🧮 Big Tech earnings: The good, the bad, and the ugly

A trio of companies — Alphabet, Microsoft, and Meta — with major exposure to the AI trade that’s been thrilling markets reported earnings last night. Let’s see how they did.

• The good: Alphabet beat expectations, sending shares soaring after-hours. Google Cloud revenue for Q3 was $15.2 billion, growing 34% year over year. YouTube’s ad revenue rose 15%, Google’s Search revenue grew 14.5%, and ad revenue was a 12.6% increase year over year.

• The meh: Microsoft beat expectations but still dropped in after-hours trading. Azure cloud business revenues grew 40% year on year, compared with Wall Street’s expectations for 38% growth.

• The bad and the ugly: Meta beat on revenue but missed badly on earnings per share, with diluted EPS coming in at $1.05 compared to a consensus estimate of $6.72. The social media company’s ad revenue, which makes up nearly all of its sales, hit $50.1 billion, versus analysts’ expectations of $48.5 billion. Meta fell over 8% after-hours. 

The big bottom-line miss stems from Meta setting aside cash for future income taxes, which forced it to book a one-time, noncash $15.9 billion tax charge this quarter. Without that one-off hit, Meta said diluted earnings per share would have been $7.25.

The Takeaway

Hey, it sure seems like AI is pretty good at helping with ad revenue. Meta CEO Mark Zuckerberg said that AI continues to help the company improve ad revenue, and a Bloomberg Intelligence analyst for Google observed that “better ad targeting likely contributed to a further sequential increase in growth for core Search and YouTube ads to around 15% for each segment, while Gemini’s token usage of 7 billion per minute for its API business is around that of leading frontier models such as OpenAI.”

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Last year, when CoreWeave tried to buy Core Scientific, management didn’t approve. This time, it looks like shareholders don’t like the new offer.

The current deal in play is an all-stock transaction that was valued in July at about $9 billion, but heading into today’s vote on the transaction, shares of Core Scientific are trading for much more than the terms of the agreement say they’re worth, strongly suggesting traders are pricing in either a rejection of this proposal or a last-minute boost to the offer.

To get to the core of the issue, the terms of the deal lack a so-called collar: since the transaction is completely based on CoreWeave stock, it means the price is entirely dependent on the whims of what the market feels about CoreWeave when (and if!) the deal closes. And that stock has moved a lot since July.

• Core Scientific became a slave to CoreWeave’s low float, but the high cost of shorting CoreWeave left no easy way for investors to protect the value of their position.

• The deal premium vanished decisively as CoreWeave’s post-IPO lockup expired, which unleashed a wave of pent-up profit taking and made more shares available to be shorted. 

• Major shareholder Two Seas Capital issued a statement opposing the deal on August 7, and followed that up with an October presentation detailing its concerns.

• Gullane Capital — another major Core Scientific holder — also said it would be voting no, and Institutional Shareholder Services Inc. and Glass Lewis & Co. are against the proposal as well.

The Takeaway

CoreWeave and Core Scientific management teams, for their part, remain strongly in favor of a tie-up. Core Scientific noted that the deal had been “unanimously determined” by its board of directors as providing “meaningful upfront premium and upside opportunity,” while CoreWeave CEO Michael Intrator has been resolute that “under no circumstances will we readdress the bid that we put out,” with the company reiterating that stance in a press release. 

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Nvidia is the first $5 trillion company as BATMMAAN stocks dominate the market

The eight BATMMAAN names are now worth nearly 40% of the S&P 500, as key AI players take flight once more. Nvidia, in particular, has had a meteoric rise owing to the 2018 decision from CEO Jensen Huang and co. to bet the farm on AI.

See how Nvidia compares to its BATMMAAN peers

• 🏈 Thursday Night Football: The prediction market on Robinhood* is pricing in a Baltimore Ravens win over the Miami Dolphins at $0.79, making them strong favorites as these two-win AFC teams clash in a battle that I’m sure looked a lot better on paper when they scheduled this game before their terrible starts.  

• 🏛️ Shutdown: Today, the federal government shutdown that began at the start of the month with a lapse in funding enters its 30th day. Based on the current market prices of $0.57 for a more than 40-day shutdown and $0.45 for a more than 45-day shutdown, Robinhood’s traders are pricing in about another two weeks of this. 

• 🌀 Weather: As Hurricane Melissa batters the Caribbean, the end seems to be near for a hurricane season that was projected to be particularly strong. There have been four major Atlantic hurricanes this year, and the Kalshi market has just a 20% chance of there being another. 

*Robinhood Markets Inc. is the parent company of Sherwood Media, an independently operated media company. Event contracts trading is offered by Robinhood Derivatives, LLC, a registered futures commission merchant with the CFTC.

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