Meta Beats and Plans New Stock, Tesla Surprises on Cash, SpaceX Hits Phone Stocks

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

Four stories tonight, and two of the biggest landed right after the closing bell. First, Meta. Sales beat forecasts, the outlook for the holidays came in strong, and the company announced a brand new class of stock that works a lot like a two-for-one split. The stock is higher after hours. Second, Tesla, which beat on profit and sales, and surprised Wall Street by bringing in cash instead of burning it, all while the talk of a merger with SpaceX hangs over everything. Third, SpaceX itself, which jumped almost eight percent today, and how its plan to become a phone company sent A-T-and-T, Verizon, and T-Mobile lower. And fourth, the chip and computer names, where Super Micro rallied during the day, and after the bell I-B-M rose while Lam Research fell, even though both beat forecasts. Let's get into it.

First, a quick look at the board. Today was a tech day. The Nasdaq rose about one percent. The S-and-P five hundred rose about six-tenths of a percent, and the Dow added about seven-tenths of a percent, or roughly three hundred sixty points. Small companies lagged, with the Russell two thousand up only about a quarter of a percent. The Nasdaq led, and small caps trailed.

That's close to the opposite of yesterday, when the Dow did the heavy lifting and the Nasdaq finished flat. Today, A-I stocks took the lead again. Technology was the best sector in the S-and-P five hundred, up about one and two-thirds percent. The Philadelphia chip index rose about two percent, with Nvidia up about two and a half percent and A-M-D up more than three. The S-and-P five hundred is now within about one percent of the record high it set earlier this month.

Not everything was up. Communication services was the weakest group, down more than one percent, pulled lower by the phone companies, by Netflix, and by Alphabet. Health care gave back some of yesterday's record run, down about half a percent. Rising stocks only narrowly outnumbered falling ones, so this was a rally led by the biggest names, not a broad one.

The ten-year Treasury yield ended about where it started, near five-point-one percent. Brent crude ended a little higher, around one hundred nine and a half dollars a barrel. And the market's fear gauge, the VIX, fell about three and a half percent, to around sixteen and two-thirds.

Now, the four stories.

Deep dive number one. Meta.

Meta reported after the close, and the headline is simple. The core business is growing fast. Revenue came in at about sixty-four-point-six billion dollars for the quarter. That's up twenty-six percent from a year ago, and it beat the roughly sixty-three-point-four billion analysts expected.

Where's that growth coming from? Almost all of it is still advertising. Meta showed about ten percent more ads than a year ago, and it charged about fourteen percent more for each one. That second number matters. Meta credits its A-I systems, which keep getting better at putting the right ad in front of the right person. It said so directly in its release. Its A-I investments are already delivering substantial extra ad revenue, through stronger engagement, better recommendations, and more efficient ads.

Now, if you only looked at profit, this quarter looks strange. Operating income fell thirty-seven percent from a year ago. Earnings came in at three dollars and eighty-three cents a share. That's not a business falling apart. It's a legal bill. In August, Meta reached an agreement with fifty-two state attorneys general to settle lawsuits over teen mental health and social media. The deal calls for payments of up to about eighteen and a half billion dollars, and Meta booked a charge of almost nine point nine billion dollars this quarter for it. Take that charge out, and Meta says earnings would have been seven dollars and forty cents a share.

The profit comparison to a year ago is also unusual for a different reason. Last year's third quarter had a huge one-time tax charge, which is why net income more than tripled this time. So the cleanest way to read Meta right now is sales, ad prices, and spending, not the bottom line.

Because of that legal charge, Meta also raised its forecast for total expenses this year, to between one hundred seventy-five and one hundred seventy-nine billion dollars. Leave the charge out, and Meta says it still expects operating income this year to come in above last year. And here's a number that says a lot about where the money is going. Meta ended September with about sixty-six thousand eight hundred employees. That's fifteen percent fewer people than a year ago, even as spending soars. Fewer people, far more machines.

And spending is the big story. Meta spent about thirty-four point nine billion dollars on capital projects in the quarter, mostly data centers and the chips inside them. A year ago, that number was about nineteen point four billion. For the full year, Meta tightened its range to between one hundred thirty-five and one hundred forty-five billion dollars. It raised the low end and kept the top end. Analysts had been looking for about one hundred thirty-eight billion.

Here's a detail that shows how big that spending has become. For the first time in a long while, Meta spent more on equipment and leases in a quarter than it brought in from its operations. Operating cash flow was about thirty-two point eight billion dollars. Free cash flow, what's left after that spending, came in at negative two point one billion. Meta still has more than eighty-two billion dollars in cash and securities, so this isn't a crisis. But it tells you this company is now putting nearly every dollar it makes back into A-I.

What does Meta have to show for it? The new product everyone is watching is Muse, Meta's A-I personal assistant, which can do things like organize email and hunt for deals online. On the call with analysts, Mark Zuckerberg said more than ten million people in the U.S. and Canada have set up Muse agents in about a month and a half. He said engagement and retention are off to a strong start, and that shopping is the biggest use. Meta also launched Muse Wonder, which it calls its first frontier model, and it's charging power users monthly subscriptions to use it. That's early money, and analysts say it won't move the numbers for a while. But it's Meta's first real shot at making money from A-I directly, not just through ads.

Then there's the outlook. Meta expects fourth-quarter revenue between seventy-three and seventy-six billion dollars. The middle of that range is above the roughly seventy-three point seven billion analysts were looking for. That's the line that likely mattered most after hours. Reality Labs, the unit that makes headsets and smart glasses, lost about four point one billion dollars this quarter on less than half a billion in sales. Meta now expects that unit to lose eighteen to nineteen billion dollars this year. Meta also said it expects to keep investing aggressively next year, and to sustain strong overall revenue growth through twenty twenty-seven. And it expects those Reality Labs losses to narrow next year to around fifteen billion dollars, as money shifts toward A-I.

Now, the surprise. Meta is creating a new class of stock, called Class C, with no voting rights. Starting in January, every shareholder will get one new Class C share for each share they already own. Meta says that should work like a two-for-one stock split for the shares people trade today. Your voting power doesn't change. Why do it? Meta says it wants a new class of shares it can use to raise money, pay employees, and make deals, while keeping the company founder-led. In plain terms, it gives Meta a new currency to fund this A-I build-out, without diluting Mark Zuckerberg's control. Meta also signed what it calls a Founder Alignment Agreement with him, covering his sales of the new shares and his service at the company.

One more item from the filing. Meta disclosed that Zuckerberg is weighing a move out of California because of a proposed state wealth tax on the ballot, which Meta says could leave him with a multi-billion-dollar tax bill.

There was one weaker number. Daily users across Meta's apps came in at three point six four billion, up three percent from a year ago, but just shy of what analysts expected.

So how did the stock react? Meta rose about half a percent during the regular session, and after hours it was higher by a few percent, with the gain moving around as investors listened to the call. Here's the takeaway. Meta is the first of the giant cloud and A-I spenders to report this season. Alphabet and Microsoft report next Wednesday, and Amazon reports next Thursday. Meta just gave investors a version of the A-I story they wanted to hear. The spending is huge, but the ad business is growing faster because of it, and the holiday quarter looks strong.

That matters well beyond Meta. Those giant spenders are the biggest customers for Nvidia, for the server makers, and for the companies building data centers. Every time one of them says it will keep spending, it supports the whole A-I trade. Meta didn't give a number for next year yet. It said it's still working on its budget and capacity plans, but that it expects to keep investing aggressively. So next week, when Alphabet, Microsoft, and Amazon report, investors will be listening for the same two things. How much more are you spending, and what are you getting back for it?

Deep dive number two. Tesla.

Tesla also reported after the close, and on the headline numbers it beat. Adjusted earnings came in at forty-eight cents a share, versus about forty-three cents expected. Revenue was about twenty-eight billion dollars, a bit above forecasts, and roughly flat from a year ago.

But the number that caught Wall Street off guard was cash. Analysts expected Tesla to burn almost five billion dollars this quarter, because it's spending so heavily on robots, A-I computing, and its Cybercab robotaxi. Instead, Tesla brought in about one and a half billion dollars of free cash flow. The reason is that it spent far less on new projects this quarter than analysts expected. Tesla turned cash-flow negative last quarter, so this is a sharp swing back.

Now, the car business itself is still under pressure. Revenue from selling cars fell about three percent from a year ago, to about twenty and a half billion dollars. Tesla delivered about four hundred eighty-seven thousand vehicles. That's about two percent fewer than a year ago, but well ahead of what Wall Street expected. High gas prices, especially in Europe, helped. In the U.S., Tesla is still feeling the loss of the federal E-V tax credit, which pulled sales forward into last year's third quarter before it ended. And it faces cheaper, newer models from Chinese rivals like B-Y-D.

Profit is down too. Net income fell twenty-nine percent from a year ago, to about seven hundred eighty-seven million dollars, or twenty-two cents a share. That's what heavy spending on A-I and robotics looks like on an income statement.

What's growing? Two things stood out. First, self-driving software. Tesla said more than three-quarters of new cars delivered in North America now come with its Full Self-Driving system, which still requires a driver to supervise. That's up about twenty percentage points from last quarter. Active subscriptions rose sixty-seven percent from a year ago, to about one point seven four million. Second, the robots. Tesla said its Optimus humanoid robot has started production at its Fremont, California factory. It says the current way it's building Optimus is suitable for a commercial product. Tesla also put its Cybercab, the robotaxi with no steering wheel or pedals, into its ride-hailing fleet in Austin.

And then there's the question hanging over every Tesla headline right now. SpaceX. On SpaceX's earnings call last night, Elon Musk said a merger of his two companies would be, in his words, a good idea, and that both companies have formed special committees of independent directors to study it. Asked about it, he said he felt like he was, quote, tap dancing through a minefield. He also cautioned against treating a deal as a sure thing. He said he's a conflicted party, so he can't be part of those committee talks. And he said on the Tesla side, a deal would need the support of half of all shares, which he called quite a high hurdle.

That's part of why Tesla stock rose about three and a half percent today, before the report even came out. After the results, it was a little higher after hours. Tesla's call with analysts starts at five-thirty Eastern, and every question that touches the merger will get close attention. Here's the way to think about it. A combined company would bring Tesla's cars, batteries, and robots under one roof with SpaceX's rockets, Starlink internet, and A-I computing. The two already work together, including on a chip factory in Texas. But nothing has been agreed, and Musk himself is telling people not to assume it happens.

So what should you listen for from the call? Three things. First, how much Tesla plans to spend from here, since the lower spending this quarter is what produced the surprise cash. Second, how fast the Cybercab and the robotaxi service can grow, and what regulators are asking about a car with no steering wheel. And third, whether Musk or the board says anything new about how a SpaceX deal would work, and who would get to vote on it.

Deep dive number three. SpaceX, and the phone companies.

SpaceX had a huge day. The stock closed up almost eight percent, a day after its second report as a public company. As we covered last night, revenue more than doubled to about fourteen point six billion dollars, and the company turned a profit. Its A-I business, which sells computing power to companies like Anthropic and Google, is now its biggest.

But today, the more interesting move was in the stocks that SpaceX could hurt. A-T-and-T fell about six and a half percent. Verizon fell about two percent, and T-Mobile fell about two and a half. Why? SpaceX has said it wants to turn Starlink into a major U.S. mobile carrier, and it's buying a block of low-band wireless spectrum to do it. That's the kind of airwaves phone companies use to cover big areas. Investors are starting to treat SpaceX as a real future competitor for your phone bill.

And SpaceX already has a big head start with customers. Its connectivity business, which is mostly Starlink, brought in about five and a quarter billion dollars last quarter, up sixty-nine percent from a year earlier. Starlink ended the quarter with about thirteen point six million consumer subscribers, up from about twelve million three months earlier. It also connects more than thirty-eight hundred aircraft. Today, that's mostly home internet, plus service on planes. The fear on Wall Street is what happens if those same satellites, plus new airwaves, start offering phone service directly to the phone in your pocket.

What makes the A-T-and-T drop striking is that its own report was good. Revenue rose about five percent, to about thirty-two point three billion dollars, ahead of forecasts. Adjusted earnings of sixty-five cents a share also beat. A-T-and-T raised its full-year profit outlook, to about two dollars and forty cents a share. It also stood by its target of at least eighteen billion dollars of free cash flow this year. None of that mattered today.

A-T-and-T's chief executive, John Stankey, pushed back on the SpaceX worry during the call. He said investors shouldn't, in his words, over-rotate on one carrier of low-band spectrum. His point was that a phone network is about more than airwaves. He said a big share of mobile traffic in a city like Chicago starts indoors, inside buildings, stadiums, and hospitals, where satellite signals struggle. Building a network that works there, he said, takes many years and huge investment. He did say satellites are great for reaching rural areas, and could help A-T-and-T serve those places more cheaply.

So who's right? That's the debate investors are pricing right now. In the near term, A-T-and-T's business looks steady. Over the long term, the market is asking how much of the phone business a company with thousands of satellites, deep pockets, and Elon Musk at the top could take. Today, the market leaned toward worrying about it.

Before we move on, a few of this morning's earnings movers finished the day this way. Netflix fell about five percent, after narrowing its full-year sales forecast to the low end of its range. Capital One rose about two and a half percent after its profit rose from a year ago. United Airlines finished up about four percent. It missed forecasts and gave a weak outlook because of fuel costs, but revenue hit a record and travelers are still booking. Intuitive Surgical, the maker of the da Vinci surgical robot, finished down a little more than two percent, a much smaller drop than this morning. And Danaher completed a full reversal, closing up more than four percent after starting the day lower.

Deep dive number four. The chip and computer makers.

Let's start with the stock that set the tone this morning. Super Micro Computer, which builds the servers that A-I chips go into, rose about nine and a half percent. It was one of the best performers in the S-and-P five hundred. Super Micro raised its forecast for the quarter to between eighteen and a half and nineteen and a half billion dollars in sales, up from fourteen and a half to fifteen and a half billion. It also forecast profit margins above what Wall Street expected. That told investors demand for A-I servers is still strong. It lifted the other server makers too. Dell rose more than five percent, and Hewlett Packard Enterprise rose more than three and a half.

Then, after the close, three big tech names reported, and the stocks went three different ways.

I-B-M rose after hours. It was already the best performer in the Dow today, up about four percent, and after the bell it added about three more. Revenue was about seventeen point one billion dollars, up about five percent from a year ago, and ahead of forecasts. Adjusted earnings of two dollars and ninety-five cents a share also beat. The standout was software, up eight percent, led by data software up nineteen percent and Red Hat up eleven. I-B-M also raised its outlook for free cash flow. It now expects that to rise by more than one billion dollars this year. Hardware helped too. Infrastructure revenue rose four percent. Inside that, its distributed infrastructure business, which includes servers and storage, jumped thirty-one percent, while its Z mainframe business fell twenty percent. Consulting was flat. The one weaker spot was profit margins, which came in a bit below what analysts expected. Chief executive Arvind Krishna said clients are now deploying what he called super intelligence to transform entire operations, not just narrow problems. Remember, I-B-M stock had been lagging the market this year going into today, so a clean beat lands differently.

Lam Research went the other way. Lam makes the machines that etch and lay down the layers on computer chips. It posted record sales of about eight point two billion dollars, up about twenty-two percent from the prior quarter, and beat forecasts on both sales and profit. Its outlook for the next quarter, about eight point six billion dollars in sales, was also a little above forecasts. And still, the stock fell about five percent after hours. The issue is expectations. Lam's stock has run up a lot over the past year, and investors were hoping for a bigger step up. The forecast was only slightly above estimates, and the range was wide, plus or minus about four hundred million dollars. That's a classic case of good news already being in the price. And it matters beyond Lam. Chip equipment makers sell the tools that every chip factory needs, so their outlook is a read on how much chipmakers plan to spend next year. Investors wanted a louder signal than they got tonight.

Texas Instruments landed in the middle. The analog chip maker, whose chips go into cars, factories, and appliances, reported sales up about twenty-eight percent from a year ago, to about six point one billion dollars, and beat forecasts. For the fourth quarter, it guided to sales between five point eight and six point three billion dollars, above the roughly five point seven five billion analysts expected. But the stock had already risen about two and a half percent during the day, and after the close it was about flat. Texas Instruments is worth watching for a different reason than the A-I names. Its chips go into ordinary things, like cars, factory equipment, and home appliances. So when its sales grow by more than a quarter from a year ago, and its outlook beats forecasts, that's a sign demand in those everyday markets has picked back up, not just in data centers.

So what do these three tell us together? A-I demand is real, and it's spreading. You see it in servers at Super Micro and Dell, in chip equipment at Lam, and in software at I-B-M. But after a big run in chip stocks, a beat isn't always enough. The bar is high, and the stocks that ran the most are being judged hardest.

Let's wrap it up. Today, A-I stocks led the market higher again. SpaceX jumped, the server makers rallied, and the chip stocks rose, while the phone companies fell on worries about SpaceX as a new rival. After the bell, Meta showed its ad business is growing fast enough to keep investors on board with its A-I spending, at least for now, and announced a new class of stock. Tesla surprised with positive cash flow, and the merger question isn't going away. And in chips and computing, I-B-M rose while Lam Research fell, a reminder that expectations matter as much as results. The A-I build-out is still the force driving this market. The question each night this earnings season is whether the companies paying for it, and the companies selling to them, can keep clearing a bar that keeps getting higher.

Here's what to watch into tomorrow. First, whether Meta's gain holds when regular trading opens, and whether it lifts the other big A-I spenders ahead of their reports next week. Second, anything new from Tesla's call tonight on the merger, robots, or next year's spending. Third, whether chip equipment stocks follow Lam lower, or shrug it off. And tomorrow morning, Procter and Gamble reports before the bell.

We'll have all of that, plus the futures, first thing in the morning. Thanks for listening. I'm Trade and Ticker.