Fed keeps rates steady. The big question now: What will Microsoft and Meta say on AI capex?

The Federal Reserve's decision to hold rates steady removes immediate uncertainty from the macro environment, but market attention pivots sharply to capital expenditure guidance from mega-cap technology leaders. This shift reflects growing investor concern that AI infrastructure buildout—a cornerstone of the 2024-2025 bull thesis—may face margin compression or revised spending timelines.

Microsoft and Meta earnings commentary will be scrutinized for clues on cloud capex sustainability, data center returns, and pricing power in AI services. A hawkish stance on spending could signal confidence in AI monetization; a pullback would suggest diminishing ROI expectations. Either outcome carries outsized weight given these firms' combined market cap and influence on sector rotation.

The Fed's pause creates a window where earnings quality—not rate direction—becomes the primary driver of tech valuations. This bifurcates sentiment: companies demonstrating disciplined AI investment and revenue conversion will attract capital, while those signaling overcapitalization risk repricing lower. The narrative has shifted from macro tailwinds to corporate execution clarity.

Sector implication: Technology faces a critical inflection point. Rates held steady remove support for multiple expansion, forcing the sector to rely on fundamental earnings growth rather than re-rating. The outcomes of MSFT and META guidance will likely determine whether AI enthusiasm sustains or faces correction, with spillover effects across cloud, semiconductors, and software valuations.