Here's the question three tech-sector earnings reports raise about the future of AI

By Nora Redmond

Micro-level demand to support the buildout of artificial intelligence has remained robust, Goldman Sachs said.

Celestica, Cadence Design Systems and Rambus all reported financial earnings after the closing bell on Monday and they show that demand, for now, isn't the issue.

"At this point in the cycle, it's increasingly about the market's willingness to supply capital and at what price," Rich Privorotsky, head of European equities trading in Goldman Sachs' fixed income, currencies and commodities and equities unit, wrote in a Tuesday note.

There is currently much debate about whether we have a compute oversupply heading into 2027 and the following year, he said.

"What is clear is that the cost of capital has risen materially, and that's changing the economics of the entire complex," Privorotsky wrote. "Any sustained relief in credit should be a powerful catalyst."

At the same time, he said, micro-level demand has stayed incredibly strong.

Shares in Celestica (CLS), which designs and manufactures cloud technology and includes Intel and Broadcom as some of its customers, surged about 17% in premarket trading on Tuesday.

The Canadian company reported revenue of $5.83 billion for the third quarter, up 83% since this time last year and beating analysts' expectations by just over 6%, according to the London Stock Exchange Group. For 2027, Celestica provided guidance of $40 billion in revenue, up 90% year-on-year, higher than Wall Street consensus of $35.5 billion.

It also posted earnings per share of $3.30, again surpassing estimates, which were set at $2.96. Analysts at RBC Capital Markets, led by Paul Treiber, noted that the beat was higher than both the previous quarter's and the average of $0.14 across the past 12 months.

"The demand environment continues to be very robust, supporting our 2027 revenue outlook, with customer demand forecasts meaningfully higher for 2028," Chair and CEO Rob Mionis said in a statement.

The expectation-surpassing results come as tech stocks have struggled recently, with investors worried about how companies are going to continue to finance AI infrastructure. All eyes now are on evidence of monetization, while increased spending among tech giants is falling under more scrutiny.

"Demand is clearly not the problem today," Privorotsky said. "The debate is how much we should discount those future cash flows given the uncertainty around supply, competition and financing."

Shares in Cadence (CDNS), which develops electronic design automation software, rose 3% in early trading after lifting its outlook on a record backlog of $8.2 billion because of robust bookings.

"There are no capacity or supply-chain constraints in terms of addressing that," John Wall, chief financial officer, said in the company's earnings call on Monday. "We're just building inventory to hit that - to hit those numbers."

Cadence posted revenue in its third quarter of $1.63 billion, up 22% year-on-year. It also raised its guidance for revenue to a range of between $6.387 billion to $6.417 billion from a previous range of $6.26 billion to $6.34 billion.

"We continue to view the company as one of the highest-quality compounding businesses in our coverage, with leverage to multiple industry themes including growing visibility to AI monetization, accelerating IP and hardware emulation momentum, and expanding Physical AI opportunities," a team of analysts at Goldman Sachs, headed by James Schneider, said in a Monday note.

Rambus (RMBS) also beat forecasts in its third-quarter results, with a record-breaking revenue of $218.3 million, compared to projections of $213 million. The memory chip maker said it expects even better performance in the fourth quarter, foreseeing revenue of between $227 million and $233 million.

-Nora Redmond

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10-27-26 0751ET