Good morning investors,
Markets are bracing for a second straight session of AI stock pressure as valuation concerns trump strong earnings fundamentals. Palantir's 8% Tuesday drop on no real news beyond its stretched 200x forward P/E ratio has investors questioning whether we've gotten ahead of ourselves, even as AMD's after-hours beat underscores continued robust demand for AI infrastructure. Meanwhile, Bitcoin takes a breather below $100,000 and the Supreme Court prepares to hear arguments that could reshape Trump's entire tariff regime.
Opening Bell: The Valuation Hangover Continues
S&P 500 ($SPY ( ▲ 0.23% )) futures drop 0.2% with Nasdaq-100 ($QQQ ( ▼ 0.32% )) futures down 0.4% as the AI trade faces its second day of reckoning. AMD ($AMD ( ▲ 0.01% )) falls 5% premarket despite crushing Q3 estimates with $9.25 billion revenue (vs. $8.74B expected) and guiding Q4 to $9.6 billion (vs. $9.21B). The issue? Margin guidance merely met expectations, leaving investors wanting more from a stock up 108% year-to-date.
Super Micro Computer ($SMCI ( ▼ 2.52% )) slides 8% on disappointing fiscal Q1 results, though the company raised full-year guidance to $36 billion from $33 billion. Bitcoin dips below $100,000 as profit-taking from large holders meets broader tech weakness, though the pullback looks like healthy consolidation rather than a trend reversal. Treasury yields inch higher as investors await ADP jobs data and ISM services PMI, the best economic indicators available during the ongoing government shutdown.
AMD's Strong Results Can't Overcome the Valuation Narrative
AMD delivered a blowout quarter Tuesday night that in any normal market would spark a rally. Revenue of $9.25 billion beat estimates by 6% and rose 36% year-over-year, with data center revenue hitting $4.3 billion (vs. $4.1B expected). Q4 guidance of $9.6 billion at the midpoint topped consensus by 4%, implying 25% growth.
The game-changing development: massive deals with OpenAI (up to 6 gigawatts of GPUs, with OpenAI taking a 10% equity stake in AMD), Oracle (50,000 GPUs across cloud data centers), and the Department of Energy ($1 billion for Oak Ridge supercomputers). These partnerships fundamentally shift AMD's competitive position against Nvidia's $5 trillion dominance.
So why the 5% premarket drop? Because at 41x forward earnings, even strong execution isn't enough when investors start questioning whether anything can justify current valuations. AMD's market cap of $418 billion now reflects a lot of optimism that the company must deliver on with its MI450 GPU rollout in H2 2026. The fundamentals say yes, but the chart says pause.
McDonald's Proves the Consumer Isn't Dead Yet
In a rare bit of good news for retail investors worried about Main Street, McDonald's delivered same-store sales growth that handily beat estimates even as earnings fell short. U.S. same-store sales rose 2.4% (vs. 1.9% expected), with overall comps up 3.6% despite CEO Chris Kempczinski's warnings about low-income diners pulling back.
The miss came on the bottom line: EPS of $3.22 versus $3.33 expected, with revenue of $7.08 billion just shy of $7.1 billion estimates. But the sales strength is what matters here. Growth in average check size shows pricing power remains intact even as chains wage "value wars" with reintroduced Extra Value Meals and $3.99 Snack Wraps.
International markets drove even stronger growth, with operated markets up 4.3% and licensed markets up 4.7% led by Japan. The takeaway: consumer spending remains resilient enough to support modest growth, but don't expect any margin expansion in this environment.
Novo Nordisk's Weight Loss Reality Check
The Danish pharma giant slashed guidance for the fourth time this year Wednesday, sending shares down initially before recovering to close up 1.7%. The company now expects 8-11% sales growth (vs. 8-14% prior) and 4-7% operating profit growth (vs. 4-10%). Wegovy sales of 20.35 billion Danish kroner missed the 21.35 billion estimate as prescription trends, competition, and pricing pressure mount.
CEO Mike Doustdar acknowledged serving just one million U.S. patients in an obesity market everyone is fighting over, while the company battles disappointing trial results, leadership shakeups, and U.S. tariff headwinds. The bidding war for biotech Metsera intensified as Novo raised its offer to $10 billion Tuesday, up from $9 billion, while Pfizer filed a second lawsuit claiming anticompetitive behavior.
At down 44.8% year-to-date and 50% from highs, Novo trades at the intersection of peak uncertainty and potential value. Jefferies cut to underperform while Berenberg sees a bottom forming, arguing Novo's R&D prowess warrants a premium. The weight loss drug gold rush is over; now it's a margin-compression grind.
Bitcoin's Healthy Consolidation Below $100K
Bitcoin's dip below six figures Tuesday represents profit-taking from large holders rather than any fundamental shift in the bullish narrative. The correlation with tech stocks remains tight, so when Palantir sells off on valuation concerns, crypto follows suit in the short term.
But the bigger picture remains constructive. Bitcoin's run to and through $100,000 was parabolic and needed consolidation. This pullback creates a healthier base for the next leg higher, particularly as we head into December when seasonal tailwinds and year-end flows typically favor risk assets. The fundamentals supporting Bitcoin haven't changed, just the short-term sentiment.
Supreme Court Tariff Case: The Biggest Risk You're Not Watching
Wednesday's Supreme Court arguments on Trump's tariff authority under the 1977 International Emergency Economic Powers Act (IEEPA) represent the biggest policy uncertainty facing markets. The case challenges whether Trump can declare economic emergencies over fentanyl and trade imbalances, then impose blanket tariffs in response.
Legal and trade experts are split 50-50 on the outcome, with Raymond James and Veda Partners both citing coin-flip odds. If the Court sides with lower courts that ruled against Trump, companies could be due refunds on tariffs paid, while the president would need to find alternative authorities or work with Congress on trade policy.
What makes this truly market-moving: a decision expected before year-end that could reshape trade relations globally. Section 232 tariffs on steel and autos aren't in question, but the broader IEEPA powers that enabled most of Trump's trade war are. White House press secretary Karoline Leavitt said Tuesday they're "preparing for Plan B" while expressing confidence in prevailing.
Bottom line: if you're not modeling multiple tariff scenarios for 2026, you're not paying attention to the biggest policy risk on the calendar.
Earnings & Data For The Remainder Of The Week
Today's economic data finally gives us something real to chew on. ADP private payrolls (expected 28,000 vs. -32,000 prior) offer our best read on employment without official BLS data. ISM non-manufacturing PMI (expected 50.8 vs. 50.0) and S&P Global services PMI will show whether the services economy is expanding or stalling.
Earnings continue their relentless pace with Qualcomm, AppLovin, Robinhood, DoorDash, and dozens more reporting. Watch for any commentary on consumer spending trends, AI infrastructure demand, and tariff impacts on margins.
Final Thought
This is exactly the November choppiness I've been discussing for weeks. Pullbacks in bull markets aren't something to fear, they're healthy, necessary, and create opportunities for those patient enough to wait for them.
Look at what's actually happening beneath the surface volatility: we're in the midst of a great earnings cycle with double-digit growth and generally strong performance. AMD just crushed estimates with 36% revenue growth and transformative partnerships. McDonald's is showing consumer resilience. The AI infrastructure buildout continues unabated with hyperscalers still spending aggressively.
What we're seeing is a valuation reset, not a fundamental deterioration. Palantir at 200x earnings needed to come in. AMD at 41x forward multiple potentially deserves scrutiny. This is the market doing its job of pricing in reality versus hype.
I've said consistently that November would present buying opportunities before a strong finish into year-end. We're getting that pullback now. Use it wisely. Focus on companies with proven monetization. I continue to look for opportunities in the mag 7, with specific focus on Google and Amazon.
Bitcoin's dip below $100,000 is a consolidation within a bull market, not a reversal. December's seasonal strength combined with ongoing institutional adoption should provide support for another leg higher into year-end.
The setup remains constructive for those willing to look past the noise. Stay selective, use weakness to add to high-conviction positions, and remember that the best returns often come after periods of doubt.
As always, feel free to reach out with questions about navigating this transitional market.
Best regards,
Dan Sheehan
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.