• Stocks: Indexes dropped, particularly the tech-heavy Nasdaq, as disappointing earnings reports from Alphabet prompted a tech-stock selloff that extended its reach across the market.
• Bonds: 10-year Treasury yields steadied themselves around 5% thanks to a solid reading on US GDP released this morning.
• Commodities: Oil prices eased slightly as reports surfaced that Vice President JD Vance made contact with Iranian security chief Mohsen Rezaei to restart peace negotiations.

Earnings

Illustration: Morning Brew Inc., Photos: Adobe Stock

As investors nurse their headaches from the latest tech selloff, Big Pharma has just the prescription.

Eli Lilly comfortably beat Wall Street expectations on both top and bottom lines today, reporting quarterly revenue of $24.4 billion, up 39% from a year ago. The drugmaker also raised its full-year revenue forecast, thanks to insatiable demand for its blockbuster diabetes and weight loss drugs.

Mounjaro brought in $10.7 billion, while Zepbound generated another $5.35 billion. Together, the two accounted for roughly two-thirds of Lilly’s revenue. And demand has been so strong that worldwide sales volumes surged 53%, more than offsetting a 15% decline in realized prices. Shares jumped 6.63% on the news.

Merck’s ticking clock

On the other side of the pharmaceutical industry, Merck is enjoying its own blockbuster success.

The drugmaker also topped Wall Street’s earnings expectations, reporting $18.1 billion in quarterly revenue, up 5% from a year ago. Nearly half of that came from Keytruda, its bestselling cancer treatment, which generated $8.6 billion in sales. Shares popped 3.83% today.

But Merck has a problem: Key US patent protections for Keytruda begin expiring in 2028, potentially opening the door to cheaper biosimilar competitors and threatening its biggest revenue source. The company has already felt the effects of losing patent protection, with sales of its older diabetes drugs Januvia and Janumet falling 39% last quarter amid generic competition.

The next prescription

That’s a risk that extends well beyond Merck: More than $500 billion in global prescription drug sales could face competition from patent expirations between 2026 and 2032, per industry research group Evaluate. That’s putting pressure on drugmakers to keep their pipelines stocked, whether through developing new treatments or spending billions to acquire them.

Merck, for one, is bracing for more than $2 billion in revenue headwinds from generic competition and patent expirations in 2027 alone. To prepare for life beyond Keytruda, the company has gone on a shopping spree, announcing nearly $26 billion in deals over the past year. Lilly isn’t sitting still either, having spent at least $31.5 billion on acquisitions this year alone.

Still, the outlook isn’t all grim. Merck’s newer pulmonary hypertension treatment Winrevair saw sales surge 93% last quarter, while Lilly’s weight loss empire continues to expand despite falling prices.

It’s another reminder that even the most promising upsides from prescriptions come with a list of potential side effects—something worth keeping in mind as investors make their own diagnosis.—SY

      

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Stocks

🟢 What’s up

• DoorDash gained 5.61% after announcing a $17 billion deal to acquire grocery delivery rival Instacart.
• Norwegian Cruise Line climbed 13.31% after beating quarterly earnings expectations and issuing an upbeat outlook as strong travel demand helped offset rising fuel costs.
• Carvana surged 15.59% after selling more than 200,000 vehicles last quarter and reporting record revenue.
• FTAI Aviation rallied 17.27% after doubling its share buyback authorization to $1 billion and announcing plans to repurchase $500 million in stock this quarter.
• Crocs jumped 25.54% after crushing quarterly earnings expectations and raising its full-year profit outlook, helped by a return to sales growth at its HeyDude brand.

🔴 What’s down

• Marvell Technology slipped 13.24% following reports that the chipmaker is in advanced talks to acquire optical-networking company Lumentum.
• ServiceNow plunged 26.64% after disappointing subscription revenue guidance fueled concerns about AI disrupting its software business.
• Fortinet dropped 20.09% despite beating quarterly earnings expectations, as a cut to its full-year service revenue forecast disappointed investors.
• Sprouts Farmers Market sank 22.58% after disappointing quarterly results and a warning of worsening same-store sales.
• Amazon fell 4.25% ahead of its quarterly earnings report as investors spooked by AI spending awaited updates on its cloud and AI business.

Stock of the day

Google’s $500 billion freefall

Illustration: Shannon May, Photos: Adobe Stock

Alphabet’s stock is getting scrambled. After reporting less-than-impressive earnings yesterday, the Google parent has gone careening towards the cliff’s edge, crashing in its worst day ever since going public in 2004—and logging the second-biggest one-day loss ever for a US-listed company. The stock fell 12.29% today, sending roughly $500 billion of stock market value over the brink and pulling down the major indexes with it.

What happened: Unsurprisingly, investors were most focused on Alphabet’s two biggest letters: AI. While Gemini topped a billion users and Google Cloud revenue more than doubled to $31 billion, search revenue growth slowed, falling short of Wall Street’s roughly $65 billion estimate by only meeting $63 billion.

Then there was the spending problem: Increased AI spending pushed free cash flow—or the money left after investments, like in data centers—to negative $9.1 billion. The gut punch? That was nearly triple analysts’ expectations, estimated at negative $3.5 billion.

Crash landing

Wall Street firms are actively cutting their short-term price targets, effectively sending Alphabet shares off in a vintage turquoise Thunderbird. But they’re not entirely pessimistic: Many maintain a Buy or Overweight rating, and CFRA analyst Angelo Zino told Yahoo Finance that the pullback “probably represents a buying opportunity.”

The takeaway: Alphabet’s not going anywhere. But slow—let alone mixed—growth just isn’t good enough when you’re a hyperscaler. With more than $10 trillion projected to be spent on the AI buildout by 2032, investors are getting antsy for Big Tech companies to prove they can bring in returns. The next to watch will be Amazon, who reports today after the close.

Just as we’ve seen with LLM developers preparing to go public, AI developers have committed themselves to a future where growth can’t afford to be boring.—GR

Earnings

Illustration: Shannon May, Photo: Adobe Stock

Americans may be patrolling their wallets, but they haven’t yet declared a moratorium on mozzarella sticks.

The US GDP grew at a 3.4% annualized pace last quarter, and consumer spending rose 3.8%. But inflation has picked back up, real disposable income slipped in September, and plenty of households still feel squeezed.

Restaurant earnings this week showed what that contradiction looks like when somebody hands you the check. Chili’s same-store sales jumped 10.1%, Cheesecake Factory surged 15.2%, and Burger King’s US sales rose 8.4%. Meanwhile, Wingstop fell 5.4% and Popeyes dropped 2.2%.

Restaurant sales have now risen for eight straight months, and this week’s earnings suggest diners are still willing to spend. They’re just getting much choosier about where.

Value comes in more than one flavor

About half of consumers say covering everyday expenses is harder than it was a year ago, according to third-quarter data from the National Restaurant Association. More are using deals, choosing cheaper restaurants, and skipping extras like drinks or dessert.

The winners this quarter generally did one of two things well: They either made the bill feel cheaper or the meal more worthwhile.

Burger King leaned hard into value with Whopper Wednesday and deals like two items for $5 or three for $7. Chili’s has spent years pushing bundles and sharpening operations, helping traffic rise 6.4% last quarter.

Jersey Mike’s is playing a similar game with offers like an $8.95 Hot Italian Sub and a $7.99 mini-sub-and-chips bundle, while shifting more advertising online to reach younger customers.

Cheesecake Factory is winning from the other direction. Its traffic jumped 9.5%, with younger diners, rewards members, and social-media buzz helping turn its encyclopedic menu and oversized desserts into more of an outing than a cheap date.

Now the gap between chains is widening because diners with less space in the budget are demanding a clearer reason to order up. A restaurant increasingly needs either a deal worth bragging about or an experience worth paying for. Being merely fine is getting expensive.

The real test comes after dessert

For investors, the harder question is whether a restaurant can bring in more diners without giving away too much profit to do it.

Chipotle shows the tradeoff. Its transactions may have risen modestly last quarter, but restaurant-level margins slipped. A busier dining room is less exciting when the extra customers eat the income, too.

The outlooks add another layer. Brinker raised its full-year guidance after Chili’s strong quarter, Restaurant Brands maintained its profit-growth target, and Wingstop cut its same-store sales forecast.

That divergence suggests this is not an industrywide restaurant recovery. It’s a market-share fight, and the strongest chains are the ones that can grow traffic, protect margins, and keep management confident about what comes next.

That makes restaurant stocks less of a single bet on whether Americans will keep dining out and more of a stock-picking exercise. Apparently, in 2026, the toughest table to book is a permanent spot in the consumer’s budget.—HC

      

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News

• Microsoft is looking to raise $25+ billion in a bond sale, giving its AI buildout another very large credit limit.
• A Ray-Ban heir turned down $3.9 billion for his stake, making ‘not for sale’ a very expensive position.
• Universal Music’s streaming growth picked back up with Olivia Rodrigo, Ariana Grande, and four even more famous men keeping its catalogues printing money.
• Josh Kushner’s Thrive is buying ADT for $7.6 billion, taking America’s best-known home-security company private behind locked doors.
• Mortgage rates fell for a second straight week to 7.24%, which counts as relief only if you ignore last year’s rates.
• Weil Gotshal, one of Wall Street’s most storied law firms, is ending a century-old name with a very expensive breakup.
• A major fast-food franchisee could close dozens of restaurants after filing for bankruptcy, leaving the chain with fewer burgers to go around.

Calendar

The Employment Cost Index comes in. Coinbase and bitcoin heavyweight Strategy lead crypto earnings, while Digital Realty, Monolithic Power Systems, Howmet Aerospace, L3Harris, D.R. Horton, Cheniere, Takeda, and Roblox also report.

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