Amazon Web Services posts 20% third-quarter sales growth, driving a fresh AI-fueled rally and putting pressure on Federal Reserve timing for another rate cut. The strength matters now because it confirms AI is powering the market’s advance in the near term and could alter capital flows over the long term. In the US, it keeps mega-cap leaders in focus; in Europe and Asia, it raises questions about who can compete on infrastructure spend; in emerging markets, it highlights uneven access to high-performance compute. Compared with previous tech cycles, spending on AI now outpaced consumer spending in recent GDP data, making this a timely market test.

The market’s broad trajectory shifted when Federal Reserve chair Jerome Powell said the central bank is unsure about a third rate reduction in December. Stocks reacted, but not dramatically. The S&P 500 fell less than 0.5% on the day. Still, Powell’s comment cut through a narrative that lower rates are a prerequisite for a sustained broad market advance.

AI has powered most of the rally. Amazon Web Services (NASDAQ:AMZN) reporting 20% sales growth in Q3 reinforced that theme. Investors pushed shares higher after hours, signaling confidence that cloud demand and AI workloads are real revenue drivers. The immediate effect is to keep heavyweights at the center of flows. The Magnificent 7 ETF closed up on the day, while cyclical names and small caps slumped.

That divergence matters for short-term market breadth. If AI leaders keep outperforming, the rally can persist even without further Fed easing. However, a broader market advance that would make the rally healthier still likely needs lower rates to help economically sensitive companies catch up. Investors are watching who benefits from easier policy and who remains rate-sensitive.

Sam Zief, global macro strategist at JPMorgan Private Bank (NYSE:JPM), said investors want the Fed to cut more for cyclical recovery, not because the market strictly needs it. “I don’t necessarily think that the market needs the Fed to cut, I think the economy would like the Fed to cut,” he said. Powell also suggested the AI trade is not rate sensitive, underlining how central bankers differentiate between market concentration and broader financial conditions.

One underappreciated link between AI and macro is capital intensity. AI capital expenditures rose faster than consumer spending in the latest GDP release. That means a shock that threatens AI spending could tighten financial conditions more broadly. Investors are watching corporate balance sheets for that reason.

Wall Street is increasingly focused on how companies finance AI investments. META Platforms (NASDAQ:META) fell about 11% after reporting strong results but signaling increased capital expenditures. The drop shows how investors may balk at open-ended spending funded by debt if returns remain uncertain.

Not all AI-related borrowing is equal. Gil Luria, managing director at D.A. Davidson, pointed to Microsoft (NASDAQ:MSFT) as an example of a firm whose deep balance sheet and management track record make higher capex a bullish sign. Firms with weaker demand outlooks or thin credit profiles are more exposed if they lean on debt to build capacity prematurely.

Oracle (NYSE:ORCL) stands out in recent estimates. Morgan Stanley projects Oracle’s debt could double to more than $290 billion by fiscal 2028. That level raises questions about overbuild risk and whether equity financing would be preferable. Smaller cloud infrastructure players such as CoreWeave and Crusoe are also reinvesting heavily to keep pace with each new generation of chips, creating a cycle where every hardware refresh pushes up costs.

If you believe the AI buildout will generate sustained productivity and revenue gains, debt-financed expansion can make sense. Big companies prefer not to load up too much leverage because it can sour investor sentiment and affect credit ratings. Still, the pace and opacity of some financing — including off-balance-sheet arrangements — make oversight harder for investors and regulators.

Luria warned that if debt levels surge and demand disappoints, the fallout could create systemic stress. He compared the risk profile to past credit crises, noting that speculative overbuild financed through leverage can amplify downturns. Policymakers and market participants will therefore watch leverage metrics closely in the coming quarters.

Market participants are parsing which groups will benefit from lower rates, should they arrive, and which will not. Cyclicals and smaller companies that carry more debt tend to be more rate-sensitive. In contrast, large AI leaders with robust cash flows show resilience to tighter policy, at least in the near term.

Bitcoin’s October performance offered another data point about market structure. After six consecutive Octobers of gains — a pattern some traders nicknamed “Uptober” — Bitcoin fell about 7.2% in October. The cryptocurrency started the month around $118,500 on CoinGecko and traded near $110,000 by early November.

That decline reflected a combination of factors. Institutional flows tied to spot ETFs have changed market behavior since 2024. Political developments, such as President Trump’s trade rhetoric toward China, removed some cross-border optimism. Fed remarks that failed to provide a clear catalyst also knocked prices; Bitcoin fell roughly 3.5% the day after tepid Fed commentary.

Still, Bitcoin has shown extreme moves within the month, including a peak above $125,000 earlier. The episode underscores how a younger asset class behaves differently now that institutional participation is larger. Traditions that once guided retail-driven cycles no longer map cleanly to a market with ETFs and institutional algos.

Looking ahead, the key things to watch are clear. First, the Fed’s timing and communication about rate cuts. Second, corporate debt loads at firms funding AI expansion. Third, whether AI spending converts into productivity and top-line growth at scale. Finally, market breadth: whether gains widen beyond mega-cap leaders into cyclical and small-cap groups.

For investors and observers, the next several quarters will test the durability of an AI-led rally. Companies with deep balance sheets and disciplined capital allocation may justify higher investment. Others that take on large amounts of debt to chase market share could face harder questions if revenue lags expectations.

Separately, retail-finance firms continue to rework offerings to serve AI-driven commerce. Synchrony Financial (NYSE:SYF) and others are positioning for agentic shopping and payments that integrate with AI agents, a development that could reshape how brands surface products to consumers over time.

Markets are thus balancing two competing narratives. One is that AI is a structural growth driver powerful enough to sustain valuations. The other is that rapid, debt-fueled expansion raises financial risks if demand fails to meet elevated spending. In the short run, strong quarterly prints like AWS’s 20% sales growth will keep capital focused on AI leaders. Over the long run, capital allocation choices and the Fed’s policy path will determine whether that concentration gives way to broader market participation.