Weekly Market Outlook: Earnings from Meta and Other Companies, Along with Nvidia's GTC Conference, Become a "Major Test" for AI Trades; Geopolitical Situation Continues to Weigh on Inflation Concerns

Weekly Market Outlook: Earnings from Meta and Other Companies, Along with Nvidia's GTC Conference, Become a "Major Test" for AI Trades; Geopolitical Situation Continues to Weigh on Inflation Concerns Amid a confluence of factors including rising international oil prices rekindling inflation concerns and growing market worries about artificial intelligence (AI) trades, the three major U.S. stock indices all fell collectively last Friday. The U.S. semiconductor sector and large-cap technology stocks experienced significant corrections, with the Nasdaq dropping more than 2%. The current U.S. bull market has just reached its fourth anniversary, and AI-related stocks are undoubtedly the core of this bull run. But in recent days, market anxiety over whether AI trades can be sustained has further intensified. Escalating situations in the Middle East and the Russia-Ukraine conflict have heightened uncertainty over global oil supply prospects, while persistently high U.S. inflation has strengthened expectations of Federal Reserve rate hikes, dealing a blow to rate-sensitive technology stocks. At the same time, market doubts about the financing methods and returns of AI infrastructure service providers have further grown. For example, cloud computing service provider CoreWeave (CRWV.US), which has come under debt pressure, fell more than 25% cumulatively last week. Wall Street Focus Shifts to Corporate Earnings As the market begins to worry about the risks associated with financing the AI infrastructure buildout boom, related concerns have spread across the entire market. Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions, said: "The market narrative does feel a bit unsettling." "Clearly, there is a great deal of uncertainty surrounding the current state of AI." In addition to the sharp stock price decline at CoreWeave caused by its debt challenges, other recent cautionary signals include strategists at Deutsche Bank Aktiengesellschaft and RBC Capital Markets separately downgrading their recommendations on the technology sector. On October 9, Deutsche Bank Aktiengesellschaft strategists said the rotation of funds into the technology sector had "gone too far" and that the near-term risk-reward ratio was "no longer attractive." With AI trades having recently hit a rough patch, quarterly results from several key companies due this week will test investors' confidence in this rally. Meta (META.US), one of the hyperscalers making massive investments in building AI data centers, semiconductor equipment supplier Lam Research (LRCX.US), analog chip giant Texas Instruments Incorporated (TXN.US), and Elon Musk's Tesla, Inc. (TSLA.US) and SpaceX (SPCX.US) will be the focus of this week's earnings. Investors expect companies to deliver strong results. According to LSEG IBES data, third-quarter earnings for S&P 500 constituents are expected to grow more than 30%. Massive investment in AI data centers and infrastructure is the core factor driving profit growth. According to Goldman Sachs Group, Inc. data, Meta is one of five AI hyperscalers whose combined capital expenditures are expected to rise to approximately $1.2 trillion next year. Investors are eager to see signs that these companies can generate returns from related investments, which would strengthen market confidence in the sustainability of this spending model. Kevin Shea, senior equity analyst at BNY Wealth, said: "One of the most important things to watch this earnings season is whether hyperscalers' profitability can grow faster than capital expenditures." Chuck Carlson, CEO of Horizon Investment Services, said: "As the cost of capital rises, capital expenditure expansion on such a massive scale will become more expensive, which also raises the bar for investment returns. Meta will be the first company to try to provide some information on this issue." Semiconductor companies are among the biggest beneficiaries of the AI spending boom. Although related stocks have performed poorly recentlythe Philadelphia Stock Exchange Semiconductor Index has fallen about 12% this monthit is still up 57% year-to-date. By comparison, the S&P 500 Index is up only about 12% year-to-date. Results from Lam Research and Texas Instruments Incorporated due Wednesday could provide broader guidance on demand in the semiconductor industry. In addition, investors will also focus on results from two of Elon Musk's companies with market values far exceeding $1 trillion: the newly listed space company SpaceXwhich also has AI operationsand Tesla, Inc. Streaming giant Netflix (NFLX.US), consumer goods company Procter & Gamble Company (PG.US), and engine manufacturer GE Aerospace (GE.US) will also be among other closely watched earnings reports this week. Rising U.S. Treasury yields and the possibility of further Federal Reserve rate hikes remain among the top concerns for equity investors. Analysts at UBS Group AG's global wealth management said in a report last Thursday: "Another strong earnings season should help the stock market withstand modestly higher interest rates." Although U.S. September CPI and PPI data released last week both exceeded market expectations and boosted expectations of a Federal Reserve rate hike in October, following remarks by Federal Reserve Chairman Warsh last Friday, the market maintained its expectation that the Fed will hold steady in October. Futures market pricing shows most investors still expect the Fed to wait until its December meeting before delivering its second rate hike this year. NVIDIA Corporation GTC Berlin Conference Approaching In addition to earnings from companies such as Meta, NVIDIA Corporation's (NVDA.US) GTC conference in Berlin, Germany this week could also serve as an important "stress test" for current AI trades. From October 20 to 22 local time, NVIDIA Corporation will hold its GTC conference in Berlin, with CEO Jensen Huang scheduled to take the stage for a keynote speech at 11 a.m. local time on October 21 (5 p.m. Beijing time). According to information on NVIDIA Corporation's official website, the conference agenda covers multiple directions including accelerated computing, Agentic AI, Siasun Robot&Automation, open models, Physical AI, sovereign AI, and AI infrastructure. If this were in past years, it might just be another highly anticipated technology event for the artificial intelligence (AI) industry. But at this current juncture, AI trades are shifting from simply trading on expectations of computing power demand growth to a "crunching the numbers phase" that focuses more on investment returns. As the scale of global AI infrastructure investment continues to expand, the capital market's scrutiny of AI trades is gradually shifting from "will computing power demand grow" to more realistic questions: can massive AI capital expenditures ultimately sufficient revenue, cash flow, and productivity? Over the past few years, the AI industry has formed a very strong growth chain: model capability improvement computing power demand growth cloud providers increasing capital expenditures NVIDIA Corporation revenue growth market raising AI expectations more capital entering AI infrastructure. But by 2026, the market has begun to ask whether this chain can truly close the loop. Especially as AI infrastructure becomes increasingly reliant on debt financing, the problem has spread from equity valuations to credit markets. The financing and profitability pressures recently faced by AI infrastructure companies are a microcosm of the market beginning to re-examine the return on AI capital expenditures. Investors are now focused not just on "AI demand is strong," but on revenue, free cash flow, return on capital, quality of customer contracts, computing power utilization, financing costs, and how much end users are actually willing to pay for AI. In other words, the AI industry is moving from a "technology cycle" into an "economic cycle." Therefore, the signals that the GTC Berlin conference may release can be boiled down to five questions: First, are Vera Rubin orders and deployments strong enough to prove that the AI infrastructure cycle is still continuing? Second, can Agentic AI drive sustained growth in inference demand, shifting AI computing power demand from a training cycle to a more stable usage cycle? Third, can AI factories and next-generation computing platforms continue to reduce cost per token and create more AI usage demand through efficiency gains? Fourth, can Siasun Robot&Automation, autonomous driving, and industrial AI see truly large-scale commercial orders, opening up new computing power markets beyond cloud computing for NVIDIA Corporation? Fifth, and most importantlycan large technology companies' AI capital expenditures ultimately revenue, cash flow, and productivity gains? If Jensen Huang can provide sufficiently strong answers in Berlin, then recent market concerns about an AI bubble, excessive capital expenditures, and peak computing power demand may be somewhat alleviated. But if the conference mainly releases technology roadmaps, forward orders, and capital expenditure plans while actual commercial returns from AI applications remain unverified, then GTC could instead become an important moment for the market to further scrutinize AI valuations. Middle East and Russia-Ukraine Conflicts Stir Oil Price and Inflation Concerns The recent escalation of conflicts in the Middle East and between Russia and Ukraine is an important reason driving international oil prices higher again and intensifying inflation concerns. If oil prices rise further while long-term U.S. Treasury yields continue to climb, volatility in the technology sector could increase further. In the Middle East, tensions between Yemen's Houthi armed forces and Saudi Arabia continue to escalate. On October 17, Yemen's Houthi armed forces announced that they had shot down a Saudi "Apache" attack helicopter near the Najran region on the Saudi-Yemeni border. On October 18, the Saudi-led multinational coalition confirmed that an AH-6i light helicopter crashed in the same area, but said it was due to a technical malfunction, with two people on board killed. In addition, Yemen's Houthi armed forces attacked Saudi Arabia's important crude oil export Hub Group, Inc. Class A Yanbu. On the evening of October 18 local time, Yemen's Houthi armed forces issued a statement saying that over the past 24 hours Saudi Arabia had launched 110 airstrikes and missile attacks on Yemen's capital Sanaa and the provinces of Hodeidah, Taiz, and Amran, causing more than 30 deaths and injuries. Iran's Revolutionary Guard Navy issued statements earlier on October 17 saying that two supertankers exploded and caught fire after hitting mines in the Strait of Hormuz. In the early hours of October 19 local time, the Iranian Islamic Revolutionary Guard Corps Navy announced that a non-compliant tanker struck a mine in the southern Strait of Hormuz, causing an explosion and fire in the engine room. The UK Maritime Trade Operations office's weekly situation review released on October 16 showed that during the week ending that day, the agency received a total of 12 reports of ships being attacked, 10 of which occurred in the Strait of Hormuz, with the other two occurring in the Persian Gulf and the Gulf of Oman respectively. The agency also said it was currently difficult to accurately count the actual number of ships attacked because most attacked vessels refused to report to the agency. Russia and Ukraine continued to carry out tit-for-tat attacks on energy infrastructure. Ukrainian President Zelensky said on October 18 local time that since U.S. President Trump announced an "energy ceasefire," Russia had carried out 76 strikes on Ukraine's energy and oil and gas sectors. In addition, Trump previously said he had reached a diesel export agreement with Russia and delayed imposing further sanctions on Russia. On October 18, Russian Deputy Prime Minister Novak, who oversees energy affairs, said Russian diesel fuel would enter the U.S. market within 15 to 20 days after the contract is signed. The U.S. Energy Corp. department has already identified the companies that will serve as counterparties and buyers. Commercial terms are currently being negotiated. However, U.S. lawmakers proposed a bill last Friday aimed at blocking the agreement, and the deal has also drawn criticism from Republicans. Jorge Leon, head of political analysis at Rystad Energy GEO Group Inc, said: "The increasing attacks on energy infrastructure and vessels are weakening market hopes for a sustained recovery in crude oil flows. As the market increasingly prices in the possibility of prolonged supply disruptions, the risk to oil prices this week is increasingly skewed to the upside."