Wednesday afternoon was already expected to be eventful for the stock market, with the Federal Reserve releasing its decision on interest rates and Chair Jerome Powell holding his regular post-meeting press conference.
But you could forgive investors for looking past the Fed to the fireworks due after trading ends, when three of the Magnificent Seven technology companies — Meta Platforms Inc., Microsoft Corp. and Tesla Inc. — report earnings and their management teams hold conference calls with Wall Street analysts to discuss their performance and outlooks.
Those briefings have headier stakes now, thanks to DeepSeek. The US tech behemoths are under increasing scrutiny for their spending on artificial intelligence and the meager returns they’re generating from the technology, as virtually all of Wall Street tries to understand how the Chinese AI upstart managed, seemingly overnight, to catch up at what appears to be a sliver of the cost.
“While any fundamental impact of DeepSeek’s splashy and shocking entry in the AI race may not be felt in the immediate results, it will inevitably be the topic du jour in management’s discussions,” Bloomberg Intelligence’s Michael Casper and Gina Martin Adams wrote in a research note Tuesday.
The implications for tech earnings are profound, with hundreds of billions of dollars in capital spending deployed but profits still largely elusive. The ramifications are also immense for a stock market that spent the better part of two years rallying almost solely on the promise of AI.
In the last 12 months alone, the group of seven tech giants — which also includes Alphabet Inc., Amazon.com Inc., Apple Inc. and Nvidia Corp. — have added more than $5 trillion in combined value as they rallied 66%. The rest of the US stock market has gained $8 trillion. The tech behemoths account for more than half of the S&P 500 Index’s 24% advance in that period.
The disparity between Big Tech stocks and everything else was on vivid display this week. Monday’s tech wipeout sent the S&P 500 down 1.5% even though 359 of the companies in the index advanced, and then Tuesday’s tech rebound sent the index climbing almost 1% despite 349 S&P members declining.
“Between Microsoft, Meta and Tesla you’ll get some real perspective about the AI outlook and how much of a revelation DeepSeek has created that you can do these cheaper,” said Michael O’Rourke, chief market strategist at JonesTrading. “What type of threat is that to the massive investment that has gone into the AI space?”
Already, bets are diverging on the impact. While Nvidia has lost more than $300 billion in market value this week, Meta’s shares extended their winning streak to a seventh-straight session Tuesday on expectations that the company is well positioned to translate massive AI spending into a surge in profits. Microsoft’s market performance has been mixed as its AI fortunes are more closely tied to ChatGPT-owner OpenAI.
Then there’s Tesla, whose shares have nearly doubled since its last earnings report, owing mostly to Elon Musk’s rising political influence. While its AI efforts are in a different category than the generative version DeepSeek proffers, investors don’t always trade on that nuance, generally rewarding it in AI runups.
“This should shake a lot of the foundation of what people expected to happen going forward,” O’Rourke said. “These companies are so large and so expensive you could easily see them go down 10% or 20% over time.”
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