Morning Report | Hormuz risk premium holds; AI capex ramps
$USO crude risk premium elevated · $BNO Strait closure fears persist · $GOOGL capex hike fuels AI buildout · $TLT GDP miss, PCE re-accelerates · $MRK lifts 2026 adjusted guidance
Market Pulse
Big Tech/AI
4 events
Big Tech doubles down on AI infrastructure as Alphabet hikes capex Street pushes hyperscaler spend toward $1T and Meta cuts staff to fund buildout.
Last 24 hours
Alphabet raised its 2026 capex range to $180B–$190B and said 2027 capex should “significantly increase,” citing near-term compute constraints and cloud demand outstripping available capacity.
Apple reported March-quarter revenue of $111.2B (+17% y/y) and guided June-quarter revenue growth of +14% to +17% y/y, while authorizing an additional $100B buyback and outlining a CEO transition to John Ternus.
Evercore and BofA lifted combined hyperscaler AI capex estimates to roughly $800B–$900B in 2026 and above $1T in 2027, with BofA citing 2026 spend of AMZN ~$200B, GOOGL ~$185B, MSFT ~$190B, and META ~$135B.
Meta said it will cut about 8,000 jobs (~10% of workforce) starting May 20 to reallocate costs toward AI and compute infrastructure, and did not rule out additional reductions depending on spending needs and business trends.
Our view
We expect the AI capex upcycle to remain the dominant driver for Big Tech and the semiconductor/infrastructure complex with spending guides and Street estimates still ratcheting higher. Watch for evidence that compute constraints ease and that free-cash-flow pressure or payback skepticism forces any hyperscaler to slow 2026–2027 build plans.
What could change our view
Hyperscalers pivot to capex restraint as payback doubts intensify.
Component cost inflation or supply bottlenecks squeeze margins and delay capacity adds.
Tickers: $GOOGL, $AAPL, $SOXX, $META
U.S.-Iran War
3 events
Hormuz closure keeps crude risk premium high as U.S. weighs fresh strike options and Iran threatens retaliation despite an April ceasefire.
Last 24 hours
Iran’s Revolutionary Guards warned renewed U.S. attacks would prompt “long and painful strikes,” while reports said air defenses engaged small drones near Tehran and the Strait of Hormuz stayed closed about two months in.
Brent surged intraday to roughly $126/bbl on a report of a CENTCOM briefing to President Trump, then reversed to settle near $114; a cited estimate put Hormuz exports at about 4% of normal.
The White House argued “hostilities” ended after the April 7–8 ceasefire, saying the War Powers 60-day clock no longer applies; lawmakers noted the May 1 deadline and some GOP support could shift if action continues.
Market reaction
Oil traded in sharp headline-driven swings: Brent spiked to about $126/bbl before settling near $114, while WTI settled around $105; July Brent was cited near $110–$111.
Our view
Expect crude to remain elevated and volatile as long as Hormuz disruption persists and escalation headlines keep repricing tail risk. The next decisive catalyst is tangible progress toward restoring commercial navigation or, conversely, confirmation of renewed U.S. strikes that reintroduce direct-fire risk.
What could change our view
Rapid reopening of Hormuz and normalization of flows compresses the geopolitical premium.
Renewed U.S.-Iran direct exchanges or strikes trigger another sharp repricing higher.
Tickers: $BNO, $USO, $CL=F
Biopharma
3 events
Biopharma opens with FDA pressure on mass-compounded GLP-1s and a negative AZN panel vote, while MRK lifts 2026 adjusted guidance.
Last 24 hours
FDA proposed removing semaglutide, tirzepatide and liraglutide from the 503B bulk list; comments run to late June, and a final decision could curb mass compounding unless branded drugs are shortage-listed.
Merck posted Q1 revenue of $16.29B (+5% y/y), raised 2026 adjusted EPS to $5.04–$5.16 and tightened revenue guidance, while taking a $3.62/share acquisition charge tied to Cidara.
An FDA advisory committee voted 6–3 against approving AstraZeneca’s camizestrant for a breast-cancer indication, questioning SERENA-6 trial design and long-term benefit despite a progression-free survival signal.
Our view
Regulatory and trial-design scrutiny keeps biopharma stock moves idiosyncratic, favoring branded GLP-1 suppliers and MRK’s raised adjusted outlook while pressuring higher-risk oncology read-throughs. Next catalysts are the FDA’s post–late June 503B compounding determination and whether FDA aligns with the 6–3 panel recommendation on camizestrant’s label.
What could change our view
FDA finalizes broad exceptions allowing continued 503B GLP-1 compounding without shortages.
FDA approves camizestrant largely as filed despite the advisory committee vote.
Tickers: $LLY, $MRK, $AZN
Macro & Policy Digest
BoE and ECB held rates as war-driven energy shock lifts inflation risk, nudging European yields lower while FX steadied.
Last 24 hours
BoE voted 8–1 to keep Bank Rate at 3.75% for a third meeting; Pill dissented for a 25 bp hike, with Bailey stressing policy depends on shock scale and duration.
ECB kept the deposit rate at 2.00% and reiterated a meeting-by-meeting stance; April Eurozone CPI rose to 3.0% y/y and Q1 GDP slowed to +0.1% q/q amid energy-driven risk shifts.
Market reaction
Gilts rallied with the 2Y yield down ~12 bp to 4.47% and the 10Y down ~6 bp to ~5.01%, while June hike odds fell to ~50% from ~70%. Bund and OAT 10Y yields eased ~3–4 bp; GBP later rose ~0.5% to around $1.354 and EUR traded ~0.2% higher to around $1.17.
Our view
Central banks stay on hold near term but keep a tightening bias if energy-driven inflation spills into wages/prices; the net effect keeps European rates capped and supports mild FX resilience vs USD. Watch shock duration and second-round indicators, with June meetings the next key inflection for both.
What could change our view
Energy shock persists, embedding second-round effects and forcing faster hikes.
Sharp growth slowdown prompts a dovish pivot despite higher CPI.
Tickers: $FXB, $FXE
Q1 GDP undershot but domestic demand firm, while March PCE re-accelerated as energy shock lifts headline inflation and keeps rates sensitive.
Last 24 hours
BEA advance estimate showed Q1 real GDP +2.0% SAAR vs ~2.2%–2.3% consensus, with real final sales +2.5%, while March core PCE rose +0.3% m/m and +3.2% y/y as headline PCE jumped to +3.5% y/y.
Market reaction
Energy volatility dominated: Brent briefly hit about $126/bbl on Iran escalation headlines before June Brent settled around $114.01 and July Brent closed near $110.4.
Our view
Stick with a mixed macro impulse for duration: the growth miss is offset by a hotter inflation profile driven by energy, limiting upside for long Treasuries. Next key condition is whether energy stabilizes lower and headline PCE cools without core PCE staying pinned at recent run-rates.
What could change our view
Rapid energy pullback cools headline inflation faster than expected, boosting duration.
Domestic demand stays firm and keeps core inflation pressure elevated.
Tickers: TLT 0.00%↑
Company Events
Lilly’s GLP-1 franchise extends lead as Q1 beats and higher 2026 guide pair with early traction for oral obesity pill Foundayo.
Last 24 hours
Eli Lilly reported Q1 revenue of $19.80B (+56% y/y) and adjusted EPS of $8.55, raised 2026 revenue guidance to $82B–$85B and adjusted EPS to $35.50–$37.00, citing strong Mounjaro and Zepbound demand.
Management said Foundayo logged over 20,000 starts in its first weeks, exceeding 1,000 new starts per day, with more than 80% of users new to GLP-1 therapy; sales were not included in Q1 results and should first show in Q2.
Market reaction
LLY shares jumped about 10% following the Q1 beat and higher 2026 guidance.
Our view
Lilly’s GLP-1 leadership remains intact, with growth driven by volume and incremental patient penetration rather than simple switching. Key monitor is whether Q2 reporting shows Foundayo translating early starts into material revenue while realized pricing headwinds stay contained.
What could change our view
Sustained realized-price compression overwhelms volume gains in Zepbound or Mounjaro.
Foundayo starts fade over subsequent weeks, delaying meaningful Q2 revenue contribution.
Tickers: LLY 0.00%↑
Rivian downsizes Georgia build-out as DOE loan cut to $4.5B, but accelerates expected funding access while holding R2 start target.
Last 24 hours
Rivian amended its DOE loan facility to $4.5B from $6.57B, supporting only one Georgia plant phase at 300k annual capacity; first loan draw now expected in 2027, with R2 still targeted for late 2028.
Our view
The revised DOE package is a pragmatic de-risking move that prioritizes earlier ramp over maximum capacity, keeping the core R2 timetable intact. Next to watch is whether Rivian can fund any post-phase-one expansion itself via partnerships and capital markets without pushing out the late-2028 start.
What could change our view
Delay in 2027 loan access or additional reductions in DOE facility size.
Georgia construction/commissioning setbacks that slip the late-2028 R2 production start.
Tickers: $RIVN
Reddit’s quarter beat and upbeat Q2 guide reset the Internet-ads tape around ARPU strength, operating leverage and capital-light cash generation.
Last 24 hours
Reddit posted Q1 revenue of $392M (+69% y/y) and net income of $204M, with global DAUq 126.8M and ARPU $5.23; Q2 guidance calls for $715M-$725M revenue and $285M-$295M adjusted earnings.
Market reaction
The article cited RDDT up about 9% after hours following the results and guidance.
Our view
That RDDT’s near-term narrative stays constructive on monetization and leverage, supporting continued sensitivity to ad demand and engagement rather than heavy capex. Next monitor is whether DAUq and ARPU continue to beat expectations while guidance holds into the Q2 print.
What could change our view
ARPU momentum fades or engagement misses, undermining the operating leverage narrative.
Q2 results or outlook slip below guided ranges, reversing the post-earnings re-rate.
Tickers: $RDDT
Uber deepens Hertz tie-up to operationalize Lucid-Nuro robotaxi fleets, targeting Bay Area launch later this year and possible expansion in 2027.
Last 24 hours
Hertz set up Oro Mobility to manage maintenance, charging, cleaning, and logistics for Uber vehicles, including planned Lucid robotaxis running Nuro autonomy, with a San Francisco Bay Area rollout later this year.
Our view
This partnership is a medium-term option on Uber-managed autonomous supply rather than a near-term earnings driver, given the staged Bay Area launch and 2027 expansion language. Watch early fleet utilization, cost-per-mile, and regulatory/insurance readiness as the gating items for any meaningful scale-up.
What could change our view
Faster-than-expected multi-market rollout that materially boosts Uber take-rate and volumes.
Regulatory, insurance, or fleet-ops setbacks that delay launch or raise unit costs.
Tickers: $UBER
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