(Oct 20): A rebound in chipmakers buoyed the stock market as dip buyers emerged on bets the artificial-intelligence (AI) investment boom will continue to support solid earnings.

Following a rout in one of the most-crowded bets, a gauge of chip giants climbed 1.6%. The Nasdaq 100 added 1.2%. Nscale Ltd was said to be in talks to sell computing power to Anthropic PBC in a deal that could be worth about US$45 billion. This week’s earnings from Meta Platforms Inc will provide a fresh test for confidence in the AI trade. Tesla Inc is also due to report.

Oil prices remained at elevated levels, weighing on Treasuries. The market also came under pressure as French bonds got hit after a weekend of violent unrest.

The advance in tech stocks lost steam last week as investors questioned the sustainability of AI spending, given the outlook for higher rates. The industry is still set to account for nearly 70% of global earnings growth next year, according to Citigroup Inc.

“Results will show whether strong profit growth can restore confidence in the equity rally,” said Mark Haefele at UBS Chief Investment Office. “We continue to expect resilient growth and earnings to support equities, and see attractive opportunities in quality bonds.”

While the recent semiconductor sell-off was jarring, Lisa Shalett at Morgan Stanley Wealth Management saw the market action as healthy. The reason is that it has recalibrated yields and awakened corners of the market from complacency.

“That said, growth and earnings remain strong, equity valuations have improved and the AI-capex cycle — dominated by rate-insensitive hyperscalers — is secure,” she added. “2027 should feature slowing capex growth, cooling inflation comparisons and further valuation reversion toward sustainable trend profit growth.”

The final three months of the year have historically been favourable for stocks. Although there is no guarantee these historical patterns will continue in 2026, strong corporate profit growth and resilient economic activity could support further gains through year end, according to Brock Weimer at Edward Jones.

At Morgan Stanley, Michael Wilson says investors should prepare to add risk to their portfolios as a months-long pullback in parts of the equity market nears an end.

“We advise investors to be ready for either a very rapid reconciliation or a slower bleed into November because in our view, that will be the time to add risk rather than shun it,” he noted.

Uploaded by Isabelle Francis