Microsoft Stuns, Google Sinks, Oracle Offers Hope: 8 Key Items Shaping the Stock Market Thursday

These are the early headlines and other items poised to influence the market at the start of trading Thursday. As we share this collection of market drivers, U.S. equity futures point to another mixed start to the trading day.

1. Oil prices fall amid renewed U.S. efforts to revive peace negotiations with Iran. Brent crude for December delivery, which expires on Friday, is down 0.8% to $114.37 a barrel, while WTI futures decline 1.2% to $101.50 a barrel. However, significant obstacles remain, limiting the reaction across crude and refined-product markets, particularly given fears that military operations against Iran could resume after the U.S. midterm elections. (WSJ)

The pullback followed reports that U.S. Vice President JD Vance had reached out to Iranian Security Council chief Mohsen Rezaei in an attempt to restart peace negotiations, the WSJ reported. However, other reports commented Iranian officials see only unacceptable ideas in the latest round of mediation to end the war. Given comments from the White House, we’ll look to see what develops following next week’s midterm elections.

2. Samsung said its HBM supply has been ⁠sold out for next year, with key customers requesting more of the key chips used in AI data centers, and gave a more conservative view than SK Hynix on how long the supply gap would last… “In 2027, the (memory) business expects AI infrastructure capital expenditure to reach a historic level as the AI ecosystem expands,” it said in a statement. “Increasing AI-driven demand will far exceed the industry supply in comparison with 2026.” (Reuters)

While Samsung’s (SSNLF) comments point to a tight chip market through 2028, yesterday SK Hynix (SKHY) warned that the global memory shortage could persist through 2030. The market will read Samsung’s comment as less bullish, but it is also rapidly spending to increase capacity with management signaling another sharp rise in chip capex in 2027 on top of the planned 62% increase this year. SK also shared plans to increase 2027 capex “significantly,” but Samsung is spending far more than SK. This year Samsung targets 76.8 trillion won compared to 40 trillion won at SK.

Not only do those spending forecasts keep us bullish on the shares of Applied Materials (AMAT), but it also suggests Samsung is aiming to bring more capacity on at a quicker pace than SK as it looks meet long-term supply contracts inked with 10 major customers and another 10 prospects.

3. Microsoft Corp. posted increasing growth in its cloud business and kept its capital expenditures in check, satisfying investors amid a drumbeat of concern that spending on artificial intelligence won’t pay off. Sales at Azure, the closely watched cloud computing division, grew 48% to $33.2 billion during the quarter ending in September, the company said in a statement Wednesday. Overall revenue increased 19% to $92.3 billion. Analysts were looking for 44% sales growth at Azure and 17% total revenue growth… Capital expenditures — a key metric of data center spending — increased 30% to $45.2 billion in the quarter. That is lower than expected owing to delays in the delivery of some third-party cloud capacity… (Bloomberg)

The two big items inside Microsoft’s (MSFT) quarterly earnings report, which we’ll dig into more later today in a follow-up alert, are the size of revenue growth at Azure and guidance for it pick up to 49%-50% in the current quarter, and Microsoft’s $18.6 billion in free cash flow despite capex spending of near $45 billion in the quarter vs. its guidance for more than $50 billion. Granted, supply constraints impacted that level of capex spending, but that free cash flow figure was easily ahead of the $10 billion modeled by Wall Street.

That positive free cash flow figure sets Microsoft apart from Meta (META) and as we saw last night Alphabet (GOOGL). Alphabet ⁠reported negative free cash flow of $9.07 billion in the third quarter as capital spending jumped, overshadowing a doubling of its cloud sales…

4. The Google owner said sales, excluding partner payouts, were $111.2 billion for the three months that ended Sept. 30, slightly missing analysts’ projections. The company’s advertising revenue, which it depends on to fund AI investments, totaled $82 billion, below estimates of $83.6 billion. Sales from its search and related businesses also missed forecasts… At the end of the third quarter, Google said it had future purchase commitments of $924 billion and pre-commencement leases and other obligations of $152 billion, bringing total future liabilities to well over $1 trillion.

The combination of the advertising revenue miss, a second straight quarter of negative cash flow, and the purchase commitments detailed above are behind the fall we are seeing in shares of Alphabet this morning. Moreover, Alphabet still plans to significantly increase its 2027 capital expenditures from this year’s spending forecasts of $195 billion to $205 billion, but management has yet to put a number on what that 2027 spend might look like.

Those items are overshadowing a solid beat for Google’s cloud unit, should be viewed as a demand gauge for its AI products and hosting services. Google Cloud reported sales of $30.7 billion and profit of $11.1 billion, above analyst estimates of $29.1 billion in revenue and $9.8 billion in profit. Google Cloud’s backlog had grown to $561 billion, and Alphabet expected to recognize more than 55% of it as revenue in the next 24 months. In our view, that ramp allows Google time to incorporate ads into its Google AI Mode, and it also brings support for the company’s capex plans.

It will also likely be used to support any likely capital raise, but let’s also remember Google has other irons in the fire it can monetize to fund that buildout. We’re referring to its investments in SpaceX and Anthropic.

More to come in a standalone alert.

5. Oracle said on Wednesday it expects capital spending to peak this fiscal year and next as it builds more cloud-computing capacity but pledged to raise no more than $20 billion in additional financing for AI through fiscal 2030. The pledge is meant to reassure investors worried that Larry Ellison’s company will need ever-larger sums of outside money to fund its aggressive data-center buildout. (Reuters)

We’ve kept a watchful eye on Oracle (ORCL), largely because it has become a focal point when it comes to soaring AI infrastructure spending. The reason is that unlike Microsoft and Amazon, Oracle relies heavily on OpenAI. OpenAI’s five-year, $300 billion computing contract with Oracle amounts to roughly $60 billion per year, which accounts for about 45% of Oracle’s total cloud/contracted backlog.

Given the market’s focus on capital needed to fund the AI infrastructure buildout and free cash flow, the comment that Oracle sees a path back to positive free cash flow is very constructive. Oracle expects free cash flow to turn positive in the second half of fiscal 2028 and top $30 billion in fiscal 2029 as capital spending declines. It suggests an end to outsized spending and the need to borrow more, but we’d be careful not to overestimate potential capex declines two years away. To us that will hinge on not only overall AI adoption and usage, but OpenAI obtaining capacity from others, including Microsoft, Amazon, and Google.

6. Marvell Technology Inc. is in advanced talks to buy data center optics maker Lumentum Holdings Inc., according to people familiar with the matter, putting it on the cusp of a potential megadeal amid the race to scale up in the artificial intelligence sector. A transaction may be announced as soon as next week… A final agreement hasn’t been reached and talks could still end without one, or details including the timing might change… (Bloomberg)

If such an M&A went through, the expectation is that it would likely rank among the top 10 biggest tech and telecom mergers given Lumentum’s (LITE) market cap near $83 billion as of last night’s market close. Demand is also strong for the company’s products with Lumentum CEO Michael Hurlston saying earlier this month that its optical components are sold out through early 2029 and that it will be unable to meet about 70% of demand for some products next year.

Assuming a deal is struck, the size of the potential transaction and how it would be funded is bringing a new round of pressure on Marvell (MRVL) shares. In today’s market and with questions over AI funding, we’re not surprised by the knee-jerk reaction. However, we also know that Meta’s (META) recent offering was reportedly five times oversubscribed. This tells us there is appetite in the market for well-positioned companies, and we would characterize Marvell’s place in the custom silicon and networking markets as just that. Should a transaction between the two come about, when the dust settles, it may be the time to finally round out the Portfolio’s position in MRVL.

From a strategic perspective, Google accounts for 15%-20% of Lumentum’s total net revenue and Lumentum is an acknowledged supplier of optical circuit switches used inside Google’s Tensor Processing Units. A merger between Marvell and Lumentum would likely improve the combined entities competitive footing inside Google’s custom silicon efforts. As we consider that, let’s also remember the mid-August deal between Google and Marvell for custom chips that included the ability for Google to purchase ~59 million Marvell shares at $206.58 subject to purchasing targets through 2032.

And yes, the above report is lifting the Portoflio’s position in LITE shares that we have as part of the EPS All-Stars basket.

7. Economic data today per TipRanks: Personal Income & Spending (September), PCE Price Index (September), Initial & Continuing Jobless Claims (Weekly), EIA Natural Gas Stocks (Weekly).

8. Companies reporting today per TipRanks: AM – AGCO (AGCO), Altria (MO), Bandwidth (BAND), Bristol-Myers (BMY), Builders FirstSource (BLDR), Caterpillar (CAT), DR Horton (DHI), Edison (EIX), Hershey (HSY), L3Harris (LHX), Linde plc (LIN), Mastercard (MA), Mobileye (MBLY), Restaurant Brands (QSR), Vulcan Materials (VMC). PM – Amazon (AMZN), Coinbase (COIN), Coursera (COUR), Digital Realty Trust (DLR), Floor & Décor (FND), Ingersoll Rand (IR), Mondelez (MDLZ), Pinterest (PINS), Reddit (RDDT), Rivian (RIVN), Starbucks (SBUX), TheRealReal (REAL).

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At the time of publication, TheStreet Pro Portfolio was long AMAT, GOOGL, LITE, META, MRVL, and MSFT.