*ANTHROPIC TO RELEASE S-1 AT 9AM EST: FOX BUSINESS

$META announced plans to raise approximately $35 billion through two offerings: > $22.5B in Class A common stock through forward sale agreements. > $12.5B in depositary shares representing mandatory convertible preferred stock. Interestingly, NVIDIA, AMD and Broadcom have expressed nonbinding interest in purchasing up to $5 billion of Meta shares combined. Meta is also planning a potential $60 billion offering program for its new nonvoting Class C shares starting in Q1 2027. Together, the plans could provide approximately $95 billion in equity financing capacity as Meta prepares to spend $135B to $145B on capital expenditures in 2026.

J.P. Morgan: global server market is estimated to expand to $506 billion in 2026 from $284 billion in 2025, implying +78% Y/Y growth, while the long-term CAGR from 2026 through 2030 is expected to track to +31%. $DELL $HPE $SMCI

WSJ: "Wall Street has rested much of its optimism about the stock market on a surge in corporate earnings. The catch is that the profit growth is being driven by a handful of AI giants. Analysts expect companies in the S&P 500 to report a 30% jump in third-quarter earnings from a year ago, boosting investor confidence that the good times can keep rolling so long as businesses keep printing money. But just two companies—Nvidia and Micron—account for 34% of that growth. And only 10 companies—including Broadcom and Meta—account for roughly two-thirds of the profit growth." Especially as investor concern about debt levels and AI CAPEX levels intensifies, it's essential to recognize the role circular spending is playing in propping up profit growth. AI is not playing a role in boosting profitability outside of tech where competition for limited resources is inflating the cost of compute. To quote Torsten Slok: "Despite massive investments and widespread hype around artificial intelligence, the technology has delivered zero financial payoff to corporate America outside of tech. Revenue per worker is rising for the Mag 7 but is flat for the S&P 493. Profit margins are rising for the Mag 7 but are flat for the S&P 493. And there are still no signs of AI boosting productivity growth." As I warned in my September report on "The AI Trade" (sageroadresearch.com/collect…), the impact of circular spending will recede even if AI CAPEX doesn't contract. To quote the report: "Even before considering the viability of AI ROI, comps are a significant concern for US equities over the next 12 months. UBS has estimated that hyperscaler AI CAPEX will increase roughly 75% this year, 25% next year, and only 6% in 2028. That rate-of-change slowdown will certainly hit the semiconductor industry the hardest and that’s undoubtedly contributed to Nvidia’s stock performance this year, only slightly outperforming the S&P 500 despite blockbuster earnings growth (the company is expected to account for a staggering 18% of the S&P 500’s total YoY earnings growth in 2026). However, we also believe market participants have neglected the impact circular spending is having on hyperscaler growth and the trickle-down impact to companies across sectors. As the rate of increase decreases, we expect earnings growth to broadly slow. And that’s before considering how everything we’ve laid out in this report could lead to spending that falls below estimates." I do expect a pullback in CAPEX as rates stay higher for longer and AI ROI continues to fall short of investor expectations. The market is punishing plummeting FCF regardless of earnings growth--see Bloom Energy post earnings this week. In September, I told my clients to reduce, if not eliminate exposure to AI picks and shovels. I stand by that today. Message me if you'd like to learn more about Sage Road Research and our investment track record.

Lately, the 10Y is *seemingly* being driven by AI CapEx expectations. SOXX is the proxy. 87% correlation over training 9-weeks. P-value = 0.003. The deepest and most liquid market in the World is *seemingly* confirming what the equities are screaming. CapEx will fall short of prior expectations. Correlation ≠ Causation

APOLLO: AI HAS DELIVERED “ZERO PAYOFF” OUTSIDE BIG TECH Apollo Chief Economist Torsten Slok warns that massive AI spending has yet to deliver measurable productivity gains across corporate America. Revenue per worker and profit margins are rising for the Magnificent Seven but remain flat for the S&P 493. Meanwhile, Gartner estimates $3.5 trillion in AI infrastructure spending could face impairment risk by 2030. The key takeaway: AI investment is booming, but returns outside Big Tech remain elusive.

High yield officially negative total return for the year (-0.09%). Overall returns across all ratings look terrible. CCCs especially at -5.1% YTD and spreads over 1,100bps now. Lots of idiosyncratic stuff in there so would't read too much into it though.

Depreciation and amortization expenses for the five hyperscalers are set to reach $590 billion in 2029. This is likely to exceed their combined operating profits in 2026.

Just 2 years ago, Bessent mocked Yellen because she was using short-term bills to finance the government. Well, he's only accelerated that practice & a new IMF paper shows how dangerous that can be. America has relied heavily on short-term borrowing before, particularly in the 70s, 80s and early 2000s. The difference? Government debt was substantially lower relative to GDP. Today, with debt at historically elevated levels, greater reliance on short-term borrowing leaves the Treasury increasingly exposed to interest rate changes. If rates stay higher for longer, refinancing costs could rise rapidly, putting further pressure on deficits. The irony? The Fed's fight against inflation could make America's debt problem even harder to manage.

GPU prices higher and token prices lower means the crunch is compressing. That means lower profit margins on the GPU rental to token production leg of the trade. Of course the profit margin on buying GPUs and renting them out is higher than ever (not exactly an indication of a slowdown in inference demand).

OpenAI & Anthropic set their prices based on venture capitalists, who care about founder vision + tech talent. Nvidia’s price is set by Wall Street investors, who care about margins + profits. We don't have an AI bubble. We have a startup bubble. Look below; the difference is quite something.

🦔Loans backed by AI chips are on track to become a trillion-dollar market, according to Bloomberg, and the chipmakers guarantee a lot of them. Broadcom stands behind a $35 billion debt deal that buys its chips for Anthropic to lease. Nvidia lined up six major lenders for a $500 billion program and will backstop up to 25% of each deal. Those guarantees earn some of the loans investment-grade ratings. My Take So Broadcom guarantees the loan that buys Broadcom’s chips. If Anthropic stops paying, the chips get leased out again or sold, and Broadcom covers whatever’s left. Lenders like it because Broadcom is a safer name than Anthropic, but the risk ends up with a company whose stock already depends on selling these chips. A Blackstone executive says lending against chips is like financing the first cars. I don’t buy that. Car loans go to millions of different drivers, and when one stops paying, the bank sells the car to someone else. These loans depend on a few AI companies, and if one walks away, the backup plan is finding another AI company to rent a pile of used chips. The ratings let insurers buy in, so life insurance and annuity money ends up holding AI chip risk, mostly without the policyholders knowing. Every one of these deals assumes the customer contracts can’t be broken, and Anthropic is reportedly weighing whether to cancel a $45 billion contract with Nscale right now. The chip-backed loans have held up so far, trading near full value while CoreWeave’s own bonds dropped to around 80 cents on the dollar. If one of these backstops ever gets called, the market will reprice all of them at once, and Nvidia’s and Broadcom’s investors will see the guarantees in the earnings for the first time. Hedgie🤗

Cost of capital is the new AI bottleneck.

Goldman Sachs: We see a scenario where debt needed to serve existing $129 billion in backlog could be $20-23 billion when including customer prepayments; to scale up 4.2GW in power, new debt could approximate $38 billion to support $263 billion in potential backlog. $CRWV

US corporate credit CRACKS are rapidly widening: Companies have postponed more than $5 billion in US and European debt sales in October, marking the largest wave of delays this year. This comes as at least 7 companies have abandoned or postponed transactions. Furthermore, US junk-bond issuance has collapsed to ~$7 billion so far this month, down from $51 billion in September, as investors demand higher yields to compensate for rising risks. In effect, yields on B-rated junk bonds have soared to an 18-month high of 8.39%, while CCC-rated bond yields have surged to 15.7%, their highest level since the 2022 bear market peak. The pressure reflects rising interest rates and elevated inflation, which increase borrowing costs and put additional strain on highly leveraged companies. Credit markets are usually the first to flash warning signals. Will equities be next?

🦔The cost of insuring Meta’s debt against default hit a record today, and its bonds fell, after Meta said it has now agreed to about $825 billion in future leases and contracts, mostly for AI computing. That figure was close to $700 billion in July. Meta’s free cash flow also turned negative last quarter, at minus $2.1 billion, compared with plus $10.6 billion a year earlier. The stock dropped almost 6%. My Take Meta’s default insurance costs about 119 basis points a year, well below Oracle near 290 or CoreWeave near 1,200 last week, so lenders still see Meta as a safe borrower. I’m a bit rattled by the speed though. Meta piled on roughly $125 billion of new commitments in three months, and its ad business, one of the best cash machines in corporate America, no longer covers the spending by itself. If Meta has to borrow to keep up, I can’t think of an AI spender that won’t. Bond buyers are already looking at a wall of AI debt, with SpaceX shopping a $40 billion deal and Broadcom lining up $60 billion of chip financing for Anthropic. Every new deal has to pay a little more to get noticed. We'll probably see Meta sell a large bond before year end at a higher rate than it would have paid in the spring. It raised the low end of its spending forecast for this year and wouldn’t give one for next year, so free cash flow probably stays negative for a while. Hedgie🤗

so what happens to Ant and OAI IPO pressures when all the hypers start to raise $100s of Ms in liquidity ahead of them?

Asked how far $NVDA would go to financially backstop neoclouds, or even bail one out, Jensen said: “We invested in them... that's different than backing them” He says neoclouds are “completely sold out” & expects them to secure the working capital they need h/t @TomMackenzieTV