October was a challenging month for many investors. The S&P 500 finished the month down approximately 1%, while the technology-heavy Nasdaq 100 fell almost 7%, a sign of how different parts of the market are behaving. The same divergence showed up within the S&P 500. The equal-weighted version of the index, which treats every company the same regardless of size, actually rose more than 5% in October. In other words, the typical stock did well, even as the biggest technology names held the overall index back.
We saw weakness in the AI trade last week as most mega-cap tech companies reported their Q3 earnings. Investors are questioning whether the rapid pace of spending on AI infrastructure can continue, given uncertainty about whether the bond markets can supply the enormous amount of financing these projects require. In addition, earnings from the largest tech companies added another layer. Microsoft, Amazon and Alphabet all reported results last week, and investors’ focus appears to be shifting. For one, the question used to be how much these companies will spend on AI infrastructure, such as data centers. Increasingly, it’s how much they will earn from that spending. Shares of Alphabet and Amazon fell after results, following slight shortfalls in their core businesses: search for Alphabet and advertising and online retail for Amazon. Both businesses could eventually face competition from agentic AI, meaning AI assistants that can search, compare and shop on a user’s behalf. This is all happening at a time when these hyperscaler companies collectively reported negative free cash flow for Q3. Second, while cloud revenue growth came in above expectations for hyperscalers, elevated expectations resulted in investors being slightly underwhelmed despite the beats. Additionally, while hyperscaler backlogs grew in Q3, the growth rate is decelerating. Outside tech, results were solid as Eli Lilly raised guidance on strong GLP-1 demand, and Exxon and Chevron hit record highs on refining profits as a result of higher oil prices.
On the economic front, Q3 GDP grew at a stronger-than-expected 3.4% annualized pace, supported by resilient consumer spending and business investment, while September PCE inflation remained elevated at 3.6% year-over-year, with core inflation at 3.1%, in line with expectations. The Federal Reserve kept interest rates at 3.75%–4.00% as expected at their October FOMC meeting, though two Fed officials dissented in favor of a hike. This week includes key releases on the labor market, including the October employment report. The labor market is expected to remain in balance with the unemployment rate holding steady at 4.2%, which should allow the Federal Reserve to keep its focus on inflation at its December meeting.
Fed Keeps Rates on Hold
The Federal Reserve kept interest rates unchanged at 3.75%–4%, as markets expected. Chair Warsh pointed to an economy that has been stronger than anticipated, supported by healthy consumer spending and solid business investment. However, inflation remains the Fed’s main concern, and officials said they need more information before deciding their next move. In other words, they did not commit to a rate hike in December. Warsh also noted that financial conditions have tightened but remain supportive, suggesting the Fed is comfortable letting markets do some of the tightening for now. Bond markets had been positioned for a tougher message, so short- and intermediate-term Treasury yields fell modestly.
Anthropic S-1 : What We Learned
Early last week, Anthropic’s S-1 became public, as the firm sets itself up to begin trading in the public markets under the ticker “ANT,” potentially in late November or early December. The first thing to notice about ANT was its growth, particularly in revenue and customers. Topline revenue in the first half of the year came in at $16.3 billion, up more than 1,300% year over year (YoY), and on a quarter-over-quarter (QoQ) basis, revenue grew 144% in Q2 and 47% in Q3, a cooldown in growth due to the revenue base becoming larger. The customer pool has also been growing, with the number of customers spending more than $100,000 a year rising from about 950 a year earlier to more than 11,900, yet concentration remains a risk, as the top five customers make up about 25% of revenue, and losing them to OpenAI would remove a large share of sales. Second was profitability; ANT reported its first profitable quarter in Q2 of about 8%, a long way from the – 249% in operating margin the company had in Q1 of 2025. Compute costs remain a crucial factor to watch, as they fell from about 251% of revenue in Q1 2025 to only 48% of revenue in Q2 2026. A similar pattern emerges in most other expenses, showing that the rapid increase in the top line has helped reduce their burden, but it also shows how much the company depends on maintaining high growth rates moving forward. Third, compute purchase commitments: ANT currently has an estimated $650 billion in compute purchase agreements and a cash balance of $112 billion, meaning it still depends on continued growth to fulfill those commitments. Overall, ANT is a young company that has shown it can grow at extraordinary rates and post an operating profit, at least for one quarter, but its success depends on sustaining that growth. Going forward, two things to watch are whether customers treat ANT’s agents as must-have or optional spending, which will affect revenue stickiness, and how this week’s midterms shape future AI regulation.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
