FOMC MEETING LIVE + GOOGLE & MICROSOFT EARNINGS | MARKET CLOSE

SUMMARY

Amit Kukreja and guests provided live coverage and analysis of the FOMC decision, followed by in-depth breakdowns of Google and Microsoft earnings at market close. The session highlighted the Federal Reserve's rationale for pausing rate hikes, the divergent fortunes of major tech firms, and the evolving landscape of AI-driven capital expenditure and market sentiment.

MAIN POINTS

• The Federal Reserve announces a pause in interest rate hikes, with a 10-2 vote to maintain current rates. [3:00]
• Market reaction to the Fed's decision is muted, with major indices and tech stocks showing little immediate movement. [10:01]
• Expectations for a December rate hike increase to 80%, reflecting market uncertainty about future Fed actions. [18:00]
• Short-selling activity targets Cerebras, with skepticism about the durability and scalability of its chips. [23:01]
• Oracle announces a cap on additional capital raises at $20 billion through 2030, signaling a peak in capex by 2027-2028. [29:01]
• Kevin Worsh, Fed Chair, begins the FOMC press conference, emphasizing the need for more data before further policy moves. [35:00]
• The Fed announces a change to its meeting schedule, reducing policy-setting meetings to six per year starting in 2027. [41:02]
• Worsh addresses questions about the rationale for pausing rate hikes, reiterating the need for additional economic data. [47:02]
• The Fed's productivity and jobs task force plans a public field hearing to assess the impact of AI on employment and productivity. [53:00]
• Worsh denies any political influence from the upcoming midterms in the Fed's decision-making process. [1:02:02]
• Discussion focuses on the impact of the AI investment boom on aggregate demand and inflation sensitivity to interest rates. [1:07:01]
• Market momentum shifts as investors interpret the Fed's pause and meeting schedule changes as potentially bullish for risk assets. [1:11:01]
• Attention turns to the likelihood of a December rate hike and its implications for a potential year-end market rally. [1:19:02]
• Meta, Google, Microsoft, and Amazon face scrutiny over capital raises and dilution needed to fund ongoing AI infrastructure buildouts. [1:24:00]
• Palantir's event highlights the growing enterprise demand for sovereign AI solutions and cost efficiencies from custom models. [1:32:00]
• Netflix and Uber hit 52-week lows, reflecting shifting consumer behavior and challenges in premium content and ride-hailing sectors. [1:37:01]
• Discussion of the upcoming Anthropic IPO and its potential to mirror SpaceX's public market dynamics and index inclusion effects. [1:40:01]
• Anduril and Qualcomm announce a partnership to manufacture U.S.-made computers for defense and critical infrastructure. [1:47:00]
• Panelists debate the implications of Oracle's capex guidance for the broader AI infrastructure and semiconductor supply chain. [1:57:01]
• T-Mobile reports strong earnings, while geopolitical headlines suggest possible de-escalation in U.S.-Iran tensions. [2:06:00]
• Microsoft posts a quadruple beat on revenue, EPS, cloud, and capex, sending its stock to all-time highs after hours. [2:07:02]
• Google misses on revenue, EPS, and operating income, with a significant mark-to-market loss on equity securities impacting results. [2:10:02]
• ServiceNow and Fortinet experience sharp after-hours declines despite beating on revenue and raising guidance. [2:18:02]
• Google's earnings call emphasizes AI advancements, Gemini model adoption, and record cloud growth, but also highlights capex pressures. [2:38:00]
• Google reports negative free cash flow due to heavy AI infrastructure investment and a large European Commission fine. [3:00:00]
• Google maintains its full-year capex guidance but signals a significant increase in 2027, raising questions about long-term free cash flow. [3:08:00]
• Microsoft's earnings call details robust growth in cloud, AI agents, and enterprise adoption, with a focus on operational efficiency and capex flexibility. [3:41:01]
• Microsoft guides for over $50 billion in Q2 capex, with expectations of continued free cash flow positivity through FY27. [4:07:03]
• Panelists debate the sustainability of hyperscaler capex cycles and the market's willingness to tolerate negative free cash flow for AI growth. [4:37:01]
• The session concludes with reflections on the Fed's pause, Google's sharp drop, Microsoft's resilience, and anticipation for upcoming tech earnings. [5:14:01]

DETAILED ANALYSIS

The session opened with anticipation for a pivotal day in U.S. financial markets, as the Federal Open Market Committee (FOMC) was set to announce its latest interest rate decision, followed by earnings reports from Google and Microsoft. The Federal Reserve, led by Chair Kevin Worsh, voted 10-2 to maintain the federal funds rate at 3.75% to 4%, citing the need for further data accumulation before making additional policy moves. This decision was widely expected by market participants, with only a small minority pricing in the possibility of a hike.

The rationale for the pause, however, drew skepticism from analysts and commentators, who noted that macroeconomic indicators such as inflation and employment had not materially changed since the previous meeting, when the committee had been nearly unanimous in favor of a hike.

The Fed's statement emphasized that domestic spending remained resilient, productivity growth was strong, and capital investment robust, yet inflation continued to run above target. The committee's language—particularly the phrase "accumulation of more information"—was interpreted as a placeholder for political considerations, especially with midterm elections imminent. Several panelists noted the historical tendency for the Fed to avoid major policy changes near elections, fueling debate about the central bank's independence and transparency.

The press conference with Chair Worsh reinforced the Fed's commitment to its dual mandate of price stability and full employment, while also announcing a structural change: beginning in 2027, the FOMC will reduce the number of policy-setting meetings from eight to six per year, with the remaining meetings dedicated to broader strategic discussions.

Market reaction to the Fed's decision was initially muted, with major indices and leading tech stocks showing little movement. However, the probability of a December rate hike rose sharply to 80%, reflecting market uncertainty about the Fed's future trajectory. The discussion quickly turned to the implications for the technology sector, particularly the so-called "hyperscalers"—Google, Microsoft, Meta, Amazon—and their ongoing capital expenditure (capex) cycles driven by artificial intelligence (AI) infrastructure buildouts.

The panel highlighted the tension between the need for massive investment in AI hardware and data centers, and the resulting dilution and negative free cash flow that concerned equity investors.

Oracle's investor day provided a significant inflection point. The company announced it would cap additional capital raises at $20 billion through 2030, with capex expected to peak between fiscal years 2027 and 2028. This move was interpreted as a signal that the era of aggressive, debt-fueled AI infrastructure expansion may be nearing its apex.

While Oracle's stock rallied on the news, the broader market debated whether other hyperscalers would follow suit or continue to raise capital to fund their own AI ambitions. The implications for semiconductor suppliers—such as Nvidia, Micron, and Broadcom—were also discussed, with the prospect of reduced competition for debt potentially lowering borrowing costs for smaller AI infrastructure players.

The FOMC press conference featured pointed questions about the Fed's logic for pausing hikes, the influence of political events, and the impact of the AI investment boom on aggregate demand and inflation. Chair Worsh maintained that the committee was guided solely by economic data, denying any political motivation. He also addressed the sensitivity of AI-driven capex to interest rates, arguing that monetary policy still exerted influence over technology investment decisions.

The Fed's productivity and jobs task force announced a public hearing to assess the impact of AI on employment and productivity, reflecting the central bank's recognition of structural changes in the economy.

As the session progressed, attention shifted to the upcoming earnings reports from Google and Microsoft. The panel expressed concern over the sustainability of hyperscaler capex, the risk of further dilution, and the market's willingness to tolerate negative free cash flow in pursuit of AI-driven growth. Meta's recent announcement of additional capital raises to fund AI infrastructure was cited as a cautionary example, with panelists noting that Wall Street had reacted negatively to the prospect of shareholder dilution, even for companies delivering strong topline growth.

At market close, T-Mobile reported a double beat on earnings and revenue, while geopolitical headlines suggested possible de-escalation in U.S.-Iran tensions. Microsoft posted a standout quarter, beating expectations on revenue, EPS, cloud growth, and capex discipline. The company's stock surged to all-time highs after hours, buoyed by strong Azure growth (48% year-over-year), efficient capex management, and continued free cash flow positivity.

Microsoft emphasized its ability to balance rapid AI infrastructure expansion with operational efficiency, leveraging both internal engineering gains and flexible access to capital markets.

In contrast, Google stumbled. The company missed on revenue, EPS, and operating income, with a significant portion of the EPS miss attributable to an $8.2 billion mark-to-market loss on its SpaceX equity holdings. While Google Cloud delivered a remarkable 103% year-over-year growth, and the company touted advances in its Gemini AI models and TPU systems, the market focused on the negative free cash flow, heavy capex outlays, and deceleration in core search and YouTube ad revenues.

Google's guidance indicated that capex would increase significantly in 2027, raising questions about the long-term sustainability of its investment cycle and the potential for further dilution.

The after-hours session saw sharp declines in ServiceNow and Fortinet, both of which reported strong revenue and guidance but were punished by the market for perceived growth slowdowns or minor EPS misses. This indiscriminate selling reflected broader market anxiety about the durability of the software-as-a-service (SaaS) model in an AI-dominated landscape, as well as the high valuations commanded by cybersecurity and enterprise software firms.

Google's earnings call sought to reassure investors about the company's AI leadership, cloud momentum, and diversified revenue streams. Executives highlighted the rapid adoption of Gemini models, the expansion of TPU system sales, and the growing share of non-search businesses within Alphabet's revenue mix. However, analysts pressed for clarity on the monetization of AI-powered search, the impact of agentic experiences on advertising, and the timeline for realizing returns on massive infrastructure investments.

Google maintained its full-year capex guidance but signaled a significant ramp in 2027, further fueling debate about the market's tolerance for negative free cash flow.

Microsoft's call, by contrast, projected confidence in the company's ability to deliver both growth and profitability. The company detailed robust adoption of AI agents, strong enterprise demand for Azure and Foundry, and a disciplined approach to capex and capital markets. Microsoft guided for over $50 billion in Q2 capex but reiterated its expectation of remaining free cash flow positive through FY27, leveraging a mix of operational cash flow, leasing, and potential debt issuance as needed.

Panelists engaged in a spirited debate about the sustainability of the hyperscaler capex cycle, the market's willingness to reward or punish negative free cash flow, and the implications for semiconductor suppliers and AI infrastructure beneficiaries. Some argued that the market would eventually demand a return to capital discipline, forcing companies to moderate their investment cycles or risk prolonged share price stagnation. Others contended that the scale and scope of AI-driven transformation justified continued aggressive investment, with the potential for outsized returns once the infrastructure buildout reached maturity.

The session closed with reflections on the day's volatility, the divergent fortunes of Microsoft and Google, and anticipation for upcoming earnings from Amazon, Intel, and other major tech firms. The panel noted that while the Fed's pause and structural changes provided some clarity, the interplay between macroeconomic policy, AI capex cycles, and market sentiment would continue to drive volatility and opportunity in the months ahead. The discussion underscored the importance of operational efficiency, capital allocation discipline, and strategic flexibility as key differentiators for tech giants navigating the next phase of AI-driven growth.

LINKS

• Amit Kukreja's Twitter/X profile for market commentary and updates.
• Amit's Deep Dives Substack for in-depth stock and market analysis.
• Free news terminal for real-time financial news and market data.
• Alphabet's investor relations website for earnings releases and financial statements.

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