Apple Zeng | HighRock Capital

@HighRockCapMgmt | HighRock Capital Management | MSF (Fund Management) · MBA | Equity research: AI, semis, etc. earnings | NY-registered investment adviser

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

$BA cleared three overhangs in four days. It still trades at 15.6x 2028E FCF.

HighRock view: BUY | 12M PT $220 (+14%) | Prob-weighted $218

What changed:
• Oct 2: The FAA review board says the 737 MAX go-around software issue is "not a flight-safety concern." No grounding.
• Oct 1: SPEEA ratified a 4-year deal. The Oct 7 strike is averted.
• Sep 29: Navy F/A-XX win, the 2nd 6th-gen fighter after the F-47.

What hasn't: MAX 10 certification still waits on the patch. The tail risk is gone; the timing risk is not.

Scenarios (12M):
Bear $158 (−18%) · 25%
Base $220 (+14%) · 50%
Bull $275 (+42%) · 25%

Why it works: At $193.56, BA prices ~$7.6B of 2028 FCF at 20x, about 22% below the $9.8B consensus. FCF path: −$14.3B (2024) → $1–3B (2026 guide) → $6.0B / $9.8B (2027E / 2028E).

Valuation: 1.90x TTM EV/Revenue, 1.59x 2027E EV/Sales, 47x 2027E P/E, 31x NTM EV/EBITDA. Expensive on trough earnings, reasonable on 2028 cash.

Levels:
Entry $188–196 (1/3)
Add $182–186
Trim $220–230
Reassess: weekly close < $172

Oct 27 scorecard: Q3 FCF > $1B, 737 deliveries ≥ 135, MAX 10 timeline intact, BCA margin > −1%.

Risks: MAX 10 slip (40%), 737 stuck at 47/mo (30%), 787 engine supply, 777X charge, a 5% 10Y.

Full 11-page report on request: [email protected]

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

September payrolls: +29K vs. ~90K expected. July and August revised down 60K combined. Unemployment 4.2%.

But initial jobless claims are 197K. This is a hiring freeze, not a layoff cycle.

Key numbers (BLS):
• Private +46K, government -17K
• 3-month avg ~51K/month
• Avg hourly earnings +0.1% m/m, 3.0% y/y
• Health care +17K, half its 12-month avg
• Financial activities -7K, down 129K since May 2025

What it means:
1) October Fed hike: fading. 3.0% wage growth is not a wage-price spiral. Pause is now the base case.
2) Real labor income is flat: ~+3.3% nominal vs. 3.4% headline PCE. Energy +17% y/y hits consumers first.
3) 2Y at 4.71% is still ~85bp above fed funds mid. The front end prices more tightening than this labor market supports.
4) Recession signal? Not yet. Watch whether 4-week claims move sustainably above ~240K.

Next: Sept CPI, weekly claims, Oct 27–28 FOMC.

Soft landing in slow motion, or stagflation squeeze?

#NFP #JobsReport #Fed #Macro

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

September: Dow ‑4.3%. Russell 2000 ‑5.4%. S&P 500 only ‑0.45%.

History says October usually pays that back, with one big exception. And 2026 looks a lot like the exception.

HighRock Capital Management | Macro Strategy | Oct 2, 2026
▌What actually happened
Dow: lowest close since June (9/30), ‑6.9% from its 52‑week high

Russell 2000: ‑8.1% from its 8/13 record of 3,053, testing the 200‑day (2,780), RSI ~31

10 of 11 S&P sectors fell. Only Tech rose (+5%); semis +9%
Nasdaq‑100 beat small caps by 8.6 pts in one month
The cause was rates, not earnings:
2Y and 10Y both up ~50bp in September

10Y hit 5.29%, highest since 2002

Fed hiked to 3.75–4.00% on 9/16; dots show one more in 2026
Small caps feel this first: ~40% of Russell 2000 companies are unprofitable, and far more of their debt is floating‑rate than at large caps.
▌History: Dow after a >4% September drop, midterm years
1962: Sep ‑5.0% → Oct +1.9%
1974: ‑10.4% → +9.5% (bear market low 10/3)
1986: ‑6.9% → +6.2%
1990: ‑6.2% → ‑0.4% (oil shock)
2002: ‑12.4% → +10.6% (bear market low 10/9)
2022: ‑8.8% → +14.0% (best month since 1976)
Average October: +7.0%. Up 5 of 6.

▌History: Russell 2000, midterm Octobers
2002: +3.1% (10Y falling)
2006: +5.7%
2010: +4.0% (QE2)
2014: Sep ‑6.2% → Oct +6.5% (10/15 yield flash crash)
2018: Sep ‑2.5% → Oct ‑10.9% (10Y breaking out, Fed hiking)
2022: Sep ‑9.7% → Oct +10.9% (yields peaked late Oct)
Average: +3.2%. Up 5 of 6.

▌The pattern
The deeper the September selloff, the bigger the October rebound.
The one exception, 2018, had the 10Y breaking out and a Fed still hiking.
That is the 2026 backdrop. Seasonality alone is not a buy signal this year.
▌The analog we're watching: late 2023
Oct 2023: the 10Y touched 5.0% and the Russell bottomed on 10/27.
Nov 3: a soft jobs report, and yields rolled over.
Russell 2000: +8.8% in November, +12% in December.
Today: payrolls +29k vs. 84k expected, unemployment 4.2%, October hike odds near zero, 10Y back to ~5.24%.
Same type of signal. It still needs confirmation.
▌October scenarios
Russell 2000 (from 2,806):
Bull 35%: 3,000–3,050 (+7–9%). 10Y below 5.0%, benign CPI, Fed on hold
Base 35%: 2,750–2,880 (‑2% to +3%). Chop around the 200‑day into the election
Bear 30%: 2,550–2,600 (‑8–9%). 2018 replay: hot CPI, 10Y above 5.5%, oil above $110
Probability of a positive October: ~55%
Dow (from 50,927):
Bull 35%: ~53,500 (+5%)
Base 40%: ~51,400 (+1%)
Bear 25%: ~48,400 (‑5%)
Probability of a positive October: ~60%
▌Valuation cushion
Russell 2000 near 18x vs. ~29x for the Russell 1000, a 35–40% discount.
Q3 small‑cap EPS +19.5% YoY; FCF per share +11.2%.
The earnings are there. The multiple is waiting on rates.
▌What we're watching
10Y: below 5.10% confirms; above 5.50% means 2018 risk

Russell 2000: hold 2,780 (200‑day), reclaim 2,900
WTI: below $85 helps; above $110 hurts
CPI 10/14 · FOMC 10/27–28 · Mega‑cap earnings late Oct · Election 11/3
▌Bottom line
September already absorbed much of the rate shock, and midterm history favors October. But this rebound runs on the 10Y peaking, not on the calendar.
Below 5.25%: the 2022 playbook.
Above 5.5%: the 2018 playbook.
2018 or 2022, which do you see?
$IWM $DIA $SPY $QQQ #SmallCaps #Russell2000 #Macro #MidtermElections

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

September: the S&P 500 fell 0.4%. The typical stock fell nearly 6%.

Q3: the S&P 500's earnings growth estimate rose to 29%. The index rose 2%.

Earnings did the work. Rates took the multiple.

September + Q3 recap below.

SEPTEMBER (sector SPDRs, price return, 8/31-9/30)
387 of 500 S&P 500 stocks finished lower. Technology was the only sector up.
- Best: Technology +5.1% (semis $SMH +9.4%)
- Worst: Materials -7.6%, Real Estate -7.3%, Financials -7.1%
- S&P 500 -0.4%, Nasdaq +1.9%, Dow -4.3%

Q3 (6/30-9/30)
- Best: Energy +16.5%, Brent ended the quarter at $103
- Worst: Utilities -12.4%, 10Y Treasury at 5.29%, a 24-year high
- S&P 500 +2.0%, Nasdaq +2.5%, Dow -2.7%

EARNINGS VS. PRICE
- FactSet Q3 EPS growth estimate: 26.7% (6/30) to 29.1% (9/25)
- Forward P/E: 20.4x to 19.2x
- Leaders: Energy +111%, Tech +64%, Communication Services +51%

CONCENTRATION (Zacks)
- Tech = 41.6% of S&P 500 earnings vs 46.3% of market cap
- Mag 7 = 27% of earnings vs 34.3% of market cap (May)
- Ex-Tech, Q3 growth falls from 23.9% to 14.4%

LATEST REPORTED QUARTER, revenue YoY
- $NVDA (May-Jul): $96.2B, +106%
- $MU (Jun-Aug): $54.2B, +379%
- $AVGO (May-Jul): $29.6B, +86%
- $META (Apr-Jun): $60.8B, +28%
- $GOOGL (Apr-Jun): $119.8B, +24%
- $AMZN (Apr-Jun): $200.6B, +20%
- $MSFT (Apr-Jun): $90.0B, +18%
- $AAPL (Apr-Jun): $109.4B, +16%

JUL-SEP QUARTER: closed 9/30, reports start 10/13
- $MSFT 10/28: revenue consensus $90.6B, +17%
- $META 10/28: revenue consensus $63.2B, +23%
- $AAPL 10/29: EPS consensus $1.98, +7%
- $GOOGL late Oct.: EPS +2% on revenue +27%, against a high base
- $AMZN late Oct.: revenue guidance $197B-$202B, +9% to +12%
- $NVDA (Aug-Oct quarter) reports in Nov.: $108B guidance, +89%

COUNTERPOINT
$100 oil is inflating Energy's growth, and with yields above 5%, beats may not be rewarded with higher multiples.

Which sector leads Q4?

#StockMarket #EarningsSeason

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

2/7 Fiscal Q1 (reported Sept. 10): revenue +30% to $19.3B, cloud infrastructure +121%, operating cash flow a record ~$23B. Capex: $28.5B.

On forward P/E the stock screens at roughly 16-18x. But P/E sees earnings, not the capex bill.

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

1/7 $ORCL has $664B of contracted backlog (RPO). Last quarter it still burned $5.4B of free cash flow.

Both numbers are true. That is why I never value a build-out story on backlog or P/E alone. A short thread on what I check instead.

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

7/7 My next checkpoint: whether FQ1 gross margin holds as the "floor" management called it.

Is 7x run-rate EPS pricing in a peak, or missing a regime change? #Semiconductors

Not investment advice. HighRock and its clients may hold positions in securities mentioned.

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

1/7 $MU just guided to $38 of EPS for a single quarter. The stock slipped ~1% after hours.

That reaction is the whole debate: is an 87% gross margin a new floor, or a peak?

A short thread on how I frame it.

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

6/7 The counterpoint is real: annualizing a peak quarter is how cycle investors get hurt.

Capex is ~$25B in 1H FY27 and rising, price ceilings cap upside, and these contracts have never been tested in a downturn.

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

5/7 Management also says it has "no line of sight" to when supply and demand return to balance.

At ~$1,066 (Sept. 30 close), $MU trades near 7x the FQ1 EPS guide annualized. The market is not paying for durability.

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

4/7 What management says is different this time:

- 26 Strategic Customer Agreements, $32B of customer commitments, covering 35%+ of revenue through 2030
- 75%+ of 2027 output already committed
- Most SCA pricing has floors and ceilings

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

3/7 History is the bear case.

Micron's GAAP gross margin peaked at 61% in FQ4 2018 and fell to 28.6% four quarters later. FY22 net income of $8.7B became a $5.8B loss in FY23.

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

2/7 Fiscal Q4 (reported Sept. 30): revenue $54.2B, +379% YoY, vs. ~$51.1B LSEG consensus. Gross margin: 87% (86.8% GAAP).

FQ1 guide: $61.5B revenue vs. ~$57B consensus, 86.25% gross margin (non-GAAP).

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

7/7 The job is to know which phase you are paying for.

Which do you trust most: fwd P/E, EV/(EBITDA - capex), or FCF yield? #Valuation

Not investment advice. HighRock and its clients may hold positions in securities mentioned.

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

6/7 The counterpoint is real: capex comes before revenue. If utilization holds and contracts convert on schedule, FCF can inflect sharply once the build slows.

Negative FCF in a build phase is not automatically a red flag, but it has to be underwritten, not assumed.

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

5/7 Check 3: Who is the backlog with?

In July, S&amp;P estimated OpenAI at roughly half of Oracle's then-$638B RPO and cut Oracle to BBB-. Counterparty concentration is the risk I weigh most here.

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

4/7 Check 2: Gross vs. net capex.

FY27 guide: $90-95B capex, net cash capex capped at $70B after "alternative financing." The gap does not disappear; it shows up as leases or partner obligations. I add it back for EV and leverage.

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

3/7 Check 1: What is inside operating cash flow?

Customer prepayments can lift OCF. That is customers funding the build, not recurring earning power.

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

4/7 Check 2: Gross vs. net capex.

FY27 guide: $90-95B capex, net cash capex capped at $70B after "alternative financing." The gap does not disappear; it shows up as leases or partner obligations. I add it back for EV and leverage.

[Apple Zeng | HighRock Capital @AppleZeng_HRC]

@BarchartNews Exactly