Stocks Get Tech Lift in Run-Up to AI Earnings Test: Markets Wrap

(Bloomberg) — A rally in the world’s largest technology companies sent stocks to all-time highs amid speculation that artificial intelligence will keep driving earnings for the group that has powered the bull market.

While most shares in the S&P 500 took a breather after a torrid run, tech megacaps kept rising. Microsoft Corp. finalized a new pact with OpenAI that will give the software giant a 27% ownership stake worth about $135 billion. Apple Inc. briefly topped $4 trillion while Nvidia Corp. Chief Executive Officer Jensen Huang dismissed concerns about an AI bubble.

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On Wednesday and Thursday, five big techs accounting for about a quarter of the US equity benchmark are due to report results. Investors will be looking for assurances that the billions of dollars for computing infrastructure will continue — and ultimately pay off down the road.

“This group has repeatedly reassured investors that the AI theme is alive and well, and given the number of deals that have been announced over the past few months, it seems likely that this narrative will continue so long as Wall Street rewards them for this approach,” said Bret Kenwell at eToro.

Also buoying sentiment were bets the Federal Reserve will cut rates Wednesday, with traders hoping for clarity as to when officials will stop shrinking the central bank’s portfolio of securities. Bets have grown they may end quantitative tightening as soon as this month.

That’s all hapenning ahead of President Donald Trump’s Thursday meeting with his Chinese counterpart Xi Jinping. The Wall Street Journal reported the US would roll back some tariffs if Beijing cracks down on the export of chemicals that produce fentanyl.

The S&P 500 closed just shy of 6,900. A gauge of the Magnificent Seven megacaps climbed 1.3%. The yield on 10-year Treasuries was little changed at 3.97%. The dollar fell.

The Magnificent Seven group is projected to deliver profit growth of 14% in the third quarter, according to data compiled by Bloomberg Intelligence. That’s nearly twice the 8% expected profit growth for the broader S&P 500, but it also would be the slowest pace since the first quarter of 2023.

However, big techs have a history of reporting earnings that far exceed Wall Street estimates. And that’s what many investors are counting on.

“We expect another strong round of megacap tech earnings reports, given the relentless demand for AI technology and infrastructure,” said Clark Bellin at Bellwether Wealth. “While profitability in AI remains an unknown, investors for now are willing to overlook this as the AI arms race heats up.”

The stock market’s record highs leave little room for disappointment when it comes to big tech earnings, according to Paul Stanley at Granite Bay Wealth Management.

“Given how so much of the S&P 500’s market cap consists of Magnificent Seven names, if any of these earnings reports disappoint, that could cause a selloff or keep the market range-bound for the foreseeable future until we see the next catalyst,” he said.

Instead of dreaming about AI’s future, investors are now becoming more skeptical about how much cash these companies are tossing at AI projects that may or may not work out, according to Callie Cox at Ritholtz Wealth Management.

“Can these companies afford that massive bill? Of course they can. We’re far from the tech bubble days. But at what cost?” she said.

Cox noted that the five biggest hyperscalers will spend $450 billion on capital expenditures, according to projections.

“Tech is Corporate America’s golden child. They’re known for quality balance sheets and wide competitive moats. Their AI pursuits could threaten these labels at a time when tech companies need to be near perfect,” she said.

She also noted the gap between S&P tech company profits and stock prices is historically wide.

“A dynamic that can persist for a while, but raises the chances for disappointment,” she said.

In fact, tech remains among the most-crowded sectors. Nasdaq 100 positioning has increased significantly as investors add new long risk, reversing the fading momentum seen in recent weeks, according to Citigroup Inc. strategists.

As for the S&P 500, the Citi team led by Chris Montagu wrote that $2.7 billion of risk was added to the benchmark, through a mix of short covering and new longs.

“The markets are once again pressed into overbought/extended territory,” said Dan Wantrobski at Janney Montgomery Scott. “We remain on high alert for a correction in the magnitude of 5% to 10% before 2025 closes out.”

Still, Wantrobski also noted that November overall has historically been one of the best months for US equities, per the Stock Trader’s Almanac.

While Commodity Trading Advisors are “max long the Nasdaq,” it would take a “decent selloff” to below 23,900 points before they turn sellers, according to UBS strategists led by Nicolas Le Roux. The gauge closed slightly above 26,000 on Tuesday.

“An increasing number of investors are growing concerned that the strong stock gains seen over recent months may have outpaced fundamentals, at least in the very near term,” said Anthony Saglimbene at Ameriprise. “This week’s Mag Seven earnings reports provide a chance for companies to either confirm or challenge that view.”

Speaking of size, he noted that at no other time over the last 35 years have the top 10 companies by market-cap in the S&P 500 held so much influence on one of the broadest measures of the US stock market.

“The Mag Seven is well-positioned to meet profit expectations,” he noted. “However, given current valuations and the size and influence these companies currently hold over the broader market, it’s their outlooks and views on profitability moving forward that will likely carry the most sway with investors this week, and probably beyond.”

“The AI-driven capital expenditure trade remains the most critical factor to watch. Any disruption in that area could unwind an index that has become increasingly dependent on sustained spending,” according to Ryan Grabinski at Strategas.

While valuation often emerges as a primary concern among investors, the 50 largest S&P 500 companies trade at forward multiples below 50 — whereas at the market peak in March 2000, many companies traded well above that level, he noted.

“While it’s certainly hard to argue that the market is cheap or to expect further multiple expansion to drive returns next year, companies today are far more profitable and fundamentally sound than in the early 2000s,” Grabinski concluded.

Citadel Securities’ Scott Rubner said the US stock market appears primed to extend its record-setting run — and maybe even accelerate its usual year-end gains.

He cited the so-far strong earnings season, bullish individual investors, and over $7 trillion in money-market funds that may be shifted off the sidelines as yields come down. On top of that are the seasonal factors that tend to push up stocks as the year draws toward a close.

Equity bulls are lining up to wager the S&P 500 will surge past 7,000 now that it looks as if a seasonal bout of volatility has passed. While that optimism will get a stiff test this week, if stocks can weather that stretch, seasonal factors look beneficial.

The final weeks of the year tend to favor risk assets. In data back to 1985, the Nasdaq 100 has averaged an 8.5% gain from Oct. 20 through year-end, while the S&P 500 returned 4.2% on average, according to Goldman Sachs Group Inc.’s trading desk.

“To send the S&P 500 north of 7,000 this week, we’ll likely need positive outcomes from the Fed, strong Magnificent Seven earnings alongside buoyant outlooks and progress in cross-border relations between Washington and Beijing,” said Jose Torres at Interactive Brokers.

While there’s room for disappointment, if only two out of the three developments are favorable, we could have enough momentum to reach the important 7,000 milestone before November, Torres noted.

Corporate Highlights:

Visa Inc. reported fiscal fourth-quarter earnings that topped estimates as consumers continued to swipe, tap and insert their credit cards to transact globally. Booking Holdings Inc., the parent company to travel brands including Kayak and Priceline, reported better-than-expected third-quarter gross bookings. Nvidia Corp. unveiled a new system to connect quantum computers with the company’s artificial intelligence chips, seizing on an emerging technology that holds the promise of significantly faster processing to drive advances in medicine and materials science. Nvidia plans to make a $1 billion equity investment in Nokia Oyj, as the AI sector’s kingmaker bets on the Finnish company’s pivot from mobile networking kit into artificial intelligence. Uber Technologies Inc. is setting a goal to eventually have a fleet of 100,000 autonomous vehicles powered by Nvidia technology. Lucid Group Inc. is partnering with Nvidia to develop a fully autonomous vehicle platform. Tesla Inc. sees the forthcoming Cybercab as its long-promised more affordable electric vehicle — and it’s willing to make fundamental design changes to sell the car in high volumes. Amazon.com Inc. plans to eliminate roughly 14,000 corporate jobs just months after Chief Executive Officer Andy Jassy warned that AI will shrink the company’s workforce. Intel Corp. Chief Executive Officer Lip-Bu Tan said he is working to “refocus” the beleaguered chip company on engineering after its struggles with complacency and mismanagement. Skyworks Solutions Inc. has agreed to buy Qorvo Inc. in a cash and stock deal, a move that merges two key Apple suppliers as the iPhone maker moves to in-house replacements. ASM International NV reported third-quarter orders that missed analysts’ estimates due to lower demand from manufacturers of cutting-edge chips and a drop off in orders from China. NXP Semiconductors NV, a provider of chips for automakers and industrial customers, gave a stronger-than-anticipated forecast for the current period. United Parcel Service Inc. smashed Wall Street’s profit expectations by cutting costs and eliminating 34,000 jobs this year. UnitedHealth Group Inc. nudged its outlook for the year up in a sign that it’s working its way out of a historic meltdown, though executives said it would likely face billions in charges to make changes planned to stabilize its business. PayPal Holdings Inc. raised its full-year earnings guidance and announced a tie-up with OpenAI to embed its digital wallet into ChatGPT. Trump Media & Technology Group Corp. plans to make prediction contracts available on its Truth Social network, allowing users to bet on events ranging from political elections to inflation-rate changes. JetBlue Airways Corp. laid bare its challenges through the holiday travel season, from rising fuel prices and a hurricane rifling through the Caribbean to a US government shutdown that is slowing air travel. The state of Texas sued Johnson & Johnson and Kenvue, alleging that the companies hid the risks of autism and other disorders for children if mothers take Tylenol during pregnancy. Eli Lilly & Co. has already produced billions of doses of its next-generation weight-loss pill, anticipating massive global demand ahead of a potential launch next year. Medline Inc. filed publicly for a US initial public offering, setting the stage for what would be among the biggest-ever private equity backed listings. Sysco Corp., a food distributor, reported weaker-than-expected growth in US foodservice case volumes, signaling continued softness in restaurant demand. What Bloomberg Strategists say…

“OpenAI’s new partnership pact with Microsoft solidifies the relationship between the two companies. Yet details from the deal signal a potential boost for Microsoft’s cloud competitors too, which may extend AI upside beyond the Magnificent Seven heavyweights.”

—Tatiana Darie, Macro Strategist, Markets Live. For the full analysis, click here.

Some of the main moves in markets:

Stocks

The S&P 500 rose 0.2% as of 4 p.m. New York time The Nasdaq 100 rose 0.7% The Dow Jones Industrial Average rose 0.3% The MSCI World Index rose 0.2% Bloomberg Magnificent 7 Total Return Index rose 1.3% The Russell 2000 Index fell 0.5% Currencies

The Bloomberg Dollar Spot Index fell 0.1% The euro was little changed at $1.1653 The British pound fell 0.5% to $1.3275 The Japanese yen rose 0.5% to 152.08 per dollar Cryptocurrencies

Bitcoin fell 1% to $113,369.76 Ether fell 2.3% to $4,032.22 Bonds

The yield on 10-year Treasuries was little changed at 3.97% Germany’s 10-year yield was little changed at 2.62% Britain’s 10-year yield was little changed at 4.40% The yield on 2-year Treasuries was little changed at 3.48% The yield on 30-year Treasuries declined one basis point to 4.54% Commodities

West Texas Intermediate crude fell 2.3% to $59.93 a barrel Spot gold fell 0.7% to $3,955.91 an ounce ©2025 Bloomberg L.P.