Memory Is Sold Out Through 2029. The Drawdown Was About Money, Not Demand.

Wednesday, October 28, 2026, written at 9:20 a.m. Eastern, before the opening bell. Futures are split, with the Nasdaq contract up about half a percent on an overnight run of semiconductor and infrastructure results while Dow futures sit a quarter of a percent lower. The Federal Open Market Committee decides at 2:00 p.m. and is not expected to move. Microsoft and Alphabet report after the close. Crude is up more than a dollar and a half on fresh Iran reporting. Marks below are pre-open and will move.

Top Call: The Order Books Opened Overnight and They Are Full Through 2029

Over the past month the market took roughly a quarter out of the companies that physically build artificial intelligence capacity. Data centre builders and equipment makers fell a median 23% from the S&P 500 record close on October 6, KLA lost about 21%, Vertiv about 18%, and short sellers booked an estimated $6bn of paper profit on the move. The stated reason was always some version of the same worry, that rising inflation was lifting rates and that the debt funding this build was getting more expensive and more opaque.

Last night five companies in that supply chain reported and every one of them beat by a wide margin, with order books that are contractually spoken for years into the future. SK hynix earned 83.3 trillion won of operating profit against 76.7 trillion expected, an 80% operating margin, and told the call that DRAM and high bandwidth memory output is effectively sold out through 2029. Vertiv did $4.31bn of revenue against a $3.76bn consensus with organic orders up more than 100%. Seagate guided next quarter to $9.00 to $9.40 of earnings against $8.58 expected and said the vast majority of nearline supply is already committed through calendar 2028, some cloud contracts out to 2030. GE Vernova booked $29bn of orders, up 96% organically, lifting backlog to $197bn. Teradyne and Ultra Clean both cleared comfortably, the latter with revenue up 49%.

Read together, these settle an argument. The drawdown was not a demand repricing. Demand is contracted, dated and in several cases rationed. What repriced was the cost of money, the willingness of lenders to fund the vehicles that buy the hardware, and the market’s tolerance for structures like the $63bn Broadcom special purpose vehicle we spent yesterday’s note on. Those are real concerns and we are not retiring them. But they are balance sheet concerns, and the correct response to a balance sheet concern is to discriminate by funding structure rather than to sell the whole complex. Names that convert orders into cash on their own balance sheet, which is Vertiv, Seagate, SK hynix and GE Vernova, were mispriced into these prints. Names whose growth depends on someone else raising debt against depreciating silicon were not.

The honest caveat sits inside the same sentence. A supplier earning an 80% operating margin while its customers queue for allocation is not a durable equilibrium, it is the peak of pricing power, and the correct question stops being whether demand is real and becomes what happens to these margins when supply finally lands. SK hynix says that does not happen before 2030. Capacity schedules usually disagree with that sort of claim eventually. We would rather own the backlog than the multiple here, but we would own it.

SK hynix: The Print That Moved an Entire Country’s Index

The Kospi rose 6.6% to close at 6,012.44, its first finish above 6,000 and its largest single-day gain since July, with the exchange briefly pausing programme trading on the way up. SK hynix shares added about 10% in Seoul and the American listing was up 8% pre-market. Samsung rose 5%, Micron 2%.

Three things in this release matter more than the headline. First, the margin. An 80% operating margin on a memory business is not a normal cyclical peak, it is closer to what a toll road earns, and it tells you that allocation rather than price is now the binding constraint. Second, the sold-out claim has structure behind it. Signed long-term agreements already cover more than half of 2027 and 2028 capacity, with the rest under negotiation, and management said HBM demand is running at roughly double what the company can supply. Third, HBM4 reached full-scale mass production with yields above plan and is expected to overtake HBM3E in both shipments and revenue in the fourth quarter. That is the part the Nvidia Rubin timeline depends on, and last week the worry was that it was slipping.

The 58% sequential fall in net profit is noise for our purposes. It comes from an 11.6 trillion won foreign exchange loss and investment revaluation inside a 32.6 trillion won non-operating line, not from the business. Anyone trading the net number is trading the won.

Two things keep this from being a clean long. Bernstein’s estimate that Samsung has taken the high bandwidth memory revenue lead still stands and was not addressed. And CXMT in China is reportedly planning limited HBM3E production within two months at 20% to 30% yields against roughly 70% at SK hynix. That yield gap is enormous today and historically it closes faster than incumbents expect. The 2030 shortage claim has a Chinese counterargument attached to it, and it does not need to be right to compress the multiple.

Power, Cooling and Storage: The Same Story Three More Times

Vertiv is the most instructive print of the group because it was the most hated going in. The stock entered the quarter roughly 39% below where it traded after its first quarter report, on a valuation reset driven entirely by financing anxiety. It then delivered $4.31bn of revenue against $3.76bn expected, a 25.2% adjusted operating margin, diluted earnings up 91%, organic orders up more than 100%, and raised full-year revenue guidance to $14.45bn to $14.85bn with earnings to $7.10 to $7.20. Shares were indicated up around 16%. An orders figure that doubles is not a demand problem by any definition available to us.

Seagate shipped a record 198 exabytes of nearline capacity, generated $1.5bn of free cash flow, cut gross debt to $2.4bn and told the call that capital allocation is now shifting toward buybacks and dividends. That last point is the one to hold onto. A storage business that has finished deleveraging in the middle of a capacity shortage, with supply contracted out to 2028 and some cloud agreements running to 2030, has a far better cash profile than the market was giving it. Hard disk remains the least glamorous and most direct read on whether storage is the tightest link in this chain, and the answer this quarter is that it still is.

GE Vernova deserves its own line. Orders of $29bn, up 96% organically, against revenue of $12.6bn is a book-to-bill above two, and backlog of $197bn heading past $200bn next quarter. Management also raised power organic growth to 19% to 21%, narrowed the wind loss, lifted free cash flow guidance to $16bn to $17bn and agreed to acquire Trench Group. Electrical equipment is the physical constraint on data centre construction that nobody can route around with a better chip design, and this is the cleanest statement yet that the constraint is binding and being paid for.

The Fed: The Decision Is Known, the Signal Is Not

At 2:00 p.m. the committee is near certain to hold at 3.75% to 4.00%, with CME pricing around 91% on no change. There is no Summary of Economic Projections at this meeting, which strips out the dot plot and leaves everything to the statement language and to Chair Warsh at the press conference. December is the live meeting and the market has it priced near three in four for a hike.

The setup is unusual enough to be worth stating plainly. This is the final decision before the November 3 midterms, from a chair appointed this year who led a unanimous hike in September, with inflation data that has run hot. Alan Blinder has publicly argued for clear forward guidance pointing at a future hike. The tail risk is not that the committee moves today. It is that the statement is hawkish enough to pull December forward in people’s heads while Microsoft and Alphabet are simultaneously asking the market to fund another step up in capex. Those two messages collide badly if they arrive within four hours of each other.

Rates are doing very little into it. The two-year is two basis points higher at 4.733%, the ten-year a basis point at 4.993%, the thirty-year flat at 5.304%. That is a bear flattening of two basis points, which is to say nothing at all, and is consistent with a market that has fully discounted today and is waiting for Thursday’s core personal consumption expenditures print to decide December. The September advance goods trade balance landed this morning near minus $130bn against about minus $132bn expected, alongside wholesale and retail inventories. Weekly energy inventories come at 10:30.

Energy: The Premium Walks Back In

WTI is up $1.72 at $101.62 and Brent up $1.73 at $111.14, reversing most of the last two sessions. The move followed a Wall Street Journal report that the United States has warned Gulf states to expect an intense renewal of the Iran campaign after the midterms. That is the first piece of reporting in a week to push the probability of escalation up rather than down.

The diplomatic track has not gone away. Saudi, Turkish and Pakistani officials met the Iranian government in Tehran on Monday, Putin and Pezeshkian met Tuesday, and Tehran continues to float the seven-day proposal that would reopen the Strait of Hormuz in exchange for Washington lifting the port blockade. Crude flows through the strait have recovered to roughly pre-war levels even with the Revolutionary Guards formally declaring it closed, and the residual cost sits in freight and insurance rather than in barrels lost. Yesterday’s missile strike on the 550,000 barrel a day Ras Tanura refinery was contained and moved prices lower, which told us where the premium is not.

Our position is unchanged and this morning supports it. The bid in this market is attached to transit and to the option value of a restart, and the restart option has a date on it now. The midterms are six days away. We would keep treating $100 WTI as a floor underwritten by optionality rather than by fundamentals, and we would keep noting that effective spare capacity near a quarter of a million barrels a day means an actual supply loss prices violently rather than gradually.

Tonight: Microsoft and Alphabet, Where Only One Line Matters

Microsoft is expected to earn about $4.71 on roughly $90.6bn of revenue, with Azure guided to 44% to 45% constant currency growth and quarterly capital expenditure expected above $50bn. This is also the first quarter the cloud business is disclosed in dollars under the revised reporting structure, which removes a layer of interpretation from the single most argued-over number in the index. Separately, Microsoft offered voluntary buyouts to about 60,000 employees on Monday, roughly a quarter of its workforce, with acceptances due in early December. The framing is cost discipline to fund the build, and we would read it as management telling shareholders it will not let operating expense grow alongside capex. That is the right trade, and it is also an admission of how large the capex line has become.

Alphabet is expected at about $128.2bn of revenue and $3.02 of earnings, having narrowly missed in each of the first two quarters. The spending question is sharper here. Capex guidance for 2026 was lifted to $195bn to $205bn from $180bn to $190bn, and second quarter capital expenditure of $44.9bn already exceeded $39.1bn of operating cash flow, leaving free cash flow negative by roughly $5.9bn. The equity has tolerated that because cloud is accelerating. Alphabet also rose yesterday on a report that OpenAI plans to buy Google tensor processing units outright rather than only renting them through Google Cloud, which would turn the chip programme from an internal cost centre into a merchant silicon business with the largest independent model developer as a customer. Google is simultaneously enlisting partners to resell those chips. If that materialises it is the most important competitive development for Nvidia this quarter, and it is being carried this morning as a single sourced report, so size it accordingly.

Elsewhere in Earnings

Visa raising its dividend 16% alongside 13% revenue growth is a straightforward read that consumer payment volume has not cracked, which is a useful counterweight to the soft confidence data. NXP beat but guided the fourth quarter midpoint slightly below consensus and leaned on a $5bn buyback increase, which is the shape of an analogue and automotive business that is fine rather than growing. Robinhood is the one worth pausing on, down about 8% despite an earnings beat, because revenue came in light on weak crypto activity and the quarterly filing added a risk disclosure about artificial intelligence trading agents placing unintended trades. That is a novel line in a 10-Q and it will not be the last one. Enphase is the opposite of every other print in this note, missing on both lines and guiding fourth quarter revenue to $225mn to $255mn against $300mn expected. The electricity demand story is real and it is not reaching residential solar.

Asia and Europe

Asia rallied on the memory print. The Kospi led at plus 6.6% to 6,012.44, the Nikkei added 1.08% to 63,954.19, the Hang Seng recovered early losses to close up 0.21% at 23,089.22, the Shanghai Composite rose 0.91% to 3,681.47 and the CSI 300 gained 0.85% to 4,083.87. Chinese technology and robotics names led a rebound from a blue-chip index that entered a bear market only last week, which is a reminder of how fast that market reprices on an external catalyst it cannot generate itself. The Fifth Plenum concludes tomorrow. The yen is soft near 157.87 into Friday’s Bank of Japan decision, and the Australian market priced a November hike at close to 90% after local data.

Europe is flat to slightly lower and waiting. The Stoxx 600 is down 0.16% at 642.64, the DAX off marginally at 25,576, and the FTSE 100 down about 0.3% near 10,652 with the UK Budget weighing. Strong bank results across the region have not translated into index gains, which is the second day running that European earnings quality has been ignored in favour of positioning ahead of the Fed.

Also On The Tape

• Wendy’s jumped about 15% pre-market after Nelson Peltz’s Trian, which already owns roughly 16.3%, offered $7.35 a share in cash with Flynn Group, BlueFive and Sixth Street alongside. The proposal is non-binding, a special committee will review it, and a 20% premium on a $1.4bn equity value is a low bar for a board to call inadequate
• Israel’s election produced no majority. Exit polls and partial counts conflict, with Netanyahu’s bloc between 50 and 55 seats against 48 to 53 for Gadi Eisenkot’s, and nobody near the 61 needed. A deadlock was our base case and a deadlock is what happened, which matters because Israeli policy is an input to the largest risk premium in commodities
• Gold is down 0.28% near $4,063 and Bitcoin is up 0.91% at $81,360, both doing very little ahead of 2:00 p.m.
• Onsemi is reportedly in talks to buy Ferric for close to $1bn, and CoStar agreed to acquire Vexcel for about $730mn in cash alongside a guidance raise
• Boston Scientific beat on the quarter but cut full-year earnings guidance to $3.16 to $3.18 from $3.28 to $3.32, which is an unusual combination and worth a look at the segment detail
• Also reporting after the close: Ford, T-Mobile, ServiceNow, Chipotle and eBay. ServiceNow is the one with artificial intelligence read-through, since it is the clearest test of whether enterprise software can charge for agent deployment rather than seats