Market Snapshot

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📉 Banana Bits

• Nasdaq plunges 2.6% as semiconductor stocks sink 6.7%, with Meta falling 7% amid renewed AI spending concerns

• U.S. 10-year Treasury yield drops below 5% in its biggest one-day decline since March 2023

• Brent crude surges 4% to $113.17, hitting a five-month high as Middle East supply fears intensify

• China's CSI 300 enters bear-market territory intraday, falling more than 20% from its June peak

• Indonesia's sovereign wealth fund buys local stocks following a sharp selloff triggered by MSCI's downgrade warning

• Meta reaches deal to keep Zuckerberg in California amid concerns over a proposed billionaire wealth tax

Market News

AI Spending Fears Spark Tech Selloff

Wall Street suffered another wave of selling Thursday as AI spending concerns and escalating Middle East tensions pushed investors out of technology stocks and into safer assets. Chipmakers plunged nearly 7%, while the Nasdaq Composite fell 2.6% in its worst session since June and the S&P 500 declined 1.2%. The Dow and Russell 2000, however, managed slight gains, showing that the selloff was largely concentrated in technology.

The selloff intensified after Meta raised the lower end of its 2026 capital expenditure forecast from $130 billion to $135 billion, while keeping the upper end at $145 billion. The company also announced a new non-voting share class that could provide additional financing flexibility. Meta shares fell around 7%, reigniting fears that technology giants could struggle to generate sufficient returns from their massive AI infrastructure investments.

Meanwhile, rising oil prices added to inflation concerns, with Brent crude surging 4% to $113.17 a barrel, amid fears of further Middle Eastern supply disruptions.

A flight to safety also triggered the biggest Treasury rally in more than three years, pushing the 10-year yield down nearly 20 basis points to approximately 4.95%, below the closely watched 5% threshold. The bond market rebound came as traders scaled back expectations for further Federal Reserve tightening, with another rate hike before year-end no longer fully priced in.

Beyond Wall Street, global markets faced mounting pressure as China's CSI 300 entered bear-market territory during Thursday's session, falling more than 20% from its June peak amid weak consumer demand and growing skepticism over AI profitability. French government bonds also came under pressure, with yield spreads over German bonds widening to a 15-year high amid political uncertainty and renewed protest risks.

On the corporate front, Blackstone President Jon Gray defended the AI investment boom, arguing that infrastructure expansion is struggling to keep pace with demand rather than creating excess capacity. Meanwhile, Moderna and Merck shares declined despite promising personalized cancer vaccine results, as some secondary findings disappointed investors.

There were also bright spots in corporate earnings. Procter & Gamble exceeded earnings expectations, while Lockheed Martin raised its full-year outlook, reported a record $292 billion backlog, and announced a major preliminary F-35 agreement with the Pentagon. Spotify also surged more than 11% following stronger-than-expected subscriber growth and an upbeat profit outlook.

Peel Take: Wall Street's AI optimism is running into a familiar problem: spending is accelerating faster than investors can see the returns. Meta's growing capital commitments have renewed concerns about the financing and profitability of AI infrastructure investments, while rising geopolitical risks are pushing investors toward safer assets. Still, the Dow and small caps held up, suggesting investors were moving away from technology rather than abandoning equities altogether. With tech valuations under pressure, the next earnings reports from Alphabet, Microsoft, and Amazon will be crucial in determining whether their massive AI investments can generate returns that justify current valuations.

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What's Ripe

Spotify Technology S.A. (SPOT) 11.19% 

• Surged 11% after the music streaming giant reported stronger-than-expected premium subscriber growth, surpassing its previous forecasts.

• The company also projected €820 million in operating income for the current quarter, slightly exceeding Wall Street estimates. The upbeat outlook reinforced investor confidence in Spotify's ability to expand its subscriber base while improving profitability.

• Peel Take: Spotify is proving that subscriber growth and profitability can go hand in hand. Stronger premium subscriptions and an impressive earnings outlook suggest its monetization strategy is gaining traction. With gross margins improving, investors are increasingly viewing Spotify as a profitable streaming powerhouse rather than just a subscriber-growth story.

Lockheed Martin Corp. (LMT) 6.96% 

• Surged 7% after the defense contractor reported a record $292 billion order backlog, up from $230 billion at the end of the second quarter.

• The sharp increase highlighted strong demand for the company's defense systems amid rising global military spending, providing greater visibility into future revenue growth.

• Peel Take: Lockheed Martin's record backlog shows that geopolitical tensions are translating into substantial demand for defense equipment. With $292 billion in orders awaiting fulfillment, the company has a strong pipeline of future business. However, converting that backlog into revenue and profits will depend on production capacity, contract execution, and cost management.

What's Rotten

Lam Research Corp. (LRCX) 11.76%

• Plunged 12%, making it one of the worst performers in the S&P 500, despite reporting fiscal first-quarter earnings that narrowly exceeded Wall Street expectations. The selloff reflected concerns over elevated valuations in AI-related stocks, as investors increasingly demanded stronger earnings growth to justify the sector's share prices.

• Investors also focused on supply-chain constraints limiting the company's next-quarter outlook and expectations for a lower contribution from China, which accounted for 35% of quarterly revenue.

• Peel Take: Lam Research's sharp decline shows that beating earnings estimates is no longer enough for AI-linked companies. With expectations already high, even modest earnings beats can disappoint investors when forward guidance is less encouraging. The selloff highlights a broader shift in sentiment as Wall Street increasingly focuses on whether AI-driven growth can justify premium valuations.

Space Exploration Technologies Corp. (SPCX) 9.14%

• Plunged 9.1%, reversing Wednesday's post-earnings rally amid a broader technology selloff and concerns over the company's substantial AI infrastructure spending. SpaceX expects capital expenditures of $35B to $40B in the fourth quarter, up from $19.6B in the third.

• Elon Musk also declined to provide additional details about a potential SpaceX-Tesla merger during Tesla's earnings call. Musk has previously expressed support for the combination, and both companies have established special committees to evaluate the proposal, although no agreement has been reached.

• Peel Take: SpaceX's sharp decline highlights how quickly investor sentiment can shift despite strong earnings. While the company's AI expansion presents significant growth opportunities, its substantial capital requirements remain a key consideration for investors. A potential combination with Tesla could bring together Musk's ambitions in space exploration, artificial intelligence, and autonomous technology. However, uncertainty surrounding the deal's timing, valuation, and execution could continue to fuel volatility until investors receive greater clarity.

🧠 Technical Trip

Interview Q&A from Morgan Stanley

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🦈 Deal Dispatch

M&A, IPOs, And Other Notable Transactions

• CATL-backed Noetix Robotics reportedly files confidentially for a Hong Kong IPO, potentially raising several hundred million dollars

• EQT agrees to acquire Qiagen in a €9.6 billion takeover, offering €46.50 per share in cash

• London Stock Exchange Group agrees to acquire credit data provider Octus for $3.54 billion, expanding its financial data and analytics business

Student Success Corner

Banana Brain Teaser

Previous

A bond has a modified duration of 6 and a current price of $95. If yields rise by 50 basis points, approximately what is its new price, ignoring convexity?

Answer: $92.15

Today

A company's stock trades at $40 per share. An acquirer offers a 30% premium and purchases all 25 million outstanding shares. What is the total equity purchase price?

How Would You Rate Today's Peel?

Happy Investing,
Elie, Mitchell, Fernanda, Nick, & Patrick

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