Key earnings reports from the biggest technology giants this week could set the tone for the market in the near term as Wall Street searches for signs that hefty AI investments are reaping rewards. Underwhelming Alphabet and Tesla results sparked a brutal sell-off, prompting questions about how long it will take for the AI narrative to come to fruition. Last Wednesday’s session saw the biggest drop in the S & P 500 and tech-heavy Nasdaq Composite since 2022, resulting in a more than $750 billion loss in value among the “Magnificent Seven,” Morgan Stanley’s sales desk said. The Roundhill Magnificent Seven ETF (MAGS) currently sits 11% off its highs. MAGS YTD mountain Magnificent Seven ETF performance This backdrop sets the tone for a “make or break week” coinciding with the Federal Reserve’s July rate decision Wednesday, according to Wolfe Research’s Chris Senyek. Microsoft reports Tuesday, followed by Meta Platforms Wednesday and Amazon and Apple after the bell Thursday. Last week’s action puts the microscope on AI spending. For months, tech giants have flaunted their AI plans and ambitious visions. Now, more than 18 months after the launch of groundbreaking ChatGPT, Wall Street wants results. “We expect them to have solid earnings. We expect them to beat their EPS,” said Jay Woods, chief global strategist at Freedom Capital Markets. “Major focus now turns to AI demand — that they’re spending to meet that demand, and will eventually see benefits from that spend.” The rush to compete has created a fear of missing out mentality. Alphabet CEO Sundar Pichai noted during an earnings call that “the risk of underinvesting is dramatically greater than the risk of overinvesting.” But most of the revenue gains from AI have so far materialized within the cloud businesses responsible for training and running large language models, while returns elsewhere appear “more qualitative,” notes Deutsche Bank’s David Folkerts-Landau. “Tech firms are competing to lead the AI race because the high costs, scarce semiconductor resources and speed of progress make investment a zero sum game,” the group chief economist wrote in a Tuesday note. “There is only likely to be space for a couple of champions. Whoever blinks for a second could risk falling light years behind everyone else.” So as the companies continue to funnel hoards of cash into AI projects, Baird’s Ted Mortonson expects a delayed reward until 2025 or 2026. An ongoing sell-off? Some Wall Street analysts believe strong quarterly results may not be enough to reverse the pullback in tech shares. “We believe the recent market rotation still has room to run with the Fed overwhelmingly expected to cut rates at least 25 [basis points] at the Sept meeting and/or a possible Trump win on November 5th — combined with investors still over-owning mega-cap technology stocks,” Senyek wrote. GOOGL 5D mountain Alphabet shares over the last five days Failure to hit estimates or post a “monster beat” could contribute to ongoing consolidation, which would keep stocks trading in a tight range, according to Woods. Seasonal rotation may also factor into some volatile action from here, he added. At the same time, the recent sell-off may also lower expectations for these companies with already-high forecasts, T. Rowe Price portfolio manager Dominic Rizzo told CNBC’s ” Closing Bell: Overtime ” on Monday. “I do think the bar’s come down,” he said. “My gut is that the tech earnings are going to come in better than people expect.”