Caterpillar and Deere Slide, Micron's $3,000 Target, SpaceX's Nvidia Debt, Levi Strauss

Good evening. This is Trade and Ticker. Wednesday, October seventh, twenty twenty-six. Your evening company deep dive after the close.

Four stories tonight, and a single thread runs through all of them: the price of money. First, Caterpillar and Deere, the makers of the big yellow and big green machines, which got hit from two directions at once, by rising long-term interest rates and by a new federal inquiry into the farm equipment business. Second, Micron, the memory chip giant that is now worth more than a trillion dollars, and the Wall Street analyst who says it could still nearly triple from here. Third, SpaceX and Nvidia, and a reported forty-billion-dollar plan to borrow money to buy A-I chips. And fourth, Levi Strauss, which reported right after the closing bell, with a profit boost from an unusual source: tariff refunds. Then a quick look at Applied Digital's report, too. Let's get into it.

A quick look at the board first. Stocks pulled back a day after record closes for the S-and-P five hundred and the Nasdaq. The Dow finished about two-thirds of a percent lower, down roughly three hundred forty points, and it was the weakest of the three. The S-and-P five hundred finished about two-tenths of a percent lower, and so did the Nasdaq. Smaller companies had a rougher day, with the Russell two thousand down about one-point-three percent. The losses snapped four-day winning streaks for the S-and-P and the Dow, and ended a five-day run of gains for the Nasdaq. Even with today's dip, the S-and-P is still up about one percent for the week, and the Nasdaq is up a little more than that.

The story of the day was the bond market. The ten-year Treasury yield touched about five-point-three-seven percent this morning, its highest level since April of two thousand two. The thirty-year yield touched about five-point-seven-three percent, its highest since May of two thousand two. Then, at one o'clock Eastern, the Treasury sold thirty-nine billion dollars of ten-year notes, and demand was strong. The auction cleared at a yield of five-point-three percent, a little better than traders expected, and buyers that include foreign central banks took about four-fifths of the notes. Yields eased from their highs after that, and stocks cut their losses. Oil helped too. Brent crude briefly topped one hundred dollars a barrel, then turned lower after the International Energy Agency agreed to speed up the release of emergency oil stocks, with diesel first in line. Brent ended the day around one hundred dollars, and U.S. crude finished just under ninety.

At two o'clock Eastern, the Federal Reserve released the minutes from its September meeting, the one where it raised interest rates for the first time in three years, by a quarter point, to a range of three-and-three-quarters to four percent. The headline: most officials thought another increase would likely be appropriate by the end of the year. But they also said they would take it one meeting at a time. The minutes show officials worried that higher energy prices and the A-I building boom could spread into broader, more stubborn inflation. Several said they did not think rates were doing much yet to slow the economy. Investors took it in stride. Traders now see less than a one-in-five chance of another hike at the end of this month, down from almost two-in-five a week ago, based on the CME FedWatch tool. The bigger bet is on December.

Higher yields hit the parts of the market that depend on borrowing. Homebuilders fell about three percent as mortgage rates climbed. Bank stocks were lower. Cybersecurity names were under pressure, with CrowdStrike down nearly five percent and Palo Alto Networks down more than three. And one bright spot from last night's show: Constellation Brands, which slipped before the opening bell on weak beer sales, turned around and finished about two percent higher.

That is the setup. Now let's start with the biggest drag on the Dow.

Caterpillar and Deere.

If you have driven past a construction site, a mine, or a farm, you have seen these companies' machines. Caterpillar makes bulldozers, excavators, mining trucks, engines, and turbines. Deere makes tractors, combines, and a lot of construction gear too. On Wednesday, both stocks fell hard, and they fell for two different reasons that landed on the same day.

Start with Caterpillar. The stock finished nearly six percent lower. It was the worst performer in the Dow, it was the single biggest weight on the average, and it was the company's steepest one-day drop since the end of July.

Reason number one is interest rates. Think about how these machines get bought. They are expensive, and customers rarely pay cash. They borrow, or they lease, often through the manufacturers' own finance arms. Caterpillar runs one called Cat Financial. Dealers also carry big rental fleets, and those fleets are financed too. So when long-term borrowing costs jump to their highest level in more than twenty years, the math on buying a new machine gets harder for contractors, miners, and rental companies. The fear is not that demand vanishes tomorrow. The fear is that some customers wait.

And here is the context that makes today's drop sharper. Caterpillar has been one of the great stories of this market, and a lot of that story is about A-I. When data centers need backup power, or sometimes their main source of power, many of them turn to large generators and turbines, and Caterpillar makes those. In its second-quarter report in August, Caterpillar posted more than twenty billion dollars in quarterly sales for the first time in its history, up twenty-four percent from a year earlier. Its power generation sales rose twenty-nine percent, to about three-point-one billion dollars, and the company said that growth came mainly from data center customers. Construction equipment sales in North America jumped fifty percent. Adjusted earnings came in at eight dollars and seventeen cents a share, up from four dollars and seventy-two cents a year earlier. And it ended the quarter with a record order backlog of about seventy-two billion dollars.

That kind of growth earned the stock a premium price. Caterpillar closed at an all-time high of about one thousand sixty-five dollars a share at the end of June. Even after today, it is still up roughly forty percent this year. But it is now about a quarter below that June record. When a stock is priced for a lot of good news, and the bond market suddenly makes the future more expensive, it is the kind of stock that gets sold first.

Reason number two hit the farm side of the business, and it hit Deere hardest. On Wednesday morning, the Federal Trade Commission and the Agriculture Department launched a joint public inquiry into how farm equipment is made, sold, and serviced, including possible anticompetitive conduct. This is not a lawsuit. It is a formal request for information. The agencies want to hear from farmers, independent repair shops, and current and former employees of equipment makers and dealers. They are asking about business models, contract terms, and any firsthand cases of restrictions, penalties, or retaliation. The Agriculture Department says it has been getting a growing number of complaints from farmers who face barriers to buying equipment and getting the service that keeps it running. Comments are due by December seventh.

Deere has been here before. In July, it settled an F-T-C case over repair restrictions, joined by five states. Under that deal, farmers and independent repair providers get access to the same kind of repair tools and software that authorized dealers use, so a farmer can fix his or her own John Deere tractor. The new inquiry goes broader than repair, into how dealers sell and service equipment overall. Investors read it as a sign that more government scrutiny could be coming.

Deere finished close to four percent lower. The other big farm equipment makers fell even more. CNH Industrial, which makes Case and New Holland tractors, and AGCO, which makes Fendt and Massey Ferguson, each dropped about six percent. Caterpillar was not named in the inquiry, and it is mostly a construction and mining company, but it got swept up in the same selling on a day when rates were already pressuring it.

There is one more piece that ties this together, and it came from the Fed minutes this afternoon. A couple of Fed officials noted that conditions in the farm economy, especially for crop farmers, have been strained by worsening drought and higher prices for diesel and other inputs. So farmers are already squeezed. Now the machines they buy face more scrutiny, and the money they borrow to buy them costs more.

Into the coming weeks, watch three things. First, the ten-year yield. If it keeps climbing toward five-and-a-half percent, expect more pressure on any company that sells big-ticket equipment on credit. Second, Caterpillar's next quarterly report, and whether the data center power business and that record backlog keep growing fast enough to outrun higher borrowing costs. Third, whether the farm equipment inquiry produces anything concrete after the comment period closes in December, or stays a fact-finding exercise.

Caterpillar and Deere in one breath: Caterpillar down nearly six percent as yields hit twenty-four-year highs, Deere down close to four percent and its peers down about six on a new federal inquiry into the farm equipment business, and a reminder that even the A-I power trade is not immune to the bond market. That is the first deep dive.

From the companies that build the power plants for data centers to the company that makes the memory inside them. Micron.

Micron Technology.

Micron, based in Boise, Idaho, makes memory chips. For decades, that was considered one of the toughest businesses in technology. Memory was a commodity. One company's chip worked about the same as another's, prices swung wildly, and the whole industry went through brutal boom-and-bust cycles every few years. Investors learned to treat memory stocks with suspicion, and to pay very little for their profits, even in good times.

Then A-I happened. A-I models need enormous amounts of memory, especially a specialized, very fast kind called high-bandwidth memory, which sits right next to the processors in A-I systems. Demand has run far ahead of supply. And Micron's numbers have gone somewhere almost nobody predicted.

Look at the last report, from September thirtieth. In the quarter that ended in early September, Micron's revenue was about fifty-four-point-two billion dollars. A year earlier, the same quarter brought in about eleven-point-three billion. That is close to five times as much. For the full fiscal year, revenue was about one hundred thirty-three billion dollars, up from about thirty-seven billion the year before. Its gross margin, meaning the share of each sales dollar left after the cost of making the chips, was about eighty-seven percent. For a memory company, that is unheard of. And Micron guided to even more this quarter: revenue of about sixty-one-and-a-half billion dollars, give or take one-and-a-half billion. Chief executive Sanjay Mehrotra said Micron expects an even stronger fiscal twenty twenty-seven.

The stock has followed. Through Tuesday, Micron was up about two hundred sixty-six percent this year, and about four hundred sixty-three percent over the past twelve months. Its market value is now around one-point-two trillion dollars.

And on Wednesday, one analyst said that is just the start. Gil Luria at the investment bank D.A. Davidson raised his price target on Micron to three thousand dollars a share, up from twenty-one hundred. Micron closed Tuesday at about one thousand forty-six dollars. So his target implies the stock could nearly triple over the next year. His line to clients: "If you don't buy it, they will."

Here is his argument, in plain terms. Luria says memory is no longer a commodity. A cloud company building an A-I data center now designs it around a specific memory supplier's product, so it cannot simply swap one maker for another. He says demand for memory will keep outstripping supply in twenty twenty-seven and twenty twenty-eight, because A-I models work better, run faster, and handle longer conversations with more memory. And he points to a big change in how Micron sells. The company wants about half of its revenue tied to long-term customer agreements, many with floor and ceiling prices. Those contracts are not easily canceled, which takes some of the boom-and-bust risk out of the business. On the earnings call last week, Micron's finance chief, Mark Murphy, said that even at floor prices, the company expects margins meaningfully above any prior cycle peak.

The heart of Luria's call is not about earnings. It is about how much investors are willing to pay for them. Right now, Micron trades at about six times expected earnings for its fiscal year that ends next August. Luria thinks it deserves something closer to the broader market, about nineteen times his estimate. He told CNBC, "I'm fully aware of how unusual it is to have a price target that's three times the level of a stock, especially when it's a trillion-dollar stock already."

The market liked hearing it. Micron finished about four percent higher on a day when chip stocks overall finished lower. It had been lower in early trading before turning higher.

Not everyone is buying the full story. The team at CNBC's Investing Club, which owns Micron, said it agrees the stock is too cheap but is not ready to sign on to a near-triple. Their point is interesting: Luria's earnings estimate for next year is actually below the Wall Street average. So he is not more bullish about Micron's business than everyone else. He is betting that investors will change their minds about what memory profits are worth. And the history of the memory industry says that when supply finally catches up with demand, prices can fall fast, and profits fall with them. That is why investors have been reluctant to pay up.

Into the coming months, watch three things. First, whether Micron delivers on that sixty-one-and-a-half billion dollar revenue forecast, and what it says about demand into twenty twenty-eight. Second, how much of its business gets locked into those long-term agreements, because that is the core of the argument that this cycle is different. Third, capacity. Every memory maker is racing to add supply, and the moment supply catches up is the moment the old cycle could come back.

Micron in one breath: revenue up nearly five times from a year ago, a market value above a trillion dollars, a new Street-high target of three thousand dollars from D.A. Davidson, and a stock that finished about four percent higher while the rest of the chip group fell. That is the second deep dive.

Now from the chips that remember to the chips that think, and to the question of how all of them get paid for. SpaceX and Nvidia.

SpaceX and Nvidia.

SpaceX is not just a rocket company anymore. Elon Musk's company went public in June in a record-breaking initial public offering, and today it also runs huge A-I data centers in Memphis, Tennessee, called Colossus. It also sells computing power to other companies. It has signed compute deals with Google and Anthropic, among others.

Late Tuesday, the Financial Times reported that SpaceX is seeking about forty billion dollars in financing to buy Nvidia's A-I chips. According to the report, that would break down into roughly ten billion dollars in bank loans and about thirty billion dollars in investment-grade bonds. The private credit and investment firm Apollo is expected to lead the deal, and the bond giant Pimco is among a small group of lenders in talks. The deal is expected to close in twenty twenty-seven. CNBC also reported on the talks and said they are preliminary, and that the chips themselves would likely serve as collateral for the debt.

Why does SpaceX need so many chips? Musk said last month that the company's newer Memphis data center could more than double its count of Nvidia chips by December. He has said the company plans to use Nvidia hardware exclusively for its data centers. Forty billion dollars buys a lot of those chips.

So what did the market think? SpaceX shares ended the day lower. Nvidia finished a little lower too, in line with the broader chip group. At first glance, a forty-billion-dollar order should be great news for Nvidia. But investors are weighing something bigger here: how the A-I boom is being paid for.

Here is the shift. For the past few years, the biggest A-I spenders, companies like Google, Amazon, and Meta, mostly paid for data centers out of their enormous cash flows. Increasingly, they are borrowing. Meta, Amazon, and Google have all sold big bond deals. SpaceX itself sold about twenty-five billion dollars of bonds just two weeks after its I-P-O. Morgan Stanley estimates that A-I infrastructure will require about one-point-five trillion dollars of outside financing by twenty twenty-eight. Nvidia is even helping build the plumbing. In August, it partnered with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR on financing platforms meant to raise more than five hundred billion dollars for A-I projects.

Now connect that to today's bond market. When the ten-year yield is at its highest level since two thousand two, every dollar of that borrowing costs more. And CNBC reported that since SpaceX's bond sale in June, A-I-related bonds have sold off, and the extra yield investors demand to hold corporate debt has widened. Lenders are becoming more selective.

And then there is the collateral question. If chips back the loan, the lenders need to know what those chips will be worth in a few years. Right now, the credit market is working on the assumption that top-end A-I chips hold their value for about seven years, because computing power is scarce. If that assumption holds, the loans look safe. If newer chips make today's chips obsolete faster than expected, the collateral shrinks. That is the debate under the surface of every A-I debt deal.

Even the Fed noticed. In today's minutes, a few officials pointed to rising expectations for A-I-related borrowing as one of the reasons long-term Treasury yields have climbed. Think about that. The A-I building boom is now big enough that the Fed is discussing whether its borrowing needs are pushing up interest rates for everyone.

Into the coming months, watch three things. First, whether this financing actually comes together, and at what interest rate, because that will tell you how much appetite lenders still have for A-I debt. Second, more deals like it. Lenders expect more A-I debt sales, and they are demanding higher yields to buy them. Third, Nvidia's next earnings report, and what it says about how many of its sales are being funded with borrowed money.

SpaceX and Nvidia in one breath: a reported forty-billion-dollar plan to borrow for Nvidia chips, with Apollo expected to lead and the chips likely serving as collateral, SpaceX shares lower on the news, and a bigger question about what happens to the A-I boom when the money it runs on gets more expensive. That is the third deep dive.

And finally, the report that came out right after the closing bell. Levi Strauss.

Levi Strauss.

Levi Strauss is the smallest company tonight, but it is one of the most famous brands in the world. It is credited with the first blue jeans, more than one hundred fifty years ago, and today it sells jeans and casual clothes in about one hundred twenty countries. It also owns Beyond Yoga, the activewear brand. It recently sold Dockers, the khaki brand, so those results no longer count in its continuing business.

Levi shares were already under pressure before the report, falling about five percent during the regular session.

Here are the headline numbers for the quarter that ended in late August. Revenue rose about four percent to one-point-six-one billion dollars. That was a hair below analysts' estimates. Excluding currency moves, revenue rose about five percent. Adjusted earnings came in at forty-eight cents a share, up from thirty-four cents a year ago, and well above the thirty-six cents analysts expected.

But that earnings number comes with an asterisk, and the asterisk is the most interesting part of the report. Levi received refunds of tariffs it had paid under the emergency trade law known as the International Emergency Economic Powers Act. Those refunds added about sixteen cents a share to earnings. Levi spent about five cents of that back on the business, mostly on promotions and marketing, so the net benefit was about eleven cents. Take out that eleven cents, and earnings were about thirty-seven cents a share, right around what Wall Street expected.

And Levi is not alone. Caterpillar booked about three hundred ninety-two million dollars of expected tariff recoveries under that same law in its second quarter. Even the Fed minutes mentioned tariff refunds as one of the things supporting business activity. Refunds are showing up in company after company, and investors will be trying to separate one-time help from the real business all through earnings season.

Now the business itself. There was good news and not so good news. The good news was outside the U.S. and in wholesale, meaning sales through department stores and other retailers. Wholesale revenue rose six percent. Asia grew about ten percent, excluding currency moves, and Europe about five percent. Online sales grew ten percent.

The not so good news was Levi's own stores in the U.S. Revenue in the United States fell about one percent. Levi's direct-to-consumer business, its own stores and website, grew only two percent, and comparable sales were flat. Chief executive Michelle Gass was direct about it. She said the direct-to-consumer business "fell short of our internal expectations," but that the company moved quickly to address it and is seeing strength heading into the holiday season, including in the U.S. She said that business is on track for mid-single-digit growth in the fourth quarter.

Profit margins looked great on paper. Gross margin jumped four-and-a-half percentage points to about sixty-six percent. But again, the tariff refunds did most of that work.

Then the outlook, which pulled in two directions. Levi raised its full-year adjusted earnings forecast to a dollar fifty-four to a dollar fifty-six a share, up from a dollar forty-six to a dollar fifty-two. It also announced plans for a one-hundred-million-dollar accelerated share buyback. But it now expects reported revenue growth of about seven percent for the year, the bottom of its earlier range, which was seven to seven-and-a-half percent. The company blamed currency moves for that. Excluding currencies, it actually nudged its growth forecast to the top of its range, about six percent. So the underlying business forecast held up, while the stronger dollar took a little off the reported number.

How did the stock react? Levi shares initially rose in after-hours trading, then settled back to roughly flat. That tells you investors saw the same thing: a profit beat mostly powered by refunds, a U.S. store business that needs to pick up, and a holiday quarter that management says is starting well.

Into the holiday season, watch three things. First, whether that U.S. store business really accelerates in the fourth quarter, as Gass promised. Second, how much of the remaining tariff refund money Levi spends on promotions, and whether it buys real sales growth. Third, the shopper. With inflation still elevated and energy prices high, a value-minded consumer could decide that a new pair of jeans can wait.

Levi Strauss in one breath: revenue up about four percent to one-point-six-one billion dollars, adjusted earnings of forty-eight cents helped by about eleven cents of net tariff refunds, a U.S. store business that fell short, a higher profit forecast, and a stock that ended up roughly flat after hours. That is the fourth deep dive.

One quick note before we wrap. Applied Digital, the company that builds and leases data centers for A-I in North Dakota and the South, also reported after the close. Revenue rose about three hundred twenty-two percent from a year ago, to about three hundred forty-two million dollars, though more than half of that came from one-time fit-out work for tenants rather than ongoing rent. The company now has leases covering about one-point-four gigawatts of capacity, worth about thirty-six billion dollars over their initial terms, and two hundred fifty megawatts are now up and running at its first North Dakota campus. Its stock had fallen about six percent during the day ahead of the report.

So let's bring it all together. Stocks backed off record highs today, and the reason was the bond market. The ten-year yield hit its highest level since two thousand two before a strong auction calmed things down, and the Fed's minutes showed most officials still expect one more rate hike this year. That pressure landed on companies that sell big machines on credit, like Caterpillar, and on top of it, Deere and the farm equipment makers got a new federal inquiry. Micron bucked the selling on a bold analyst call that memory has become a different business. SpaceX showed how much of the A-I boom now runs on borrowed money, at a moment when borrowing costs are climbing. And Levi Strauss reminded us that tariff refunds are giving profits a lift that will not last forever.

Here's what to watch into tomorrow morning. At eight-thirty Eastern, we get the weekly report on jobless claims. At one o'clock Eastern, the Treasury sells twenty-two billion dollars of thirty-year bonds, and after today's strong ten-year auction, investors will want to see whether demand holds up at the long end. And we will be watching whether the ten-year yield stays below today's high. We will have the futures board and all of that for you on tomorrow morning's show, before the opening bell.

That is your evening company deep dive. Enjoy the rest of your night. Thanks for listening. I'm Trade and Ticker.