Big bank earnings, Broadcom's OpenAI chip deal, record-high car prices and more in Morning Squawk

Broadcom shares surged following a custom AI chip partnership with OpenAI, a deal potentially worth $10 billion that positions OpenAI as a chipmaking competitor. Concurrently, major financial institutions including JPMorgan Chase and Goldman Sachs reported robust Q3 earnings, with JPMorgan achieving record trading revenue. Geopolitical tensions escalated as China's tightened rare earth export controls fueled U.S.-China trade disputes and boosted U.S. rare earth miners, while persistent Houthi threats continue to deter Red Sea shipping. Domestically, the U.S. auto market reflects a 'K-shaped' economy, with new car prices hitting record highs amidst near-record subprime auto loan delinquencies.

Analysis

Broadcom (AVGO) announced a significant custom AI chip partnership with OpenAI, leading to a nearly 10% surge in its shares, despite a subsequent 3% premarket pullback. This collaboration, involving 10 gigawatts of AI accelerators, positions OpenAI as an emerging competitor in the chipmaking sector against hyperscalers. The deal underscores intensifying demand for specialized AI hardware and contributed to broader upside in other chip stocks.

Major financial institutions reported robust third-quarter earnings, signaling strength in the banking sector. JPMorgan Chase (JPM) notably exceeded expectations with a record $9 billion in trading revenue, while Goldman Sachs (GS), BlackRock (BLK), Wells Fargo (WFC), and Citi (C) also surpassed analyst projections. These strong results indicate resilience and effective capital deployment within the financial industry.

Geopolitical developments present both opportunities and risks, particularly concerning critical supply chains. China's tightened rare earth export controls have reignited U.S.-China trade tensions, driving U.S. rare earth miners higher and prompting the Defense Department to accelerate a $1 billion mineral stockpiling effort. Persistent Houthi threats in the Red Sea continue to deter ocean carriers, indicating ongoing disruptions.

The U.S. economy exhibits a "K-shaped" recovery, highlighted by the auto market where average new car prices surpassed $50,000 for the first time. This record pricing coincides with near all-time high auto loan delinquency rates among low-credit consumers, illustrating a widening disparity between affluent buyers and financially strained segments.

Key Decisions for Investors

• Monitor Broadcom's (AVGO) execution on the OpenAI partnership and its implications for the broader AI chip market, given OpenAI's emerging role as a chipmaking competitor.
• Consider overweighting positions in major financial institutions like JPMorgan Chase (JPM) and Goldman Sachs (GS), given their robust Q3 earnings and demonstrated sector resilience.
• Evaluate exposure to U.S. rare earth miners for potential upside driven by increased domestic demand and geopolitical tensions, while factoring in ongoing Red Sea shipping risks for global logistics.
• Watch for further divergence in economic data, particularly auto loan delinquency rates, as an indicator of widening economic disparity and potential consumer credit stress.