TSMC Beats, Tech Breaks: The AI Debt Test

Grant Calloway

Yesterday we left you with a question: could hot inflation, surging oil and rising yields derail this tape? Well, the tape answered, and not the way anyone drew it up. Oil is sitting near ninety five dollars and yields are actually down. It's tech that cracked, and it's cracking for a second straight day. Welcome to the Bull Sheet.

Grant Calloway

Let's start with the headline. The global technology selloff is rolling on, and the strangest part is the timing. Taiwan Semiconductor, the biggest contract chipmaker on the planet, just reported third quarter revenue of about forty six point seven billion dollars, up 41.2% from a year ago. Earnings per share came in at four sixty, gross margin hit 66.4%, and high performance computing was 68% of sales. The company said there's, quote, no ceiling for its profitability. And the market looked at all that and sold anyway.

Grant Calloway

Why? Two things collided. First, the September producer price index just crossed the tape, and total demand jumped 1.3% for the month. Per the Journal, that's the biggest monthly gain since early 2022, and it blew past forecasts. It lands right on top of yesterday's 3.7% CPI print. Rate hike fears are back on the table. Second, the AI buildout's debt is under the microscope. CoreWeave, the cloud company that borrowed heavily to fund data centers, fell 15% yesterday and is sliding further premarket. One report has its bond yields approaching 15%. Oracle is lower too. That's not a rounding error. That's the bond market charging a premium for the debt behind the AI story.

Grant Calloway

Now the tape. Overnight Asia took the brunt. South Korea's Kospi, which is loaded with chip stocks, fell somewhere between 7% and nearly 9% depending on the print you're looking at. Samsung and SK Hynix were each down more than 9% at one point. Japan's Nikkei dropped almost 5%. Shanghai lost about 1.6%, and the Hang Seng is down about 1.4%. Europe's holding up far better. The Stoxx 600 is up a hair, while Germany's DAX is off about half a percent.

Grant Calloway

Stateside, the futures are split like a rail fence. Nasdaq 100 futures are down about 1.25%. S&P 500 futures are off about 0.3%, near 7,750. Dow futures, meanwhile, are up about 0.46%, near fifty two thousand. That's the old economy holding the line while the new one takes its lumps.

Grant Calloway

Cross asset, here's the twist. The ten year yield is about 5.07%, easing back from where it spiked after yesterday's CPI, because money is running to safety. Gold is up about 1.5%, near forty one seventy an ounce. The dollar index is a touch lower at 97.40. WTI crude is flat near ninety five. Bitcoin is down about 1.5%, around eighty five hundred shy of... excuse me, around eighty thousand five hundred. And the VIX is up to 17.47, which is nervous, not panicked. Yet.

Grant Calloway

Movers, and let's leave the Nasdaq out of it for a minute. Charles Schwab reported revenue of about seven point one seven billion, up 16.9%, in line with estimates. Adjusted earnings of a dollar sixty nine beat by three cents. Clients opened 1.2 million new brokerage accounts and brought in one hundred ninety billion dollars in core net new assets. And the stock's down about 1.6% premarket, because a beat that's merely good doesn't pay the rent on a stock that already ran.

Grant Calloway

PNC beat on adjusted earnings, five oh nine against four ninety eight, but revenue and net interest income came in light, and net interest margin was 2.9% against 3% expected. Tangible book value missed too. Shares are off about 1% premarket. Prologis, the warehouse landlord, posted a beat and updated its full year guidance, and the shares are trading higher. It also has a growing data center business, so the AI story does reach into real estate. And CoreWeave, as we said, is lower again.

Grant Calloway

A quick word from our sponsor. Jellypod turns your ideas into podcasts like this one, and if you've ever wanted a show of your own, head to jellypod.com. Now, back to the bell.

Grant Calloway

Time for Bull versus Bear. The question: does a hot PPI plus fifteen percent debt yields mean the fever has broken, or is the engine still intact? Let me give you the bull first.

Grant Calloway

The bull says look at the work being done, not the price being paid. TSMC is growing revenue 41% with a 66% gross margin. That's not hope, that's cash. Schwab pulled in a hundred ninety billion dollars of new assets in one quarter. And the plumbing worked: when stocks sold off, buyers rushed into Treasuries, and the ten year yield came down instead of blowing up. That's markets absorbing a shock, not freezing. The bull says this is a repricing of leverage, not a collapse of demand.

Grant Calloway

The bear says hold on. When the most important chip supplier in the world posts numbers like that and Korea still falls seven percent or more, you don't have a fundamentals problem, you have a psychology problem, and psychology is hard to fix with a press release. A 1.3% jump in producer prices means costs are heading downstream, right when borrowing costs bite. CoreWeave's debt yield near fifteen percent says the data center buildout may be hitting a refinancing wall. And PNC's margin miss says higher rates are squeezing the banks too.

Grant Calloway

Where do I land? I've traded through two crashes, so I'm allergic to anyone who's sure. But I'll concede the bear's best point: good news not lifting prices is a message, and you ignore it at your peril. The bull's best point is the Treasury bid. Panic usually breaks the bond market first, and the bond market is behaving. One more thing. TSMC's numbers are a report on the past quarter. The bond yields are a vote on the next five years. Today, the vote's winning. Whether it keeps winning is the whole game, and it's unresolved.

Grant Calloway

On deck. The producer price number is out, but at 8:30 Eastern we also get September retail sales and core retail sales, weekly jobless claims, and the Philadelphia Fed manufacturing index for October. Cleveland Fed President Beth Hammack speaks at 8:30 as well, and after yesterday and this morning's prints, listen for any rate talk. Crude oil inventories come at noon Eastern.

Grant Calloway

Earnings before the bell: Schwab, PNC and Prologis, plus BNY, U.S. Bancorp, First Horizon, Commercial Metals and ManpowerGroup. After the close: Interactive Brokers, J.B. Hunt, Alcoa and WaFd. That's banks, trucks and aluminum, a handy read on the real economy while tech sorts itself out.

Grant Calloway

What matters most today: whether retail sales confirm a consumer still spending into this inflation, and whether the bond market keeps its nerve if tech keeps falling. A tape tighter than a drum tends to snap one way or the other, and the opening bell, those greatest four hundred milliseconds in capitalism, will tell us which. Truist and Travelers report tomorrow, so join us then. This podcast is for educational purposes only and is not investment advice.