AI’s next test: Turning investment into earnings

The AI buildout comes with a substantial bill. Investors are watching for the return on it. Across earnings calls, companies are explaining how spending on computing power, software and infrastructure will translate into stronger businesses. Some benefits are emerging; others remain promises to deliver. At Laffer Tengler Investments, we are examining that distinction closely. A resilient economy provides support, while persistent inflation keeps costs and financing in focus. For investors, the next test is how effectively companies turn ambitious investment into revenue growth, productivity and durable earnings.

A resilient economy gives the buildout room to run

Arthur B. Laffer, Jr., president and senior portfolio manager at Laffer Tengler Investments, points to continued business activity as a support for growth. [1] AI investment is part of that picture. Yet elevated energy costs and persistent inflation complicate the Federal Reserve’s path. [2]

For companies funding the buildout, that tension matters. Financing costs influence which projects make economic sense and how quickly they must generate returns. Strong demand can support ambitious investment, but it does not remove the need for capital discipline. We are watching how companies balance expansion with the financial flexibility to sustain it.

Earnings calls move the discussion from promise to execution

An AI strategy gets attention. Earnings reports help show whether it is earning that attention. Jamie Meyers, CFA, senior securities analyst at Laffer Tengler Investments, examines companies at different stages of that process.

Meta illustrates the scale of the commitment. The company raised the lower end of its 2026 capital expenditure outlook while acknowledging that some emerging AI investments will take longer to generate returns than investments in its core business. [3] The question is how efficiently new capabilities become profitable products.

IBM offers a different window into execution. Its third-quarter software growth reflected contributions from Confluent and the completion of large deals delayed from the previous quarter. [4] That distinction matters: investors must separate acquisition contributions and contract timing from sustained business momentum.

At Spotify, management describes an opportunity to serve listeners in an increasingly AI-driven environment while reporting moderating costs. [5] For us, the investment test extends beyond adopting the technology. We want evidence that it strengthens customer relationships and improves the economics of the business. Across these examples, management’s ambitions provide a starting point. Consistent results must make the case.

Building the whole stack brings opportunity and obligation

The AI buildout extends well beyond software. Data centers need electricity. Chips require manufacturing capacity, and new applications need a route to customers. Controlling more of those connections can give a company greater influence over its costs and development schedule.

Alex Van Iderstine, CFA, securities analyst at Laffer Tengler Investments, sees that logic in the increasingly connected operations of Tesla and SpaceX. [6] His assessment also captures the financial demands:

“Building the whole stack takes patience and a lot of capital,” he said.

For investors, the appeal of integration must be weighed against the obligation to fund it. Owning more stages of production can reduce dependence on outside suppliers, but it also increases the demands on management and the balance sheet. We look for evidence that those commitments strengthen the business enough to justify their cost.

What we watch

The next stage of AI investing calls for close attention to execution. We are watching whether customer adoption translates into revenue, whether operating efficiencies improve margins and whether companies retain the financial flexibility to fund their plans.

Nancy Tengler, CEO and chief investment officer at Laffer Tengler Investments, captures both the conviction and the selectivity behind that work:

“AI productivity is alive and well across sectors, and AI spending will continue, though there will be winners and losers,” she said.

That is why we examine each company’s opportunity alongside its valuation and capital requirements. A promising technology can support a strong business without making its shares attractive at every price. Our task is to assess where expectations are supported by operating progress and where investors are being asked to pay for results still to come.

Sources and references

1. Williamson, C. (2026, October 23). US flash PMI signals sustained strong growth, but also further inflation uplift in October. S&P Global. Read the analysis.

2. U.S. Bureau of Labor Statistics. (2026, October 14). Consumer Price Index—September 2026 [News release]. U.S. Department of Labor. Read the release.

3. Meta Platforms, Inc. (2026, October 21). Meta reports third quarter 2026 results [Earnings release]. Read the release.

4. International Business Machines Corporation. (2026). Quarterly report for the period ended September 30, 2026 [Form 10-Q]. U.S. Securities and Exchange Commission. Read the filing.

5. Spotify. (2026, October 22). Spotify reports third quarter 2026 earnings [Earnings release]. Read the release.

6. Tesla, Inc. (2026). Quarterly report for the period ended September 30, 2026 [Form 10-Q]. U.S. Securities and Exchange Commission. See Note 13, “Related Party Transactions.” Read the filing.