US futures fall as AI rally faces fresh skepticism despite solid Meta earnings

US futures are being hit hard today. After a promising rebound on Wall Street yesterday, markets are now reversing. S&P 500 futures dropped 1%, while Nasdaq futures fell 1.7%, with tech stocks facing the most selling pressure.

Oil prices are rising again due to Middle East tensions, which is keeping investors nervous. However, Treasury yields are falling, with 10-year yields down to 5.08%. In normal circumstances, this would ease pressure on high-valued tech stocks, but today it is not helping.

The main concern remains earnings and the ability of the AI rally to meet the high expectations that are already baked into valuations.

Meta's earnings provided some positive news, with revenue rising 26% to $64.6 billion and its stock performing well. Shares climbed about 0.8% in after-hours trading, but that optimism did not spread to the broader tech industry.

Lam Research, the semiconductor equipment maker, recorded a record quarterly revenue of about $8.2 billion, surpassing expectations. But its shares fell more than 8% in after-hours trading. A strong quarter failed to impress investors, who instead focused on the weaker-than-expected forward earnings forecast.

Tesla is also facing trouble after its earnings report, with shares down about 5% in after-hours trading. Meanwhile, smaller chipmaker NVE Corporation saw its shares tumble more than 22% after reporting an 8% drop in quarterly revenue.

While each earnings story is different, collectively they indicate a market becoming much, much less forgiving.

The bond market also sends a signal. With Treasury yields falling while oil prices rise, investors might be more worried about US economic growth than about inflation.

One might assume that lower yields would support stock prices, but the relationship is not that simple. If yields fall because of concerns about the economy, it bodes poorly for corporate earnings and the stock market outlook.

For the AI trade, current market sentiment underscores how investor expectations become harder to justify when economic growth slows. Companies that borrow heavily to finance AI ambitions are likely to suffer the most.

This is not necessarily the end of the AI rally. However, when record earnings and falling Treasury yields fail to support stocks, it may indicate that Wall Street is beginning to doubt whether expectations are too high. Facing that reality could be very painful.