LIVE MARKETS-Will Meta be magnificent enough to revive the AI trade?

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WILL META BE MAGNIFICENT ENOUGH TO REVIVE THE AI TRADE?

Meta Platforms META.O, Microsoft MSFT.O, Apple AAPL.O and Tesla TSLA.O are the headlining acts in what is a key week for megacap earnings.

Considering they are among the top market caps in the world, their price impact will have the potential to move the markets. Their combined value is just over 16% of the entire S&P 500 .SPX and two of them, MSFT and AAPL, are in the Dow .DJI.

All four stocks underperformed the S&P 500 last year, and so far this year, only META is in positive territory, with a gain of around 2%.

In his weekly market letter, Jay Woods, chief market strategist at Freedom Capital Markets, takes a deeper dive into Meta as he says it's become the poster child of the decline in the AI trade.

META fell as much as 27% from its August peak near $800 to a low just under $600.

According to Woods, after last quarter’s report, shares were punished for an increase in spending despite solid results. Now, heading into Wednesday afternoon’s earnings, shares are attempting to cross back above resistance at their 200-day moving average.

"Last quarter’s post earnings drop was due to two factors - a one-time large tax charge dragged earnings per share well below expectations and management guided to significantly higher capital expenditures to fuel AI infrastructure," writes Woods.

He adds, "spend had excited investors previously, but shareholders are now looking for returns on AI expenditures."

Woods argues that instead of rewarding the optimistic spend, it actually spooked investors' views surrounding the near-term profitability picture. Additionally, the market responded negatively to elevated spending plans and margin pressure, leading to broader profit-taking and a sell-off in the shares.

As Woods sees it, "traders will be curious to learn about new cutbacks in their virtual reality ‘Reality Labs’ department. Also, how is ad growth adding to its bottom line? Lastly, and most importantly, what is the future CapEx spend looking like and has their AI spend started to see a return on its investment?"

(Terence Gabriel)

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