Weekly Research Briefing: The Most Valuable Player

318 S&P 500 companies (75% of index earnings) have now reported, beating consensus by 6% overall. The beat was helped by solid big Tech results (particularly Alphabet and Amazon) but was also broad-based – 63% of companies beat on both EPS and Revenue, on pace for the healthiest breadth since 2021. 3Q consensus EPS growth (blended measure of actuals & consensus estimates) is now tracking 12% YoY, the fourth consecutive quarter of double-digit growth.

Guidance trends have held up so far in 3Q after improving substantially in 2Q: there were 1.9x more above- than below consensus EPS guides in October, well above the long-term average of 0.8x. Our earnings revision ratio was also strong, with the ratio of upward to downward revisions to 2026 estimates at 1.2x (vs. 0.9x long-term average). We haven’t seen cuts to 4Q25 estimates yet either – still flat since October 1.

Earnings results so far this season have come in above consensus estimates at one of the highest rates on record. 64% of S&P 500 companies that have reported results have beaten consensus EPS forecasts by at least a standard deviation of estimates. In our 25-year data history, this frequency of earnings surprises has been surpassed only during the COVID reopening period in 2020-2021.

@neilksethi: SPX sector breadth last week extremely poor for an up week with just four sectors green and only two (Tech +2.4% and Discretionary +1%) up more than +0.1% as just a few stocks lifted markets last week. That was down from 9 of 11 higher the previous week. And not only were 7 sectors down, but six of them were down more than -1%, four more than -2.5%, and three down more than -3.5% in Staples, Materials, and RE.

As for where earnings stand now, S&P 500 companies’ aggregate forward earnings per share rose to yet another record high during the week of October 30 of $299.61 (chart). It is nearly at the $300 we have been predicting it would reach by the end of this year; clearly, the year-end level will be higher than that. We expect forward earnings to rise to $350 per share by the end of 2026.

• “We are adding capacity at an unprecedented scale. We will increase our total AI capacity by over 80% this year and roughly double our total data center footprint over the next 2 years, reflecting the demand signals we see. Just this quarter, we announced the world’s most powerful AI data center, Fairwater in Wisconsin, which will go online next year and scale to 2 gigawatts alone.” — Microsoft CEO Satya Nadella
• “On the capacity side, we brought in quite a bit of capacity, as I mentioned in my opening comments, 3.8 gigawatts of capacity in the last year with another gigawatt plus coming in the fourth quarter and we expect to double our overall capacity by the end of 2027. So we’re bringing in quite a bit of capacity today, overall in the industry, maybe the bottleneck is power. I think at some point, it may move to chips, but we’re bringing in quite a bit of capacity. And as fast as we’re bringing in right now, we are monetizing it.” — Amazon CEO Andrew Jassy
• “We now expect CapEx to be in the range of $91 billion to $93 billion in 2025, up from our previous estimate of $85 billion...Looking out to 2026, we expect a significant increase in CapEx, and we’ll provide more detail on our fourth quarter earnings call.” — CFO Anat Ashkenazi
• “Our current expectation is that CapEx dollar growth will be notably larger in 2026 than 2025...We currently expect 2025 capital expenditures, including principal payments on finance leases to be in the range of $70 billion to $72 billion, increased from our prior outlook of $66 billion to $72 billion.” — Meta Platforms CFO Susan Li

Expect the importance of revenue revisions to stay high as capex investment rises again… with GOOGL and META both raising ’25 capex guidance. We raise our GOOGL/META ’26 capex by 28%/10%, now modeling $135bn/$115bn of capex in ’26. As shown below, with GOOGL/META/MSFT updated for earnings, we now model data center spend from the 6 largest players to reach $570bn/$664bn in ‘26/’27.

“The challenge here though, is as you said, that we’re limited by power. We’re limited by transforming land. We’re limited by permitting...I heard in the previous session some of the discussions of the trillions of dollars that we’re gonna be spending, which I think is accurate. I’m not sure that we’re gonna be able to cash all those checks. In other words, literally you all have some money. You can’t spend it all as fast as you want. I think that’s going to extend for 3, 4, 5 years.” — Alphabet VP and GM of AI & Infrastructure Amin Vahdat

OpenAI has agreed to pay Amazon.com $38 billion for computing power in a multiyear deal that marks the first partnership between the startup and the cloud company.

The deal, unveiled Monday, will help satisfy OpenAI’s fast-growing computing needs. Amazon expects that all of the computing capacity negotiated as part of the agreement will be available to OpenAI by the end of next year, giving the ChatGPT maker quick access to powerful Nvidia chips housed inside its data centers.

Amazon is under pressure from investors to accelerate the growth of its Amazon Web Services cloud business. AWS is the industry’s largest cloud provider, but rivals such as Microsoft and Google have reported faster cloud-revenue growth in recent years after capturing new demand from artificial-intelligence customers.

$NVDA CEO: NVIDIA's real moat lies in CUDA, not just GPUs: “This is the treasure of our company. Most people talk about the GPU. The GPU is important, but without a programming model that sits on top of it, and without dedication to that programming model, keeping it compatible over generations. We’re now at CUDA 13, coming up, CUDA 14. hundreds of millions of GPUs in use, running in every single computer, perfectly compatible. If we didn’t do that, then developers wouldn’t target this computing platform. If we didn’t create these libraries, then developers wouldn’t know how to use the algorithm and use the architecture to its fullest, one application after another. This is really the treasure of our company."

Caterpillar Inc., the company synonymous with yellow bulldozers and mining trucks, is getting a boost from another type of machinery. Power generators and turbines, which keep data centers running, have become a dominant driver for the company as demand for artificial-intelligence infrastructure takes off globally. Caterpillar told investors on Wednesday that sales of those products jumped 31% in its latest quarter, trouncing sales growth for its more traditional equipment.

The stock surged as much as 14%, to a record high.

It’s an example of how the AI fervor that’s fueled Nvidia Corp.’s rise to become the world’s first $5 trillion company is also lifting the fortunes of more traditional industrial players…

For Caterpillar, the boom in data center construction has transformed a once-sleepy segment of its business. Its so-called Energy & Transportation unit, which sells generators and related machinery, used to lag the firm’s other two divisions. But now that unit, which also sells equipment to oil producers and rail services, has become the company’s largest and fast-growing, accounting for about 40% of the firm’s total revenue last year.

There’s one key difference between the AI players of today and the dot-com names of two decades ago: The leaders of this market are making plenty of money. Both Meta and Alphabet reported record revenues this past week.

But all the AI spending is starting to take a toll: The 12-month cumulative cash flow for Meta, Alphabet, Microsoft, Apple and Amazon has dropped in the past couple of years.

• “U.S. payments volume was up 8%...reflecting resilience in consumer spending...we saw a broad-based strength, including improvements in retail services and goods, travel and fuel. Both discretionary and nondiscretionary spend were up from Q3. And growth across consumer spend bands remained relatively consistent with Q3 with the highest spend band continuing to grow the fastest.” Visa CFO Christopher Suh
• “We continue to see healthy consumer and business spending in the quarter with the macroeconomic environment still generally supportive..What we’re seeing is continued steady growth, both across affluent and mass market, through in the U.S. through across the globe. So overall, the consumer continues to spend. And really, everything we’re seeing so far is manifesting itself in the drivers which we’re talking about right here.” Mastercard CFO Sachin Mehra

“When we got into September, we began to see macro-related deceleration… in the US & in Europe… a relatively consistent no. of checkout transactions, but basket sizes or avg order value decreased, particularly in retail & this behavior has continued into October”

"Our fourth quarter guide assumes some deceleration in branded checkout growth relative to our Q3 average… we are planning prudently given recent spending trends and the uncertain macro backdrop.”

Chipotle CEO – “Earlier this year, as consumer sentiment declined sharply, we saw a broad-based pullback in frequency across all income cohorts. Since then, the gap has widened with low to middle-income guests further reducing frequency. We believe that this guest with household income below $100,000 represents about 40% of our total sales. And based on our data, is dining out less often due to concerns about the economy and inflation. A particularly challenged cohort is the 25 to 35-year-old age group. We believe that this trend is not unique to Chipotle and is occurring across all restaurants as well as many discretionary categories. This group is facing several headwinds, including unemployment, increased student loan repayment and slower real wage growth"

Bookings CFO: "“In the U.S., we continue to see slightly lower ADRs and a shorter length of stay versus the prior year, which may indicate that some U.S. consumers are continuing to be thoughtful on their discretionary spending." $BKNG

@carlquintanilla.bsky.social: It’s getting easier to find a hotel room. “.. occupancy in the four weeks to October 25 has undershot its level a year ago by 1.8pp, much worse than the 0.6pp shortfall in the first nine months of this year.”

Hundreds of travel businesses, including casinos, hotels and convention bureaus, are asking Congress to end the monthlong government shutdown by immediately passing a straightforward spending bill, citing worries about the holiday travel season…

The travel-industry letter was signed mostly by small businesses and groups that promote travel. But it was also signed by giants including MGM Resorts International, Hilton, Omni Hotels and Resorts, Delaware North and the Las Vegas Convention and Visitors Authority.

The busiest air-travel day last year was the Sunday after Thanksgiving, with more than three million travelers in the skies, according to data from the Transportation Security Administration. Travel plans are typically locked in far in advance, causing anxiety about whether travelers will be willing to make plans with the uncertainty of the shutdown in the background.

“A continued shutdown is likely to significantly suppress travel demand and spending, creating a real threat to American workers, businesses, and the overall economy,” the letter said.

The partial shutdown of the federal government looks likely to last longer than any prior shutdown, mainly because there is little political pressure to end it. A greater share of the public holds Republicans and President Trump responsible for the shutdown, putting little pressure on Senate Democrats to support a “clean” continuing resolution to end the shutdown, which they have so far opposed…

However, signs are emerging that the end of the shutdown might be approaching. Missed air traffic controller and airport screener pay on Oct. 28 raises the odds of air travel delays, particularly ahead of a second pay date Nov. 10. The failure to pay food stamp benefits on time from Nov. 1 might pressure lawmakers to reach a solution, though a recent court ruling looks likely to lead to a partial resumption. Passing political milestones—the Nov. 1 opening of enrollment in ACA plans for 2026 and the Nov. 4 elections in several states—might also open a window for political compromise that doesn’t yet exist. The congressional recess that begins after Nov. 7 might also provide lawmakers with motivation to reach a deal. While unpredictable, our current expectation is that the shutdown is most likely to end around the second week of November.

A report from outplacement firm Challenger, Gray & Christmas showed almost 950,000 US job cuts this year through September, the highest year-to-date total since 2020—and that was before the heavy October run of announcements. (Excluding that first year of the Covid-19 pandemic, US job cuts in the first nine months have already surpassed full-year layoffs for every year since 2009.) When something is almost the worst since the Great Recession, North says, “that’s not a very encouraging number.”

US corrugated box shipments fell to the lowest third-quarter reading since 2015, maintaining the more measured pace seen in the previous quarter, according to Friday data from industry group Fibre Box Association. Packaging companies in recent weeks have warned that economic uncertainty is weighing on retailers and consumers.

Shipments of corrugated cardboard — the material used to package goods shipped to and from retailers, and for elaborate store displays — can serve as a demand indicator for food and consumer goods. This time of year is crucial for the box industry, with shipments typically peaking in October as retailers prepare for the holidays.

Box plants surveyed by Bloomberg Intelligence said orders were flat or below normal in October, while US consumer sentiment fell to a five-month low and manufacturing activity dropped for an eighth straight month.

“We’re not getting a lot of lift, obviously, from the economy,” Packaging Corp of America President Thomas Hassfurther said last month. “And these starts and stops that we’ve seen consistently go on throughout the year relative to tariffs and a bunch of other things certainly are impacting the business.”

@KevRGordon: Nine mentions of tariffs in October's ISM Manufacturing PMI comments section

We think there is overwhelming evidence that tariffs have pushed inflation higher for consumers. In total, we estimate tariffs account for about 30-50bp of core PCE inflation which we estimate to be 50-70% of the total tariff cost to date. This suggests tariffs can continue to put upward pressure on inflation in coming months, especially since the effective tariff rate should climb further.

The clearest sign of tariff costs being passed onto consumers is the recent change in goods prices, in our view. Based on the September CPI report, we estimate core goods PCE prices rose by 0.2% m/m. If our forecast proves correct, core goods PCE will have risen by 1.3% over the past year and 2.2% annualized since March, compared to a decline of 0.3% y/y in September 2024. The increase has been mostly driven by supply side factors, providing further evidence of tariffs being the culprit (Exhibit 1). A simple comparison of core goods PCE inflation against a linear trend based on 2024 data also shows core goods PCE is 1.8% above its trend (Exhibit 2).

First Cash beats, raises "full year revenue growth expectations in the U.S. and Latin America" and authorizes new $150M share repurchase plan. "We continue to experience extremely strong pawn demand across all markets..."

FCFS Additional analysis/commentary. “The U.S. pawn segment has now posted nine consecutive quarters of double-digit same-store pawn loan increases...", "Demand for our products and services in each pawn segment are at record levels..."

“In the committee’s discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion; far from it. Policy is not a preset course.” — Federal Reserve Chair Jerome Powell

There isn't much juice from lower mortgage rates. Over the last 20 weeks, mortgage purchase applications are essentially flat even though the 30-year fixed rate mortgage has declined roughly 60 basis points. To get purchase demand up, mortgage rates need to decline much more.

• Kimberly-Clark (KMB) has agreed to buy Kenvue (KVUE) for more than $40 billion, combining the maker of Huggies diapers with the owner of Tylenol in one of the biggest takeovers of the year. In the cash-and-stock deal, Kimberly-Clark will pay $21.01 a share, compared with a closing price of $14.37 on Friday. Kimberly-Clark said the deal, including debt, has a total value of $48.7 billion. The combination would create a global health-and-wellness company with annual revenues of approximately $32 billion and 10 billion-dollar brands, including Kimberly-Clark’s household staples such as Kleenex tissues and Cottonelle toilet paper and Kenvue’s products such as Tylenol and Listerine mouthwash.
• Skyworks Solutions (SWKS) and Qorvo (QRVO) agreed to merge in a cash-and-stock deal that values the combined radio frequency, analog, and mixed-signal semiconductor maker at around $22 billion. Qorvo shareholders will receive $32.50 in cash and 0.96 Skyworks common shares for each Qorvo share. When the deal closes, Skyworks stockholders will own 63% of the business and Qorvo shareholders will own the remaining 37%. The move will combine two of the primary suppliers for components in Apple’s iPhones.
• Life sciences group Thermo Fisher (TMO) has sealed an all-cash takeover of drug trial software maker Clario in a deal that values the technology group at up to $9.4bn. The acquisition gives Thermo Fisher access to a platform that is playing a critical role in managing the clinical data essential to drug trials. Clario’s software has been deployed across 26,000 trials playing a role in 70 per cent of US drug approvals.
• Eaton Corp. (ETN) agreed to buy liquid cooling specialist Boyd Thermal for $9.5 billion to capitalize on heavy demand related to artificial intelligence data centers. Eaton, a more than century-old power management company, is acquiring the Boyd Corp. unit from Goldman Sachs Asset Management. Eaton’s purchase price represents 22.5 times Boyd Thermal’s estimated adjusted EBITDA for 2026, the company said.
• Novo Nordisk (NVO) on Thursday launched an unsolicited bid valued at up to $9 billion for obesity-drug developer Metsera (MTSR), hoping to top the deal Pfizer (PFE) reached last month and teeing up a potential legal battle for the biotech company. The Danish maker of blockbusters Ozempic and Wegovy, said it offered $56.50 a share in cash for Metsera, with the potential for another $21.25 a share if certain milestones are reached.
• Coeur Mining Inc. (CDE) agreed to acquire New Gold Inc. (NGD.cn) for about $7 billion in an all-stock deal that consolidates two midsize North American gold producers as surging bullion prices have reignited investor interest in the sector. The deal marks the largest takeover between gold producers in 2025 and follows this year’s record-breaking rally for the metal, with prices soaring above $4,000 an ounce.
• CompoSecure, Inc. (CMPO), a metal payment cards, security, and authentication solutions provider, announced on Monday announced a combination with Husky Technologies Ltd., a maker of engineered equipment, for enterprise value of $5 billion. The combination will be valued at approximately $7.4 billion. This acquisition is being funded through a private placement of around $2 billion and an equity rollover of approximately $1 billion from Platinum Equity.
• Japan’s NEC Corp. (6701.jp) is buying CSG Systems International Inc. (CSGS), a US supplier of customer care and billing services for telecom companies, for around $2.9 billion in a move to shore up operations abroad. CSG stockholders will receive $80.70 per share in cash, the Tokyo-based industrial electronics group said Wednesday. That represents a roughly 17% premium to CSG’s last closing price of $68.75.
• SM Energy (SM) and Civitas Resources (CIVI) said on Monday they will merge in a $12.8 billion deal, including debt, to create one of the largest independent U.S. oil producers with a commanding footprint in the Permian Basin. Civitas shareholders will get 1.45 shares of SM Energy for each Civitas share, giving them about 52% ownership of the combined company. The offer values Civitas at $30.29 per share, about a 5% premium to its closing price on October 31, for an equity value of $2.81 billion.
• Bending Spoons, one of Europe’s largest mobile app developers, announced on Wednesday that it has agreed to buy AOL from Yahoo, which is backed by private equity giant Apollo. Bending Spoons says it has secured a $2.8 billion debt financing package to support the purchase.
• American International Group Inc. (AIG) agreed to buy stakes in specialty insurer Convex Group and alternative asset manager Onex Corp. in transactions that total more than $2.7 billion. AIG is taking a 35% stake in Convex for $2.1 billion and a 9.9% interest in Onex for about $646 million, according to a statement Thursday. AIG will also invest $2 billion over three years in Onex funds.
• Jamf said it agreed to be acquired by Francisco Partners in an all-cash deal valued at approximately $2.2 billion. Under the terms of the agreement, Francisco Partners agreed to purchase all of Jamf’s outstanding shares for $13.05 apiece, Jamf said Wednesday. The price represents a roughly 50% premium over Jamf’s volume-weighted average closing share price for the 90 days prior to Sept. 11, the Minneapolis company said Wednesday. Jamf, which helps organizations manage and secure Apple products at work, said going private will provide greater financial flexibility, allowing the company to accelerate growth as well as expand both organically and inorganically.
• BP Plc (BP) agreed to divest stakes in US shale assets to Sixth Street for $1.5 billion as it seeks to shore up its balance sheet and win back investor confidence. Funds managed by the US investment firm will purchase non-controlling interests in the Permian and Eagle Ford midstream assets.
• Vertiv (VRT) announces Intent to Acquire PurgeRite, a leading provider of mechanical flushing, purging and filtration services for data centers and other mission-critical facilities, from Milton Street Capital LLC for approximately $1.0 billion in cash consideration at closing plus the potential additional consideration of up to $250 million in cash based on achieving certain 2026 performance metrics. The acquisition, at approximately $1.0 billion purchase price, represents approximately 10.0x expected 2026 EBITDA including expected cost synergies.
• State Street Corp.’s (STT) asset-management arm acquired a minority holding in Coller Capital to tap the growing market for secondhand stakes in private markets. The firms announced the deal Monday in a statement that didn’t disclose the amount of the investment. The proceeds will be reinvested in Coller’s business and won’t affect the firm’s day-to-day management.  “Secondaries and private markets represent an important and growing opportunity,” State Street Investment Management Chief Executive Officer Yie-Hsin Hung said in the statement.

The relationship between Sheridan and Ellison’s team quickly went south, the people close to the producer said. A film script Sheridan pitched was rejected by the new team at Paramount’s movie studio. Sheridan felt disrespected, especially given that he had a solid movie record, having written “Sicario” and “Hell or High Water,” the people close to him said.

Ellison also suggested ideas to Sheridan, such as a series tied to America’s 250th anniversary, the people familiar with the matter said. While Sheridan’s shows about tough men contending with a changing world appeal to red-state audiences, he did not want to get overtly political.

Sheridan was particularly aggrieved when the budget on his Paramount+ show “Lioness,” a spy series starring Zoe Saldana and Nicole Kidman, was challenged. A person familiar with Paramount’s thinking acknowledged they are looking at budgets differently than previous management.

Further irking Sheridan: Paramount tapped Kidman to star in a new Paramount+ legal drama called “Discretion” without telling him, one of the people familiar with the matter said, a decision that could impact the timing of shoots for the show.

After several meetings with Ellison and other company leaders, Sheridan’s team decided to begin talks for a new producing home, people familiar with the matter said. They met with Warner Bros. Discovery and Comcast’s NBCU, people with knowledge of those discussions said.

A final agreement was quietly reached earlier this month.