US Treasury breaks 5%, hawkish cracks emerge; Alphabet (GOOGL.US) plunges 10% after hours, AI cash flow crisis

According to Woofun AI, the October 28 FOMC meeting maintained the federal funds rate target range at 3.75%-4.00% by a vote of 10 to 2. However, members Cook and Hammack cast dissenting votes, explicitly advocating a 25 basis point hike.

This rare disagreement shifted the market towards pricing in a rate hike, with the probability of a 25 basis point increase in December rising above 80%. The 10-year U.S. Treasury yield surpassed 5% that day, closing at 5.02%. Meanwhile, Alphabet (GOOGL.US) experienced a nearly 10% plunge in its stock price after-hours due to a second consecutive quarter of negative free cash flow driven by massive AI capital expenditures, with the deficit widening from $5.855 billion last quarter to $9.065 billion. The combination of hawkish macro-level rifts and micro-level cash flow crises is reshaping the market’s risk pricing logic for high-growth assets.

Alphabet's financial report data reveals the cost behind the AI boom. Q3 revenue reached $127.577 billion, up 25% year-on-year, with Google Cloud surging 103% to $30.709 billion, but capital expenditures soared to $51.355 billion, directly resulting in free cash flow dropping to -$9.065 billion. Diluted EPS was $2.12, compared to $2.87 in the same period last year; adjusted EPS, excluding equity security losses, was $2.67—below market expectations of $3.02. The company maintained its 2026 capital expenditure guidance and warned of a "significant increase" in investment for 2027.

Although its operating margin remained at 32%, "other income (expense), net" swung from a positive $12.759 billion to a negative $8.221 billion, becoming a key drag on performance. After-hours, GOOGL shares fell to $292.50, a drop of 9.97% with a trading volume of 25.26 million shares. The market is reassessing the sustainability of AI investments, shifting focus from revenue growth to free cash flow health—a valuation logic change presenting a significant challenge for high capex tech giants.

In sharp contrast, Microsoft (MSFT.US) demonstrated a healthier input-output ratio in its earnings. Q1 revenue was $92.279 billion, up 19% year-on-year; non-GAAP diluted EPS was $4.89, above expectations of $4.73. GAAP EPS at $4.92 included a year-over-year lift from OpenAI investment turning profitable. Azure cloud business grew 48% YoY, with capital expenditures at $39.367 billion.

Despite also facing massive AI investments, Microsoft absorbed cost pressures through efficient cloud monetization, with after-hours MSFT stock price rising 2.88% to $546.30 on 8.04 million shares traded.

This contrast signals that the market no longer blindly pursues the scale of AI investments, but pays greater attention to their economic returns. Woofun AI compilation shows that Microsoft’s disciplined capital expenditure and strong cloud growth establish a new benchmark for financial health among tech giants in the AI era; capital is increasingly shifting from story-driven to rational allocation based on real cash flow.

The software and security sectors underwent collective revaluation after-hours, with sharp declines in ServiceNow (NOW.US) and Fortinet (FTNT.US) reflecting deep market concerns over AI replacing traditional IT budgets. ServiceNow fell 18.07% after-hours, mainly due to its guidance that Q4 cRPO growth will slow to 18.5%, below Q3’s 20.5%. Fortinet plunged 25.71% after-hours, despite Q3 revenue of $2.08 billion (up 20% YoY) and raised full-year revenue guidance for the third time. However, its non-GAAP gross margin of 79.6% missed the expected 80.1%, and Q4 guidance implied growth slowing to 15.5%, interpreted by the market as a deceleration. In the environment of a 10-year treasury yield above 5% and high discount rates, SaaS companies are highly sensitive to even slight growth changes. ServiceNow traded 7.22 million shares; Fortinet, 3.08 million shares.

This sector-wide valuation reset is not an isolated event but reflects that, in the context of fast AI iteration, long-term demand for traditional software and security products faces structural uncertainty, prompting investors to rapidly adjust their expectations for such high-duration assets.

The semiconductor sector, in contrast, saw funds flow from software to hardware. The Philadelphia Semiconductor Index (SOX) rose 1.76%, with AMD up 3.24% to $578.44, AVGO up 2.77% to $351.81. KLAC was particularly strong, ending up 3.33% at $158.77 and climbing another 3.95% after-hours to $165.04. In comparison, NVDA fell 1.18% to $215.38, indicating a structural shift in capital allocation even within AI hardware.

The logic behind this phenomenon is that while the software segment faces concerns about AI cannibalizing existing budgets, the hardware segment is benefiting from continued investment in AI infrastructure. The same macro variables have opposite effects across the two industry chains; capital is seeking more certain hardware returns rather than the uncertainty of software subscription growth.

Other leading tech stocks were relatively flat or under pressure. Apple fell 0.94% to $343.83, Tesla down 0.80% to $404.22, Meta down 1.24% to $612.49. Amazon edged up 0.59% to $254.60, while eBay surged 4.97% after-hours to $123.88, with an intraday price of $118.02.

This divergence shows that, amid increasing macro uncertainty, investors prefer defensive assets or targets with unique growth stories. Amazon is set to release its Q3 results, with a balance between its cloud and retail businesses in focus. eBay’s rise is likely tied to its e-commerce business resilience, while declines in Apple and Meta reflect market concerns over slowing growth for consumer tech titans.

For crypto-related U.S. stocks, MicroStrategy (MSTR.US)'s holdings and financing structure adjustments became the focus. As of October 26, MicroStrategy held 848,517 bitcoins with a total cost of $6.402 billion. Based on the October 29 intraday price of $79,775, the holdings were valued at $6.769 billion. Using CNBC’s valuation of $6.1732 billion, the market cap/holdings ratio was 0.91, with a floating profit of 5.74%. On October 28, Strategy’s special shareholder meeting approved daily dividend amendments for four preferred shares (STRF, STRC, STRK, STRD), with STRC effective November 1, 2026, and the others January 1, 2027.

This move aims to transform preferred shares into high-frequency dividend tools to stabilize financing costs. MSTR closed at $145.16, up 2.66%, and dipped slightly after-hours to $144.15 (-0.70%). Strive increased its bitcoin holdings by 43,000 through preferred share issuance, corresponding to a market value of $3.43 billion—purchase price of $82,732 per bitcoin is higher than the current price. Strive stock rose 1.46% to $27.53.

In contrast, Datavault AI (DVLT.US) faced a crypto-related assets withdrawal crisis, triggering a trust shock in the crypto-equity sector. The company signed an agreement with Scilex to sell 15 million shares for $150 million, to be paid in bitcoin (priced at $112,915.52 per coin, equaling 1,328.43 BTC) and stored in a Biconomy wallet. The company later sold back 491.431 BTC for $40.5 million cash, but the remaining assets could not be withdrawn.

The company announced restatements for its Q3 2025, FY 2025, Q1 2026 and half-year 2026 reports, expected to reduce total assets by $8.1 million, $92.2 million, $57.1 million, and $49 million, respectively. DVLT stock fell from $0.13 on October 26 to $0.07 on the 27th, closing at $0.09 (last traded at $0.088) on the 28th. This is the first public disclosure in the current DAT wave of "holding coins on the books but unable to withdraw," breaking the market’s default assumption about the security of custodied assets—the valuation framework shifts from "holding quantity" to "holding verifiability."

The broader crypto ecosystem and regulatory environment are undergoing profound changes as well. Galaxy Digital posted a quarterly profit of $323 million and announced a $200 million buyback plan. SoFi disclosed 503,000 crypto products with gross income of $162 million. Circle faces potential revenue risk up to 20% from AI agents as highlighted by Mizuho. At the same time, Ark Invest bought $5.2 million in Circle stock and sold $15.9 million of its own bitcoin ETF. Moody’s gave Ripple’s RLUSD an investment-grade rating, posing direct competition to Circle’s USDC. The CFTC sued Utah, escalating federal-state conflicts over prediction market supervision, directly impacting companies like Robinhood. On accounting rules, FASB ASU 2023-08 requires eligible cryptoassets to be measured at fair value, but the DVLT case shows that "whether it can be recognized" precedes "how to measure it"—absence of custody control may prevent assets from being included in financial statements at all.

Geopolitical risk and future outlook: tensions with Iran remain high. The conflict has continued for 8 months; on October 22, Iran reported damage to 7 tankers in the Strait of Hormuz and threatened to attack oil and AI infrastructure if the US and Israel resume strikes. On October 28, media reported that the US asked Gulf states to prepare for potential post-midterm strikes on Iran. Trump said on October 26 he was weighing between "reaching an agreement" and "completely resolving" the issue. UBS data shows Russian oil exports are only 10% below pre-war levels, with Brent crude prices steady at $110–115. The energy sector ETF (XLE) rose 0.35%. Midterm elections are set for November 3, with the balance of Congressional control directly impacting energy and crypto regulatory paths.

Core PCE (expected 3.1%) and initial GDP (expected 3.2%) will be released on October 29. If the data is higher than expected, the 10-year yield may rise further, applying renewed pressure on tech and crypto assets. Eli Lilly, Mastercard, Amazon, Intel, Strategy, Coinbase and others will report earnings after the bell on October 29, with ExxonMobil, Chevron and AbbVie reporting pre-market October 30. Warsh announced that starting in 2027, one out of eight FOMC meetings each year will focus solely on macro strategy with no rate votes, increasing to two meetings in 2028; STRC daily dividends begin November 1. If the plunges in NOW and FTNT are confirmed the next day, the entire SaaS sector could be dragged down.