Big Tech's $200 Billion Question

Wall Street spent the week learning that the AI trade comes with a bill.

Meta told investors it will create a new class of stock, partly to help pay for data centers. Oil closed at its highest level since April.

And the Fed, which raised rates last month, meets Wednesday with inflation at 3.7%.

Today: why Big Tech's spending spooked the market, what the Fed is likely to do, and where oil goes with the Strait of Hormuz still shut.

➤ The No. 1 Stock to Own Before October 28 →
(from Altimetry)

The Nasdaq fell 2.6% Thursday, its worst day since June. The chip index lost 6.7%, while Amazon fell 4.5%, Nvidia 4.4% and Alphabet 3.2%.

The trigger was Meta. Revenue grew 26% to $64.6 billion, but the company spent $34.9 billion on capital projects and posted negative $2.1 billion in free cash flow.

It also booked a $9.89 billion charge for its teen-safety settlement with state attorneys general. Then it announced a new nonvoting share class, one for every share you own. Its proceeds can help fund AI spending. The stock fell almost 8% Thursday.

Why it matters: The market is splitting in two. In October, the S&P 500 excluding AI is up about 6.6%, while the full index is down 0.4%.

If you own an S&P 500 index fund, you own a large AI bet whether you meant to or not.

What we're watching: Microsoft and Alphabet report Wednesday, Amazon on Thursday. Alphabet has already raised its spending plan to as much as $205 billion. The question isn't growth. It's whether cash flow keeps up.

Invest in single-asset private real estate opportunities alongside a $12B AUM owner/operator. Lightstone invests 20% or more of the equity in every offering, with a $100K minimum investment for accredited investors.

Explore Opportunities

^{Any message that includes model/proforma/targeted figures need a disclosure at the end such as: "This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities. Any such offer or solicitation will be made exclusively through the definitive offering documents. All investments involve risk of loss, including the potential loss of principal. Past performance is not a guarantee of future results. Any targeted returns or projections are forward-looking statements, are based on current assumptions, and are not guarantees of future performance. Actual results may differ materially.}

The Fed lifted rates to 3.75%–4.00% in September, its first hike in more than three years. Minutes showed most officials expect another hike by year-end.

September consumer prices rose 0.6% for the month and 3.7% from a year ago. Gasoline alone accounted for over half the monthly increase. Futures put the odds of a hike this week at 9% and in December at 84%.

Why it matters: The Fed's own projections don't see 2% inflation until 2029. Meanwhile, the 10-year Treasury yield closed Friday at 5.00%.

For anyone protecting a portfolio, that's a real return you can lock in without stock-market risk.

What we're watching: Chair Kevin Warsh's press conference Wednesday afternoon. Then Thursday's PCE report, where core inflation is forecast at 3.1%.

Brent crude settled at $116.72 Friday, its highest close since April 29 and up about 6% on the week. U.S. crude closed at $103.27.

On Saturday, the Houthis claimed attacks on an Aramco facility in Yanbu, the Rabigh refinery and the East-West Pipeline. Saudi Arabia said it intercepted the missiles.

Why it matters: Yanbu is Saudi Arabia's main way to ship oil around Hormuz. Energy is driving inflation, inflation is driving the Fed, and the Fed is driving your mortgage and bond yields.

What we're watching: Sunday night's futures open. Diplomacy can move this market fast: when Iran declared the strait open in April, Brent fell 9% in a day.

Benefits for 76 million Americans rise 3.6% in 2027, about $75 a month for the average retiree. This year's increase was 2.8%.

Investor takeaway: The formula tracks prices paid by working households, not retirees. Watch next year's Medicare premiums, which can eat into the raise.

The 30-year fixed averaged 7.32% this week, down from 7.40% but up from 6.19% a year ago. Pending home sales fell 7.3% in September.

Investor takeaway: On a $400,000 loan, that's about $301 more a month than a year ago. If you plan to downsize, expect fewer qualified buyers for the home you're selling.

The Atlanta Fed's model puts third-quarter growth at 3.5%, led by a 17.8% jump in business equipment spending.

Investor takeaway: Strong growth plus 3.7% inflation is the mix that keeps the Fed leaning toward hikes, not cuts.

It's Zero to One. Shortform turns books like it, into guides with the key ideas and how to use them. Get the ideas behind the breakthroughs in about 15 minutes.

Start learning!

4. That's how many ships crossed the Strait of Hormuz on October 18, according to IMF PortWatch. Before the crisis, the daily average was 85.

That's a 95% drop in traffic through the world's most important oil chokepoint. It's why Saudi Arabia now leans on the East-West Pipeline, which can move up to 7 million barrels a day to Yanbu on the Red Sea.

It's also why this weekend's attacks on Yanbu matter so much. With Hormuz shut, the backup route is the only route.

Brent is now up about 79% from a year ago. You've felt it at the pump, and the Fed has felt it in the inflation data.

Also reporting: Eli Lilly, Mastercard, Caterpillar. In all, 179 S&P 500 companies report, the busiest week of the season.

The Main Event: Wednesday afternoon. The Fed decides at 2:00, and Microsoft and Alphabet report about two hours later. Rates and AI spending, the two forces moving this market, land in the same evening.

The 30-year mortgage rate is up 0.83 points since June

Freddie Mac's 30-year average has followed the 10-year Treasury, which hit two-decade highs above 5.3% earlier this month.

Why it matters: Higher borrowing costs slow home sales and cool prices at the margin. If you're planning a move, downsizing or helping a child buy, the rate path matters as much as the price.

Markets enter the week with a hot economy, sticky inflation and an AI trade that has started asking for receipts. The Fed will probably hold Wednesday, but what Warsh says about December matters more.

We'll be watching the 10-year near 5%, Brent above $115 and Big Tech's free cash flow.

See you before the bell Monday.

P.S. Microsoft's own president has called the U.S. power grid "ancient." Yet his company, along with every other tech giant reporting this month, is racing to build more AI data centers. So where will all that power come from?

I believe the answer is a technology that got its start powering U.S. tanks on the battlefield. It could power AI without ever touching the public grid – and every major AI company is rushing to buy it. Click here to see how you could back this tech before October 28.