Industry overview

We are on Day 2 of “the most important week of the year,” according to technology expert Luke Lango, editor of Innovation Investor.

Microsoft (MSFT), Alphabet (GOOGL), and Amazon (AMZN) report this week, with the Fed’s Oct. 27–28 decision in the middle; October hike odds have fallen to about 9%. The midterms follow on Nov. 3. For the hyperscalers, the questions are the ones the market asked last week: Is cloud growth accelerating? Are backlogs growing? Can they fund 2027 spending from their own cash flow?

Luke tracks those risks with his Peak Watch Checklist, covered in the Oct. 21 Digest. It tracks 13 warning signals across three stages of a boom’s turn to a bust: Froth, Cracks, and Confirmation. Each signal gets one of four ratings: Clear (green), Watch (yellow), Flashing (orange), or Triggered (red), each with a tripwire. For “Froth,” the signals are “debt-funded capex,” “vendor financing,” and “record stock issuance.” For “Cracks,” they are “capex growth slows,” “good news gets sold,” “revenue lags spending,” “pricing power erodes,” “AI credit spreads widen,” “capital raises fail,” and “the Fed tightens.” For “Confirmation,” they are “chip orders digest,” “capacity sits idle,” and “projects get canceled.” As of Luke’s update yesterday, 7 of 13 signals were either yellow, orange, or red. Luke’s overall interpretation: “Late Cycle.”

The hyperscaler earnings could have a dramatic impact on “debt-funded capex” — Meta (META) last week announced a new class of non-voting Class C common stock to fund AI initiatives — as well as on “capex growth slows” and “good news gets sold.” Hyperscaler spending is revenue for the chip, power, networking, and data center names. At the same time, excessive hyperscaler spending is likely to alarm Wall Street, with the fear that we are in a debt-fueled infrastructure bubble. It is a fine balance, which has Luke cautious but leaning bullish.

Luke’s game plan is to wait and see how the next two weeks play out. If hyperscaler earnings, the Fed, the midterms, and the Iran situation all resolve positively, AI stocks should bounce strongly off major support, in what could be the best buying opportunity of the cycle. If all four resolve negatively, we could break major support, and this could be the start of a bigger, uglier unwind. For now, patience is the ally, and Luke says he is ready to react over the next two weeks, whichever way it goes.

A bullish investor might ask why anyone would sit on the sidelines. Earnings across the chip and infrastructure names continue to beat expectations, and after the recent selloff, many stocks trade well below the valuations they had a few months ago. As of yesterday’s close, Nvidia (NVDA) was down 10% from its recent high, and Coherent (COHR) had dropped 35% since early October and 48% from its June peak, though it was rallying as written on Tuesday.

That argument misses something about AI stocks that does not show up in earnings: confidence. Benjamin Graham’s “Mr. Market,” from The Intelligent Investor, is the idea value investors like Warren Buffett use to argue that falling prices mean better deals. But in the latest issue of the AI Revolution Portfolio, from Louis Navellier, Eric Fry, and Luke, the authors argue AI is different: “AI has a strange property where confidence is king…” and “Like a bank run, a loss of confidence in an AI trade can prove disastrous.”

Coherent is the example. It makes optical components such as lasers and transceivers for AI data centers. In August, it reported the best quarter in its history: revenue hit a record $2.05 billion, up 34% year over year, adjusted earnings per share jumped 74% to $1.74, and data center revenue rose 66%. Management guided for even higher revenue this quarter and said it expects to post its first $3 billion quarter by the end of fiscal 2027, and analysts raised fiscal 2027 revenue estimates by 11%. And yet, as written on Tuesday, COHR trades almost 50% below its June high. Hot inflation reports have pushed Treasury yields higher, worries about the sustainability of AI spending have grown, and investors question why cash flow has not kept pace with revenue. Coherent’s growth ultimately depends on how much the hyperscalers spend building out their data centers, so if Microsoft, Alphabet, and Amazon reaffirm their spending plans and show that spending is paying off, confidence could return. Coherent reports next Wednesday, Nov. 4.

Eric Fry, global macro expert and editor of The Speculator, sold his remaining Freeport-McMoRan (FCX) shares last Friday. He first recommended Freeport in January 2020, took profits on two-thirds of the position in 2021, and the final third gained about 454% including dividends. His reason: back then, AI was a production story; today, AI is a demand story, and the market trades FCX like a data-center stock. Although AI demand only accounts for a modest share of total copper demand, it accounts for a huge amount of the incremental demand that supports copper prices, so if that source of demand weakens, the copper price could come under pressure. The International Copper Study Group has swung its 2026 forecast from a deficit to a surplus, and Comex warehouses hold 713,000 tonnes of copper, much of it stockpiled ahead of possible U.S. tariffs. Freeport’s earnings magnify every move in the metal: each 10-cent change in the copper price shifts annual EBITDA by about $390 million. The cost of its Arizona mine expansion has climbed by about 30%, while the stock trades at roughly 35 times trailing earnings. Eric’s conclusion: “Freeport remains a well-run company. But the reasons I bought it have mostly played out, and the reasons that remain depend on someone else’s capital spending.” He warns about AI Builders that could fall 50% or more and urges rotation into AI Appliers.

Finally, Anthropic, the company behind the Claude AI models, made its IPO paperwork public, filing Form S-1 with the SEC. On Masters in Trading Live, trading expert Jonathan Rose counted 33 things investors need to know, including an $80 billion “loss” that is not what it looks like, a single share controlling more than half the vote, and one big AI name expected in the filing that never shows up. His No. 1 ties directly to the hyperscaler earnings being watched this week.

(Disclosure: I own MSFT, GOOGL, AMZN, COHR)

Industry overview based on InvestorPlace.

What it means for investors

For investors, this week is a test of whether AI spending is still funded by real cash flow or is starting to lean on debt. The Peak Watch Checklist gives that test a structure: 7 of 13 signals already yellow, orange, or red, and an overall reading of “Late Cycle,” means the market is not in the early, easy phase of the boom. Hyperscaler earnings are the swing factor, because their spending is the revenue of chip, power, networking, and data center companies, and because how they fund it — from cash flow or from new shares and debt, as Meta just did — feeds straight into the “debt-funded capex” warning.

The Coherent and Freeport stories show the two ways a good business can still fall. Coherent reported record revenue, up 34%, and guided higher, yet trades almost 50% below its June high because confidence in AI spending slipped. Freeport gained about 454% on its final third, yet its bull sold, because its future now depends on someone else’s capital spending and on a copper market that has swung from deficit to surplus. For investors weighing whether to buy the dip, the lesson is to wait for the four catalysts — hyperscaler earnings, the Fed, the midterms, and Iran — to resolve, and to favor companies whose demand does not depend on another company’s spending, the AI Appliers Eric Fry points to, over the AI Builders that could fall 50% or more if confidence breaks.

What it means for employees

There is no direct employee angle in the original article, but the spending decisions at the center of it shape jobs across the AI build-out. If Microsoft, Alphabet, and Amazon reaffirm their spending plans, work continues for engineers, construction crews, and data center staff building and running that capacity, and for workers at suppliers like Coherent and Nvidia. If they slow spending or fund it with debt that alarms Wall Street, hiring and orders at those suppliers can tighten quickly, as the selloffs in NVDA and COHR already suggest. For employees in those companies, this week’s earnings are therefore a signal about the pace of work ahead, even though the article itself does not discuss layoffs or hiring plans.

What it means for customers

There is no direct customer angle in the original article. Customers of cloud and AI services are not the subject of this week’s earnings test, and the article does not discuss prices or products for them. Indirectly, the outcome matters: if hyperscalers keep spending and their AI services keep improving, customers get more capable tools; if spending slows because confidence breaks, the pace of new AI features could slow too. For now, that is a secondary effect, not a change in what customers pay or receive today.

Note: Investment calculations and projections are for illustrative purposes only. Market conditions change frequently. Consult a qualified financial advisor before making investment decisions.