[U.S. Midterm Election Update: Part 2] Reading the Market Outlook Through Corporate Earnings and AI Investment

The resilience of the U.S. economy has been cited as a factor supporting share prices. The preliminary real GDP figure for July–September rose 3.4% quarter on quarter at an annualized rate, while private demand increased 4.9% on the same basis. Both consumption and capital expenditure contributed to growth, and demand supporting corporate sales is still considered strong, although signs of slowing have emerged in employment growth and real consumption, warranting continued attention.

Expanding AI demand is seen as a driving force behind growth at major companies, while cloud demand remains firm. Alphabet's cloud revenue is estimated to have risen 103% year on year and AWS revenue approximately 39%, while cloud capital expenditure in 2027 is expected to grow more strongly than the market anticipates. Amazon CEO Jassy has suggested that its retail business and AWS could each grow to approximately $1 trillion in annual revenue.

Views suggest that trends in AI investment and regulation will determine the progress of future monetization and returns on investment, while risks including delays in data center permitting and approvals and rising costs also require attention. Regulations concerning power and land use could affect the pace of investment, but AI capital expenditure is expected to maintain its momentum, with growth potentially strengthening through 2027–28.

The market has highlighted the importance of distinguishing between temporary selling triggered by political news and changes in the outlook for corporate earnings. Although comparisons have been drawn with the dot-com era, views suggest that the current AI market is not yet at a stage where it is about to collapse, and that corporate demand and earnings prospects should be the focus during any market correction.