• Bonds: 30-year Treasury bond yields climbed to their highest level in 22 years this morning, while yet another abysmal bond auction this afternoon has markets on edge (more on that later).
• Stocks: Indexes got a respite from today’s selloff after a report from Reuters revealed that the US and Iran have discussed a phased deal to reopen the Strait of Hormuz, barely boosting the Nasdaq into positive territory.
• Commodities: Oil prices climbed after Houthi militants fired missiles at Saudi Arabia.

AI trade

Illustration: Morning Brew Inc, Photo: Anna Moneymaker/Getty Images

Even an average Luddite reading the headlines can tell that the AI buildout is raking in investment dollars unlike anything we’ve seen in recent memory. In fact, new estimates from economist Stijn Van Nieuwerburgh and the Brookings Institution suggest that total investment in AI data centers and related infrastructure will top $10.3 trillion by 2032—the biggest financial bet in US history.

To put it in perspective, that translates to an astounding 3.6% of US GDP every year on average. Compare that to the US’s other outlays for infrastructure through the ages: Railroad spending confined between 1870 and 1890 constituted about 2.24% of GDP each year. Highways, if you look from 1956 to 1973, took just 1.13%. Electrifying the country in the early twentieth century? A measly 0.5%.

In other words, the AI infrastructure buildout is powering our economy, creating a cadre of new jobs (and billionaires) in the process. But given that the investment is built on debt, and often with little public reporting, it’s also stacking up serious risks—and any industry shakiness could spin out through the entire economy.

Oracle averts its eyes

Speaking of shaky: According to Bloomberg, Oracle is reportedly worried about its behemoth Project Jupiter data center campus, currently under construction in New Mexico, falling behind schedule. That’s why the computing company sent Project Jupiter’s developer a notice citing force majeure—which frees parties from their contractual obligations thanks to events beyond their control—in case the data center fails to go live by 2028 as planned.

Project Jupiter represents an estimated $165 billion buildout, with $18 billion of that being debt. Oracle trying to shield itself from a possible disaster doesn’t just project uncertainty for shareholders—it does the same for the rest of the AI trade and supply chain, and sends a stark warning sign about the economy overall. Investors are naturally backing off from Oracle shares, which dropped 3.46% today. Bloom Energy, which is set to power the project, sank 3.1% as well, and Blue Owl, which financed the buildout, lost 3.6%.

Google blasts off

Don’t worry, the AI trade’s not all doom and gloom. In more upbeat news, today Google announced a development that could take data centers off US soil—by shooting them into space. The frontier giant will launch a satellite into orbit next Thursday as part of Project Suncatcher, a sprawling effort to put data centers in space and power them with the sun’s energy.

While this launch won’t be a full data center—just a first-stage experiment to test its viability—the satellite will respond to simple AI queries as it operates for a year. It’s a welcome sign for investors as homegrown data centers draw controversy about land prices and energy usage. Though Google stock didn’t go to the moon, it did hop 1.2%.

What’s it all mean for markets?

The US economy is explicitly tied to the AI trade—for better or worse. While data centers in space are a fun distraction, if hyperscalers like Oracle are unable to deliver on their promises, it could spell disaster.

“The credit story in hyperscalers rests on a single consensus assumption, that operating cash flow triples from $600 billion to $2 trillion,” wrote Apollo Chief Economist Torsten Slok earlier this week. “If this doesn’t happen, then the risk is that the AI trade weakens, with credit spreads widening, capex plans getting cut, and ultimately US GDP growth slowing.”—GR

      

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Stocks

🟢 What’s up

• Meta gained 4.5% after unveiling new smart glasses and a handheld device that lets users interact with its Muse AI assistant.
• Moderna rose 6.98% as CEO Stéphane Bancel revealed the company’s pipeline of mRNA treatments beyond Covid vaccines.
• BlackBerry jumped 3.99% on an earnings beat fueled by strong growth in its car software business.
• GoDaddy surged 4.55% on reports that software company Gen Digital made an offer to acquire the company.
• Nebius climbed 7.44% following a Bank of America Buy rating that pointed to stronger growth in its AI infrastructure business.
• Grail rose 15.38% on growing optimism that the FDA will approve its blood test designed to detect multiple cancers.

🔴 What’s down

• PepsiCo sank 1.56% after announcing it would raise prices on some snacks and sodas after promising to make them more affordable.
• MGM Resorts fell 10.97% after Barry Diller’s People Inc. withdrew its takeover bid for the casino operator.
• Darden Restaurants dropped 3.02% as higher food and labor costs weighed on profits, while sales growth slowed at Olive Garden.
• Arm Holdings slipped 7.88% following the disclosure that its CFO sold roughly $3.1 million worth of shares.

Stat of the day

Yet another bond blowout

Morning Brew Inc

Yesterday, the 10-year Treasury yield climbed to a 19-year high. Today, the 30-year Treasury yield said, “Hold my beer.”

The latest bond market rout was sparked by surprisingly strong flash PMI data yesterday: Both the services and manufacturing PMI reports revealed their biggest gains in four years, indicating a healthy economy. But the reports also showed that strong business demand is boosting inflation.

If the economy is on firm footing but inflation is rising, traders believe that clears a path for the Fed to raise interest rates next month, so the odds of a hike popped. Higher rates slow economic growth, so traders who want to bet against the US sold Treasury bonds—and when bonds fall, their yields rise.

That chain reaction has come to dictate the stock market’s moves for weeks now, though today marks a new chapter in the saga: 30-year Treasury yields just hit their highest level since January 2004. Such strong yields for long-dated debt could draw money away from the stock market, while simultaneously raising the costs of borrowing money for just about everything.

Surprisingly enough, stocks have consistently escaped recent bond-yield boosts relatively unscathed, buoyed by optimism that the AI trade is alive and well. But whether investors are right to bet that AI will keep propelling stocks even as bonds fall—or just wearing blinders to the threat of rising bond yields—remains to be seen.—MR

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Foreign policy

Illustration: Morning Brew Inc., Photo: Andrew Harnik/Getty Images

All eyes were on Washington today as President Trump and Chinese President Xi Jinping met for the second time this year, with Xi making his first US state visit in more than a decade.

Among the many issues Trump and Xi have to work through—from trade and rare earths to Taiwan and Iran—AI stood out as a major focus for investors. “It should be a race of catching up with one another, not a wrestle in which one either wins or loses,” Xi said in remarks, while also calling for AI to remain under human control.

The pair wrapped what Trump called a “very good meeting” without any sweeping breakthrough, but kept their economic detente in place as officials extended the nations’ tariff truce from November 10 to January 10. And in a softer show of goodwill, China is also sending a pair of giant pandas to the Atlanta Zoo.

What’s on the menu?

Beyond the issues on the negotiating table, investors may be just as interested in the dinner table tonight. Over plates of yellow squash velouté and sesame-crusted sea bass, a roomful of tech CEOs worth a combined $2.2 trillion will be making small talk while billions of dollars hang in the balance, as their companies sit directly in the crosshairs of US-China tensions over chips, tariffs, supply chains, and access to Chinese consumers. Among the names expected to attend:

• Nvidia’s Jensen Huang: Nvidia is effectively shut out of much of China’s advanced data-center chip market by US export controls, which already forced it to record a $4.5 billion charge tied to its China-focused H20 chip. And pressure to reenter the Middle Kingdom is only growing—Alibaba unveiled what it calls its most powerful AI chip yet this week, as Chinese companies race to replace Nvidia with homegrown alternatives.
• Apple’s Tim Cook: China is both a major consumer market and a crucial part of Apple’s supply chain, making tariffs or trade disruptions a threat on both sides of the iPhone and its ilk.
• Elon Musk (Tesla, SpaceX): Tesla relies on its Shanghai factory while battling increasingly tough competition from Chinese EV makers like BYD. Its share of China’s battery-EV market fell to 6.6% last quarter from more than 15% in 2020.
• Qualcomm’s Cristiano Amon: The chipmaker relies heavily on Chinese smartphone manufacturers like Xiaomi and Lenovo, leaving it exposed to both US export restrictions and potential Chinese retaliation.
• Meta’s Mark Zuckerberg: Facebook and Instagram are blocked in China, but Chinese companies still spend billions advertising on Meta’s platforms to reach consumers overseas.

The dinner won’t entirely be a boys’ club, though the list comes pretty close: Jane Fraser, whose Citigroup was approved this spring to launch a foreign-owned securities firm in China, will also reportedly have a seat at the table.

Not everyone made the list

While Trump is bringing an entourage of A-listers, Xi arrived without the large corporate delegation Beijing had considered sending. Still, some Chinese CEOs reportedly flew to Washington independently and are now waiting to see whether they’ll be granted a last-minute seat at tonight’s dinner, according to the South China Morning Post.

That lopsided guest list has helped temper expectations for major announcements or splashy business deals. But for the American executives who did make the cut, there’s still plenty on the menu.—SY

      

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News

• Brace yourself: KFC may soon start serving breakfast.
• Starbucks is closing 250 cafes across the country, its second round of closures in the last year, as the company continues to attempt a turnaround.
• Meta is abandoning cameras in its newest batch of smart glasses and going audio-only as the company tries to sidestep privacy concerns.
• “Exxon schemed against me,” claims a shale oil CEO in his juicy new memoir.
• Real life Succession plot: The Arnault family is making moves to solidify its control over LVMH.
• New York Fed President John Williams joined a growing chorus of central bankers calling for more rate hikes.
• Then there’s the Swiss National Bank, which decided to keep interest rates at 0%.

Calendar

The calendar is looking mighty sparse tomorrow, though it’s probably worth keeping an eye out for the University of Michigan’s final consumer sentiment index for the month of September.

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