Mad Money 10/29/25 | Audio Only

Key Concepts

• Federal Reserve Rate Cut: A 0.25% reduction in interest rates by the Fed, intended to lower borrowing costs.
• Artificial Intelligence (AI): A transformative technology driving significant anxiety and opportunity in the job market and corporate strategies.
• Nvidia: A dominant player in AI, considered an "intellectual engine" for productivity and cost reduction.
• Alphabet (Google): Successfully integrated generative AI (Gemini) into its core search business, showing strong revenue growth and cloud performance.
• Meta: Embraced AI with significant investment, despite a temporary earnings hit from a tax bill, and raised its full-year revenue forecast.
• Microsoft: Reported a strong quarter with accelerated Azure growth, but its stock was impacted by prior gains from its OpenAI stake.
• Data Center Boom: A major growth area driven by AI and accelerated computing, benefiting companies with exposure to this sector.
• Caterpillar (CAT): Successfully pivoted to a secular growth story by focusing on turbines and power equipment, benefiting from data center demand.
• Generac: A generator manufacturer that has not fully capitalized on the data center boom, leading to stock underperformance.
• ServiceNow: An enterprise software company that is leveraging AI to create workflows and has seen strong revenue growth and raised its full-year forecast.
• Brinker International (Chili's): Experiencing strong sales and traffic growth, particularly with lower-income consumers, despite industry headwinds and tariff pressures.
• Otis Worldwide: An elevator and escalator company benefiting from its strong service and maintenance business, as well as a growing modernization segment.
• Speculative Investing: The strategy of investing in high-risk, high-reward stocks, particularly in emerging technologies like AI and energy.

Economic and Market Overview

The regular economy received a needed boost with a quarter-point rate cut from the Federal Reserve. This move is expected to lower borrowing costs for shorter-term loans, though longer-term rates are influenced by the bond market. This comes at a time when consumers are hesitant to make large purchases due to job security fears and rising inflation. Fed Chair J. Powell indicated that further rate cuts might not occur next month, which contributed to a slight dip in market averages. The Dow Jones Industrial Average fell 74 points, the S&P 500 ended minimally down, while the NASDAQ managed a 0.55% gain.

The Impact of Artificial Intelligence (AI)

Despite low unemployment and immigration crackdowns, a significant concern for job security has emerged due to artificial intelligence (AI). The company at the epicenter of this anxiety is Nvidia, valued at $5 trillion. Kramer emphasizes that companies must recognize Nvidia as an "intellectual engine" that enhances productivity and lowers costs. Alex Karp of Palantir acknowledges the potential for job displacement but stresses the importance of adaptation and pivoting.

Corporate Performance and AI Integration

Alphabet (Google)

Alphabet, the parent company of Google, has integrated its generative AI platform, Gemini, into its core search business. Despite initial bugs, Gemini is performing well. Alphabet reported a strong quarter with revenue growth accelerating to 16%, exceeding Wall Street expectations. Earnings per share were $2.87, significantly higher than the projected $2.27. The core search business grew by 15%, with no cannibalization from Gemini. Google Cloud revenue also beat expectations by over half a billion dollars, growing by 34%. The company's capital expenditures were in line with expectations. Kramer considers Alphabet to be the "star" performer among the tech giants.

Meta

Meta has heavily invested in AI, transforming from a primarily advertising-focused platform. While Meta's revenue exceeded expectations, its earnings were significantly impacted by a one-time tax bill. Without this, Meta would have earned $7.25 per share, surpassing the Wall Street estimate of $6.72. The company raised its full-year revenue forecast but also increased its capital expenditure forecast by a larger margin, which was viewed less favorably than Alphabet's performance. The stock's significant pre-quarter gain of 28% may have contributed to its post-earnings decline.

Microsoft

Microsoft delivered a strong quarter with both top and bottom-line beats. Its crucial cloud infrastructure division, Azure, saw its growth accelerate to 40%. However, the stock experienced a decline in after-hours trading, potentially due to its prior surge following the deal with OpenAI, which gave Microsoft a 27% stake in the for-profit entity.

The "Real Economy" and Data Center Exposure

Kramer shifts to an "entrepreneur hat" to discuss the "real economy." He argues that many companies have missed out on the data center boom.

Caterpillar (CAT)

Caterpillar's stock surged over 11% following its earnings report. This was attributed to the previous CEO's strategic pivot to make the company a secular growth story by focusing on turbines and power equipment. These divisions, particularly those providing power, are crucial for data centers.

Generac

In contrast, Generac, a maker of backup generators with some data center exposure, saw its stock decline. The company's core business is tied to natural disasters, and it has not sufficiently pivoted to capitalize on the data center growth.

Key Argument: The rate cut is beneficial for the real economy, but companies that are exposed to the data center economy are performing best.

Enterprise Software and AI

Despite the AI boom, the enterprise software space has faced pressure, as AI can now generate code. However, ServiceNow has defied this trend.

ServiceNow

ServiceNow reported strong numbers with 22% revenue growth and a 56-cent earnings beat ($4.26 actual vs. $3.70 expected). Management raised nearly every line of their full-year forecast. CEO Bill McDermott highlights ServiceNow's AI platform, built on Nvidia's Neotron, which connects to all clouds, language models, and data sources. This platform enables workflows that are essential for business transformation. ServiceNow secured 103 deals over $1 million in net new Annual Contract Value (ACV), with 106 above $10 million and three above $20 million. McDermott refutes the idea that AI will "eat" software, emphasizing ServiceNow's cooperative approach with hyperscalers and its unique ability to handle complex enterprise AI, regulatory processes, and cross-functional workflows. The company also announced a five-for-one stock split to make its shares more accessible to individual investors.

Restaurant Industry Performance

Brinker International (Chili's)

Brinker International, the parent company of Chili's, reported a top and bottom-line beat, yet its stock declined. This was attributed to concerns about tariffs and margin pressure, particularly import duties on beef and shrimp. While the company reiterated its full-year forecast, it did not raise guidance, which may have disappointed investors. CEO Kevin Hawkman highlighted strong sales growth of 21% and traffic growth of 13% at Chili's, with significant gains across all income cohorts, including those under $60,000. The company is also addressing customer feedback regarding its queso recipe, planning to bring back the original skillet queso. Majano's, another brand under Brinker, is being used as a test case for portfolio management.

Industrial and Infrastructure Companies

Otis Worldwide

Otis Worldwide, an elevator and escalator company, reported a constructive quarter with a slight revenue beat and a solid earnings beat. Management raised its full-year earnings forecast, leading to a stock rally. The company's strength lies in its service and maintenance business, which is less susceptible to global economic fluctuations. Service sales were up 6% organically, with 70 basis points of service margin growth. The modernization business showed significant growth, up 27% with 14% organic sales, driven by the large number of older elevators worldwide needing upgrades. Otis is also seeing strong new equipment orders in North America and a growing modernization business globally, including a 150% increase in modernization orders in China. The company has also been actively buying back its stock, with $800 million in share buybacks this year.

Lightning Round and Speculative Investing

The "Lightning Round" segment featured calls from viewers seeking advice on various stocks.

• Energy Transfer: Kramer likes the company and recommends Enterprise Product Partners.
• Toast: Kramer would be a buyer of Toast, but only after its upcoming earnings report.
• DBLT: Kramer advises taking some profits off the table, letting the rest run, and recouping the initial cost basis.
• Seals Q (LAS): Kramer defers to an expert, Ben Sto, on this post-quantum company.

Kramer concludes by advocating for wise speculation, particularly in areas like AI and data centers, suggesting that investors should consider owning one speculative stock (no more than 10% of their portfolio) alongside index funds. He dismisses "bubble talk" surrounding AI, citing companies like Cameco (benefiting from nuclear buildouts for data centers) and Bloom Energy (experiencing a blowout quarter due to demand for clean energy at data centers) as evidence of real opportunities. He emphasizes that fortunes are being made in the current market and encourages participation in these gains with limited risk.

Conclusion

The market is navigating a complex environment with a Fed rate cut providing some economic support. The dominant theme remains the transformative power of AI, creating both anxiety and significant investment opportunities. Companies that are effectively integrating AI into their strategies, like Alphabet, Meta, Microsoft, and ServiceNow, are showing strong performance. Furthermore, companies with exposure to the burgeoning data center economy, such as Caterpillar and Otis, are also benefiting. Brinker International demonstrates resilience in the restaurant sector by focusing on value and customer experience. Kramer encourages investors to embrace speculative opportunities in these growth areas, emphasizing the importance of diversification and risk management.