Top Analyst Warns AI Slowdown Could ‘Crimp’ Microsoft, Alphabet, Meta, Amazon and Other Earnings — S&P 500 Rally Faces New Threat
Key takeaways
- AI slowdown fears, coupled with macro headwinds, could tighten earnings expectations for tech giants and keep the S&P 500 near its August peak.
- 0.8% drop in S&P 500 last week
- S&P 500 expected to stay within 2% of August highs
- 3%‑5% pullback potential
What happened
Citigroup’s U.S. equity trading strategy team warned that a slowdown in artificial intelligence model development could "crimp" earnings‑per‑share revisions for major tech names such as Microsoft (MSFT), Alphabet (GOOG), Meta (META) and Amazon (AMZN). The note also flagged the November midterm elections, rising bond yields, and surging oil prices as cross‑asset headwinds that could erode the equity rally’s key pillar of earnings growth. The team cited last week’s 0.8% drop in the S&P 500 as…
Why it matters
The AI boom has been a major driver of corporate earnings expectations for the tech sector. A slowdown in AI progress could reduce revenue growth for the sector’s leaders, tightening EPS forecasts and potentially pulling the S&P 500 lower. The combination of macro risks—midterms, higher yields, and oil spikes—could…
Short-term and longer-term
Short-term. Short‑term traders should watch for a 3%‑5% dip in the S&P 500 as a potential buying opportunity, but be wary of a full test of all‑time highs that could trigger a sell‑off.
Longer-term. Longer‑term investors should reassess the valuation of AI‑heavy tech names, considering the possibility of slower revenue growth and tighter EPS forecasts.