Meta earnings test AI sentiment after Nvidia market value loss

Meta Platforms Inc. releases its third quarter earnings report after the closing bell in New York on Wednesday, offering a key test of investor confidence in artificial intelligence stocks following a week of significant market declines. The tech sector faced sharp sell-offs as concerns mounted that AI-driven revenue growth would not meet expectations, with Nvidia Corp. losing more than $350 billion in market value during the period. The Philadelphia Semiconductor Index dropped more than 11 percent for the week, while the Nasdaq 100 index fell 5.5 percent.

Venu Krishna, head of US equity strategy at Barclays, described the current market mood as anxious, particularly ahead of the US midterm elections next month. He noted that the recent rally in tech stocks has been driven by strong earnings, but the bar for future results is now high. Companies that missed estimates were punished severely in the previous quarter, while those that beat expectations saw only modest gains. Krishna stated that investors are unlikely to see the same returns this quarter as they did over the past three years.

Bloomberg consensus estimates suggest Meta's revenue for the third quarter will rise above $63 billion, though growth is expected to slow. Adjusted operating income is projected to fall below the previous quarter's level and the $18.8 billion reported in the third quarter of 2025. Operating margins are expected to tighten to just under 30 percent as costs from Meta's AI investments increase. The results will precede earnings reports from Alphabet Inc., Microsoft Corp., and Amazon.com Inc., which are scheduled for the following week.

In Europe, the European Central Bank faces a mixed picture as economic growth in the 21 eurozone countries has proved more resilient than expected despite high energy costs and geopolitical uncertainty. This strength supports employment and public finances but may drive inflation higher. Annual inflation stands at 3.8 percent, nearly double the ECB's medium-term target of 2 percent.

Analysts and traders will closely watch next week's S&P Global Eurozone purchasing managers' indices for signs of economic activity. Economists polled by Reuters expect both manufacturing and services indices to decline slightly to 52.5, remaining well above the 50-point threshold that separates expansion from contraction. A stronger-than-expected reading could support a case for a third quarter-point rate hike at the ECB's October 29 meeting. While markets have fully priced in a rate rise by year-end, traders currently assign only a 10 percent probability to an action this month.

Pantheon Macroeconomics analysts noted that leading indicators for third quarter GDP are mixed but suggest growth has slowed. They forecast Eurozone economic expansion of just 0.2 percent for July through September, down from 0.6 percent in the second quarter.

In the United Kingdom, a busy week of economic data is set to test monetary policy expectations. Annual consumer price inflation is projected to accelerate to 3.4 percent in September from 3.1 percent in August, according to Reuters-poll economists. This figure exceeds the Bank of England's forecast by 0.4 percentage points and sits well above its 2 percent target.

Rob Wood, an economist at Pantheon Macroeconomics, attributed part of the inflation acceleration to already published motor fuel prices. Several members of the Bank of England's Monetary Policy Committee have signaled that further tightening may be warranted, though some suggest less action is needed than markets anticipate. Investors currently price in four quarter-point rate rises by the end of next year.

Recent data showing economic growth of 0.7 percent in the three months to August has also strengthened the case for tighter policy. Sandra Horsfield, an economist at Investec, said her expected jump in annual inflation and acceleration in wage growth would likely bolster MPC members' conviction to raise rates at their next meeting.

The week also includes final public finance figures before Chancellor John Healey's first Budget on October 28. Horsfield expects September borrowing to exceed Office for Budget Responsibility forecasts again, driven largely by higher-than-expected debt interest payments.