Global markets brace for AI earnings, central bank signals and U.S. midterm risks

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Global markets brace for AI, risks

Highlights

Alphabet shares fall over 12% and Amazon drops after-hours as both report negative free cash flow and higher-than-expected AI-driven capital spending in Q3.
SK Hynix jumps 13% on a more than sevenfold profit increase, and Anthropic files for IPO with 1,368% year-on-year Q2 revenue growth.
ECB, Fed, and Bank of Japan keep rates unchanged but signal tighter policy, while ECB President Christine Lagarde announces her early February resignation, raising succession uncertainty.

AI spending pressures and policy signals

As reported by Reuters, a recent run of company updates has sharpened Wall Street's focus on how aggressively large technology groups and chipmakers are spending to fund artificial intelligence growth.

That concern builds even after several upbeat developments earlier in the week, including AI-related funding announcements from SpaceX, Meta, Broadcom and Anthropic, which officially files for its IPO on Monday and discloses 1,368% year-on-year revenue growth in the second quarter. South Korea's SK Hynix jumps 13% on Wednesday after reporting a more than sevenfold increase in quarterly profit, while Microsoft posts a strong cash flow beat and a solid outlook for cloud growth.

Sentiment then turns as investors react to signs of mounting cash burn. Alphabet shares fall more than 12% on Thursday after disappointing search advertising results and negative free cash flow, while Amazon drops in after-hours trade after saying it has burnt through $42.4 billion on a trailing 12-month basis in the third quarter, largely because capital spending runs about $20 billion above estimates. Intel also sinks more than 20% after market on heavy spending, weak PC demand and capacity constraints.

Central banks also keep investors busy this week. The Reserve Bank of New Zealand surprises markets by leaving rates unchanged at 2.75% despite expectations for a hike, while the Bank of Canada raises its policy rate by 25 basis points to 2.5% as expected. The European Central Bank, Federal Reserve and Bank of Japan all leave rates unchanged but continue to signal the possibility of tighter policy ahead.

At the ECB, President Christine Lagarde says she will step down in February before the end of her term, reopening questions over succession at a time when France and the wider euro zone face mounting economic pressures. In the U.S., Fed policymakers also hold rates steady and announce that rate-setting meetings will become less frequent next year, a move that aligns with Chair Kevin Warsh's preference for less central bank communication.

In our earlier article on the rising costs and constraints facing U.S. AI data centers, we examined how expensive financing, construction delays, and power limitations are starting to test investor confidence in the AI infrastructure buildout. We also noted that only a minority of planned projects appear truly credible, as cost overruns and local grid and community pressures make it harder to deliver capacity on time and within budget.

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