In a CNBC interview, analysts said funding concerns are pushing investors to favor cash-rich technology companies over debt-dependent AI infrastructure businesses.
- Roundhill Investments’ Drew Pettit said neocloud companies such as CoreWeave and IREN are under pressure, while some parts of the AI trade could remain resilient.
- JonesTrading’s Mike O’Rourke said SpaceX and Meta’s capital expenditure plans will be important indicators for AI infrastructure, semiconductor and memory demand.
- CappThesis founder Frank Cappelleri identified roughly $140 as a key technical level for SPCX stock ahead of the company’s earnings report.
Investors are rotating toward cash-rich technology giants and away from debt-dependent AI plays amid funding concerns, analysts said on Tuesday, with earnings from SpaceX (SPCX), Meta Platforms (META) and Netflix (NFLX) set to put the broader tech trade in focus this week.
“Big concern to us is the funding,” Drew Pettit, chief investment strategist at Roundhill Investments, said during an interview with CNBC. “People are looking for the quality part of the trade right now in AI.”
According to Pettit, neocloud companies like CoreWeave (CRWV), Iren (IREN) and others are among the businesses facing pressure. Pettit said these stocks were “in the crosshairs,” adding that some parts of the broader AI trade could remain resilient.
CRWV stock fell over 4.5% in pre-market trade on Tuesday after hitting an over one-year low in the previous session. It was among the top trending tickers on Stocktwits at the time of writing, with retail sentiment trending in ‘extremely bullish’ territory over the past day, accompanied by chatter at ‘extremely high’ levels.
Investors Look For Quality In The AI Trade
Pettit pointed to the Magnificent Seven (MAG 7) technology stocks as one area that could fare better than more financing-dependent businesses.
“MAG 7, for example. The funding there isn’t from debt. They have a bunch of cash,” he said, adding that these companies had also benefited from years of easy financial conditions.
Meanwhile, Mike O’Rourke, chief market strategist at JonesTrading, stated that elevated earnings expectations could leave stocks vulnerable if companies deliver cautious outlooks.
“If the commentary is not good and earnings expectations are high for everything, you’re going to see pockets of weakness,” he said. “I think the rate sensitives are where you got to be worried.” He singled out autos and homebuilders as sectors particularly exposed to higher borrowing costs.
SpaceX, Meta Spending In Focus
SpaceX is among the companies investors are watching as earnings season gathers pace, with its planned investment in AI computing capacity offering a test of the spending required to expand the industry. It is scheduled to report earnings after the bell on Tuesday, with Wall Street expecting earnings per share (EPS) of $0.13 on revenue of $12.99 billion, according to Koyfin data.
O’Rourke said SpaceX’s potential data-center expansion and Meta Platforms’ capital expenditure plans could be important signals for the broader AI trade, including semiconductor and memory stocks.
“If they’re going to build out, you know, up to 10 gigawatts of data center capacity next year, that capex number is going to be huge,” he said of SpaceX. O’Rourke estimated that Meta’s capital expenditure growth could be around 40%, while SpaceX’s spending could rise by well over 100% next year.
He also expects the companies’ results and guidance to carry added weight because they are reporting ahead of several other large technology companies.
“These numbers are going to be key to earnings season, especially because they’re coming before all those other big, high-quality Mag Seven names,” he said. Meta Platforms is expected to report EPS of $6.60 on revenue of $63.34 billion.
In pre-market trade on Tuesday, META stock fell 0.65%, while SPCX stock dropped as much as 1.3%. Both saw retail sentiment trending in the ‘bearish’ zone over the past day on Stocktwits.
Netflix Earnings Could Boost Communications Sector
Frank Cappelleri, founder and president of CappThesis, said SpaceX’s stock chart had looked bullish and flagged $140 as the level to watch. He said the price had been tested the previous week and also represented a 50% retracement of the stock’s move from August to October. “Below that is really not that much,” he said.
Cappelleri also pointed to Netflix , which is also scheduled to report results after market close on Tuesday, as a potential test for the broader communication services sector.
According to him, a recovery in Netflix could also help the Communication Services Select Sector SPDR Fund (XLC), which Cappelleri said had been trying to break out of a bullish chart pattern.
Wall Street is expecting Netflix to report EPS of $0.82 on revenue of $12.8 billion. On Stocktwits, retail sentiment around NFLX improved to ‘neutral’ from ’bearish’ territory over the past day.
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