AI Enthusiasm Cools as Earnings Season Becomes a Stress Test
TREE NEWS reports: Disappointing results from Alphabet and Samsung Electronics have reignited concerns that massive investments in artificial intelligence may not generate sufficient returns, halting this week’s tech rally. Alphabet shares plunged 10% in after-hours trading after the company’s sales missed expectations, reinforcing fears that Google is losing ground to rivals despite spending hundreds of billions on AI. In Seoul, Samsung Electronics fell as much as 6% after delaying details of a new shareholder return plan until late January, contrasting with SK Hynix’s announcement of an additional $45 billion return package alongside strong earnings. The Kospi index, seen as a key barometer for the global AI trade, dropped 1.2% to 5,940, while Nasdaq 100 futures slid 1.1%.
Market Impact: Safe Haven Shift
The tech selloff drove investors toward US Treasuries. The two-year yield fell 2 basis points to 4.68%, and the 10-year yield also declined 2 basis points to 5%. Gold slipped 0.7% to about $4,040 per ounce, and Bitcoin dropped 1.5% to around $80,000. “The market is picking up cautious signals from Fed Chair Kevin Warsh, which may be related to perceived over-optimism in AI,” said Eugene Leow, a strategist at DBS in Singapore. “Demand for safe assets and expectations of a potential slowdown in AI activity are putting downward pressure on yields.”
Earnings Season as a Pressure Test
This earnings season is increasingly becoming a stress test for the AI investment theme. Investors are demanding concrete evidence that heavy capital expenditure is translating into solid profit growth. While Microsoft rose 2.9% after the bell on robust cloud growth and Oracle surged 11% on a long-term free cash flow outlook, the overall mood remains fragile. Amazon reports later this week, and Apple follows next week. “Expectations were already very high, and to some extent, simply meeting them is not enough,” said Wataru Akiyama, a strategist at Nomura Securities. “Unless companies can demonstrate earnings growth that exceeds these high expectations, share prices may fall when results are announced.”
Key Takeaways for Investors
- AI trade under scrutiny: The market is no longer rewarding AI spending without proof of profitability. Companies that fail to show tangible returns may face sharp selloffs.
- Safe-haven demand: Treasuries are reasserting their role as the preferred refuge, with yields falling as tech stocks weaken. Gold and Bitcoin are not providing the same safety.
- Watch upcoming data: Core PCE inflation data on Thursday, plus ECB and BOJ decisions, will provide further direction. Any signs of slowing AI activity could amplify market volatility.
- Stock-specific dispersion: SK Hynix’s strong results and shareholder returns stand in contrast to Samsung’s delay, highlighting the importance of capital allocation discipline.
