Markets Daily: Waiting for AI's profits

Alphabet shares rallied 5.5% in early trading as Google’s parent reported surging revenue from cloud computing. AMD fell on revenue that mis [View in browser]( [Bloomberg]( Markets Snapshot [S&P 500 Futures]( [5,883.75]( [+0.22%]( [Nasdaq 100 Futures]( [20,732]( [+0.17%]( [Bitcoin]( [72,447.25]( [+0.19%]( [US 10-Year Treasury Yield]( [4.218%]( [-0.036]( [Gold]( [2,784.05]( [+0.34%]( Market data as of 06:33 am EST. View or Create your [Watchlist]( Market data may be delayed depending on provider agreements. Five things you need to know - [Alphabet shares rallied 5.5%]( in early trading as Google’s parent reported surging revenue from cloud computing. [AMD fell]( on revenue that missed forecasts. - There’s plenty of earnings ahead. Caterpillar and Eli Lilly report this morning. Microsoft, Meta Platforms and [Starbucks]( come after the close. - In Europe, [Volkswagen posted its least profitable quarter]( since the pandemic, underscoring the urgency to restructure its German business. - Global [gold demand topped $100 billion]( for the first time. The metal touched a fresh record and [Bitcoin]( traded above $72,000. - BlackRock is in [advanced talks to buy HPS]( as the world’s biggest asset manager tries to expand its footprint in private markets. AI answers [The most urgent questions for tech]( investors are: Who is going to make a windfall from the AI frenzy, and at what cost? There’s a lot riding on the answer that Microsoft and Meta will give later today, given the billions being spent by both companies. AI will all be worth it if they can show their investment is starting to paying off, like [Alphabet]( did. But there are also pitfalls. AMD was a disappointment and investors wiped [$122 billion off Samsung’s market value]( on the view it’s an AI laggard. Investors have turned cautious toward megacap tech stocks, given the enormous AI investment, pricey valuations and slowing earnings growth. A gauge of the Magnificent Seven tech megacap stocks tracked by Bloomberg has struggled to regain its July highs. “There’s been an enormous amount of capital spent on developing AI,’’ said Brian Mulberry, client portfolio manager at Zacks Investment Management.  “We’re actually looking very specifically to see who is monetizing it, who’s actually giving a return on investment and what does it look like.” Microsoft’s capital spending last quarter probably jumped 45% to about $14.6 billion, according to estimates compiled by Bloomberg. At Meta, spending is projected to have soared by almost 70% to $11 billion.  The push for answers may be greater among Microsoft investors. The stock is the second-worst performer in the Mag 7 this year, beating out only Tesla. The shares have struggled as the market weighs the artificial intelligence outlays against slowing growth for the Azure cloud-computing service. Revenue is tipped to creep just 1% higher from a year earlier, on a constant-currency basis. Last quarter, faltering sales growth at [Azure]( Microsoft stock.  The mood going into Meta’s results is different as the stock is up 64% this year, outpacing the broader market. In its last report, the company showed some progress in ad sales thanks to AI, buying it more time for heavy investments to pay off. Of course, both companies also risk disappointing investors by not spending enough — which could be seen as a sign that they’re set to fall behind in the AI trend. “The CEO of a tech company is much more likely to get fired for not spending enough on AI versus spending too much,” said Shana Sissel, president and CEO of Banrion Capital Management. “Because right now, that is the deciding factor.” —[Carmen Reinicke]( On the move Smaller social media platforms are making a strong showing ahead of Meta’s quarterly report. [Reddit shares surged]( as much as 25% in premarket trading, putting the stock on track to hit an all-time high, after its sales and forecast beat expectations. Meanwhile, Snap shares are rallying 9.3% after the Snapchat parent’s third-quarter results showed that [the overhaul of its advertising business]( is catching on with marketers. —[Subrat Patnaik]( Debt, debt, debt Fiscal strains are emerging worldwide, posing a test for bonds and currency markets. - Coming up shortly is the [UK budget]( in which Chancellor Rachel Reeves is set to raise both taxes and borrowing to fund investment. Yields on 10-year gilts are already around their highest since June and the government is expected to announce a £15 billion ($19.5 billion) [increase in issuance]( for this fiscal year, lifting borrowing to £293 billion, the most of any year outside the pandemic's 2020. - Also today, bond dealers expect the US to announce plans to raise $125 billion for a third straight quarter. That [supply of new notes and bonds]( partially explains why Treasuries are on track for their [worst month in more than two years]( even before next week's presidential election potentially paves the way for even looser fiscal policy no matter who wins. - Elsewhere, [France]( is struggling to address a deterioration in its finances, [South Africa]( has its budget day and [emerging markets]( face a brewing liquidity crunch. Wall Street veteran Ed Yardeni warns “it’s a conceivable scenario that the bond vigilantes are [definitely mounting up]( by which he means markets will enforce higher borrowing costs on those they deem lacking the enthusiasm to tackle debts. As for currencies, Steve Barrow of Standard Bank says much will depend on how central banks respond. “If central banks are perceived to accommodate fiscal largesse the consequence is likely to be a weaker currency,” he told clients this week. “But if they fight back and, particularly if they offset such largesse with tighter policy, the currency can rally.” —[Simon Kennedy]( Word from Wall Street “We have more than halved our position in Samsung over the last few months — it was the largest position in our strategy in July” Sat Duhra Portfolio manager at Janus Henderson Investors SP in Singapore [Read the full story on how Samsung is losing out in the AI boom]( What else we’re reading - US efforts to contain [China’s tech supremacy drive]( are faltering - Ex-Goldman banker turned PE billionaire [takes on Korea’s chaebol]( - A [$10,000 spoofing profit]( is a blow to Nomura’s reputation - Traders [banned from watching World Series]( amid Ohtani craze - Goldman says traders are too worried about [US election delays]( - A Chinese [stock that sounds like ‘Trump Wins Big’]( is surging How will the US election impact your money? 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