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

How resilient is the Eurozone economy?

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.

A jump in activity in manufacturing or services could strengthen the case for a third quarter-point rate rise from the ECB at its next meeting on October 29. While traders have fully priced in such a move by the end of the year, they currently see only around a 10 per cent chance that the ECB will act this month.

“Leading indicators for euro area Q3 GDP are mixed but broadly suggest that growth slowed,” analysts at advisory firm Pantheon Macroeconomics wrote in a note to clients. They expect the Eurozone economy to expand by just 0.2 per cent between July and September after 0.6 per cent growth in the second quarter. Olaf Storbeck

Is UK inflation on the rise?

It will be a busy week for UK economic data, with official labour market figures published on Tuesday, inflation and public finances on Wednesday and retail sales alongside business and consumer confidence surveys on Friday.

Annual consumer price inflation is set to accelerate to 3.4 per cent in September from 3.1 per cent in August, according to economists polled by Reuters.

This would be 0.4 percentage points higher than the Bank of England’s forecast and well above the central bank’s 2 per cent target, putting pressure on policymakers to raise interest rates by a quarter of a percentage point in November.

“We are comfortable arguing that inflation will far exceed the Monetary Policy Committee’s call, because half the acceleration we look for comes from already published motor fuel prices,” said Rob Wood, economist at Pantheon Macroeconomics.

Several members of the BoE’s MPC have signalled that further tightening may be warranted, although some have suggested that less action may be needed than financial markets anticipate. Investors are pricing in four quarter-point rate rises by the end of next year.

Data showing robust economic growth of 0.7 per cent in the three months to August, published this week, also strengthens the case for tighter monetary policy, analysts say.

Sandra Horsfield, an economist at Investec, said her expected 0.3 percentage point jump in annual inflation and an acceleration in private sector wage growth “would likely strengthen MPC members’ conviction to embark on this path at their next meeting”.

The week also brings the final public finances figures before chancellor John Healey’s first Budget on October 28. Horsfield expects borrowing in September to exceed the Office for Budget Responsibility’s forecast again, largely because of higher-than-expected debt interest payments. Valentina Romei