Big Tech Earnings Face AI Returns Test as Meta Kicks Things Off: UBS

UBS says investors will look for proof that AI spending is generating returns as U.S. mega-cap tech companies begin reporting third-quarter results this week.

Meta Platforms (NASDAQ: META) will kick off the season for U.S. tech mega-caps when it reports on Wednesday.

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UBS’s Chief Investment Office said rising interest rates and higher financing costs mean investors will want evidence that AI can drive meaningful monetization and justify elevated capital spending and pressure on free cash flow.

The bank highlighted three key areas that could shape the AI trade into 2027, with the first being the health of core businesses in advertising, software, devices and digital commerce. Continued strength in these areas would help fund AI investment while AI revenue develops.

“Solid core-business execution would give investors greater confidence that the AI investment cycle rests on a broad earnings base,” UBS wrote.

The second is AI monetization, with UBS stating that investors increasingly want to see adoption turn into revenue through subscriptions, consumption-based pricing, advertising, transactions and increased cloud utilization.

“Clearer evidence of commercial demand would also strengthen the case that AI is becoming a revenue driver rather than primarily an investment program,” the bank said.

UBS added that the third is whether the spending cycle delivers tangible returns. Investors will focus on capacity utilization, pricing power and management commentary on the future pace of capex.

“Overall, we expect a strong third-quarter tech earnings season from a fundamental perspective, but elevated expectations may lead to company-specific volatility,” UBS added.

The bank remains constructive on the structural AI opportunity and sees opportunities in hyperscalers and high-quality semiconductor and hardware beneficiaries.

UBS also suggested that investors consider defensive areas of tech and that those with concentrated positions rebalance during periods of market strength.