Earnings season is off, and it could be a heavy one. Big-tech valuations demand impressive beats, and the fact that many big momentum winners are already off their highs will make the sting that much worse if they can’t catch a bid. 

The rotation in stocks since CPI is turning out to be a net negative one for the S&P 500 (SPX). It's been a fun shift in the trading environment for single stocks, but for indexed investors, it's starting to get a bit frustrating. We continue to fade rallies in megacaps, and now the first two to report earnings are getting sold. 

Alphabet (GOOGL) and Tesla (TSLA) are two hugely different companies that offer two unique perspectives on why the A.I. trade may struggle this quarter.

The more obviously problematic of the two is Tesla, which — after a big rally on promises of an A.I.-powered future — came into earnings trading at a forward P/E multiple near 100. That's not a car company valuation. Without any further update on the future and a bit of uncertain language from Musk, that valuation looks out of line. Particular for a time when it's the vehicle business that's driving the fundamentals, with margins getting crunched over the past year due to soft demand and lower sales prices. And so a reckoning makes sense. 

The good news is that it wasn't companies like Tesla that drove the market for the last 10 months – it was high-quality companies like Alphabet. And the stock’s earnings were reliably solid, with profit growth and margin improvement. Catch is, they're spending a lot on A.I. without much too show for it. Revenue growth is expected to be flat to barely higher over the next two quarters, which makes the relatively cheap GOOGL even look at tad expensive next to S&P 500 index growth.

It's not hard to see how other popular A.I. names could come under similar pressure now that it's time to deliver some real products and services. If that's the case it's going to add some insult to injury in a market already under pressure. 

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