growth. , Microsoft The valuations of several tech giants, including the S&P 500 and Nasdaq, have also driven up their prices. The three major benchmark stock indexes—the Shanghai Composite Index, the Dow Jones Industrial Average, and the Shenzhen Component Index—have repeatedly hit new highs this year. Starting this Wednesday, Microsoft and Apple, two of the "Big Seven" tech giants... Google, Amazon Both Meta and others will release their earnings reports soon. For a market currently at high valuations, this will test whether the stock market rally driven by the AI boom can be sustained.
High enthusiasm
This week marks the busiest phase of the third-quarter earnings season. According to FactSet, a total of 175 S&P 500 companies are scheduled to report results. Overall, the earnings season has gotten off to a good start. Of the 29% of S&P companies that have reported earnings so far, 87% have exceeded earnings per share expectations, and 83% have exceeded revenue expectations.
Five of the "Big Seven" will release their earnings reports this week, with Microsoft , Meta, and Google leading the way on Wednesday afternoon, while Apple and Amazon will disclose their results the following trading day.
Bank of America A global fund manager survey released last week showed that its composite indicator of market sentiment (based on cash holdings, equity allocations, and global economic growth expectations) reached its highest level since February. The "Big Seven" remained among the most crowded trades, with 39% holding long positions.
Wells Fargo In a recent client report, Wells Fargo Investment Institute stated, "The market's core focus going forward will be on the third-quarter earnings reports of large technology and industrial companies—all of which are related to artificial intelligence (AI). We believe that data on AI capital expenditure plans will be crucial to third-quarter earnings performance and further stock market gains."
A compilation by CBN reporters reveals that analysts predict the technology sector will lead the pack with a profit growth rate exceeding 23% last quarter. Considering its weighting and popularity, the importance of the technology and AI sectors is self-evident. (Philadelphia Semiconductor) The index trend not only confirms that the hype surrounding artificial intelligence (AI) continues unabated and shows no signs of cooling down, but also indicates that market investment in AI is gradually expanding from hardware and infrastructure to software development . And in application areas, the latter is expected to eventually develop into a much larger industry.
In recent weeks, OpenAI has been at the heart of large-scale AI infrastructure deals, including with Nvidia and Oracle. AMD and Broadcom A series of collaborations have continued to ignite market enthusiasm. As tech giants release their third-quarter earnings reports, the market widely expects these companies to revise their spending forecasts upwards as industry competition enters a new phase. Morgan Stanley Total capital expenditures by large tech companies are projected to grow by 24% next year, reaching nearly $550 billion. Investors are increasingly focusing on the returns behind these massive expenditures. "Trillions of dollars are earmarked for spending, while the 'Big Seven' are generating only hundreds of billions of dollars in free cash flow," said Lauren Taylor Wolfe, co-founder of Impactive Capital, suggesting that companies have yet to see significant returns from these investments.
Potential risks
Growth stocks that are already highly valued are more susceptible to underperforming earnings.
Bank of New York Mellon Wealth management strategist Alicia Levine said Wall Street expects the "Big Seven's" third-quarter earnings growth to be about half of their actual growth rate in the previous quarter, so any discrepancy could trigger a modest market reaction. "It's very difficult to impress the market with earnings reports, and failing to meet expectations will be punished."
On the other hand, geopolitical and trade uncertainties still loom in the background, making future trends uncertain. Nohshad Shah, head of fixed income at Citadel, wrote, "Downside risks remain (and their level is underestimated). At current valuation levels, the stock market is extremely sensitive to shocks."
Nicholas Colas, co-founder of DataTrek Research, predicts that over the next four quarters, the earnings growth of large-cap tech stocks will continue to significantly outpace the remaining 493 stocks in the S&P 500. However, starting in the first quarter of 2026, the latter's growth rate should begin to narrow the gap with the former. "It's unprecedented in history for a few already sizable companies to consistently outpace the rest of the S&P 500. This forces the market to 'judge for itself' when determining valuations, and the core issue lies in investor confidence in the macroeconomic environment and the fundamentals of individual companies."
It's worth noting that the seven giants currently account for 34% of the S&P 500 index. Kolaas points out that if Tesla is excluded... This highly anticipated stock portfolio has an average forward price-to-earnings ratio of 30 over the next 12 months, representing a 34% premium over the overall S&P 500 index. "The current trading price of the S&P 500 reflects market expectations of strong earnings growth over the next two years. Its forward price-to-earnings ratio for the next 12 months is 22.4, higher than the average of approximately 20 over the past five years."
JPMorgan Chase David Kelly, chief global strategist at an asset management firm, said at the firm’s 2026 long-term capital markets outlook media briefing that the high concentration of large-cap tech stocks is “slightly unsettling” and “requires extra caution.”
While some market participants and investors have expressed concerns about valuation bubbles and the potential for a significant market correction, Goldman Sachs... They remain confident in the future prospects of artificial intelligence. This Wall Street bank believes that although historical experience shows that bubbles are often driven by market frenzy fueled by disruptive technologies, the current market rally is different—it seems to be driven primarily by fundamental growth rather than a large amount of irrational speculation. "Of course, the current high market concentration and intensified competition in the field of artificial intelligence suggest that investors should continue to focus on portfolio diversification."
(Article source: CBN)
