Martin Gamble on US markets: AI spending plans spook investors

US markets had an increasingly difficult week as concerns about AI spending intensified, leading to heavy selling in some big tech names and the broader Nasdaq index.

The Federal Reserve left interest rates on hold as expected while Fed chair Walsh made hawkish comments around getting inflation back to the central bank’s 2% target, without committing to hiking interest rates.

Oil prices and bond yields slipped which gave some support for the economically sensitive Russell 2000 index which gained almost 3%.

Quarterly earnings from technology heavyweights, Microsoft and Alphabet showed that while AI demand continues to outstrip supply, investors are becoming more discerning and harder to please, punishing growth that falls short of expectations.

Intel shares plummeted more than 25% in premarket trading after the chipmaker projected weaker than expected fourth quarter revenues, sending shivers across the semiconductor sector.

Digital infrastructure provider Vertiv was one of the biggest S&P 500 gainers after raising full year guidance as third quarter revenues grew 55% and orders more than doubled.

Amazon cash burn fright night

Amazon shares sank more than 11% despite the Seattle-based retailer reporting record operating income and the fastest cloud growth in nearly five years as investors roiled at the amount of cash Amazon is burning.

The company said it burned through $42.4 billion on a trailing 12-month basis in the September quarter as capital expenditures came in at $77.3 billion, some $20 billion higher than analysts’ estimates.

Alongside other hyperscalers Amazon has made huge spending commitments in the race to develop AI infrastructure, reiterating its $220 billion 2026 target and spending ‘meaningfully more’ in 2027 according to CEO Andy Jassy.

Revenues at AWS (Amazon Web Services) grew 39% to $46 billion which was slightly ahead of analysts’ estimates but advertising revenue growth fell short of expectations for the first time in seven quarters.

Looking ahead Amazon said it expects revenues of between $240 billion and $247 billion in the fourth quarter which slightly missed analysts’ estimates.

Jassy remained enthusiastic saying AWS revenues could reach a trillion dollars within five years, adding: “I'm not aware of another retail business approaching Amazon's revenue size.”

Coca-Cola lifts profit forecast

The soft drinks giant delivered better than expected third quarter earnings with revenue up 7% to $13.4 billion and comparable EPS (earnings per share) growing 11% to $0.91.

Global case volumes increased by 5% for the second consecutive quarter helping to drive organic sales growth of 7% with price/mix contributing just 1%, reflecting healthy demand-driven growth.

This does not mean Coke has lost its pricing power, it just reflects a negative ‘mix’ effect, triggered by smaller packaging to attract budget consumers looking for a relatively cheap treat.

The stand-out performer was Coca-Cola Zero Sugar which saw volumes expand by 16% while trademark Coca-Cola volumes increased by 5%. The US remains the weak spot where volumes were stagnant year-on-year reflecting stretched consumer wallets.

Management raised comparable full year earnings per share growth guidance to ‘at least’ 11% from a prior range of 9% to 10%. It was the third consecutive quarter of raised guidance.

The shares have risen by around a third over the last year, comfortably outperforming the S&P 500.

Eli Lilly lifts guidance again

Obesity drug giant Eli Lilly saw its shares gain 7% to scale a new all-time high of $1,408 on 29 October after third-quarter revenues and earnings comfortably topped analysts’ estimates.

Strong demand for Lilly’s diabetes treatment Mounjaro and its obesity treatment Zepbound helped to drive group third quarter sales up 39% to $24.4 billion, as expanding volumes offset lower realised prices.

Adjusted earnings per share came in at $7.48 versus $6.49 pencilled in by analysts.

Management lifted full year guidance for the third time in 2026 and now expects revenues in a range of $91 billion to $92 billion, representing a $5.5 billion upgrade at the midpoint of the range.

The one negative was the weaker than expected launch of Lilly’s oral obesity pill Foundayo, which pulled in sales of $184 million compared with expectations of $216 million.

Chief financial officer Lucas Montarce attributed the shortfall to inventory build, pointing out that excluding this, demand more than tripled.

Foundayo was launched in the US and UK in early 2026 and could begin selling in other European countries by year-end. The focus now shifts to Lilly’s next generation obesity drug Retatrutide which has been shown to drive weight loss of 24% in mid-stage trials.