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BEFORE THE BELL: AI RALLY FACES ALPHABET TEST AS OIL CLIMBS

European shares are set for a cautious open on Wednesday, with the next test for markets coming after the U.S. close when Alphabet reports earnings, as investors look for signs that spending remains strong enough to sustain the AI-driven rally.

A more than 5% rebound in the Philadelphia Semiconductor Index .SOX from bear-market territory fuelled a rally in Asia, boosting South Korea's Kospi, led by Samsung Electronics 005930.KS and SK Hynix 000660.KS.

But the momentum is already showing signs of fading.

Nasdaq futures are down 0.8% and European chipmakers are indicated lower in premarket trade, suggesting investors are reluctant to chase the rally ahead of earnings.

EuroSTOXX50 futures fell 0.2% and FTSE contracts added 0.2%.

Alphabet's GOOGL.O outlook for AI investment is a key focus, with expectations running high and little room for disappointment. Citi sees capital expenditure rising 62% to $308 billion by 2027 and a further 28% the following year, turning free cash flow negative before a rebound in 2029.

Oil is providing another market driver, with Brent LCOc1 climbing towards $93 a barrel as Middle East tensions persist.

European earnings are also in full swing.

Airbus AIR.PA unveiled ambitious medium-term targets and a 5 billion euro ($5.8 billion) buyback, while Norwegian energy group Equinor EQNR.OL and Spanish lender Santander SAN.MC both delivered results ahead of expectations.

(Danilo Masoni)

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