Big Tech earnings continue to come out, with some of the biggest names expected to report results next week. After the tech earnings posted this week and more layoffs hitting the tech sector, what should Wall Street be expecting?

Jefferies Senior Analyst Brent Thill addresses the "excess waste still in the tech ecosystem" regarding potential job cuts to come and how AI is driving tech valuations ahead of earnings.

"The biggest driver right now is... the AI bubble that we're in. Certainly, we believe in it, but as they say, everyone may be overestimating... the near-term and underestimating the long-term," Thill tells Yahoo Finance. "So, I think that's probably the biggest concern, especially for Microsoft (MSFT), which has been running with all these Copilot AI excitement..."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

SEANA SMITH: For more on what we can expect, we want to bring in Brent Thill. He is a Jefferies senior analyst. Brent, as always, great to get your insight, especially ahead of such a big week here for the tech sector. Heading in to next week, what's the top question you have for some of these tech giants?

BRENT THILL: Demand environments, number one. AI hype is number two. There's a huge hype cycle we're in. And Kennedy's companies deliver on AI. And then I think just sustainability of demand. You've seen tech stocks go straight up. And I think everyone's concern is, is there a little bit of a bubble in terms of overall movement in some of these names? So can the demand hang in on the back side of this?

So I think those are some big ones at this point. I think that the biggest driver right now is the AI bubble that we're in. Certainly, we believe in it. But as they say, everyone may be overestimating the near term and underestimating the long term. So I think that's probably the biggest concern, especially for Microsoft, which has been running with all these Copilot AI excitement. Certainly, Amazon. Can they catch up to Microsoft is another big topic in AI. They've dropped back. We think that they can throughout the year.

And then I'd say, for Meta, the biggest thing we're watching is just overall advertising demand has been really coming back. We went from a hard landing to the economy to a potential softer landing. And that softer landing is good for advertising. All the Meta checks have been phenomenal. And we've continued to hear great things.

I'd say the last thing we're watching is really these job cuts. And I think everyone in tech that we're talking to is saying that there are more cuts coming. I think many thought these cuts were done. But I do believe there's a lot of excess waste still in the tech ecosystem. And you're going to see probably more job cuts than maybe we would expect. And that goes back to not that demand is bad. But I think that these companies realize that they can do more with less. And that's a good thing to restoring the bottom line health to technology.

BRAD SMITH: Brent, I want to come back to something that you just mentioned a moment ago in that we could see this bubble burst potentially at some point in the AI hype. And then, ultimately, the show me story that's started to really formulate at this point. Is there one company that you believe is on watch at this point, if that AI bubble does burst?

BRENT THILL: Well, I think you have to look at the companies where there's the most euphoria around AI. And that's definitely Microsoft, Adobe. And there's a handful of others. Salesforce is probably not as euphoric on AI. But those are the companies. And we think that Adobe and Microsoft are in phenomenal positions. The question is-- again, and this happened last year with Microsoft, which is they come out. They show these demos. But then when you talk to the customers in the field, they're like, well, it's not quite as good as they demoed. And the adoption is not quite as fast.

And so look, Microsoft's been guiding to this. They've said, front half of the fiscal year, which just ended, no revenue. Back half of this fiscal year, which ends in June, coming up is one of the revenue comes. So we're now expecting this revenue ramp. What kind of details are they going to give us? What kind of color? How are those deployments going to go?

All of this is talk. The implementation in the field of customers taking it starts to happen now. And I think this is where all the top execs that we know that have been in software for two plus dec-- three decades, four decades, in some cases, they're like, everyone's becoming a little skeptical. Is this really going to match the hype? And I think in certain cases, like for Microsoft and their Copilot, for GitHub, which is their developer solution, the hype is deserved. But some of the other areas, I'm not convinced yet.