Traders work on the floor of the New York Stock Exchange during morning trading on Oct. 14, 2026 in New York City.
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This week's major earnings hold the key to whether this technology comeback has legs, investors said.
The S&P 500 and Nasdaq Composite rallied Monday, largely due to a rebound in artificial intelligence companies. Chip stocks surged, with the iShares Semiconductor ETF (SOXX) on pace to snap a nine-day slump. The Magnificent Seven outperformed, as did memory chip makers. The iShares MSCI South Korea ETF (EWY), dominated by SK Hynix and Samsung Electronics, surged 4% after also suffering steep declines over the past week.
That comes after the S&P 500 fell nearly 2% last week, its worst weekly decline since late June. The Nasdaq Composite dropped 4.5% over the same five-day span.
Nasdaq Composite, YTD
Monday looked like a bounce from oversold conditions, but a bigger move will depend on this week's big tech earnings — which include results from major names such as Meta Platforms and Tesla — to clear some of the recent worries about the sustainability of the AI trade. SpaceX reports after the bell Tuesday.
"Tech earnings are key this week. Fundamentals are unchanged, but given fragile price action, we turn neutral [on] risk assets and stay neutral duration," wrote Ajay Rajadhyaksha, global chairman of research at Barclays.
This week will be especially crucial for the S&P 500 and Nasdaq, which need to hold support so as not to confirm a further breakdown, Katie Stockton, founder of Fairlead Strategies, said in a Monday note. For the time being, however, widespread, short-term oversold conditions suggest support can hold, she said.
S&P 500, YTD
Earnings test
Of the 47 S&P 500 companies that have reported their third quarter thus far, 85% have beaten expectations, and the broad market index is on track to post a blended earnings growth rate of 29%.
But the bulk of tech results are still to come, and they have a high bar to clear.
"Investors are going to need proof statements from any company that is considered part of the AI trade that they can deliver on the earnings growth expectations being built into their pricing," said Ron Albahary, chief investment officer at LNW. "We don't have a valuation-potential bubble here like we had in the internet bubble. We have an earnings-expectation-potential bubble in this cycle."
As a result, the market will take a "more discriminating" approach to tech, which Albahary views as a healthy move that will lead to "more of a dispersion of winners and losers within the AI trade universe." In that environment, some AI beneficiaries may continue to rise, while others like the neocloud platforms may sell off due to the amount of debt they're taking on to finance the build-out, he said.
"Previously, the AI headlines would drive the bulk of the AI universe stocks up or down," the CIO said. "I don't think we're going to see that kind of uniformity going forward."
As it stands now, action in the AI trade appears to be more of a "reality check" than a "full-blown unraveling," according to Wells Fargo Investment Institute's Sameer Samana. But he still believes there may be more pressure in the days and maybe even weeks ahead.
"We recently downgrade[d] tech because we thought expectations had gotten too optimistic, and while the recent selling has taken some of that optimism out of the equation, we don't think it's fully done and may last through the midterms given the politicization of AI/data centers," the Wells Fargo head of global equities and real assets told CNBC.