AI Faces Another Big Test 11/10/26

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0:58Brent Thill: The bell's bringing an end to the trading day at the NYSE. Step in, ringing the bell, and at the Nasdaq Heartland Express doing the honors. Welcome to Closing Bell Overtime. We're live from Studio B at the Nasdaq Market Site. I'm Melissa Lee, along with Mike Santoli. Stocks lower across the board as tech slumps, and CPI comes in hotter than expected. The Dow losing about 150 points. S &P 500 down about a third of a percent. Nasdaq losing seven tenths.

1:19Rohit Kulkarni: Contributing to the declines, a jump in bond yields. The 10-year yield getting back above 5 % for a time on the CPI data and hawkish comments from Fed Governor Waller. Much more on that coming up. NVIDIA continuing to get clobbered down another 5%, 10 % on the week, and it's only Tuesday. Its market cap briefly dipping below$4 trillion today as the market braces for more possible Jensen-Wang revelations. Microsoft also would drag on the averages. Sharp move lower intraday as Anthropik launched tools for Claude, which could be a threat to Microsoft's business, but closing off the worst levels of session off 2.2 percent.

1:56Brent Thill: The AI build-out trade reversing today. That includes Caterpillar and GE Brunova, but also memory and the neoclouds. A big test for those stocks in just a few minutes when Corwee reports results. Worries about its debt kicked off. The most recent AI sell-off, of course, stock is down 40 percent in a month. The options market pricing and a big move will get to those numbers. An instant reaction as soon as they cross the wires. But we begin with the first take on the close. and it was an effort to hold on to something.

2:22Rohit Kulkarni: For sure. I mean, clearly no progress made in trying to prove that yesterday's bounce was the start of something bigger on the upside, that it was going to be a more wholesale recovery. But, yeah, it absolutely withstood a lot of these headwinds, I think, over the course of the day with bonds and with NVIDIA. Now, in the morning, I did find it interesting. Like, AMD was soaring. You did see a bigger gain in Broadcom, and that wasn't able to hold. So this really ferocious rotation out of NVIDIA, where another$70 billion worth of NVIDIA shares traded today into other parts of semis, you know, maybe is faltering a little bit.

2:58Rohit Kulkarni: But overall, I think you'd have to say, you know, playing to a near draw on a day like today for the indexes is OK.

3:04Brent Thill: And the idea of the 50 point hike in December. I mean, that when that crossed, I thought the markets would not take that very well. And actually, we sort of did.

3:13Rohit Kulkarni: Yeah, Waller set the market up, actually, to take a bigger hit on that in the sense of saying, hey, if the core CPI comes in at 0.3 percent month over month, we should go 50 basis point. And that's exactly where it came in. Now, two-year note yield took notice of this. Yes. And it was a very large move higher in two-year note yield. So we have repriced the Fed. But in general, I guess the market is – I really think it's more of a reflection of investors came into this week with relatively low risk exposures already because we really did get cleaned out last week. So there might not have been as much to do in terms of selling.

3:44Brent Thill: Yeah, exactly. Well, multiple pressure points across markets today. Stocks lower. Excuse me. Yields higher in tech giving back some of Monday's strong bounce with NVIDIA falling sharply again. How is it setting up for the final run into 2027? Joining us now is Stephen Parker. He is the co-head of Global Investment Strategy at J.P. Morgan Private Bank. Stephen, great to see you. You know, we were talking about some of the Fed speak today. And Bowman just came out saying that she's focused on the risks to financial stability if the AI trade doesn't return as much as investors think. How do you think about this trade and how do you think about the trade's impact on the overall indices going to year end?

4:19Rohit Kulkarni: Yeah, look, I think that the Fed is going to keep a close eye on what's going on in inflation markets in the near term. This is the third straight, you know, hotter than expected print on CPI. And so I think that's going to keep the Fed diligent. But at the end of the day, I think there's a lot of things that lead us to expect that inflation pressures are going to begin to ease heading into next year. Whether you look at the potential for de-escalation in the Middle East, Brent price is already down 20 percent this month. When you think about potentially some of the slowdown in the AI CapEx build, that potentially takes some pressure off of inflation as well.

4:50Rohit Kulkarni: The thing we also have to keep an eye on is that when you look at financial conditions overall, they look OK. But when you take out the impact of equity markets, so you look at things like bond yield, they're actually pretty restrictive. So I think the Fed is going to take that into account. We think we get a hike in December and only one more for next year, and then we're done. Does that leave us in a position of, in a sense, rooting for a further deceleration in the AI CapEx momentum? And where does that leave us with regard to earnings growth? It feels as if it's kind of a push-pull with those dynamics.

5:20Rohit Kulkarni: Yeah, so we think that the AI CapEx spend story is still very much in play. You know, when you think about the approvals needed, the regulation, all the stuff for 2027 is already approved. So that's probably going to go forward. Markets are going to start thinking about 2028. And we don't think it's going to be about stopping this CapEx story. We think it's going to be about slowing it down. There's going to be a higher cost. There's going to be more regulation. And I think that's OK, because if you think back a few months ago, everyone was worried that the hyperscalers were spending too much.

5:48Rohit Kulkarni: They were burning free cash flow. Well, now this changes the dynamic. And if that spending slows a little bit, we could see a nearer term path to free cash flow positivity, which is why we've shifted our preference away from the semiconductors and more towards the hyperscalers.

6:00Brent Thill: Is there another shift that you're even looking to beyond the hyperscalers at this point? I'm just wondering how far out you go and if you should start thinking about that next leg in the AI trade. Yeah.

6:09Rohit Kulkarni: So when we think about the AI trade, this past year was all about the infrastructure names, the buildout. At this point, especially given what we saw on election night, the potential to surprise the upside is probably diminished. So you want to focus on the hyperscalers. The other place that we're looking is more in private markets where you're seeing opportunities with the companies that are building the applications on top of the AI infrastructure. That's the balance that we're looking for.

6:32Brent Thill: Hold right there, Stephen. CoreWeave earnings are out. Seema Modi's got the number. Seema. Melissa, third quarter numbers are out for CoreWeave. They delivered a gap loss of$1.27. Rednew did come in above expectations at$3.6 billion. The estimate was$3.54 billion. And non-GAAP operating margins, a sizable beat at 10%. The street consensus was 6.8%. In addition to that, the company raising its full-year revenue guidance to$13 to$13.3 billion. That really wasn't expected today. In addition to that, the company is raising its low end of the 2026 CapEx targets to$37 to$39 billion. The expectation was for$36.4 billion.

7:14Brent Thill: We have comments from CEO Mike Intrater in the press release who says our growth is supported by multiple sources of funding, including financing backed by customer contracts, operating cash flow and approximately$9 billion in customer prepayments and deposits expected in the next three months. And then he adds that financial flexibility positions us to deliver the infrastructure and software that customers need. We'll get more details on the call, which begins at 5 p.m. Eastern. I imagine the street will want some more granularity on that flexible financing option he just mentioned in the press release.

7:48Brent Thill: We are looking at the stock up about 6 percent here, Mike.

7:51Rohit Kulkarni: Yeah, absolutely. Pretty distinct bounce. Thank you very much, Seema. We'll get back to you in a bit. So, Stephen, this is obviously a small piece of the picture, but you mentioned preferring hyperscalers. Maybe they returned a free cash flow positivity before now projected. But again, their spend is somebody else's earnings. So I just keep going back to this idea. Maybe this is why, you know, the P.E. has compressed so much and the market's been unwilling to sort of take the projections and reward those companies right away. Well, I think what we've seen from a valuation perspective is exactly that.

8:24Rohit Kulkarni: Markets are telling you that this pace of earnings growth is not sustainable. You know, in fact, if you look at the relationship between profit margins on the S &P and valuations, the current profit margins would tell you we should be trading at something like 23, 24 times. We're trading at a big discount to that. So that gives us a little bit of a cushion. And I think from what you just heard from SEMA, it's not as though, you know, the CapEx story is about to fall off a cliff. We just heard and companies are still saying, like, it's still, you know, all systems go for next year. So I don't expect that we're going to see a huge disruption there.

8:54Rohit Kulkarni: All right. And you have your 2027 outlook. You're looking for a range of 8 ,500 to 8 ,700 for the S &P. Yeah, it's a positive view on the market, and it's all about earnings, right? Yet again, this is not a valuation story. We think we're going to see mid-teens earnings growth yet again, and that's going to get us a nice return in U.S. markets. Stephen, thanks very much. Thanks. Appreciate it. All right, let's get another check on CoreWeave. The stock is higher, though off the best initial levels, a sizable beat on the non-GAAP operating margins while raising its full-year revenue guidance. CEO Michael Intrader saying in the release, our growth is supported by multiple sources of funding.

9:29Rohit Kulkarni: You see the shares are up about four and a half percent. Joining us now is Brent Thill, senior software analyst at Jeffries. He has a buy rating and a$150 price target on CoreWeave. So I suppose probably a pretty high burden of proof for this result, Brent, in terms of how the market had been positioned ahead of time. What are you reading into the numbers?

9:50Stephen Parker: I mean, we're living in an AI mini bear market right now. So, I mean, the numbers are better. I just think there's going to be lingering concerns while the numbers are good is how sustainable can this be going forward? And again, you look at the revenue, the backlog, the margin. I mean, many of the boxes they checked, they talked about a$9 billion prepay coming in to help. But I think what we're seeing right now is effectively kind of a short-term trade out of AI and the sustainability of how can they keep doing this quarter after quarter. They have to show this. So what I'd say is a good step in the right direction.

10:29Stephen Parker: But we are maybe 4 ,000 feet into the climb here. We got another 26 ,000 feet to go. So right now, investors are incredibly bearish. I have not seen this magnitude of bearishness on the AI trade in a long time. And I think there are obviously several factors, not just from a semi or hardware networking perspective, just where are we actually going to put all this infrastructure? Can we build this physical infrastructure fast enough? Microsoft last quarter obviously blamed one of their NeoCloud partners for not giving them$5 billion of capacity. They wanted to spend$50 billion. They only spent$45 billion.

11:09Stephen Parker: And so I think there's, you know, again, this is the results themselves are good. It's just the question now, the sustainability. And right now, I think investors are gravitating towards safer platforms like Amazon, Microsoft is as as places to hide in the short term. because of the type of market we're in right now, which is we're kind of in a mini timeout, if you will, on a lot of the AI names. So good numbers. Obviously, if we were on a better tape, I think the stock would have been higher. But I think they're proving that many of the bear theses this short term are not coming true. But the bears are definitely not leaving camp from what I can see in the calls I'm having.

11:53Brent Thill: Right. And, Brett, I'm wondering in terms of, You know, you mentioned a lot of the results. The line items tick the boxes. I mean, gross margin coming at a 10 percent versus 6.8. That was a huge beat. What are some of the asterisks next to these beats you want to have a little bit more clarity on, particularly as we look out to the next year?

12:13Stephen Parker: Yeah, I mean, the big one is they, you know, the market cap of quarterly is$26 billion and they have$132 billion of signed contract volume. And so I think what everyone is saying is, you know, that's a lead indicator in any company I cover in tech. When you sign$132 billion of backlog, these are non-cancelable contracts that they get from their partners, Meta, Microsoft. These are the highest quality customers. They've talked about this Caterpillar, some of the customers that Corey have. This isn't, you know, Joe's hot dog stand and Susie's, you know, hair salon. These are really high-quality customers, and the market doesn't really believe in that.

12:53Stephen Parker: So it's the quality of that backlog, and can they convert that into revenue? So they can't take it to revenue until they actually get these contracts up and going. And all the fear right now is, can you get an AI PowerShell capacity up and going? And so I think the big question is, is the capacity constraints, are they feeling like, is it as negative as the street is right now? Because the street's pretty negative. If they can say, look, we feel very confident and we feel like that backlog is converting and we're converting at a high margin and you saw it in the revenue and margin, as you said, Melissa, that that's a good signal that has to continue.

13:31Stephen Parker: you and they have to show confidence in that backlog, which is, again, multiple times the size of their market cap, if they can show that they can convert and they can close that gap, then we think, again, the stock seems to have more upside if they can keep converting on that. I'm not disagreeing with the bear thesis. I'm not disagreeing with how negative people have been. We got too oversized in the AI trade. Everyone got caught two in one camp. But I think ultimately, when you look at the differential of their cap and their backlog, that's kind of the key. Can they convert that backlog into real revenue?

14:13Stephen Parker: Remember, those are non-canceable contracts. Those are with some of the highest credit-worthy firms on the planet. And they're not all from startups. So I think they just need to continue to show that march towards better profitability and show that some of these constraints that we've heard from other places are not causing an issue in their buildup.

14:37Rohit Kulkarni: I mean, just to plot out the way that the company can convert the backlog into revenue is they have to finance and build and add the capacity, right, to serve that demand? Correct. Right. Right. So then it's a question of the cap, you know, the cost of capital and their funding sources and things like that.

14:58Stephen Parker: But remember, if you sign a contract, if you're Meta and Meta is one of their largest clients, if Meta signs a contract with them, they're paying 20 to 30 percent up front to kick this off. So it's not like it's all on quarter. We have to go out and build everything. They have, you know, pretty incredible capital partners. You know, last time I checked, Meta is a pretty big cash flow machine. So I think this, if it was coming from lower quality customers, we'd question it more. But it's coming from higher quality payers that these are the biggest hyperscalers. These are the biggest AI platform companies in the world that are leaning on core weave to do this.

15:38Stephen Parker: So, again, I think, again, the jury is still out. There is no question there are more bears in camp than bulls. There's different ways to own this market. You can own Corweave's market by just owning Amazon. You don't have to own Corweave. So what I've said is if you want higher risk reward, Corweave's your story. If you want a low risk, consistent reward, Amazon's a great story. Microsoft's a great story. But I think, again, what we see so far is signals that many of these uber bearish, grizzly bearish scenarios are not coming true. at this point.

16:17Brent Thill: Brian, great to get your initial take on the quarter. We appreciate it. Brent Thill on Corweave. We're seeing a lot of the neoclouds in the after-hours session take Corweave's lead, trading higher in the after-hours. Don't miss the first on CNBC interview with Corweave's CEO tomorrow, 9.30 a.m. on Squawk on the Street.

16:33Rohit Kulkarni: More news today in the developing story of Jensen Wong and his affair with an alleged Chinese spy. Among the latest headlines, when President Trump was informed of the relationship. Eamon Javers has all of those details over the last hour or so. Eamon. Yeah, Mike, this is a fast-moving story, and this story just broken by the New York Times over the past couple of hours. They are reporting that President Trump was informed about the allegations that Jensen Wang was having an affair with a woman who was believed to be a Chinese spy, and he was informed of that on Air Force One on his way to China.

17:06Rohit Kulkarni: You remember last spring, the president very dramatically flew Air Force One to China. Jensen Wang was not initially on the manifest for that Air Force One flight. A lot of people were surprised. And then there was this dramatic moment where the president landed in Alaska for refueling at a U.S. Air Force base. And Jensen Wang's plane met him there. And Wang got on Air Force One and continued the trip along with the other tech executives and the president to Beijing. What the New York Times is saying is that on that flight, before they landed to pick up Jensen Wang, Marco Rubio, the secretary of state, informed the president that Jensen Wang was under suspicion of having this relationship with this woman who was a Chinese spy.

17:50Rohit Kulkarni: The president, though, did not say that yesterday when he talked to reporters in the press briefing room. He was asked when he found out about or when he was informed and whether he knew about this situation during that trip to China. Now, here's the question and the answer from the president on this yesterday. Speaking with Jensen Huang, when you went to China earlier this year in May, did you know about these alleged ties with the Chinese by then? No, I didn't hear about it then. But a lot of people have heard about it, and Jensen totally denies that. I asked him today, because I did speak to him today, just to see if he's feeling all right, how you doing.

18:27Rohit Kulkarni: And I asked him about that. And he said he had absolutely no idea that the person in question was a spy. So the president saying he didn't hear about it then. The New York Times reporting that he was informed about it then. So those two things don't necessarily square. We reached out to the White House for that. And what the White House has said is they refer back to the president's comments from yesterday. So they're standing by the president's description, as you would expect they would, of what happened here. And so we'll see if there's more fulsome reporting about all this. And we also would love to hear from NVIDIA and Jensen Wang himself.

19:05Rohit Kulkarni: What is his memory of that interaction? And what did he say to the president yesterday? We have, of course, the president's account of his conversation with Jensen Wang yesterday. We don't have Jensen Wang's account of that conversation. So a lot still here to be determined as we sort out the chronology of what exactly happened in this situation. Yeah. And then, of course, I mean, we can, I guess, keep kind of backing backing into who knew what when, because given that the company or the board of NVIDIA a couple of weeks ago kind of denied any inappropriate relationship, presumably that meant that Jensen Wang was not aware that the U.S.

19:41Rohit Kulkarni: government had an assessment that he did have this improper relationship with somebody who was of Chinese intelligence. I'm just trying to figure out who's got deniability every step of the way or can refer back to, hey, this shouldn't be an issue because somebody knew. Right. I mean, remember, NVIDIA put out a statement just last week that said that Jensen Wong did not have any inappropriate relationship with this woman and that his interactions with Alice Wong were simply professional and the kind of interactions you'd have with anybody who's a large customer. They put that statement out just a few days before Jensen Wang was forced to admit, in fact, he did have a romantic relationship with her.

20:18Rohit Kulkarni: And you do wonder whether Jensen Wang participated in putting out that statement that was a denial. Did he lie or mislead his own board? And did he lie or mislead the public in terms of his relationship there and then come out just a couple of days later and admit, yes, it was true? So when did Jensen Wang know? Go ahead.

20:39Brent Thill: Even worse, I mean, sorry to interrupt, that the company is lying on his behalf, that they're complicit in this as well.

20:45Rohit Kulkarni: Yeah, and you wonder, I mean, that would raise questions of professionalism, right, if people inside the company knew what the actual situation was and put that statement out anyway, despite their own knowledge. We don't know what was in the minds of the NVIDIA employees who put that statement out, and so we can't say. But it does raise a lot of questions about who knew what when. And this is the kind of thing, the momentum of the leaking here and the new scoops, you know, every couple of hours, every couple of days, you know, that cadence is very, very quick. And that becomes the kind of firestorm that becomes very difficult for executives to really remain functional.

21:23Rohit Kulkarni: Because remember, Jensen Wong has a very complicated and time-consuming job. And now he has a very complicated and time-consuming scandal on his hands at the same time.

21:33Brent Thill: Eamon, thank you. Eamon Javers. You bet. CPI coming in hot. A Fed governor talks about a 50 basis point hike and the 10-year yield gets back to 5%. What does it all mean for the economy and the markets? That's next on Overtime.

21:50Rohit Kulkarni: With the Discovered Cashback Card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to Discover. Terms apply. See discover.com slash 5 for details. Computers are getting smarter, Silicon Valley's getting weirder, and AI is taking over. At least that's what everyone keeps telling us. Welcome to Machine Gods, a new NPR podcast that will be your field guide to the AI-powered future.

22:29Rohit Kulkarni: We're veteran tech journalists with front row seats to the industry. And twice a week, we'll make sure you get smarter about AI, so you know what's real, what's hype, and what might come next.

22:39Stephen Parker: Listen to Machine Gods from NPR on the NPR app, or wherever you get your podcasts.

22:46Brent Thill: AI is here, transforming how we work, live, and lead. And the women I talk to aren't waiting for the future, they're shaping it. I'm Julia Boorstin, Senior Media and Tech Correspondent at CNBC. This is CNBC Changemakers, where I talk with the female leaders transforming business as AI reshapes the world. Follow and listen to CNBC Changemakers, women leading in the age of AI, wherever you get your podcasts.

23:18Rohit Kulkarni: Welcome back to Overtime. October CPI coming in hotter than expected, sending yields jumping today. The two-year hire by 20 basis points and the 10-year by about 12 basis points. The numbers came after Fed Governor Chris Waller said earlier today that a half-point hike should be on the table in December if price pressures stay this firm. So with markets suddenly pricing a higher rate path, how much more can the economy handle? Joining us now to discuss is Robert Sockin, chief U.S. economist at PGM, with$1.5 trillion in assets under management. Good to see you. Good to see you, too. This hawkish note from Governor Waller seems to put him a little closer to your camp.

23:55Rohit Kulkarni: You've actually been you guys have been calling for four quarter point hikes. Yeah. You know, we're looking for another four hikes. And we think that the Fed strategy at this moment, which, you know, up until today, they've been signaling gradualism, is a policy mistake. And when you have a hot inflation environment where growth is strong, the labor markets warming up, history tells you that you shouldn't be going slowly in that environment. And you may have to do more than you would have done otherwise. So we have four hikes in total. We have them going gradually, but these types of prints are raising the risk that they're going to have to be more aggressive.

24:29Rohit Kulkarni: It may even deliver more than what we're forecasting.

24:31Brent Thill: At the same time, we have had in the past month a slowdown or perceived slowdown of the AI buildout, which had been inflationary. And then we've also had a huge pullback in the price of oil down about 25 percent since the beginning of October. So how do you still think about that path of, you know, a more aggressive path to fighting inflation now that we see some of these key drivers abate?

24:52Rohit Kulkarni: Yeah, absolutely. And on the oil point, I mean, if oil stays around where it is, that's still significantly higher than where it was earlier in the year. And I think the inflation problem in the U.S. is much broader than the energy backdrop. So I would still be pretty hawkish on inflation in the Fed, even if oil kind of stays around where it is. Now, in terms of the AI, I think that's the big risk. You know, the AI is driving so much of growth in the economy. It's also driving some of the inflationary pressures. If you were to get a bigger slowdown there and a pullback in the equity market as a result, you're going to get a much slower moving Fed that probably does less than we're forecasting.

25:28Rohit Kulkarni: So it really does depend on how this AI trade evolves and how the equity market moves. But our base case is that that stays solid. And so the Fed has a lot more work to do. That scenario you float there is similar to what Fed Governor Michelle Bowman was seeming to say today as well, saying, look, there are potential financial stability risks. you get a big correction in the stock market. And that would mean that, you know, the financial conditions are tightening. It mutes the wealth effect and you can do less on rates. Yeah, absolutely. And I mean, you've heard Chairman Worsh say this. You've heard others of the Fed say this.

25:59Rohit Kulkarni: They're following the totality of financial conditions. And so what they're looking at now, they're saying, well, you know, at best, maybe this is a neutral financial condition environment. And you're seeing that in the economy. Growth's running well above trend with where rates are and where broader financial conditions are. But, of course, if equities were to buckle from here, given how much growth is being leveraged on the AI capex and the wealth effect for upper income consumers from higher equities, that would be a very different Fed environment. But I think if we are around where we are today, you know, 50 basis points is a reasonable debate to have in December, especially if the data keep coming in strong.

26:35Brent Thill: What Bowman said, though, was interesting because her choice of words wasn't it wasn't financial conditions. It's a risk to financial stability. And she also talked about the appearance of circular financing in this trade. Do you see a risk to financial stability because of what looks like circular financing, the AI trade?

26:51Rohit Kulkarni: I think the challenge here is, you know, so much is being geared on AI in terms of growth in the equity market, growth in the economy, that you don't know what the unknown unknowns are here. That if you were to get a buckling and a retrenchment in the AI story, you don't know how it's going to spread through the financial system. So I do think that not only is so much of growth being leveraged on the AI story, but if you were to get a real retrenchment, not only are we talking about potential recessionary risks, but then financial stability risks come into play, too. And the problem is you don't know until you know when you get there what those financial connectivities are.

27:26Rohit Kulkarni: But I think that is really the story for the Fed to be hawkish here. The AI story needs to hold up. And you did recently lift your recession risk to like 25 percent. Right. So just the kind of who knows. question. Absolutely. We call it the tail of the fatter tails of the distribution. We've had this overheating base case all year. That's hot growth, high inflation, higher rates. But the recession risk is rising, both because the Fed's hiking. When the Fed hikes, risks go up that something breaks. But some of these concerns about AI are very legitimate and material. So we raised recession risk from a very low 10 percent earlier this year to around 25 percent, put a 40 percent probability that overheating.

28:05Rohit Kulkarni: So that's still our base case, but it's increasingly a bimodal distribution. 35 % Goldilocks. All right. Could be interesting no matter what. Robert, good to talk to you. Thanks so much. Robert Socket. All right. Oil spent most of the summer trading hand in hand with bond yields, but not recently. And today, with yields jumping, oil fell to three-month lows. We're going to have more on oil coming up. Plus, NVIDIA briefly falls below$4 trillion in market cap as we learn more about who knew what and when and what it could mean for the stock long term. Closing Bell Overtime. We'll be right back.

28:39Rohit Kulkarni: With the Discover Cashback Card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to Discover. Terms apply. See discover.com slash 5 for details. Computers are getting smarter, Silicon Valley's getting weirder, and AI is taking over. At least that's what everyone keeps telling us. Welcome to Machine Gods, a new NPR podcast that will be your field guide to the AI-powered future.

29:19Rohit Kulkarni: We're veteran tech journalists with front row seats to the industry. And twice a week, we'll make sure you get smarter about AI, so you know what's real, what's hype, and what might come next.

29:28Stephen Parker: Listen to Machine Gods from NPR on the NPR app or wherever you get your podcasts.

30:02Brent Thill: Oil prices falling once again today. Brent crude down below$90 a barrel for the first time since August. Let's bring in Pippa Stevens for more. Hey, Pippa.

30:11Rohit Kulkarni: Hey, Melissa. So with today's settle, Brent is now down 22.5 % since its recent high just 10 days ago as traders bet on a diplomatic off-ramp for the Iran war. As more barrels come to market, Iraq is the latest Gulf producer to cut prices, selling its flagship grade into Asia at a nearly$9 discount to the regional benchmark. Now, part of that is because Iraq doesn't have the same export route alternatives, and the discount for oil from Kirkirk, which is transported to the Mediterranean via pipeline, was considerably smaller, notes Commerce Bank. And while the market is still betting on de-escalation, Saudi Arabia's east-west pipeline was targeted yesterday, causing a fire, although operations were unaffected.

30:48Rohit Kulkarni: Now, some relief for U.S. consumers, as the national average for a gallon of gas falls below$4 for the first time since July, with additional declines likely given the slide in gasoline futures and a seasonally weak demand period. Diesel has also pulled back from its record at the end of September, but it's still more than$2 above where it was last year. Oil coming down helps the inflation picture, but higher diesel takes longer to work its way through the economy. Guys?

31:15Brent Thill: And maybe, Pippa, that's why if you take a look at XLE during the time frame where oil hit its high, at the end of October, you know, it hasn't been down as much, not nearly. I mean, it's down like 11 percent or so. Maybe that reflects sort of the downstream profits it could still make.

31:29Rohit Kulkarni: Yeah, and I think, you know, it shows that the downstream division has really been driving a lot of those, a lot of those blowout quarters that we saw, not quite as much on the upstream side of things. And this, you know, sense that producers are keeping their capex under control and also the sense that a lot of those gains already came in the beginning of the year. And so we also saw not as much as a move to the upside, but also not as much of a move to the downside. And I do think one thing to watch going forward will be, you know, if we do stay kind of elevated in this 85 to 90 call it range, do we start to see the EMPs meaningfully increase their production?

32:02Rohit Kulkarni: Because, of course, we're now almost at 14 million barrels per day, but much of that has been driven by the private players. And so as fears grow about the best acreage being already drilled and then the desire for a longer, you know, a longer lifespan for your wells, to what extent will then some of the biggest E &P producers be incentivized to begin their drilling? So a lot to watch here on the upcoming quarters. Yeah. Once maybe prices settle into a non geopolitical risk infected kind of range. All right, Pippa, thank you. Time for a CNBC News update with Mackenzie Sigalos. Matt. Hey there, Mike.

32:38Rohit Kulkarni: British police say a senior U.S. Army soldier was arrested in the U.K. on suspicion of working with Russian intelligence. FBI Director Kash Patel said the arrest involves allegations of espionage. The unnamed soldier is in custody at a London police station. Federal prosecutors are asking a judge to revoke the release of Thomas Markle, the estranged father of Meghan Markle, who was arrested last week for possession of child sexual abuse materials. They say he cut off his ankle monitor early this morning and that he should be detained pending trial. Investigators say they found slides, film negatives and books that contain the explicit materials in two storage units rented by Markle.

33:14Rohit Kulkarni: And New York Senator Chuck Schumer said today that he's confident he will be elected Senate Majority Leader in the new Congress. His comments came as fellow Democratic Senators Bernie Sanders and Alyssa Slotkin said they would not support him. Despite the growing opposition, no candidate has publicly stepped forward to challenge Schumer. Meanwhile, GOP senators reelected John Thune today to lead the caucus. Back to you.

33:37Brent Thill: All right, Mac. Thank you. Mackenzie Sigalos. Anthropic is taking the show on the road as it pitches its highly anticipated IPO to investors. Up next, we'll discuss whether AI valuation concerns could weigh in that debut.

33:53Rohit Kulkarni: Welcome back to Closing Bill Overtime, live from the Nasdaq market site. Stocks lower across the board today as tech gives back some of yesterday's gains. The Nasdaq down three quarters of a percent. NVIDIA, a big part of the average's losses as the Jensen Wang saga continues, briefly falling below$4 trillion in market cap. Corweave higher after hours following its results. The stock is off its initial peak. We're not comparing its bottom line to estimates, but the company did beat on revenue and raise guidance on some key metrics. Earlier, Brent Dill of Jefferies telling us the numbers were good, but the question is whether the company can sustain it quarter after quarter.

34:30Rohit Kulkarni: Core Reef shares up 2.5%.

34:32Brent Thill: Anthropik kicking off its IPO roadshow as it gets ready for a potentially historic debut next week. Kate Rooney's got the details. Kate. Hey, Melissa, we did get some updates on timing. We got price for this highly anticipated Anthropik IPO. So mark your calendars. Sources are telling our Leslie Picker that Anthropik is set to price on Wednesday of next week. And then list on Thursday on the Nasdaq. It's going to be under the ticker ANT. At the high end, Anthropic is set to net about$64 billion with a$1.4 trillion valuation. That's on a fully diluted basis. The last valuation for context in private markets was about$965 billion.

35:09Brent Thill: So it is a step up in price. Anthropic does plan to offer 825 million shares at a range of between$70 and$78 a share. There are some notable private placements in this IPO from strategic investors. You have AMD, Broadcom, Alphabet, Micron, Microsoft. Nvidia, as well as TSMC, buying about$26 billion worth at that IPO price. We did also get some October numbers in this morning's filing, which did also show some momentum. The run rate for revenue is roughly$81 billion just in October. So that's about$10 billion higher than a month ago. Anthropic also announced the suite of new office tools earlier.

35:47Brent Thill: So it had this announcement. It was seen as a threat to Microsoft. Shares did fall on that announcement. They were down about 2 % on the headlines, still about that percentage lower heading in, I guess it's after the close, guys. I was going to say heading in the close. Here we are at 4.30. We're on West Coast time. I know. It's tricky. Kate, thanks, Kate Rooney. So do the numbers justify the potential$1.4 trillion valuation? Joining us now is Burnham Park Capital Markets Partner and Chief AI Officer Rohit Kulkarni. Rohit, great to have you with us.

36:16Rohit Kulkarni: Thanks, Melissa.

36:17Brent Thill: Would you say to buy this IPO?

36:21Rohit Kulkarni: It comes at a very historic time frame, as in not using that lightly. It is the first one in this big AI wave that we're going to be standing at the cusp of. I watched the IPO Roadshow, 50 plus slides, good educational material for everyone watching this show. It's all online. I think two things kind of stood up to me. One is this company thinks that they can get the cost of compute down so much so that their margins could be more than 35%. That's very encouraging. They're showing signs of that. It's a bit lumpy, but that's one encouraging long-term profit potential. And second, this company thinks that they have unusual leverage in new models.

37:05Rohit Kulkarni: The new models are better. They are cheaper. They're driving more revenues. They added$10 billion in annualized revenues in a single month. That's above our expectations. So they are coming off to this IPO in a pretty cloudy backdrop of AI stocks. But there is this October trend and the margin profile, which I think should be good enough for this company to have a successful IPO. Right. One of the skeptical storylines around Anthropic and OpenAI, for that matter, is just how large the multi-year commitments they have and they have to meet somehow. That being said, I mean, after the IPO happens, presuming the proceeds are what they're targeting, companies are going to have 200 billion dollars plus in cash.

37:51Rohit Kulkarni: That seems to be breathing room. What are your assumptions, though, for the for the operating model as it goes forward? Will they be continuing to raise capital to meet those obligations? Or do you think they can actually do it out of operations before too long? I think at least over the next 18 months with$200 billion in the bank, they should be pretty well set. Given the compounding nature of new models, new models being built on AI and new models getting faster, cheaper and more efficient. So long as that cycle keeps flowing, that they're able to get newer models and newer models charge at a premium, this entire economic model with them signing up$900 billion in commitments should be doable.

38:39Rohit Kulkarni: So this all fails if there is somewhat of a catch up between open models, open AI and the large other big tech guys offering competitive LLMs at a slightly lower price. Price competition was the issue during Q2 and a little bit of Q3. And it doesn't seem to be the case in October. So having said that, I think this entire model is based on can this company deliver better models every three, four months and hence have more revenues?

39:11Brent Thill: These days, all things go back to NVIDIA. NVIDIA participated in the private placement, Rohit, and you said that you were surprised that they participated. Why were you surprised? And could there be any implications on Anthropic? I think what is interesting, too, is sort of the notion that if the GPUs aren't going to China, they might stay here in the U.S. and that could actually lower prices here.

39:33Rohit Kulkarni: And again, given what NVIDIA is going through over the last 72 hours, I thought it would be extremely hard for them to pull a$10 billion check. But that's NVIDIA. They are able to do that. So I was a bit surprised. and given the 24-hour delay in the last S1, there was a growing scuttlebutt among investors whether NVIDIA would come to the table in the private placement. But that box has been checked. More importantly, I think, what we'll monitor is whether the scandal becomes an issue with national security. And if then that happens, what happens to the supply chain, what happens to the GPU availability.

40:16Rohit Kulkarni: And as you said, Melissa, the second order positive here is perhaps fewer chips leak into China, more chips stay in the U.S. and better supply for companies like Anthropic. So although I would highlight in their investor deck, they have clearly said they're relying on four different kind of classes of infrastructure that includes Amazon, that includes Google, that includes NVIDIA and AMD. So they're hedging themselves to a certain extent. Yeah, as much of the industry seems to be. Rohit, great to talk to you. Thanks so much, Rohit Kalkani. NVIDIA shares keep sliding after CEO Jensen Wang admitted to an affair with an alleged Chinese spy.

40:56Rohit Kulkarni: We'll discuss whether more shoes could be about to drop and if you can survive this scandal. I'm closing bill over time.

41:09Rohit Kulkarni: Welcome back. The latest reporting from The New York Times indicates President Trump knew China was spying on NVIDIA CEO Jensen Wang in May. The Times has reported the president was briefed last fall about the situation and chose to take no action at the time. The president denies knowing this. Joining us now is Dmitry Alperovitch, a CrowdStrike co-founder and former CTO. He is the co-founder and chairman of think tank Silverado Policy Accelerator, which focuses on U.S. national and trade security. Dimitri, thanks so much for joining us. You know, we seem to know more every couple of hours, but we don't know everything, obviously.

41:45Rohit Kulkarni: So the key questions about whether NVIDIA improperly sold to these customers, knowing that China would be the destination by whatever means, and then the government's role in either knowing about that, not knowing about that, being aware that there might have been national security risk but not acting on it. But where do you think these lines of inquiry will lead with regard to Jensen Wang and his role with NVIDIA? It's great to be with you, Mike. Look, I see no way in which Jensen can survive this as CEO of NVIDIA. Look, he is an amazing founder, an amazing CEO of this company. In many ways, he is NVIDIA.

42:20Rohit Kulkarni: But look, any other CEO that has an affair with an alleged Chinese intelligence officer, they'd be out in a heartbeat. And this is not even the worst part about the scandal because, you know, it's not illegal to have an affair with a Chinese intelligence officer as objectionable as we might find it. What is illegal is to violate U.S. export control laws, to funnel your chips to listed Chinese entities. And the penalties for some of these violations could go up as high as 20 years in jail. And I think once all the shoes start dropping about what he knew about her ownership of the shell company in Singapore that was funneling these chips to China, this is going to get really, really bad for him.

42:58Brent Thill: What's interesting, though, Dimitri, is that this sort of funneling through shell companies in Malaysia and Singapore, I mean, this has been going on for some time. I mean, there have been numerous cases brought by the DOJ against people here in the United States, Chinese nationals or others who buy chips, smuggle chips, send them to Malaysia or Singapore because there's no export licenses required there. And then it goes on their way to China or other places. And yet nothing has been done. Do you connect what's going on with Megaspeed with the influence, perhaps, of this Alice Wong person over Jensen Huang?

43:31Brent Thill: Do you think that there's something that would imply that NVIDIA is sort of looking the other way? Because this seems to be a known way of smuggling chips into China.

43:42Rohit Kulkarni: Well, one of the things that has come out just yesterday in The New York Times and Bloomberg is that NVIDIA was trying to influence the Commerce Department in trying to shut down their investigations into Megaspeed, incredibly troubling and potentially illegal on its own. Forget the smuggling itself. But look, the Department of Justice has prosecuted this case, as you say, Melissa, And just most recently with Supermicro, the CEO has been arrested, has been indicted for doing just that, smuggling NVIDIA chips, literally using a hairdryer to get the label off of it, off the servers to get them into China.

44:14Rohit Kulkarni: And look, you know, if Jensen Wang is doing basically the same thing without the hairdryer, it's still illegal. You say you don't see a way that that Jensen Wang can survive this as CEO. But what's the what's the kind of minority probability there? In other words, under what circumstance could he remain? Could he basically say, you know, listen, I have deniability about exactly who the buyers were. We now have reporting that the president was aware of these things, did not act upon it. And therefore, the commander in chief said this was not a national security risk. Well, it doesn't actually matter what the president was saying or not saying.

44:51Rohit Kulkarni: There are laws on the books that the president could not exempt you from. He can pardon you, of course, but he can't exempt you from adhering to those laws. And Jensen is going to have to face those accusations. Look, he can, of course, say, I didn't know anything about it. My people have misled me. You know, maybe he can find some fall guy inside Nvidia. But look, the other problem here is from a corporate governance perspective is that the company has now been caught in two lies. One, when they denied the affair, his spokesman denied the affair, clearly probably didn't know that this was untrue.

45:20Rohit Kulkarni: And then secondly, when the board put out that statement on Sunday night, prejudging the independent investigation that they were announcing, saying we don't think that national security is compromised. How can they know before the investigation begins? In the very next day, of course, New York Times and Bloomberg alleged that national security may have been compromised.

45:37Brent Thill: All great points. Dimitri, thank you for joining us. Dimitri Oparovic, Silverado. Up next, a new call to ban prediction markets coming from a high-profile congressman. Closing bell overtime. Be right back.

45:54Brent Thill: Online gambling stocks trading higher today after a high-profile Democrats call for Congress to ban prediction markets. Contessa Brewer's got the details. Contessa. Well, first, Melissa, I have breaking news here. The CFTC, the regulator that oversees prediction markets, has warned Calci that charges could be imminent over the company's failure to notify its regulator about some of its new offers, according to a source quoted by Politico. And which quotes Calci's spokesperson, Elizabeth Diana, in response, saying it was a procedural error involving the submission of a handful of contracts, many of which were not even live.

46:30Brent Thill: But meanwhile, then, today, you have California Congressman Ro Khanna saying that these sports prediction markets are just betting disguised as financial trading. He posted on X that sports predictions, flout state and tribal gambling laws, siphon state tax revenue, fuel addiction. Maxine Waters is piling on. Elizabeth Warren piling on. And in the meantime, the AGA, which represents casinos, says this could be a huge opportunity because of midterms. Contessa, thank you. Contessa Brewer.

47:00Rohit Kulkarni: And DraftKings stock actually got a bump on that because maybe they have the sports betting more to themselves. That does it for overtime today.

47:06Brent Thill: Fast Money starts right after this quick break.

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