Tech Stumbles on Amazon and Intel as Energy Flexes Cash

Grant Calloway

Welcome to the Bull Sheet, your Markets Daily brief. Yesterday we left a question hanging: Amazon was reporting after the bell, and Alphabet was already wearing its free cash flow anxiety on its sleeve. Well, the verdict is in. And the market isn't buying the story. It's sending the bill.

Grant Calloway

Here's the headline. Amazon and Intel both reported Thursday evening, and the tech tape is tighter than a drum, in the wrong direction. Per CNBC, Nasdaq 100 futures were down about 2 percent early this morning, S&P 500 futures off roughly nine tenths of a percent, and Dow futures about flat. Same market, two completely different mornings.

Grant Calloway

Start with Amazon. Third quarter sales rose 12 percent to 201.9 billion dollars, a hair under the Bloomberg consensus of 202.25 billion. Earnings were 1.89 a share against 1.97 expected. Amazon also noted Prime Day moved into the second quarter this year, which it says would have added about 400 basis points to third quarter growth. Now, the cloud side was strong. AWS grew 39 percent to 46 billion dollars, its fastest pace in nearly five years, a 184 billion dollar run rate. Andy Jassy said AWS growth should top 40 percent in both 2027 and 2028.

Grant Calloway

So what's the problem? Cash. Over the trailing twelve months, Amazon's free cash flow was an outflow of 42.4 billion dollars, compared with an inflow of 14.8 billion a year ago. Amazon says that's driven by a 94.8 billion dollar jump in spending on property and equipment, mostly artificial intelligence. Fourth quarter operating income guidance has a midpoint of 31 billion, under the roughly 33 billion analysts wanted. The stock was down somewhere between 6 and 7 percent in the premarket.

Grant Calloway

Then Intel, which got it worse. The chipmaker guided fourth quarter revenue to 15 to 16 billion dollars, against about 17.1 billion expected per LSEG. Its CFO, David Zinsner, said the PC slowdown should continue at least through the first half of next year. The stock was down about a quarter before the open. And the selling didn't stop with the companies that reported. Arm, AMD, Micron, Qualcomm, Broadcom and Nvidia were all lower, and most of them had put out no news since Thursday's close. When the stuff that didn't report is falling too, that's not a stock story. That's a sentiment story.

Grant Calloway

The overnight tape says the same thing. In Asia, the Nikkei closed down 2.12 percent, with Tokyo Electron and Advantest sliding. South Korea's KOSPI dropped 3.48 percent, the Hang Seng fell 1.46, and Shanghai gave up 1.44. In Europe, the Stoxx 600 Technology index slid 1.9 percent, and the DAX was down around three quarters of a percent. The FTSE 100 held roughly flat, and energy helped it do that.

Grant Calloway

Across assets: the 10 year Treasury yield is around 4.92 percent, a few basis points lower on the morning, with the 2 year near 4.58. West Texas crude is up more than 2 percent above 104 dollars a barrel, and Brent is somewhere between 113 and 117 depending on your screen, with Middle East supply disruptions still in the picture. Gold is back under 4,000 dollars an ounce. Bitcoin is around 77,300, off a bit after reports of a large security exploit at Binance.

Grant Calloway

Now the movers, and I promise this isn't only a tech show. Over in energy, the other half of the story: ExxonMobil is up about 2 percent and Chevron about 1 percent after both reported. Exxon posted adjusted earnings of 4.23 a share against 4.12 expected, announced a 20 billion dollar buyback, and raised its dividend. Chevron came in at 5.28 a share, with refineries running at 98 percent utilization.

Grant Calloway

In staples, Mondelez is up nearly 7 percent on higher volumes and a held forecast, and Colgate is up around 3 percent after raising its earnings outlook. In healthcare, it's split. BrightSpring is up about 6 percent after raising guidance, but Stryker is down about 10 percent after its CEO said the quarter fell short of the company's expectations, and Alignment Healthcare is off nearly 11 percent after cutting its profit forecast on higher medical costs. In real estate finance, Arbor Realty is down about 24 percent after a quarterly loss and a suspended dividend. And ADT is holding yesterday's gain of about a third on that cash buyout from Thrive Holdings.

Grant Calloway

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Grant Calloway

Now, the segment this show is named for. Bull versus Bear, and the question is the one the tape is asking this morning. Is Amazon's spending a moat, or is the market right to run toward cash-rich companies that actually hand the money back? I'll take both sides, then tell you where I land.

Grant Calloway

The bull case first. AWS grew 39 percent on a run rate of 184 billion dollars. That's not a startup, that's a giant accelerating. Jassy says growth above 40 percent in 2027 and 2028. Operating income hit 28.1 billion dollars, with a record operating margin of 13.9 percent. Negative free cash flow here isn't a leak, it's a building program. Analysts like Dan Ives argue a 39 percent print plus that guidance is a stronger answer than the quarter alone. If the capacity fills, today's spending looks cheap in hindsight.

Grant Calloway

Now the bear. Fine, the cloud is growing. But the company missed on sales and earnings, guided fourth quarter profit under consensus, and burned 42 billion dollars over the year. Reports put long term debt up more than threefold, to around 173 billion, and full year capital spending near 220 billion. Yields are sitting near 5 percent on the 10 year, so borrowing isn't free anymore. Meanwhile Exxon is paying down debt, raising its dividend, and buying back 20 billion in stock. One side is promising returns later. The other is writing checks today.

Grant Calloway

Here's the rebuttal to each. To the bear: spending 94 billion more on equipment is exactly what a company does when it believes demand is real, and Amazon's own numbers say demand is real. To the bull: a growth rate doesn't pay interest. And one more caution. Oil is at these levels because of supply disruption, and that's not a permanent condition. I've traded through two crashes, and the thing I learned is that the market punishes uncertainty first and sorts out the facts later. Where do I land? The AI build may well work, but until the cash shows up, the market gets to demand a bigger discount. I wouldn't call that the end of the story. I'd call it a repricing, and repricings make bargains and traps in roughly equal numbers. Do your homework.

Grant Calloway

On deck. The Employment Cost Index came out at 8:30 Eastern, showing compensation costs up 0.8 percent for the quarter, a touch under the 0.9 percent consensus. That's a mild read on wages. At 9:45 Eastern, Chicago PMI, with consensus at 56.0 versus 58.8 last time. On earnings, Exxon, Chevron, AbbVie, Colgate and Charter Communications were scheduled before the open, and the docket after the close is quiet heading into the weekend.

Grant Calloway

What matters most today: whether Thursday's tech selloff is a one day flush or the start of a bigger rotation toward cash flow, with oil and yields as the swing factors. A market that falls two percent on the Nasdaq usually isn't finished explaining itself. We're back Monday at seven. And remember, this podcast is for educational purposes only and is not investment advice.