To The Moon

The AI trade is entering a new test. This time, big promises may not be enough.

After a turbulent week for technology stocks, investors are becoming more selective about where they put their money. Concerns about inflation, elevated valuations and the sustainability of AI spending have put pressure on the Nasdaq. The market is increasingly asking whether the enormous investment in artificial intelligence will translate into lasting profits.

That makes the upcoming earnings reports particularly important.

For companies associated with AI, simply announcing new products or reporting strong revenue growth may not be enough to satisfy investors. Markets want evidence that demand is real, customers are willing to pay, and the resulting earnings can justify current valuations.

Here are five stocks worth watching as the market looks for the next stage of AI growth.

💻 1. Microsoft (MSFT): Can AI Become a Bigger Earnings Driver?

Microsoft has several ways to benefit from AI, including Azure cloud services, Microsoft 365 Copilot and its enterprise software ecosystem.

Its advantage is distribution. Microsoft can introduce AI tools to businesses that already use its products, potentially creating additional revenue without having to build an entirely new customer base.

However, investors need to distinguish between AI adoption and AI monetisation.

The key questions are whether Azure can sustain strong growth, whether businesses are willing to pay for AI features, and whether the additional revenue will translate into higher profits.

Microsoft is already a major technology company with high expectations built into its valuation. Even solid results could disappoint if management’s outlook falls short of what the market anticipates.

What I would watch: Cloud growth, commercial AI adoption, capital expenditure and evidence that AI is contributing to earnings.

🛒 2. Shopify (SHOP): Can AI Make Online Commerce More Profitable?

Shopify offers a different way to approach the AI opportunity.

Rather than supplying the computing infrastructure behind AI, Shopify provides tools that help merchants operate online businesses. AI could improve product discovery, customer support, marketing, personalisation and business automation.

These capabilities could help merchants become more productive while making Shopify’s platform more valuable to its customers.

The opportunity is attractive because merchants may benefit from AI without needing to develop their own technology.

However, Shopify must still demonstrate that its growth is sustainable. Competition in e-commerce remains intense, and merchants’ performance can be affected by consumer spending and broader economic conditions.

Investors should also pay attention to operating expenses and profitability rather than focusing exclusively on revenue growth.

What I would watch: Gross merchandise volume, revenue growth, merchant adoption, operating margins and forward guidance.

🔬 3. Cadence Design Systems (CDNS): The Software Behind More Complex Chips

Cadence is an interesting way to look beyond the most obvious AI beneficiaries.

The company provides electronic design automation software used to design, simulate and verify semiconductor chips. As processors become more sophisticated, designing them becomes increasingly complex.

AI accelerators, advanced computing systems and other specialised chips require extensive engineering and testing. This creates potential demand for the tools that help semiconductor companies develop their products.

One attraction of Cadence is that its business supports the broader semiconductor ecosystem. Investors do not necessarily need to identify which individual chipmaker will win to see why chip-design software could benefit from increasing design complexity.

However, Cadence is not immune to the technology spending cycle. Semiconductor customers can adjust budgets, while a premium valuation can leave the stock vulnerable when market sentiment deteriorates.

What I would watch: Order growth, recurring revenue, customer demand, profit margins and management’s outlook for semiconductor design spending.

☁️ 4. Cloud Infrastructure Providers: The Companies Powering AI Demand

AI models need computing power, storage, networking and data-centre capacity. Cloud infrastructure providers are therefore positioned to benefit as businesses develop and deploy AI applications.

The opportunity extends beyond selling access to AI models. Companies also need the underlying infrastructure to train models, run applications and process growing volumes of data.

However, this is a capital-intensive business.

Building data centres and expanding computing capacity requires substantial investment. Revenue growth alone does not establish whether that spending will generate attractive returns.

Investors should examine whether demand is keeping pace with infrastructure expansion and whether the resulting cash flow justifies the capital being committed.

What I would watch: Cloud revenue growth, infrastructure utilisation, capital expenditure, free cash flow and returns on invested capital.

📊 5. Enterprise AI Software Companies: Turning Productivity Into Revenue

Another potential opportunity lies with software companies helping businesses use AI in everyday operations.

Businesses may use AI to automate repetitive tasks, analyse information, improve customer service and streamline workflows. Software companies that successfully integrate these capabilities into existing products could potentially increase customer retention and generate additional subscription revenue.

The challenge is that the commercial opportunity remains different from company to company.

Some businesses may struggle to persuade customers to pay extra for AI features. Others could face rising development costs or competition from new AI-native providers.

The companies best positioned to benefit may be those that solve specific business problems and can demonstrate measurable improvements for their customers.

What I would watch: Paid AI adoption, customer retention, subscription growth, pricing power and operating margins.

📉 THE BIGGER QUESTION: HOW MUCH GROWTH IS ALREADY PRICED IN?

One of the biggest mistakes investors can make during earnings season is assuming that a good company must also be a good investment at any price.

A company can report impressive results and still see its share price fall if expectations were even higher.

Conversely, a company with more modest growth could outperform if its results exceed expectations or its valuation already reflects significant risks.

That is particularly relevant for AI-related stocks after the substantial attention and investment the sector has attracted.

I would focus on three questions before drawing conclusions from any earnings report:

✅ 1. Is AI generating measurable business results?

Look beyond announcements and customer numbers. Is AI helping the company increase revenue, improve productivity or strengthen customer relationships?

✅ 2. Are profits keeping pace with spending?

Revenue growth is encouraging, but rising infrastructure and development costs can limit the financial benefits. Cash flow and operating margins deserve close attention.

✅ 3. Does the valuation leave room for disappointment?

Even a strong business can become a risky investment when expectations are excessive. Investors need to consider the price they are paying relative to realistic future earnings growth.

🎯 MY TAKEAWAY

I don’t think the AI opportunity should be viewed as a simple choice between buying technology stocks and avoiding them.

The more useful question is which businesses can turn AI adoption into sustainable financial performance.

Microsoft offers exposure to enterprise software and cloud services. Shopify provides a different angle through commerce and merchant productivity. Cadence benefits from the complexity of semiconductor design. Cloud infrastructure providers supply the computing capacity behind AI, while enterprise software companies are working to bring AI into everyday business operations.

Each has a different growth driver, competitive position and risk profile. None is guaranteed to benefit simply because AI spending continues to rise.

As earnings season progresses, I believe the market will increasingly distinguish between companies that can demonstrate financial returns from AI investment and those whose valuations depend heavily on future expectations.

The next winners may not necessarily be the companies talking the most about AI, but those showing investors that their investment is paying off.

💬 YOUR TURN

Which of these five areas offers the most attractive opportunity over the next 12 months?

A. 💻 Microsoft — Enterprise AI and cloud growth

B. 🛒 Shopify — AI-powered commerce

C. 🔬 Cadence — Semiconductor design software

D. ☁️ Cloud infrastructure — The computing backbone of AI

E. 📊 Enterprise software — AI monetisation and productivity

Are you focusing on revenue growth, profitability or valuation when deciding which stocks to watch this earnings season? Share your view in the comments!

Disclaimer: This post shares market observations and investment ideas for discussion purposes only.