Good morning. For two years the question about AI spending was whether the biggest buyers could afford it.
Overnight, one of them answered by selling stock to investors. Meta sold more than it first offered, and one of the companies selling it chips has said it will be among the buyers.
Across the border, a supplier said next year's sales could nearly double. Our call is on whether the market keeps paying for it.
Meta's raise suggests AI spending has outgrown cash flow, and the stock market is now part of the funding plan
Meta Platforms priced $25 billion of common stock at $625 a share, upsized from $22.5 billion, plus $12.5 billion of mandatory convertible preferred paying 6.5%. Nvidia (NVDA) said it will invest $3 billion, about 8% of the $37.5 billion total.
Meta (META) fell 1.9% on Monday while the Nasdaq 100 fund (QQQ) rose 1.1%. Before the open it was quoted near $628, about 0.5% above the offer price.
The mechanism is a cash gap. Meta expects $135 billion to $145 billion of capital spending this year. Its operating cash flow was $97 billion through September, a pace of about $129 billion. It also ended September with about $82 billion of cash and securities. The common shares are sold forward, so cash arrives only when Meta settles, as late as November 2027. The preferred brings in cash when the deal closes Thursday and costs about $813 million a year in dividends.
That 6.5% dividend sits well above the 10-year Treasury near 4.99%. The Fed decides Wednesday after hiking in September. Polymarket's no-change contract was near 92.5 cents this morning. The Treasury buys back up to $6 billion of long bonds this afternoon, after a $70 billion five-year auction. Meta is asking for capital in a crowded week.
The money is already landing. Celestica (CLS), which builds data-center hardware, was quoted about 15% above Monday's $246.40 after its 2027 outlook. What would change the read is Meta closing below $625, which would say buyers want a lower price for more paper. Microsoft and Alphabet report spending plans Wednesday, Amazon on Thursday.
The call is that the market keeps financing the buyer and paying the supplier today. Expect Meta to close at or above its $625 offer price. Expect Celestica to close more than 10% above Monday's $246.40, above $271.04. Position for an AI trade that now runs through capital markets, not just cash flow.
How confident are you that this call holds by the close? Slide 0 to 100. We publish the reader average against the outcome in tonight's Verdict.
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Monday's gain was narrow. The S&P 500 fund rose 0.7%, and the equal-weight version rose about half as much. Six of the 11 sector funds sit above their 50-day averages. The chip fund (SOXX) rose 2.9%, ahead of every sector fund, while communication services (XLC) fell as Meta dropped 1.9% and Alphabet (GOOGL) 1.1%.
The group worth your attention is the chip supply chain, because the money is not reaching every link at once. Cadence booked a record $8.2 billion backlog and raised its growth forecast to 21%, while Amkor, which packages chips, guided flat with gross margins of 18% to 19%. Amkor (AMKR) fell 6.3% on Monday, before its results, and was indicated about 3% higher this morning. Cadence (CDNS) was indicated about 2% higher. Wednesday's hyperscaler spending plans test whether orders broaden.
Do not treat "AI supplier" as one trade. Cadence and Celestica raised their forecasts. Amkor is spending on customer commitments, but its outlook is flat. Read each supplier's guidance line before its headline beat.
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Spread of the day. The gold-to-Brent ratio, the barrels one ounce of gold buys, was about 35.2 this morning, up from 34.9 on Monday's settles. Most of the rise came from oil falling, not gold climbing. On the two contracts' 50-day averages it is about 42.8. Through Oct. 23, bitcoin and gold were the two worst of 21 major asset classes in one widely followed table. That article suggests the common thread may be rates, since a hiking Fed raises the cost of holding assets without a yield.
Saudi Arabia contained a fire near its Ras Tanura export terminal after an attack in the region, Bloomberg reported, citing a person with knowledge. Brent touched its overnight high near $116.90 around that report, then gave the gain back and more. On Monday, a delayed report of an Oct. 23 tanker strike in Hormuz circulated as Brent settled 0.8% lower at $115.81. Polymarket's contract on the Iran ceasefire holding through Oct. 31 was about 93.5 cents this morning, up from 86.5 cents on Monday afternoon.
Oil gave back its early pop and appears to be weighing the talks more than the incidents, while gold is not acting as a war hedge. That suggests the rate path may be doing more of the pricing than the war. A settle above 35.5, with gold near $4,060 doing the lifting, would suggest hedging demand is coming back.
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Click here to view his latest warning →The signal. Celestica gave a 2027 revenue outlook of $40 billion, roughly 90% above its raised 2026 forecast of $21 billion. It said customers' 2028 forecasts are "meaningfully higher." It also cut its 2026 free-cash-flow target to $460 million from $600 million, to invest working capital for 2027 growth.
So what. This is where the Setup's money lands. Some of it now circles back, since Nvidia has committed to buy equity in a customer that buys its hardware. Private credit is in the chain too. SpaceX's filing shows a commitment to a roughly $40 billion chip lease with an Apollo-managed lessor, subject to closing conditions. The boom has also reached official data. China's industrial profits rose 14.4% in September, with electronics profits more than doubling in the first nine months, and Korea grew 1.0% last quarter. That strength depends on a small group of buyers.
Frontier watch. Three things still to come. Microsoft and Alphabet spending plans on Wednesday, after the Fed, and Amazon's on Thursday. Whether AMD and Broadcom (AVGO) join Nvidia as Meta buyers. And when Meta settles its forward contracts, which is when new shares actually arrive.
The tell. Amkor's close against Monday's $36.81. Above $38.65, the money is reaching the packaging tier. Below $36.81, the market is paying order books, not labels. Between them, undecided. Monday's tell resolved as a shrug, with CoreWeave closing at $55.19, above $54.24.
Exposed. META, NVDA, AVGO, CLS, CDNS, AMKR
Forget forecasts. When a company you own sells new shares, what do you usually do?
Buy more | Hold | Trim | Not my market
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