To bubble or not to bubble

We’re approaching another make-or-break moment for the future of America’s biggest tech companies—and the bar couldn’t be any higher.

The AI trade has become quite frothy, so traders will be closely scrutinizing every financial metric these companies report. They’re particularly worried about paying high prices for tech stocks with little to show for their massive AI investments. Five of the seven Mag 7 stocks are trading at forward price-to-earnings valuations above their five-year averages, with the exceptions being Amazon and Nvidia, according to Barron’s.

The earnings calendar: Netflix will kick off the tech earnings season on Tuesday, while Tesla, the first of the Mag 7 stocks to report, drops its latest numbers on Wednesday. Amazon, Apple, Alphabet, Microsoft, and Meta all report next week. Nvidia, ever the outlier, isn’t until November 19.

What to look out for

Overall, analysts still expect growth, albeit not the explosive kind that these tech companies saw last quarter. Some estimates foresee tech earnings growing by around 20%, according to MarketWatch, while the S&P 500 as a whole should see earnings growth of about 8%.

For AI favorites like Meta, Alphabet, Amazon and Microsoft, Wall Street will be hoping and praying for some kind of monetization of the technology—anything to prove that big tech companies aren’t splashing out hundreds of billions a year on data centers for nothing.

That’s why all eyes will be on these companies’ latest updates on their capex numbers. “Recent multibillion-dollar partnerships between hyperscalers and AI chip firms have strengthened our confidence that AI-related capital expenditures (capex) will exceed expectations and remain robust for longer,” explained UBS Head of Equities Ulrike Hoffmann-Burchardi.

As for Netflix, investors will be keeping a close eye on its "engagement" metric, or hours viewed on the platform. That will be especially important since the company no longer reports subscriber counts, according to MarketWatch.

And beyond simply hoping to hear CEO Elon Musk speak, Tesla investors will want to know how the company will handle the expiration of the federal EV tax credit, and when we’re going to start seeing humanoid robots roll off the assembly line.—LB