Barclays Warns Markets and Economy Now Lean on AI Earnings

Barclays argues that markets and the wider economy now lean heavily on artificial intelligence, leaving tech earnings as a key vulnerability.

In its Eagle Eye research newsletter on Wednesday, the bank said the AI boom appears to have immunised both against pressures that would normally weigh.

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Those pressures are large. Barclays pointed to government bond yields climbing to multi-decade highs and oil staying stubbornly above $100 a barrel, yet said global activity indicators still point to robust expansion.

The bank said markets react quickly and negatively when cracks show in the AI story, as they did the week before the note. Media reports that the revenue of one leading AI lab had fallen short of expectations triggered a sharp selloff, even if a temporary one.

Earnings are the weak spot, according to Barclays. Consistent results from large technology companies convinced investors the AI story was durable.

That has changed who markets watch. Barclays said Fed watchers have also become Nvidia (NASDAQ: NVDA) watchers, and that “tech vigilantes” may be as important as bond vigilantes.

The reach goes beyond share prices. Barclays said wealth effects have strengthened household balance sheets, helping the US consumer stay immune to inflation and high energy prices.

AI investment also powers the chip cycle in China and the rest of Asia. On Barclays’ reading, AI vulnerabilities could therefore derail growth.

The newsletter also looked at US consumer data. September retail sales were scheduled for release on Thursday 15 October, and Barclays economists expected a relatively flat reading on the month, which would still signal a solid third quarter after strong growth in August.