AI Network Demand Realization and Contract Recognition Pace

Tech stocks plummeted on Thursday, with a slight rebound on Friday, but the Nasdaq has now fallen for four consecutive weeks. Coupled with the better-than-expected non-farm payrolls on Friday, the market is currently facing two massive pressures. On one hand, strong employment data is reigniting rate hike expectations; on the other, policy uncertainty following the midterm elections is causing investors to question the pace of AI data center construction. Here are the key events confirmed for next week: CPI + PPI data, CoreWeave earnings, and earnings reports from Applied Materials and Cisco. If these three factors resonate positively, there is still an opportunity for a short-term recovery in tech stocks. However, if inflation comes in higher than expected and earnings reports expose issues with orders and financing, things could get really bleak... Let's start with the data. The non-farm payrolls reported last Friday were somewhat awkward. The US added 165,000 jobs in October, significantly higher than the market expectation of approximately 65,000, and the unemployment rate dropped from 4.2% to 4.1%. The economy did not show significant weakness, which should have been good news. The current problem is that US inflation remains high, and the Federal Reserve has not yet completed its tightening cycle. There is a detail regarding next week's CPI report: it will differ slightly from usual because most categories will not publish year-over-year inflation rates. This is due to the US government shutdown in October last year, which resulted in missing price data for that period, making it impossible to calculate the increase normally. If core CPI can hold steady at 0.2% this time, it would alleviate short-term sentiment considerably. Next is the CoreWeave earnings report. Its importance to the market next week is comparable to that of some large tech companies. CoreWeave represents one of the most aggressive business models in AI infrastructure investment: raising substantial capital, purchasing GPUs, building data centers, and recovering investments through long-term computing power contracts. It is also one of the sources of recent market panic. The market currently expects Q3 revenue of approximately $3.5 billion. However, revenue is not the decisive focus here. What needs to be closely watched is whether the company has reduced capital expenditures, improved financing conditions, increased actual delivered capacity, and whether interest costs are becoming manageable. If management can demonstrate smooth financing, accelerated deployment, and improved profitability, it will serve as a crucial sentiment catalyst for other AI infrastructure stocks sensitive to financing and expansion. Otherwise, the panic suppressing valuations will continue... As for Applied Materials and Cisco, the former is likely fine, as the company recently provided a more optimistic long-term outlook. The latter depends mainly on whether AI network demand materializes into revenue, given that previous contract recognition speeds were somewhat slow. Additionally, the Philadelphia Semiconductor Index's expected P/E ratio has dropped to around 13x, nearing its lowest level since 2019. However, this is largely built upon analysts significantly revising up future earnings expectations. This is precisely the core contradiction of next week. Semiconductor stocks appear cheap, but if future earnings forecasts begin to be revised downward, a 13x P/E ratio might just be a false sense of security. This game is really too difficult 😮‍💨