October 19th - The Week Ahead

The Week Ahead Of Us 🔍

Welcome back!

Futures are up slightly, as China trade talks sound quite constructive and the government shutdown continues to get ignored, but I wanted to mainly talk about a podcast interview from Friday that’s rattled the AI thesis a bit.

Andrej Karpathy, a co-founder of OpenAI, had a 2-hour long podcast that reinforced what a lot of the investment community has been starting to think about AI. I listened to the full thing so you don’t have to and here’s the highlights:

• He called AGI a decade away and that the average SF person is overshooting where LLMs are today. LLMs can only take us so far (our Brains are more advanced)

• Compared LLM outputs to "summoning ghosts” and they don’t have reinforcement learning like humans do

• Most notably, he called AI Agents slop: "Overall, the models they are not there. And I feel like the industry [...] it's making too big of a jump and it's trying to pretend that this is amazing. And it's not—it's slop! And I think they are not coming to terms with it. And maybe they are trying to fundraise or something like that, I'm not sure what's going on."

I have my pulse on what’s happening on X and in general a lot of VCs and the Tech crowd on there found themselves in agreement with what Karpathy was saying. I loved this one quote I saw on X, “LLMs are pretty good. They're not transformative, and also not useless. There are some tasks where LLMs will save you a lot of time. And that's it”

Does this mean the “everything’s computer” trade is over? No, not necessarily, but we are in the camp that the current hype cycle seems late innings in nature.

WSR Investing Club Update: As you saw, we had a piece on Cantor last week. We have two more Club member pieces coming out Monday and Tuesday. The next month or so is the ideal time to upgrade and join the club before the discount expires.  

Let’s get into it. Here’s a look at earnings this week.

• Monday: Steel Dynamics, Crown Holdings, Cleveland-Cliffs

• Tuesday: Netflix, Coca-Cola, Philip Morris, RTX Corporation, GE Aerospace, Texas Instruments, 3M, Lockheed Martin, Northrop Grumman, Elevance Health, General Motors, Mattel, Omnicom, PulteGroup, Equifax, EQT, PACCAR, Quest Diagnostics

• Wednesday: TSLA, IBM, Thermo Fisher, AT&T, Lam Research, Amphenol Corporation, Boston Scientific, Wyndham Hotels & Resorts, Barclays PLC, Moody's Corporation, O'Reilly Automotive

• Thursday: T-Mobile, Intel, Union Pacific, Blackstone, Ford Motors, CBRE Group, Baker Hughes, Dow, Tractor Supply, West Pharmaceutical, Dover Corporation, Textron, VeriSign, Deckers Outdoor, Hasbro, American Airlines, TransUnion, Honeywell International

• Friday: Procter & Gamble, Sanofi, General Dynamics, HCA Healthcare

Here’s a look at economic data this week (estimates are in quotations).

• Tuesday: Fed governor Christopher Waller remarks

• Wednesday: Michael Barr speaks

• Thursday: Existing home sales (4.08 million), Fed Vice Chair for Supervision Michelle Bowman testifies

• Friday: Consumer price index (0.4%), CPI year over year (3.1%), Core CPI (0.3%), Core CPI year over year (3.1%), S&P flash U.S. services PMI (54.0), S&P flash U.S. manufacturing PMI (51.8), Consumer sentiment final (54.4)

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Earnings Corner 📈 📉

Taiwan Semiconductor $TSM ( ▼ 1.59% ) Top and bottom line beat. Revenue rose by 30% while EPS beat forecasts by 12%. The surge came from booming AI and high performance computing demand, with Nvidia and AMD orders driving record utilization of TSMC’s cutting edge 3nm and 5nm chips. A rebound in smartphones and tighter cost control further boosted margins. TSMC guided Q4 sales to $32.2–$33.4B, above views, and lifted its 2025 growth outlook to the mid-30% range.

Amex $AXP ( ▲ 7.27% ) Top and bottom line beat with revenue up 11% hitting a record $18.42B, while EPS rose 19% to $4.14. These results were driven by affluent spending and record engagement among younger cardholders, with Millennials and Gen Z now driving 36% of total volume and making 25% more transactions than older cohorts. The refreshed Platinum Card launch fueled strong new sign-ups and deeper loyalty, while travel and dining spending rebounded double digits. Credit trends remain stable, with delinquencies flat and write-offs edging on the lower slide. AmEx lifted full year guidance to EPS of $15.20–$15.50 on 9–10% revenue growth, pointing to sustained demand from high-income consumers.

Charles Schwab $SCHW ( ▲ 0.78% ) Beat expectations on both revenue and EPS. Revenue hit a record $6.14B, up 27%, while EPS rose to $1.31 vs. $1.25 expected. Results were fueled by higher interest income and strong client activity as trading volumes jumped 30% and net interest revenue surged 37%, helped by the firm’s faster paydown of high-cost funding. Wealth management fees climbed on rising markets and growing adoption of advisory products. Schwab added $137.5B in new assets and over 1M accounts, lifting total client assets to $11.6T. Management reaffirmed its 5–7% organic growth goal and said it plans to launch a spot crypto offering in early 2026.

M&T Bank Corporation $MTB ( ▲ 1.14% ) Beat expectations on both revenue and EPS, with revenue up 8% to $2.51B and EPS of $4.87 topping forecasts of $4.40. Results were driven by higher net interest income, strong fee growth, and improving credit quality. Net interest margin expanded to 3.68% on disciplined deposit costs and loan repricing, while record fee income reflected strength across mortgage, trust, and trading. Asset quality improved as criticized and nonaccrual loans fell, and the bank boosted shareholder returns with an 11% dividend hike and $409M in buybacks. Management expects margins near 3.7% and steady loan growth into Q4, citing resilience across core markets despite softer CRE and deposit trends.

Fifth Third $FITB ( ▲ 1.31% ) Beat expectations on both revenue and EPS. Profit rose 14% to $608M as strong fee income offset a $178M loss tied to the bankruptcy of auto lender Tricolor. Noninterest income climbed 10% on broad based growth, with wealth management and mortgage fees up double digits. Net interest income rose, helped by lower deposit costs and fixed rate asset repricing. Management said the bank remains comfortable with its credit exposure and overall portfolio risk. The company expects the $10.9B all stock acquisition of Comerica to close in early 2026, with cost savings beginning the following year.

State Street $STT ( ▼ 1.4% ) Solid beat on both revenue and EPS. Earnings rose 23% y/y, while total profits climbed 60.5% on stronger margins and cost efficiency. Growth was fueled by record ETF inflows, double digit gains across management and trading, and over $1B in tech and automation savings. Pre-tax margin reached 21% and AUM rose to a record $5.4T. Despite the beat shares fell as investors weighed on higher expense guidance. Management reaffirmed 9% full year fee growth and sees NII improving into Q4.

Today’s Headlines 🍿 

• Trump to cost firms $1.2T in 2025, consumers bear most of it:
  S&P Global estimates tariffs will hit companies with $1.2T in costs this year, with two-thirds passed on to consumers. The report warns that supply chain frictions and profit margin declines could persist into 2026 as firms adapt to higher trade barriers

• Trump student loan forgiveness: The Trump Administration will reopen student loan forgiveness programs that it had partially blocked after reaching an agreement with a national teachers union. The administration announced that it will resume processing loan forgiveness for borrowers in two income-driven repayment plans, and also clarified that borrowers won’t owe taxes on any cancelled debt in 2025. The “big beautiful bill” will phase out these repayment plans in 2028

• Regional bank stocks rebound as earnings ease credit fears: U.S. regional lenders rallied Friday after strong earnings from Truist, Regions, and Ally calmed worries of spreading credit stress. The S&P Regional Banks Index rose 1.7%, recovering part of Thursday’s 6% plunge tied to fraud losses at Zions and Western Alliance. Analysts called the selloff “idiosyncratic” and likely short-lived

• Trump is quietly backing away from many tariffs: Trump has recently began to exempt more products from his so-called reciprocal tariffs - and has offered to exempt hundreds more if countries can reach trade deals with the U.S. According to people familiar with the administration, Trump’s shift reflects the growing sentiment that the U.S. should lower levies on goods that it doesn’t domestically produce. The Supreme Court is set to hear a case on the reciprocal tariffs in early November, and the administration could be forced to pay back many of the tariffs if it loses the case

• Ken Griffin says GenAI isn’t helping hedge funds find alpha: The Citadel founder said generative AI hasn’t boosted hedge fund performance, calling it useful for productivity but ineffective at uncovering market-beating insights

• Harvard’s financial situation revealed: Trump’s funding cuts have taken a toll, pushing the university to its largest operating loss in 14 years. Harvard reported a net loss - their first since 2020 - of $113mm as federal funding fell by $58mm in the last year. To help support operations, the school drew $2.5B from its endowment, which posted solid returns of 11.9% to bring its total value to $57B

  • The Axios report also revealed their large PE exposure. With 41% of their exposure in private equity, this is a big worry for PE as an asset class, as penetration may have hit a ceiling

• Moody’s sees no systemic banking risk despite bad-loan worries:
  Moody’s Marc Pinto said recent loan losses at midsize banks don’t signal broader trouble, calling fears of contagion “one cockroach, not a trend.” Default rates remain below 5% and could fall further as growth and credit conditions improve

• Carlyle expects resilience in Credit: CEO Harvey Schwartz says the recent volatility in credit markets is on his “worry list,” but thinks overall conditions remain strong. Citing growth and steady employment, Schwartz says there is no indication that things are crumbling

• Penn State’s $50M coaching buyout underscores college sports’ spending spiral: Penn State fired head coach James Franklin after a string of losing seasons — triggering a potential $50 million buyout, the second-largest in college football history. The payout comes as the Big Ten weighs a $2.4B private equity deal with UC Investments that would deliver about $100M to each member school. Critics warn that without spending discipline, the influx will only fuel runaway costs in coaching contracts and stadium projects, which have already pushed college athletic expenses up more than 200% since 2005

• Apple secures exclusive U.S. F1 rights in $700M deal: Cupertino and Formula 1 signed a five-year agreement worth about $140M annually, bringing all races to Apple TV starting in 2026. The deal ends ESPN’s run as U.S. broadcaster and folds F1 TV Premium into Apple’s streaming service as part of its $12.99 subscription

• Sonder races to avoid bankruptcy with creditor deal: Short-term rental firm Sonder is seeking an out-of-court agreement with creditors as it warns of “substantial doubt” about its ability to stay solvent. The company has $1.5B in liabilities against $1B in assets and is working with Moelis and AlixPartners on restructuring options

• 777 Partners co-founder charged with $500M fraud: Federal prosecutors indicted Josh Wander for allegedly defrauding lenders and investors, using funds from the firm’s structured settlements arm to buy soccer teams and airlines. The SEC filed parallel charges against the firm and its executives

• Kering sells beauty arm to L’Oréal: Kering has agreed to sell its beauty division — including Creed and rights to brands like Gucci and Balenciaga — to L’Oréal for $4.7B. The deal comes as part of a long-term strategic alliance, and will help new CEO Luca De Meo cut debt and refocus the luxury group amid sluggish Gucci sales

• Starbucks weighs sale of China business: The 3rd place pioneer is reviewing bids from five potential partners for its China operations, valued at over $10B

  • Additionally, CEO Brian Niccol made some triumphant statements about Starbucks being “all in on AI,” revealing a “secret AI barista” that can assist with coffee making and reduce operational chaos for in-store workers

• Clear Channel take private? Mubadala Capital is exploring buying Clear Channel Outdoor, the billboard advertising giant. $CCO ( ▲ 19.72% ) rocketed higher on Friday

M&A Transactions💭 

The High-Speed Ethernet and Network Security Testing Business of Spirent Communications (LON: SPT) was acquired by Viavi Solutions (NAS: VIAV) for $425.0M.

Smiths Internconnect, manufacturer of connectivity products, has reached a definitive agreement to be acquired for GBP 1.3B by Molex.

Clairvest Group has entered into a definitive agreement to acquire The Resort Operations of MGM Growth Properties through $546.0M. EV/EBITDA 3.99x. Jefferies and SMBC Nikko Securities advised on the sale.

GTreaasury, developer of integrated SaaS treasury and risk management systems, has reached a definitive agreement to be acquired for $1.0B by Ripple. Goldman Sachs advised on the sale.

Foley Products, manufacturer of precast concrete products, has reached a definitive agreement to be acquired for $1.84B by Commercial Metals (NYS: CMC).

Chobani, producer and retailer of yogurt products, has entered into a definitive agreement to raise a $1.27B debt refinancing round. Concurrently, the company received $650.0M of financing from undisclosed investors.

WNS, a provider of business management services, was acquired for $3.784B by Capgemini (PAR: CAP). EV/EBIDTA was 13.73x and EV/Revenue 2.81x. J.P. Morgan and William Blair & Company advised on the sale.

Nalu Medical, developer of a neurostimulation implant, has reached a definitive agreement to be acquired for $633.0M by Boston Scientific (NYS: BSX). EV/Revenue was 8.88x.

Private Placement Transactions💭 

Zepto, operator of a quick commerce platform, raised $450.0M of venture funding led by General Catalyst and California Public Employees’ Retirement System at a pre-money valuation of $6.55B.

VeraDermics, developer of aesthetics and dermatology-focused drugs, raised $150.0M of Series C venture funding led by SR One Capital Management.

Upgrade, developer of a financial technology platform, raised $165.0M of Series Ge venture funding led by Neuberger Berman.

Umiaile, developer of autonomous marine monitoring systems, raised $1.58B of seed funding led by Incubate Fund US.

Quantum-Systems, developer of commercial unmanned aerial systems, raised EUR 310.0M of Series C venture funding led by Balderton Capital at a pre-money valuation of EUR 2.69B.

General Intuition, operator of a frontier AI research lab, raised $133.7M of Series B venture funding led by Innovation Endeavors.

Deel, developer of a global workforce management platform, raised $300.0M of Series E venture funding led by Ribbit Capital at a pre-money valuation of $17.0B.

Adcytherix, developer of an antibody-drug conjugate platform, raised EUR 105.0M of Series A venture funding led by Angelini Ventures, Andera Partners, Bpifrance, and Kurma Partners.

Plata, operator of a financial platform, raised $250.0M of venture funding led by TelevisaUnivision, Kora Management, and Moore Strategic Ventures at a pre-money valuation of $2.85B.

Odds of the Day 🍒 

Kalshi traders are pricing in a 40% chance of Kevin Hassett becoming the Fed Chair.

*New Traders on Kalshi receive a $20 bonus of trading credit when depositing $100+ with the code “HYH”.

Noteworthy Chart 🧭

Meme Cleanser 😆 

Until next time!

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