Has the Pullback Made AI Stocks Worth Buying?

After Monday’s sharp rebound, U.S. stocks took a step back.

On November 10, the S&P 500 fell 0.38%, the Nasdaq lost 0.74%, and the Dow declined 0.30%. Technology dropped 1.4%, the weakest performance among the S&P’s 11 major sectors.

The decline was modest and did not erase the previous session’s gains. But hotter-than-expected October inflation pushed up expectations for a December rate increase. Investors have little reason to base a purchase on the prospect of imminent rate relief.

Some AI stocks have become more interesting after the selloff. Before buying, though, we want to know whether earnings forecasts can hold—and whether the growing investment will produce enough revenue to justify it.

Why the Market Wants More Than Strong Earnings

Corporate profits remain healthy. Third-quarter S&P 500 earnings grew 25%, but the aggregate beat was only 3.5%, down from 27% in the second quarter. Growth was strong; the surprise was much smaller.

Repeated upgrades to forecasts have raised the bar. Companies now have to explain not just how fast their businesses are growing, but how much they must spend to keep that growth going.

Capital expenditure creates a timing gap. Equipment and data center construction consume cash upfront, while costs enter the income statement gradually through depreciation and other charges.

A company can report good profits while facing a much larger cash requirement.

Investors are being asked to fund the wait. Will customers fill the new capacity? Will the additional revenue justify the investment and financing costs? If those returns k…