Meta (META.US) Earnings Due After the Bell: The "Key Test" for the AI Tradea Reassuring Pill or a Death Knell?

Title context: Meta (META.US) Earnings Due After the Bell: The "Key Test" for the AI Tradea Reassuring Pill or a Death Knell? Text: As Meta (META.US) prepares to release its latest quarterly earnings, investors are increasingly anxious about the outlook for the artificial intelligence (AI) trade. The report could either soothe some of the nerves or further amplify market panic. "If Meta delivers a strong earnings report, it will boost market confidence and could potentially reignite the AI trade by easing concerns about demand across the entire industry," said Andrew Wang, managing partner at Runnymede Capital Management, which holds Meta shares. "Conversely, if Meta's earnings are concerning, it will add another dark cloud over this already pressured sector." Meta's recent stock price action appears to already reflect a degree of market pessimism. The stock has fallen for five consecutive trading days, its longest losing streak since July, and closed lower in nine of the last 11 sessions. The stock is heading toward its worst annual performance since 2022. By contrast, the September rally was largely driven by the breakout success of its Muse agent. This showed investors that the Facebook parent's steadily increasing AI investments could revenue and higher growthan area where Chief Executive Officer Zuckerberg had previously expressed doubts. The company's latest AI large model also received an enthusiastic market response. Meta's third-quarter results will be released after the bell on Wednesday. If the report shows that its spending plans are justified, it could provide reassurance to investors who are skeptical about the broader outlook for AI spending. Such doubts have been one of the drivers behind the recent selloff in semiconductor stocks and market concerns about debt levels at companies like CoreWeave (CRWV.US). "The AI music is still playing, but investor patience is wearing thin," said Max Stamakun, chief investment officer at Israilov Financial. "If Meta's earnings disappoint, it could exacerbate some of the market's concerns and negatively affect sentiment." Meta is one of the first AI capital-spending giants to report this earnings season, and its performance could set the tone for Microsoft Corporation (MSFT.US), Amazon.com, Inc. (AMZN.US), and Alphabet (GOOGL.US) next week. Earlier, strong preliminary sales data from server maker Super Micro Computer, Inc. (SMCI.US) and better-than-expected revenue forecasts from Elon Musk's SpaceX (SPCX.US) drove a short-term rebound across a range of AI-related names. Wall Street expects the so-called AI hyperscalers to continue spending heavily. Meta is projected to have negative free cash flow at least through 2028, with third-quarter capital expenditures expected to exceed $40 billion, compared with less than $19 billion in the same period last year. Capital expenditures are estimated at roughly $140 billion in 2026, about $202 billion in 2027, and about $218 billion in 2028. Whether it can sustain such a spending pace is critical for companies partnering with Meta to advance its AI ambitions. "Meta's capital expenditure guidance can support near-term demand for chips and related equipment, while Muse's strong performance means Meta's infrastructure procurement needs are sustainable," Wang said. According to compiled supply-chain data, one company that could move on Meta's earnings is AMD (AMD.US), whose CPU chips power multiple AI agents. Meta accounts for 5.5% of AMD's revenue, making it the chipmaker's second-largest customer after HP Inc. (HPQ.US). Muse's success has given Wall Street analysts more confidence in AMD's outlook, illustrating that market sentiment toward chipmakers and other areas of AI infrastructure is highly dependent on top AI customers continuing to deliver on their investment plans. In the second half of this year, the Philadelphia Stock Exchange Semiconductor Index has fallen 21%, driven by investor doubts about the sustainability of AI capital expenditure plans. The index is still up 59% in 2026it had doubled in the first halfbut recently suffered an eight-session losing streak, its longest since October 2008, and last week's 11% drop was its worst weekly performance since April 2025. That is why, according to Israilov's Stamakun, investors are counting on Meta's earnings to lift market sentiment. Based on the average of compiled analyst estimates, the company's third-quarter net income is expected to surge about 230%, with revenue growth of 24%. Full-year revenue is projected to grow about 27%, which would be its fastest annual growth rate since 2021. "Thanks to Muse, Meta appears to have returned to the market spotlight, and any good news it delivers will improve sentiment toward AI overall, especially for Meta's supply chain," Stamakun said. "The AI space may reach the moment when the first domino falls, but I don't think that domino will be Meta, nor will it fall because of Meta." Beyond that, from a valuation perspective, Meta's stock doesn't look particularly expensive. The shares currently trade at less than 19 times estimated earnings over the next 12 months, slightly below its 10-year average and the valuation multiple of the tech-heavy Nasdaq 100 Index. Among the Magnificent Seven, its valuation is higher only than that of NVIDIA Corporation (NVDA.US), making it the second-cheapest name in the group. "In my view, that valuation is reasonable for a company with such broad reach and opportunity as Meta," Wang said. "I wouldn't say it's already a no-brainer bargain, but if its expected earnings prove sustainable, it's clearly quite attractive."