"Wall Street is trying to figure out if the AI spending reported over the last couple of days by Meta, Microsoft, Alphabet, and Amazon is a good thing or a bad thing. Amazon was up 13% post-market after it reported strong cloud revenues. But Meta lost 11.33% yesterday after it announced it would issue $30 billion in bonds to fund its plan to spend $72 billion in capital expenditures, mostly on AI and data centers."
"Until recently, the big tech platforms had funded their AI spending with cash from their balance sheets. But now they're using debt, and Wall Street is raising an eyebrow. "Investors are increasingly questioning the return on such spending, particularly given Meta's revenue-to-capex ratio of just 3.02-the lowest among its peers," Jim Reid and his team at Deutsche Bank told clients this morning."
"In the background, some analysts are now resigned to the notion that Fed chair Jerome Powell's remarks on Wednesday were gloomier than expected and that there may not be another interest rate cut in December. The CME FedWatch tool-which tracks bets on future Fed rates-has 66% expecting a December cut and 33% predicting no cut. That's an unusual level of uncertainty."
Futures on the Nasdaq 100 and S&P 500 rose pre-open, suggesting traders considered the prior day's declines overdone after the S&P lost nearly 1% and the Nasdaq fell 1.47%. Major tech companies reported large AI-related expenditures, with Amazon rallying about 13% post-market on strong cloud revenue while Meta plunged 11.33% after announcing $30 billion in bonds to help finance $72 billion in capital spending primarily for AI and data centers. Microsoft and Nvidia also fell amid investor concern. Tech firms increasingly finance AI capex with debt, prompting questions about returns. CME FedWatch shows elevated uncertainty about a December Fed rate cut.
Read at Fortune
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