The artificial intelligence (AI) trade heads into earnings season with momentum on its side. AI stocks have moved higher as a group heading into results, and that sets a higher bar.
The wider market matters too, even for tech investors.
Fewer than half of the stocks in the S&P 500 are trading above their 200-day average, down from almost three-quarters in August. Only around one in eight is close to a 52-week high. Treasury yields have also moved higher, which tends to weigh on the valuations of fast-growing companies.
None of that changes our view on the fundamentals. We expect a broadly strong set of results from US tech, with AI demand still a strong tailwind.
But the macro backdrop is getting tougher. Simply hitting forecasts is unlikely to be enough. The biggest names now need to beat expectations, and raise them, to keep the momentum going.
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Three things we're watching this earnings season
Cloud growth
Last quarter showed AI demand coming through in cloud revenue, with Google Cloud, AWS and Azure all speeding up. We expect another quarter of acceleration, and with compute still in short supply, how quickly new capacity comes online will go a long way to setting the pace of growth. Margins matter too. Signs that returns on AI spending are improving would help ease worries about the size of the bills.
Next year's spending plans
Third-quarter results are usually when the big spenders give their first steer on the year ahead. Capex should keep rising in dollar terms as data centre buildouts and compute deployments continue, though the pace of growth may start to slow after three years of acceleration.
Analysts have Amazon, Alphabet and Meta alone spending around $700bn in cash capex next year, up from around $500bn this year. Bigger numbers should not come as a shock, but the market will want to see revenue keeping pace.
From models to products
The AI race is shifting from who has the best model to who can turn it into something people use and pay for.
Meta's Muse has set the pace on the consumer side, Gemini 4 has given Alphabet fresh momentum, and new models are coming out thick and fast. Investor focus is shifting from model launches to product pipelines, especially AI agents for consumers and businesses, and how they'll make money. This is where the next leg of the AI trade gets decided.
Analyst consensus heading into earnings:
Company | Revenue ($bn) | Rev YoY | Adj EPS ($) | EPS YoY |
|---|---|---|---|---|
CLOUD HYPERSCALERS | ||||
Alphabet | 127.7 | 24.7% | 3.03 | -2.2% |
Microsoft | 90.7 | 16.7% | 4.73 | 14.5% |
Amazon | 202.2 | 12.2% | 1.96 | 0.4% |
INTERNET & MEDIA | ||||
Meta Platforms | 63.3 | 23.5% | 6.35 | -12.4% |
HARDWARE & EVS | ||||
Tesla | 27.9 | -0.7% | 0.43 | -13.5% |
Apple | 113.1 | 10.3% | 1.98 | 7.2% |
Jump to a company:
Tesla - 21 October
Meta - 27 October
Alphabet - 28 October
Microsoft - 28 October
Amazon - 28 October
Apple - 2 November
Tesla – volumes are back, now for the profits
Tesla heads into third-quarter results with some momentum.
Vehicle deliveries comfortably beat expectations and were only slightly down on last year's tax-credit-fuelled record. Deliveries over the past 12 months are also growing again after a long run of declines, which supports the argument that volumes have turned a corner.
Turning that into profit is the harder part. Markets expect revenue of $27.9bn – a touch lower than last year. Earnings per share are expected to drop 14% to $0.43, with forecasts trimmed by a similar amount over the past three months.
Last quarter showed the problem. Revenue rose by a quarter, but operating profit more than halved as costs ran ahead. Incentives and rising spending elsewhere are likely to weigh on margins again.
The growth projects matter more for the valuation.
Investors will want updates on how far Robotaxi is expanding, when the Cybercab rollout picks up, and how many people are taking up Full Self-Driving, which reached 1.5 million paid users last quarter. Optimus (the humanoid robot) has gone quiet, so any sign of progress would be welcome.
In our view, the car business is stabilising. But with capex set to top $25bn this year, Tesla needs to show progress in the areas that really drive its lofty valuation.
Meta – Muse changes the conversation
Meta heads into third-quarter results with a very different story from three months ago.
Last quarter's headline earnings miss, caused by one-off legal and restructuring charges, hid a solid core business. The real change came in September with the launch of Muse, Meta's AI agent that can shop, book travel and manage emails for users. Early take-up has been strong, and the shares have rallied sharply since.
Markets expect revenue of $63.3bn, up 24% and at the top end of guidance. But earnings per share are expected to fall 12% to $6.35, with forecasts cut by around 10% over the past three months as costs climb. Spending is the sticking point. Capex is guided to $130-145bn this year, and with investment often a touchy point for Meta, investors will want early clues on next year's budget.
Muse will dominate the call. Investors will want user numbers, early take-up of the paid tiers, and how Meta plans to make money from shopping and bookings over time.
In our view, the investment case has shifted. With sentiment back on the front foot, the next leg relies on Meta getting earnings back to growth.
Alphabet – time to turn Gemini into products
Alphabet's last results showed how quickly the business is changing.
Google Cloud revenue grew 82%, with a backlog of more than $500bn, and it overtook Search as the biggest source of new growth. The market's reaction was lukewarm, though, as capex guidance rose to $195-205bn and free cash flow turned negative.
Markets expect third-quarter revenue of $128bn, up 25%, with earnings per share broadly flat at $3.03. That flat figure is misleading. One-offs flattered last year's profits, so operating profit will give a better steer on growth. Revenue forecasts have edged higher into results, but the shares have slipped from their highs earlier in the year.
New model launches have helped the shares recover some ground, but Alphabet now needs to start rolling out products. Investors will want to see Gemini turning into things customers use and pay for, across Search, Cloud and consumer apps. Search will also be watched closely after holding up well despite fears about AI chatbots.
In our view, Alphabet is in a strong position if it delivers on products. It stands alone in having exposure across the full AI stack, from chips and cloud to models and distribution.
Microsoft – the rerating raises the bar
Microsoft has already had its rerating. July's results answered the two big concerns, about returns on AI spending and the risk of AI disrupting its software business. Azure growth accelerated to 43%, Copilot adoption picked up sharply, and the shares are up more than 40% in three months as investors ditched the AI disruption story.
Management has guided to first-quarter revenue of $89.9-91.0bn, with Azure growth of around 45%. Markets expect revenue of $90.7bn, up 17%, and earnings per share of $4.73, up 14%. With the shares no longer cheap, the bar is higher, and anything short of a clean beat on Azure could be met with a muted reaction.
Outside of Azure, Copilot is the key number to watch.
Paid seats passed 30 million last quarter, with net additions more than doubling from the quarter before. Another strong step up would show that AI is a growth driver for the software business rather than a threat.
In our view, Microsoft's software arm will be a material AI winner, and the rerating is justified. Now it needs to deliver.
Amazon – custom chips could steal the show
Amazon's story looks much cleaner than it did a few months ago. AWS was the standout last quarter, with growth accelerating to 37% as AI demand came through, and investors will be looking for more of the same.
Markets expect revenue of $202bn, up 12% and at the top of guidance, and earnings per share of $1.96.
Both comparisons look soft. Prime Day timing holds back revenue growth. And with one-offs flattering last year's profits, flat earnings say little. Performance against expectations is what counts. With forecasts barely moving and the shares lagging the Nasdaq over the quarter, the bar looks reasonable.
Capex of around $220bn this year continues to put pressure on free cash flow, and investors will be watching the guidance closely.
Cloud will grab the headlines, but retail is on a better footing than it has been for some time, helped by faster delivery, automation and a growing advertising arm. Custom chips are the area to watch. The chip business was running at around $25bn a year last quarter and growing at triple-digit rates.
In our view, it could have a moment like Google's TPU as the latest Trainium generation scales up.
Apple – strong demand, squeezed margins
Apple heads into fourth-quarter results with demand looking healthy but margins under pressure.
Last quarter's iPhone revenue rose 22% to a record, but supply shortages held back guidance and rising memory costs are eating into profitability. The new iPhone 18 lineup brought some notable price hikes. But after a strong start, wait times are now well below last year's, so investors will want an update on demand.
Markets expect revenue of $113bn, up 10%, and earnings per share of $1.98, up 7%. Forecasts have barely moved over the past month, but with the shares up heading into results, the bar is already high. Margins are the real test. Memory costs are behind all this quarter's expected margin squeeze, and investors will want to know whether higher prices can bring relief from here.
Attention will quickly turn to the December quarter, when the first foldable iPhone starts shipping. Services growth is expected to drop below 10%, which puts more weight on the AI version of Siri.
In our view, demand looks resilient, but with the shares near record highs, there's pressure to keep delivering.
The author holds shares in Amazon, Alphabet.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss. Yields are variable and not guaranteed.
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