Earnings Bombs
Thursday was another rough day for the AI trade.
The $S&P 500(.SPX)$ dropped -0.3%, while the $NASDAQ(.IXIC)$ fell -1.4%.
Earlier in the week, Semis rallied 3 straight days on $Anthropic(ANT)$ ’s IPO filing. That bounce didn’t last.
$Alphabet(GOOG)$ led the way down today (-12.6%). And after the bell, it got even worse.
Fed Recap
The Fed held rates steady yesterday at 3.75%-4%.
On Sunday, I said this would be a pretty boring FOMC, and it mostly was.
The 1 wrinkle was the vote. It was 10-2, with Lisa Cook and Beth Hammack both dissenting in favor of a hike. Cook hadn’t dissented once since joining the Fed in 2022.
Warsh gave us no forward guidance (as expected). In his words, “I don’t believe in forward guidance, absent exigent circumstances, absent a crisis.”
The market is still pricing in a high probability of a hike in December (~74%).
Rates are still working against this market. That hasn’t changed.
Earnings Bombs
On Sunday in “Fallen Leaders”, I wrote this. 👇
We just found out.
It took 4 days.
Since yesterday’s close, it’s been 1 earnings bomb after another. 👇
$Alphabet(GOOGL)$
Google’s search business came in weak due to AI disruption, crushing the stock today.
Search revenue grew +12%, down from +17% the quarter before. Cloud was the bright spot (+103%). But the market didn’t care about Cloud today.
It cared about the search business and negative free cash flow.
GOOGL spent $51.4B on CapEx in Q3 alone. That’s more than its operating cash flow ($42.3B). Free cash flow came in at -$9.1B. And management said spending will “increase significantly” in 2027.
This is the same thing we saw with META last week. CapEx topping cash flow. The market is beginning to push back on that.
GOOGL closed -12.6%, its worst day EVER. That’s ~$500B in market cap gone in 1 day‼️
The stock is now down -10% YTD.
$ServiceNow(NOW)$
Software was 1 of the leadership groups, and NOW was 1 of the software leaders. Up until yesterday.
Revenue came in at $4.11B, right in line with estimates. Adjusted EPS was $1.00 vs. $1.02 expected. A small miss. The Q4 bookings outlook was a touch light too.
That’s it. That’s all it took.
NOW fell -28%, its worst day ever. This was even with a raised full-year subscription guide and AI contract value up +65%.
In line = -28%. That’s the type of market we’re in right now.
$Frontier Asset Total International Equity ETF(FINT)$
Cybersecurity was 1 of the leadership groups, and FTNT was 1 of the leaders. Up until yesterday.
FTNT was up over +100% in the last year.
Then it beat on EPS ($0.91 vs. $0.85) and revenue ($2.08B vs. $2.06B). Raised billings and revenue guidance. But it trimmed its service revenue forecast.
The stock fell -21%+.
And it took $CrowdStrike Holdings, Inc.(CRWD)$ $Palo Alto Networks(PANW)$, and $Zscaler Inc.(ZS)$ down with it.
$Intel(INTC)$
Yikes.
This is not going to help Semis and AI Infra.
Q4 guidance missed badly. INTC guided revenue to $15-16B vs. ~$17B expected. Adjusted EPS guide was $0.25 vs. ~$0.43 expected. Gross margin was guided down to 38% (from 43%).
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