CNBC Daily Open: Capex is the number to look at amid Big Tech earnings

The Federal Reserve implemented an expected 25 basis point rate cut, yet Chair Powell's tempered outlook on future reductions dampened market sentiment, pushing stocks lower and Treasury yields higher. Simultaneously, Alphabet, Meta, and Microsoft all reported stronger-than-expected earnings, with Alphabet's revenue surpassing $100 billion. Crucially, these tech leaders significantly raised their capital expenditure forecasts for 2025 and 2026, underscoring aggressive, sustained investment in AI infrastructure driven by robust demand, a trend also reflected in Nvidia's market capitalization exceeding $5 trillion.

Analysis

The U.S. Federal Reserve reduced its benchmark interest rate by 25 basis points to a range of 3.75%-4%, aligning with market expectations. However, Chair Powell's caution regarding a December cut, previously priced in with over 90% certainty, tempered market sentiment, leading to lower stock prices and higher Treasury yields. This indicates a more hawkish stance than market participants had fully embraced, introducing uncertainty into future monetary policy expectations.

In contrast, major tech firms Alphabet, Meta, and Microsoft reported strong Q3 earnings, all surpassing analyst expectations on both revenue and EPS. Alphabet notably achieved its first-ever quarterly revenue exceeding $100 billion. This robust performance was underpinned by significant upward revisions in capital expenditure forecasts for 2025 and 2026, signaling aggressive, sustained investment in AI infrastructure.

Alphabet raised its FY2025 capex estimate to a range of $91-$93 billion from $75-$85 billion, with further significant increases expected in 2026. Meta hiked its low-end guidance to $70 billion from $66 billion, while Microsoft's Q1 capex reached $34.9 billion, exceeding its $30 billion estimate. This collective commitment to substantial AI-driven capital spending, alongside Nvidia's market cap surpassing $5 trillion, confirms that AI demand is a powerful, enduring growth driver for the tech sector, deferring immediate "bubble" fears.

Key Decisions for Investors

• Monitor Federal Reserve communications closely for shifts in forward guidance, as Chair Powell's recent remarks suggest a less aggressive easing path than previously anticipated by markets.
• Evaluate exposure to Big Tech companies (GOOGL, META, MSFT) given their strong earnings, significant AI-driven capital expenditure commitments, and positive per-ticker sentiment, indicating continued growth potential in AI infrastructure.
• Consider the long-term implications of sustained, high-level AI investment across the tech sector, which could benefit AI pure-plays like NVDA and related ecosystem providers, while also assessing potential supply chain beneficiaries.