📈 Meta's Monster AI Bet

Musk seeking $45B for xAi, Starbucks on the clock, Stellantis shares plunge, Merck beats estimates, Zuck's $38B AI flex

Author

Evelio Silvera
October 31, 2024

In partnership with

Good morning.

⚡ The Fast Five → Musk seeking $45B for xAi, Starbucks on the clock, Stellantis shares plunge, Merck beats estimates, Zuck's $38B AI flex

🔎 Market Trends → Wall street ends lower ahead of megacap earnings, Futures tumble as Meta, Microsoft cost warnings highlight AI trade risks

And now…

⏱️ Your 5-minute briefing for Thursday, October 31, 2024:

MARKET BRIEF
Before the Open

As of market close 10/30/2024.

Pre-Market

  • Garmin was the top gainer on the S&P 500, up 23%.

  • Super Micro Computer shares plunged nearly 33%, the biggest drop on the S&P 500 and the Nasdaq.

Fear & Greed

*DOWN 0 pts

Markets in Review

AI Server Giant's Audit Drama Sparks Market Jitters

The tech-heavy Nasdaq retreated from its record perch, sliding 0.6% to 18,607.9, while the S&P 500 and Dow showed milder losses of 0.3% and 0.2% respectively.

The Big Picture

Wall Street's mood soured as Super Micro Computer's (SMCI) accounting drama and mixed tech earnings overshadowed resilient economic data. The market's reaction suggests investors remain hypersensitive to corporate governance concerns, especially among high-flying AI names.

Commodities painted a different picture, with crude surging 2.6% to $68.98/barrel amid OPEC+ chatter about potential output cuts. Meanwhile, gold continued its glittering run, touching $2,797 per ounce – a sign that smart money is still hedging its bets.

Go Deeper

  • AI Server Shakeup: Super Micro Computer (SMCI) cratered 33% after Ernst & Young's surprise resignation as auditor. The move raises red flags about internal controls – a reminder that even in hot sectors, fundamentals matter.

  • Chip Sector Reality Check: Qorvo's (QRVO) 27% plunge following weak guidance suggests the semiconductor cycle might be turning. But selective opportunities remain, as evidenced by Alphabet's (GOOG) cloud-driven 2.9% gain.

  • Consumer Resilience Play: Garmin (GRMN) soared 23% on strong earnings and raised guidance, highlighting that well-positioned consumer discretionary names can still thrive despite macro headwinds.

What They're Saying

"Real GDP growth remains strong, and this summer's fears of an imminent recession now seem grossly exaggerated," notes Desjardins, though they expect growth to moderate.

WHAT WE’RE WATCHING
Events

  • Today: Bureau of Economic Analysis - Consumer Price Index, 8:30AM

  • Why You Should Care: It's the Federal Reserve's primary inflation measure. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate.

Earnings Reports

  • Today: Apple, Amazon, Mastercard, Merck, Shell, Uber, Comcast

  • Tomorrow: Berkshire Hathaway, Exxon Mobil, Chevron, Simon Property Group, Charter Communications

MARKET BRIEF
Leading News

Meta's AI Spending Spree Shows Zuck's Not Messing Around

Why it matters:

Meta's aggressive AI infrastructure buildout signals a company going all-in on the future of tech, even as Wall Street frets about the price tag.

The big picture:

Meta is turbocharging its AI investments faster than even CEO Mark Zuckerberg anticipated, raising its 2024 capex floor to $38 billion — with promises of "significant" increases in 2025.

While the stock took a hit after hours (down 3.68%) on user growth misses and spending concerns, the numbers tell a story of a company positioning itself to dominate the AI era:

  • Revenue jumped 19% year-over-year

  • Net income surged 35% to $15.7B

  • Over 1 million advertisers already using Meta's gen-AI tools

Go deeper:

🔋 Infrastructure play: Meta's aggressive buildout of data centers and GPU purchases (primarily from $NVDA) mirrors the early days of cloud computing — companies that built early dominated later.

🎯 Ad tech advantage: Meta's AI investments are already paying off in its core business, helping advertisers navigate post-iOS privacy changes.

⚠️ Reality check: The Reality Labs unit (metaverse) lost another $4.4B this quarter, showing Zuck isn't afraid to spend big on long-term bets.

What they're saying:

"The formula around building out the infrastructure is maybe not what investors want to hear in the near term... But the opportunities here are really big." — Mark Zuckerberg

The bottom line:

While Wall Street sweats the spending, Meta's building what could be the backbone of the AI revolution. For long-term investors, this might be like buying Amazon during its heavy AWS investment phase — temporary pain for potentially massive gains.

Headlines

  • Merck tops earnings estimates on strong demand for Keytruda (link)

  • Ubisoft Posts Slump in Net Bookings After Assassin’s Creed, Star Wars Snags (link)

  • Troubled carmaker Stellantis reports 27% plunge (link)

  • Governors urge grid operator to take action amid record-high power plant prices (link)

  • PepsiCo is closing 4 bottling plants and cutting nearly 400 jobs (link)

  • Starbucks CEO sets four-minute service goal to reinvigorate sales (link)

  • Musk allegedly seeks $45B valuation for xAI with M. East funding (link)

CRYPTO
Fear & Greed

*UP 0 pts

Headlines

  • Bitcoin Prices Take Breather as BTC ETFs Record Another Day of Monster Inflows (link)

  • Robinhood's Q3 crypto trading volumes increase to $14.4 billion (link)

  • Coinbase Third-Quarter Revenue Misses Estimates; Shares Fall (link)

DAILY SHARE
On the Socials

*Hat-tip to litcapital

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