Stocks Rebound on Strong SpaceX Results as AI Bubble Debate and Tech Earnings Take Center Stage

Vonnie Quinn opened the Bloomberg Brief by reporting that equities were bouncing after strong quarterly results from SpaceX. She also said Elon Musk was looking at what could be a huge merger with Tesla.

She set out the day's other storylines: Citadel's Ken Griffin warned that investors are almost certainly in an AI bubble, while Deutsche Bank's Christian Sewing said he does not see one. More earnings were on deck, including Tesla, Meta, IBM and Texas Instruments.

Asian stocks rebounded after two days of losses, supported by strong earnings from US tech firms including SpaceX. Tech-heavy gauges in the region rose, with South Korea's Kospi index up more than 3%. Indonesian stocks reversed losses of as much as about 2% after the central bank held rates steady.

Data-center stocks in Asia were in focus. South Korea's market was reported to be up around 30% that day, reversing nearly all of the previous day's losses on positive sentiment in the tech space. The outlier was an Australian data-center stock, which fell by more than 40% after the company cut its earnings outlook amid a supply shortage and power supply delays.

Lee's US counterpart noted that the Nasdaq 100 had not materialized into a gain the previous day, while the S&P managed to eke out a gain. The Russell 2000 had been the outperformer, but declines looked likely with SpaceX results and anticipation for Meta and Tesla in focus. Netflix had not helped overnight either.

Yields moved modestly: the 10-year rose a couple of basis points while the 30-year fell a couple of basis points. The market left room for a possible Fed rate hike in December if not in October, although bets for October were mainly on a hold. Brent crude was a major factor, with prices around $111 a barrel, which was described as very elevated and less than two weeks before the midterm elections. The Nasdaq 100 was down 3.3% and the Dow down 3% for the month's trading.

Musk said SpaceX and Tesla had formed special committees to explore a potential merger. He said he thought there was a lot of merit to combining companies, because the companies are pretty much in what he called the super intelligence singularity. He cited a lot to be gained from cooperating on developing super intelligence software, chip design, robotics and mass-to-orbit transport. He said he thought it would be a good idea but that it was up to the special committees of both companies.

An equity strategist said the SpaceX-Tesla merger had been rumored for some time, with the two companies sharing natural synergies in robotics, chips, computing and AI. But there is a conflict of interest, the deal has not been confirmed, and the special committees had only been set up. Because Musk is involved in the talks, the strategist said there are still hurdles, including valuation and whether the deal serves each company's shareholders best.

The strategist said Tesla shareholders would have to take on additional risk tied to SpaceX, and would need to think through the different earnings streams and governance issues. The strategist described it as one of the biggest mergers of all time, with enormous complexity. The strategist also noted that Musk is a visionary in many ways, so it is hard to bet against him.

When asked about the rest of the call, the strategist said SpaceX's margins expanded significantly as revenue grew, which the strategist said showed the company was scaling profitably, a major concern for investors ahead of the IPO.

The strategist said SpaceX had reports of very strong numbers, and that the most interesting takeaway was that the margin expanded quite significantly. Vonnie noted that SpaceX surprised to the upside on its earnings, and that details about Anthropic had also come out, showing $16.3 billion in revenue alongside heavy spending and effectively a net loss.

On Anthropic, the strategist said some of the numbers had leaked overnight, and the concern had been whether revenue growth would satisfy the valuation. The strategist said the additional color did not move the needle enough to change that view.

The strategist said the test learnings news had been overshadowed by SpaceX's strong results the previous night. Investors would be closely watching the next comments and the outlook from those companies.

On Mentor, the strategist said some of the catalysts had been announced ahead of the call and the earnings print. The announcement was a very big positive for the stock, as the company made interesting strides in frontier models, and the stock had held up much better than its tech counterparts. On Meta, the strategist said the stock had rallied going into its earnings, and that a lot of cost of capital had been announced, but that new product announcements could be a potential boon for the stock.

Vonnie reported that Deutsche Bank was pushing back on comments like Griffin's, saying Christian Sewing does not see a bubble in AI or in any other part of the financial markets.

Secretary of State Marco Rubio, speaking to reporters in India, said that if it were not for the existence of the United States and the Trump administration, there would be no Ukraine right now, and that Ukraine as a sovereign state would not exist. He said this does not mean Ukrainian fighters should not be highlighted, since they have bravely fought for the country. He said there would be no Ukraine today were it not for the United States supplying Ukraine with billions of dollars.

Rubio spoke after denying reports that the US government had anything to do with the recent slowdown of the Starlink satellite system in Ukraine. The Bloomberg reporter in the segment said the administration had struggled to end the war in Ukraine for a long time despite ongoing diplomatic talks, and that a timeline the president had set for ending it had been missed.

Vonnie reported that Howard Lutnick was throwing a snag into the US-Mexico trade talks at the eleventh hour, with problems suddenly emerging over steel and aluminum tariffs. The reporter said the administration had struggled to lock in these deals, and that the tension was in line with Mexico sending almost 80% of its exports to the United States.

Kallum Pickering of Peel Hunt, speaking on the risks ahead, said markets are increasingly questioning the sustained reliance on debt-financed growth while the Fed leans hawkish. He argued that fiscal discipline is absent in an economy heavily reliant on AI investment. Vonnie read from his note that the US economy is now more leveraged to its own asset markets than at any point in the modern cycle, and asked whether that set the country up for massive wealth destruction if something went wrong.

Pickering said some boom-bust dynamic was almost unavoidable. He said he was slightly concerned by a juxtaposition between resilient income generating savings for investment and an elevated benchmark interest rate environment. He pointed to a K-shaped economy in the US, and said Europe was seeing a similar pattern. Because of government crowding out and excessive debt, the benchmark rate that acts as the hurdle for investment means that anything above that threshold is acceptable, with AI being the obvious example, while anything below it is not. He said he was more concerned by how capital is being allocated, since it is concentrating above the interest rate threshold while other areas are starved.

Pickering said he thought a larger-than-expected tightening cycle by the Fed was unlikely. He argued that central banks recognize the fundamental problem facing the world has changed, from a lack of demand to a lack of supply since 2021. In his view, governments are still pursuing policies that work in a world of demand shortfalls, generating additional demand that central banks can lean against but cannot solve, so they are offsetting one distortion with another.

On the US and China, Pickering said AI may come to the rescue if it produces sustained productivity growth, which would make the bet on US government debt sensible. He framed the AI race as one in which the US is issuing the world a lot of debt and spending that money on AI innovation, while China uses its large labor force. He concluded that the winner would be whichever country the world tolerates excesses from for longest, and said inflation should drift lower next year.

Vonnie reported that Musk openly endorsed combining SpaceX and Tesla during the SpaceX earnings call, saying members of both companies had formed special committees to look at a merger. The results beat expectations, with SpaceX reporting $4.4 billion in net income for the quarter ending in September.

Vonnie also noted that BlackRock CEO Larry Fink warned in Berlin that a potential slowdown in AI could stir inflation, and that Democrats had sued Donald Trump and the Justice Department over what they say is a coordinated effort to erode confidence in the midterms.

In an exclusive conversation with Francine Lacqua at the Berlin Global Dialogue, Bernard Mensah, president of Bank of America International, said the AI bubble question is a good thing to keep asking: are markets stretched, and where do you want to buy or sell. He said he is not being complacent about an AI bubble, and that he thinks that is what is happening. He said one thing that worries him a little is the sovereign yields of the most developed countries.

Lacqua asked whether bond yields could be signaling that equities are in trouble. Mensah said the dynamic is different this time, and that consumer balance sheets are generally in a good place.

Mensah said corporate clients are thinking through supply chains and resiliency, and that many ask whether banks can support them across different countries. He said the first version of globalization was super efficient, while the new world still involves a lot of globalization, but reorganized, with supply chains possibly running through countries such as Mexico to supply North America. He said he saw terrific opportunity in that shift.

Mensah gave an example from financial services: Bank of America had never included in its risk analytics the scenario in which it could not operate from London to supply Europe, but when that happened overnight, it had to find a way to route its supply chain to the EU. On Europe, he said he had not been asked many questions about the French elections, but that core questions concerned market performance, energy costs and whether the region was making progress toward new or resilient energy sources.

Lacqua noted that budget day is on the 28th, with talk of bank levies or surcharges, and asked for Mensah's take on the UK. Mensah said the UK had not changed much over the last year or two in terms of its constraints. He said bond market prices were a little bit at the max, taxes felt a little bit at the max in terms of how much people want to pay, and the government's willingness to look at its expenditure was limited. He described this as a trifecta, and said politicians' job is to make those choices, which he said should be over-indexed on growth.