Daily · AI Capex, Fed Hold, and Iran · October 29, 2026

Key points

AI Infrastructure: Capex vs. Cash Flow

Alphabet shares fell 13% in early trading on Thursday after the company reported negative free cash flow of $9.07 billion for the third quarter, compared to analyst expectations of a positive $2.70 billion. Revenue grew 25% year-on-year to $127.58 billion, but search advertising revenue of $63.35 billion missed estimates, with Chief Business Officer Philipp Schindler attributing the deceleration partly to lower monetization within AI Mode. Capital expenditures totaled $51.36 billion, missing the $55.09 billion consensus, while long-term debt climbed to $125.1 billion from $21.6 billion a year earlier.

Microsoft reported adjusted EPS of $4.89 against expectations of $4.73, with Azure revenue growing 48% to $33.17 billion. However, Microsoft’s capital expenditures of $45.2 billion fell below the $50.67 billion analyst estimate, leading to a roughly 5% drop in neocloud stocks such as CoreWeave and Nebius. The divergence between hyperscaler spending and free cash flow has raised concerns about the cost of capital for the AI buildout, with Gartner predicting that 80% of neocloud companies will be absorbed or cease operations by 2030.

Samsung Electronics reported a record quarterly operating profit of 107.44 trillion won, up 783.1% year-on-year, driven by AI memory chip demand. Despite the record, shares fell 6.61%, reflecting investor skepticism about whether the current capex cycle will translate into sustained shareholder returns. The KOSPI index lost 181.1 points on Thursday, tracking the broader market’s reassessment of AI profitability.

Fed Holds Amid Inflation and Growth

The Federal Reserve held its benchmark interest rate at 3.75-4.00% on October 28 in a 10-2 vote, with Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting in favor of a quarter-point increase. Chair Kevin Warsh stated that inflation remains 'too high' and that energy prices have moved higher again in recent weeks. The decision came six days before the US midterm elections, leaving the gap between South Korea's and the US key interest rates at up to 1 percentage point.

US third-quarter GDP grew at a 3.4% annualized pace, better than the 3.1% estimate, driven by consumer spending and AI-driven business investment. September PCE inflation accelerated to 3.6% annually, with core PCE at 3.1%. The Atlanta Fed's real-time GDP tracker has shown growth of well over 3% for months. Warsh announced that the FOMC will reduce rate-setting meetings to seven in 2027 and six in 2028, reserving some meetings for broad monetary policy strategy.

The Bank of Canada raised its key rate to 2.5% on the same day, its first hike since July 2023, signaling that inflation pressures are broadening across advanced economies. The ECB held its rates steady, citing rising energy prices as an upside risk to inflation and a downside risk to growth.

Iran: Strike Threats and Diplomatic Efforts

Axios reported on October 28 that the US and Israel may conduct a week-long series of strikes on Iran's leadership, energy, and nuclear facilities after the US midterms in early November. The report cited American and Israeli officials, noting that IDF Chief of Staff Eyal Zamir discussed coordination with CENTCOM commander Brad Cooper ahead of possible attacks. President Trump confirmed that negotiations are ongoing but acknowledged he does not know whether they will lead to a result.

Regional mediators led by Qatar, with Pakistan, Saudi Arabia, Egypt, and Türkiye, are trying to prevent escalation and revive Washington-Tehran negotiations. The mediators' proposal calls for the reopening of the Strait of Hormuz and the lifting of the US blockade in exchange for Iran allowing IAEA inspectors access to nuclear facilities. Iranian Foreign Minister Abbas Araghchi stated that Tehran continues to give diplomacy a chance to succeed.

The Pentagon deployed the USS Theodore Roosevelt and approximately 9,000 troops to the Persian Gulf, with one official noting the deployment could lead to a naval presence of more than 20,000 sailors and Marines. The cost of the war has grown to USD 47.1 billion according to the Pentagon's latest estimate to Congress. Brent crude traded at $114.02 per barrel on Thursday, down from Wednesday but still significantly higher than at the start of October.

ECB Succession and Rate Decision

ECB President Christine Lagarde announced she will step down on February 7, 2027, nearly nine months before her term ends. She informed the Governing Council and European Council President António Costa of her decision, and the EU launched the successor selection process the same day. The departure is fueling speculation about a possible return to French politics ahead of the April 2027 presidential election.

The ECB Governing Council kept its three key interest rates unchanged on October 29, with the deposit facility rate at 2.50%. Inflation rose to 3.8% in September from 3.2% in August, driven by energy price inflation of 18.9%. The Council stated it will follow a data-dependent approach and is not pre-committing to a particular rate path. European natural gas prices topped €100 per megawatt hour, the highest level since 2022, as EU storage stands at 72% full.

Geopolitical and Market Developments

Flavio Bolsonaro landed in Miami on Wednesday after refusing to concede defeat in Brazil's presidential election, declaring himself the rightful president-elect. The US State Department said it will grant him and his family visas, while President Trump called the Brazilian vote 'very strange.' Lula won the runoff with 51.79% of valid votes.

In Israel, the parliamentary election produced no clear winner, with Netanyahu's bloc holding 53 seats and the opposition 48, while Arab-majority parties won a historic 19 seats. The UK Chancellor John Healey announced a one-off £100 energy payment for households and increased the tax on big bank profits from 3% to 6%. The OBR downgraded its growth forecast for next year to 1%.

The US CFTC filed a lawsuit against Utah to block the state's enforcement of its gambling ban against prediction market Kalshi. The FCC voted to ban all Chinese laboratories from testing electronic devices destined for the US market, with US labs given until December 2028 to expand capacity.

Our read

The simultaneous reporting of Alphabet's negative free cash flow and the Fed's hold signals a market reassessment of the AI infrastructure buildout's financial sustainability. While hyperscaler capex remains high, the widening gap between spending and returns is driving volatility in both tech equities and neocloud providers. For decision-makers, this suggests a need to review exposure to AI-dependent revenue streams and monitor the cost of capital for data center investments. The geopolitical risk from Iran remains elevated, with potential post-midterm strikes threatening energy flows through the Strait of Hormuz. Companies should verify counterparties in the Gulf region and update supply chain contingency plans for potential shipping disruptions.

This analysis was produced automatically by a large-language-model system from the public sources listed below. It is AI-generated content: it reflects the sources and the model's processing, not an editorial opinion, and may contain inaccuracies. It is not investment, financial or legal advice and contains no call to action; base decisions on the original sources and on advice from qualified professionals.

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