Will Meta's earnings restore confidence in the AI boom?

Investor confidence in the companies driving the AI boom has taken a significant hit over the past week, with markets spooked by concerns that the revenues delivered by the technology will not match expectations.

Chip giant Nvidia, a vital cog in the sector, lost more than $350bn in market value this week alone. The Philadelphia Semiconductor Sector fell more than 11 per cent during the week, with the tech-heavy Nasdaq 100 down 5.5 per cent.

In that context, Meta's earnings after the closing bell in New York on Wednesday offer a big test of Wall Street's mood about AI before Alphabet, Microsoft and Amazon all report the following week.

The AI-led rally that has underpinned the stock market in recent years has been driven by bumper earnings from the major tech groups. However, "there is now a lot of anxiety, especially coming into the election period" before the US midterms next month, said Venu Krishna, head of US equity strategy at Barclays.

Although Meta's revenue is expected to have risen above $63bn in the third quarter, analysts estimate that the pace of growth will have slowed and the tech giant's adjusted operating income will be lower than in both the previous quarter and the third quarter of 2025 at $18.8bn. Operating margin is also expected to have tightened to a little under 30 per cent, as costs from the Facebook owner's AI investments bite, according to Bloomberg consensus estimates.

"Earnings are so critical, especially this quarter. The bar is very high. Last quarter we saw that companies that missed got punished a lot and companies that beat only got modest upside," Krishna added. "It's unlikely you'll have the same kind of returns [this quarter] you saw in the last three years." Ramsay Hodgson

For the European Central Bank, the better than expected economic growth in the 21 countries that use the euro this year has been a mixed blessing.

The economy's surprising resilience in the face of surging energy costs, trade tensions and wider geopolitical uncertainty is positive for employment and strained public finances. However, with annual inflation at 3.8 per cent, almost twice the ECB's medium-term target of 2 per cent, stronger economic fundamentals may drive up inflation and could make an October interest rate rise more likely.

That is why next week's S&P Global Eurozone purchasing managers' indices — an important near-real-time gauge of economic activity — will be closely watched by analysts and traders. Economists polled by Reuters expect both the manufacturing and services indices to decline slightly to 52.5, comfortably above the 50-point threshold that separates expansion from contraction. This would represent a fall of 0.4 points in manufacturing and 0.5 points in services.