The pullback looks to have finally arrived. The artificial-intelligence trade and risky assets in general were suffering when the S&P 500 experienced tech-related losses, but the depth of the correction will depend on economic data and the Federal Reserve.

A pause in the AI trade isn't exactly a surprise. Everyone from big bank CEOs to Big Short investor Michael Burry has been pointing to stretched valuations. Now cracks are appearing with punishing post-earnings reactions for AI darlings such as Palantir and Advanced Micro Devices.

The question is, how deep and long-lasting will the drop be? Some metrics point to a prolonged fall -- economist Robert Shiller's version of the cyclically adjusted price-to-earnings ratio recently breached 40 for the first time since 1999. Such cyclical peaks have generally coincided with negative stock returns for the next decade.

But any such historical measure has its limitations. Optimists note recessions are now less frequent. There are also more quality companies and technological shifts, which have led to higher corporate profits. AI already looks to be allowing companies to run with smaller workforces -- look at recent job cut announcements from Amazon and IBM.

The market's jitters are being exacerbated by concerns about the Fed's willingness to keep cutting rates amid a lack of economic data caused by the government shutdown. Uncertainty over the Trump administration's tariffs policy -- which is about to be tested by the Supreme Court -- isn't helping, either.

There's a path for those concerns to be resolved in the coming weeks. If the shutdown ends and a resumed flow of economic data confirms expectations of interest-rate cuts, while the Supreme Court clarifies the application of tariffs, this pullback could end up looking more like a blip than a bust. Until then, expect more pain in the frothiest areas of the market.

-- Adam Clark

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AMD Beats Expectations as Data Center AI Rapidly Scales

Advanced Micro Devices is aiming to crack Nvidia's dominance in the market for artificial intelligence processors, garnering business from OpenAI and Oracle. It reported record third-quarter client revenue and strong guidance, results that CEO Lisa Su said demonstrate its rapidly scaling data center AI business.

   -- For the September quarter, AMD reported adjusted earnings of $1.20 a 
      share and revenue of $9.25 billion, both beating expectations. Current 
      quarter revenue is expected to be $9.6 billion at the midpoint, also 
      above the average expectation. 
 
   -- Third-quarter data center revenue rose 22% to $4.3 billion. Client and 
      gaming sales rose 73% to $4 billion. Su said demand has never been 
      greater "as every major breakthrough in business, science and society now 
      relies on access to more powerful, efficient, and intelligent computing." 
 
   -- Intel and AMD use the x86 chip architecture in making the CPU processors 
      that act as the main computing brains for PCs and servers. Su said many 
      customers are planning "substantially" larger CPU buildouts in the next 
      few quarters to support higher AI demand. 
 
   -- Su also told analysts that AMD's AI business is on track to grow to tens 
      of billions of dollars in annual revenue by 2027. Last month, AMD struck 
      a deal to supply OpenAI's AI infrastructure buildout, including six 
      gigawatts of AMD GPUs. 

What's Next: AMD didn't include revenue from its Instinct MI308 GPU meant for the Chinese market in the third quarter numbers and the fourth quarter guidance. Su said AMD has received some licenses for shipments after the Trump administration reversed its prohibition on selling the chips.

-- Tae Kim and Liz Moyer

***

Mamdani Wins NYC on Strong Night for Democrats

New York City has a new mayor. Zohran Mamdani beat independent candidate Andrew Cuomo and Republican Curtis Sliwa on Tuesday, while Democrats also won gubernatorial elections in Virginia and New Jersey.

   -- President Donald Trump gave Cuomo a last-minute endorsement, but 
      Mamdani's margin ended up being too big for that to matter. The 
      Associated Press declared the self-described democratic socialist the 
      winner at 9:34 p.m. Eastern time on Tuesday. 
 
   -- Two gubernatorial elections also went in Democrats' favor. In Virginia, 
      former Democratic Rep. Abigail Spanberger defeated Winsome Earle-Sears, 
      the current lieutenant governor, to succeed Republican Gov. Glenn 
      Youngkin. Mikie Sherrill beat Jack Ciattarelli in New Jersey. 
 
   -- In California, residents voted to redraw the state's electoral map in a 
      way that would likely give Democrats five more seats in the House of 
      Representatives after the 2026 midterm elections. Gov. Gavin Newsom had 
      pitched the referendum as a way to hurt Trump and counter a partisan 
      gerrymander in Texas that would take five seats away from Democrats. 
 
   -- Mamdani's flagship policies weren't popular on Wall Street. He has 
      promised an additional 2% tax on millionaires and to raise taxes on 
      businesses to pay for free buses, expanded child care and city-run 
      grocery stores. 

What's Next: The strong showing by Democrats could make it even tougher for Congress to end the ongoing government shutdown, which entered a record-breaking 36th day Wednesday, making it the longest in history. Senate Democrats have refused to vote in favor of a funding bill unless it includes an extension of subsidies for Affordable Care Act premiums that are set to expire at the end of this year.

-- Joe Light and George Glover

***

Novo Nordisk, Pfizer Trade Barbs in Fight Over Metsera

Novo Nordisk is pressing forward with its campaign to outbid Pfizer for the weight-loss drugmaker Metsera, raising its offer more than 30% higher than what Pfizer's initially offered, not including potential milestone payments. Metsera is giving Pfizer until Thursday to counter.

   -- Novo's new $62.20-a-share offer includes a $6.7 billion upfront payment, 
      plus up to $2.8 billion more in milestone payments. Metsera's pipeline of 
      weight-loss medicines includes one that could be dosed monthly, instead 
      of weekly like Novo's Wegovy and Eli Lilly's Zepbound. 
 
   -- Metsera said Novo's proposal values it at $10 billion, including the 
      potential milestone payments, while Pfizer's latest proposal values it at 
      $8.1 billion. Pfizer has filed two lawsuits to preserve its deal, and its 
      CFO told Barron's it is continuing pre-integration planning with Metsera. 
 
   -- Pfizer's lawsuit accuses Novo of "bribing" Metsera, its board, and its 
      controlling stockholders, and seeks to block the merger on antitrust 
      grounds. Novo has ridiculed Pfizer's claims and called its lawsuit 
      "seemingly desperate." 
 
   -- Novo and Pfizer have likely both seen data that's not yet public that 
      gives them confidence in Metsera's pipeline. Pfizer chief scientific 
      officer Chris Boshoff told Barron's that data seen during diligence 
      suggests Metsera's drug could be a "potential best-in-class." 

What's Next: The Trump administration is negotiating a deal with Novo and Lilly to sell their weight loss drugs at $149 a month through its online portal, The Wall Street Journal reported, and allowing coverage by Medicare and Medicaid. An announcement could come Thursday.

-- Josh Nathan-Kazis and Janet H. Cho

***

Norway Heats Up the Drama for Vote on Musk Pay Proposal

At least one major institution -- Norway's sovereign-wealth fund -- won't back the proposed $1 trillion pay for Tesla CEO Elon Musk and voted against it. The fund's skepticism introduces a degree of uncertainty before votes are tallied at Tesla's annual shareholder meeting on Thursday.

   -- Norges Bank Investment Management, which manages $1.9 trillion, said 
      while it appreciates the value Musk has created at the electric-vehicle 
      maker, it was concerned about the total size of the award, the dilution 
      for other shareholders, and the lack of mitigation of key person risk. 
 
   -- Investors are voting on the pay proposal by the board as Tesla's focus 
      shifts toward opportunities driven by artificial intelligence, including 
      self-driving technology for its cars, a growing robo-taxi platform, and 
      robots. Musk has even teased that the robo-taxi business would get 
      bigger. 
 
   -- Wall Street expects a majority of Tesla shareholders to vote in favor of 
      Musk's pay. Wedbush analyst Dan Ives expects a "big green light," calling 
      the incentives/pay package a smart move by Tesla's board, because Tesla's 
      biggest asset is Musk. 
 
   -- Norway's fund is the sixth biggest Tesla institutional owner, according 
      to FactSet, with about 1.2%. Musk, who can also vote, has a voting stake 
      of 15%. Smaller pension funds and the American Federation of Teachers 
      have publicly opposed the pay, while some, like Florida's public pension, 
      support it. 

What's Next: It's unclear what Musk would do if shareholders reject the package, which awards him some 425 million incentive-laden shares and about 25% voting control. Musk has said that's what he needs to keep his AI projects at Tesla, rather than moving them to his xAI company.

-- Al Root and Janet H. Cho

***

Bitcoin Briefly Dips Below $100,000. What's in Store for Crypto.

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