Technology stocks came under pressure last week as concerns about AI financing and spending weighed on investor sentiment. The sell-off hit major AI infrastructure players and pushed both the S&P 500 and Nasdaq Composite into negative territory for the week.
AI infrastructure providers CoreWeave CRWV and Nebius NBIS each ended the week down more than 25%. Both companies, along with Oracle ORCL, are facing questions about their ability to generate free cash flow (read: AI Debt Boom: ETF Areas to Play).
Baird technology strategist Ted Mortonson told Yahoo Finance that these companies are likely among the weakest in the tech sector in terms of free cash flow. He also highlighted the rising cost of capital amid inflation worries and growing scrutiny of the financial arrangements supporting the AI boom.
Chip Industry Signals Point to Strong AI Demand
While AI infrastructure stocks struggled, comments from semiconductor equipment maker ASML ASML and contract chipmaker Taiwan Semiconductor Manufacturing Co. TSM offered a more encouraging picture of underlying demand (read: TSMC’s Record Q3 Earnings & Upbeat Outlook Put These ETFs in Focus).
Their commentary suggests that demand for AI chips and related infrastructure remains robust, even as investors grow more cautious about how companies finance their expansion and convert spending into profits.
UBS strategists similarly viewed the latest volatility as a recalibration of expectations rather than a fundamental break in the AI investment story, as quoted on Yahoo Finance (read: Buy the Dip in Semiconductor Stocks & ETFs?).
Earnings Growth Matters
Ulrike Hoffmann-Burchardi, UBS’s chief investment officer of the Americas and global head of equities, advised investors to focus on companies where AI spending is translating into sustainable earnings growth and wider adoption across businesses and consumers, as quoted on the same Yahoo Finance article.
Investors will now be watching to see whether massive AI investments can generate durable profits and justify the valuations attached to AI-related stocks.
Let’s dig into the prospects of some well-known AI plays.
Meta
Image Source: Zacks Investment Research
The above table shows that Meta’s META earnings growth outlook is moderate for FY27, although its recent earnings growth has been lackluster. Its valuation appears fair, with a forward P/E of 22.41X.
Amazon
Image Source: Zacks Investment Research
Amazon AMZN’s earnings growth outlook looks mixed, while its valuation appears cheap, with a forward P/E of 19.21X.
