Big Tech Earnings Put the Rally to the Test 10/21/26

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0:56Tony Wang: The bells bring an end to the trading day at the NYSE. Credo AI ringing the bell, and at the NASDAQ, it is 4D Molecular Therapeutics. Welcome to Closing Bell Over Time. We're live from Studio B at the NASDAQ Market Site. I'm Melissa Lee, along with Mike Santoli. Stocks higher across the board, the Dow gaining 350 points. S &P 500 higher by 0.6%. NASDAQ indices both up more than 1%. The AI trade getting a big boost today as the numbers and commentary from SpaceX and Supermicro reinforcing confidence in the demand side. Dell, Hewlett-Packard Enterprise, Sienna, and power companies such as Bloom Energy all getting a boost today as well.

1:31Tony Wang: But now the markets are turning the page to a new slate of earnings. Meta, Tesla, IBM, and more due out in just the next few minutes. Our team is ready to break down the reports. But ahead of those numbers, let's get to your first take on the close here. It's an interesting session because SpaceX put a backstop sort of in the AI trade, but we didn't see a lot of progress being made. For sure. Yeah, I would say it's positive response, but not very assertive in terms of not a lot of new ground to the upside carved out. Two percent bounce in semis, core weave still down on the day. Credit was had a little bit of repair there.

2:04So I think it was a calming session, one where at least the most beaten up parts of the market got a little bit of relief. Rest of the market can can kind of take a rest for a little while. I do think it's been somewhat impressive how the overall market has kind of stayed in this trend, not broken down at the index level, even though it's kind of had to absorb all these all these blows. But that same kind of rotation, I think, kind of keeps it from having these all in rallies that might actually get us out of this range.

2:31Tony Wang: Yeah. I mean, within technology, we saw semis up two percent. We saw cyber names in particular up three percent. Software is up two percent. But the core weave in action, I thought was really notable. All these analysts came out saying what SpaceX said really helps Corby, but it really didn't in terms of the gain at the end of the session. We got meta earnings want to get to. Julia Borson has those numbers. Julia. Hey, that's right, Melissa. Meta reporting $64.6 billion in revenue. That's ahead of estimates of$63.4 billion. That comes to 26 % revenue growth for the quarter ahead of the 24 % expected.

3:05You see, shares are just hovering on the flat right now, that is Meta's highest revenue ever for a quarter. Now, the company also guiding to fourth quarter revenue of between$73 and$76 billion. The midpoint of that ahead of the consensus estimate. As for CapEx, Meta is raising the bottom end of its CapEx range from$130 billion to now between$135 and$145 billion this year. Meta reporting gap EPS of$3.83. That number is impacted by a nearly$10 billion previously announced settlement. The company says excluding that settlement, adjusted EPS would be$7.40. Now, another big piece of news here from Meta, the company's announcing plans to create a new class of non-voting capital stock, which will be distributed to all existing stockholders through a stock dividend, effectively a two-for-one stock split that will begin trading in late January.

4:05Now, Now, as for 2027 guidance, the company saying, quote, that we are not providing a full year 2027 revenue outlook. The benefits our investments are delivering to the core business, combined with emerging opportunities from model advances and product launches, position us to sustain strong overall revenue growth throughout 2027. Mike, we're going to continue to dig into this and get ready for that earnings call.

4:32Tony Wang: So, Julia, adjusted 747, how does that compare to what, how can we sort of think about this in the context of estimates? So, we are not actually going to be comparing that EPS number because there is the impact from that one time, that$10 billion payment. So, what we're focusing on here are some of the other metrics and trying to figure out how, because it's unclear if that's apples to apples with analyst estimates, how to best compare it. I do think it's worth noting that the revenue was stronger than expected and the guidance stronger than expected. But we're still digging into how that that EPS number compares.

5:10Yeah, I guess, you know, the fact that consensus was like six thirty eight, six fifty four. Rather, there were other estimates we were using at five seventy five seven forty seems above whatever those might have been. Although I would note that a year ago, the estimate for this quarter, the consensus was seven thirty eight. So it's kind of like they came down and then they and then they be to the clue. The market thinks that it was somewhat reassuring, at least on first blush in terms of the guidance and the numbers reported. Joining us now is Jeffrey. Oh, wait, before we get to that, let's get to Phil LeBeau on Tesla.

5:45Hey, Mike, it's a beat on the top and the bottom line for Tesla for the third quarter. The company earning 48 cents a share, five cents better than the street was expecting at 43 cents a share. Revenue slightly better than expected at$28.05 billion. The street was expecting$27.95 billion. That's the top and the bottom line numbers that we have so far from Tesla. We're going to dive back in. Remember, three metrics we're looking for. FSD subscriber growth, what's happening with CyberCab production and deployment, and specifics on Optimus production. And then, of course, there's the conference call at 530.

6:19Everybody knows that the main question is going to be if Elon Musk has anything more to say about the potential of a merger between SpaceX and Tesla. But again, a beat on the top and the bottom line in the third quarter for Tesla earning 48 cents a share. Guys, I'll send it back to you.

6:34Tony Wang: Gross margin number yet, Phil, or no? I'm sorry, say that again? Gross margin number? Did we get one? We do not have the margin. We will get it, but we don't have it yet. As soon as we get it, we'll let you know. All right, Phil, thanks. All right. Well, joining us, Jeffrey, senior software analyst Brent Dill. Talk a little bit about this meta quarter. Brent, what are you focused on in terms of what they gave us in the results and the outlook? Yeah, I mean, I think it goes back to the success of Muse and what they're seeing in terms of the tailwind. They didn't highlight that in the release, but we need to hear more.

7:09I can tell you my Muse is going crazy, doing many things for me. And I think the product is a killer, killer app. So that's bringing more advertisers to the platform. It's getting more consumers to come to the platform. And what's the subsequent impact going to be for that? They raised CapEx by the low end by five bill. And they didn't really give a lot of color for next year. So I think everyone's kind of scrunching in their head. Why not a little more color? Give us more flow on what's going on. And so we're going to have to wait for the call to hear that. But overall, revenue growth, great for the quarter.

7:41Guidance was smack in line with where we were at for Q4. CapEx isn't. There's no fireworks there. They brought the range up by five bill. So I'd say pretty stable, steady. We just need more color on how Muse is impacting the business, as well as this new class structure they're introducing, what type of raise they have to do, and then how they're thinking about the shape of the curve for capital expenditures for the AI buildout for 27.

8:09Tony Wang: How do you think about that stock issuance, non-voting stock issuance, in the context of this obviously way to raise money in their CapEx spend? Yeah, let's say everyone has to raise more money right now. We're seeing this across the board, whether it's equity or debt. And I think this is smart for them to do this, given what's happening and what we're going to see. You saw what SpaceX said, basically doubling the CapEx from Q4 from the street had. You're seeing this across the board. You're going to see this from Microsoft, Meta, Amazon. The rest are all still very constrained as we go into 27.

8:45We're hearing it from everyone. So that is going to be the downside, which is are all the hyperscalers going to take cash flow to zero as they invest? And when's the ROI going to come? That's been the drag on these stocks and why they've underperformed some of the other AI stories, because they're spending the money and the other ones are receiving Meta's money. We think that flips in a couple of years where they're the ones that you want to own because they're providing AI systems that are fueling how we will live. But right now, the pushback is why own these things when I can own all the AI investments that are receiving Meta, Microsoft, and Amazon's capital?

9:23So I think, again, pretty consistent. You know, Google raise. You're going to see a lot more happening from a debt and equity perspective to fund this AI build on. And everything we see and all the data we look at in our AI analysis shows that these capital expenditures are only going to go materially higher as we go into 27. The Muse business model, so to speak, how much it costs to deliver, how they see it going down the road in terms of how they're compensated for these things directly and indirectly. How much do we know about it? How much do you think we might learn? so we've watched a public podcast with zuckerberg and uh and the head of scale ai and there's multiple ways they can they can monetize this one is that actual advertising advertisers are coming to the platform because they have a renewed sense that their ai is working and that more of us will go to the platform so that drags more advertisers that's number one number two is subscription revenue so when you effectively have your muse system run out of tokens looking for restaurants, reservations for trains, hotels, whatever you're doing with Muse, you'll run out of tokens.

10:32And then you have to re-up. And so you have to buy those, whether it's through a one-time re-up or subscription. The third is a Muse system of agents across devices. So a Muse charm on your, my daughter's bag, she can't use her phone at school. How is she going to pay for lunch? Can she use a Muse charm that's attached to her purse at lunch so she doesn't go to detention because she can't bring her phone out? And these Muse charms, whether they're attached to your purse, your wallet, when you think about them in your home, when you think about Muse in your AI glasses. Zuck has said his lights dim in his house because he has these charms programmed throughout his home to do things that he needs them to do.

11:18So I think of it as a personal agent and it will infiltrate in multiple categories, phones, charms, subscriptions and advertising. It's still early. Right. This is just, again, in the early, early beginnings. And again, from our usage, we are very bullish on what we're seeing from from the tailwind, from what's going to happen with Muse over the next year. All right.

11:44Tony Wang: Brent, thanks a lot for joining us. We do appreciate it. IBM shares are popping after hours on earnings. John Ford's got the numbers. John. Yeah. Hey, Melissa. Interesting story here. The stock was already up about four percent during the regular session on that bit of a tech rebound. And it was trading lower before the numbers came out like it wanted to go down. It popped as much as six percent now up about four. It's a beat on the top and bottom lines for Q3. Revenue came in at$17.1 billion versus$16.82 billion expected. EPS was at$2.95 adjusted versus$2.86 expected. If there's one nit to pick here, it's probably operating gross margin.

12:24Consulting strength hurts because software and infrastructure are more profitable. Pre-tax operating margin actually grew for them. But software and infrastructure did both beat expectations. That's going to be a big part of the reason for excitement here. Software is the star because you might remember there was a pre-announce, a hiccup last quarter. Red Hat, which is usually a standout in the software segment, stumbled. In Q3, we're seeing a big comeback here with IBM closing two-thirds of the deals that had been lagging. A free cash flow guide here from IBM was raised to more than a billion from about a billion before.

13:01But the fiscal year 2026 revenue guide is maintained at four to five percent. I did speak to CEO Arvind Krishna about several things, including the guidance. He told me, I want to give numbers on which we have extremely high confidence and not lean in because we've got to rebuild. Credibility is the way I would put it, referring to last quarter on software. He said last time was minus seven. This time is plus 10. Let's even it out to flat to slight growth. So on Red Hat, he went on to say we are pretty comfortable leaning in and saying that we expect double digit performance to continue. That should hearten the street, what he told me there.

13:38And then on the valuation that IBM is seeing here, at least before these numbers came out, he said, I don't think any of our quantum prowess is priced into the stock. I'm pretty convinced that we are actually ahead on that. Now, I want to mention what he said about M &A. I asked him in light of Salesforce making this move to buy Braze if this is the start of a new wave of it. And he said, yeah, public companies are one thing and they do continue to look at those. IBM has been acquisitive, confluent, HashiCorp, et cetera. But private equity is not yet willing to sort of give up on the valuation that they had been expecting for some of these assets.

14:17He had been saying late 26, early 27. He expected that to crack. We'll see if it does. But we can see IBM stock still up about 4 percent, guys.

14:25Tony Wang: All right, John, thanks. John Ford on IBM. We want to get back to Phil LeBeau for more on Tesla. Phil. Melissa, we have the metrics you were looking for, the most important, the one and the one that think people are going to be focused on, the auto gross margins, X zero emission vehicle credits, which basically that is almost gone away completely. 18.1 percent. The street was expecting gross auto margins of 16.8 percent. So much better than what the street was looking for. 1.74 million full self-driving subscription members. That's FSD subscriptions. 1.74 million is the total. That's up 67 % year over year.

15:04For point of reference, it was 1.48 million at the end of Q2. Optimus production has begun, though they don't give any details in terms of how many robots have been built so far. And 2 million unsupervised miles for the RoboTaxi network. that includes cyber cab. The release does not go into specifics in terms of number of cyber cabs that have been deployed in Austin or around Texas that have been licensed. That certainly will be coming up during the conference call. And again, that starts at 530. And the main question, guys, we've said it all day long, ever since he said on the SpaceX conference call that he thinks it's a good idea for SpaceX and Tesla to merge.

15:43You can bet he will be asked about that coming up at 530. Guys, back to you.

15:47Tony Wang: Phil, thanks. Phil LeBeau. Let's get back to Brent Thill on IBM. And Brent, I'm wondering how we should think about this quarter. Obviously, it's good in terms of the beats. But in terms of those deals that were delayed last quarter going into this quarter, now they've been recouped. They're still leaving the revenue guidance unchanged, which was lowered the last quarter. So how do you think of this all? Yeah, I mean, it was a pretty big mess, to be honest, in the first half of the year. And so them just cleaning up those deals isn't enough, to your point. So we need to hear that they're back on track.

16:21They're addressing the AI topic in a bigger way. I mean, you're putting up 8 % software growth versus the street at 6%. But like everyone will say, who cares? Look at the growth rates in every other software category. They're getting left in the dust. And so I think that, again, I think IBM, I'm a big fan of Arvin and what they're doing. It's consistent, stable. But it's not going to blow your socks off. And again, two-thirds of these mainframe deals, that's where all the upside came in. And when you think about the upside for mainframe, like, I don't think most of our clients really care. They care about what the next computing trend is.

16:58What are they doing in AI? And I think a lot of people are very worried, are those mainframe deals going to stick around or are they going to migrate to a new AI system? So I think there's a continued wall of worry, you know, for IBM short-term tactically. Obviously, good numbers. Glad to see they rebounded. But I think there's still a massive wall of worry ahead. Are they architecturally positioned in the right spot as consulting and AI get potentially more attention? With AI taking over from consulting, what does that do for IBM's consulting business? So solid, good quarterback. A lot of legacy kind of revenue that might be at risk, I guess, as well as things growing.

17:41Just a quick word, Brent. Arvind Krishna telling our John Ford doesn't think the quantum opportunity is reflected in the stock. Is that something you have to actually build in at this point or is it still too distant? I wish he wouldn't talk about this, honestly, because quantum is not an event until 2029. Right. They have publicly said it's not a revenue driver. Last time I checked, we're in 2026. So, again, I just don't think and I've said this to IBM, I don't know why they have to get so excited about this right now. And we agree it's right now, you know, Google and IBM have a great position in quantum that's coming, but it's not really ready for prime time.

18:18You know, what's happening right now is enterprises are exploding around AI. They're not really thinking about quantum. So I think there's a I don't know if it's a delay tactic to say, hey, like, we're not really ready in AI. Look at quantum. But I don't seriously understand it, to be to be quite honest. I think they have to do a better job in AI before they catch the quantum wave, which is, you know, again, two, three years out.

18:44Tony Wang: Brent, we're going to leave it there. Appreciate you joining us. Brent, Phil, Jeffries. Coming up much more in this afternoon's big earnings reports. Plus, we'll discuss the market's AI spending balancing act. Enough spending to demonstrate demand, but not so much that debt becomes a problem. Can the market achieve the balance? We'll be right back.

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20:28Check response, subscription required. Lamb Research and Texas Instruments earnings are out. Seema Modi has those numbers. Hi, Seema.

20:37Tony Wang: Hey, my two semiconductor equipment companies. Let's start with Lamb Research, which beat on the bottom line by two cents,$2.20 adjusted revenue coming in ahead of consensus at$8.22 billion. The street was looking for$8.15. The guidance for the second quarter, slightly above what the street was anticipating at$2.33 for earnings. The estimate was$2.31, but perhaps not as big of a jump in guidance as investors were hoping for, with the stock nearly doubling off of its 52-week low. Stock is down about 6 percent. Just worth noting in terms of geographic distribution, the company does derive around 35 percent of its revenue from China, those updated numbers here in the release.

21:19Tony Wang: But let's pivot to Texas Instruments. A double beat on both its top and bottom line,$2.66 adjusted. Street was looking for$2.42. And a big beat on its Q4 guidance, what they're predicting for the fourth quarter. That range well above what the street had modeled in. Q4 guidance, 5.8. Street was looking for 5.7. And we're looking at the stock up just about a half a percent. And management citing the strength that the company is seeing in industrial, automotive, data centers. Overall, revenue did come ahead by around 28 percent versus the same time a year ago. Mike and Melissa. Hi, Seema. Thank you.

21:57Well, as you've seen so far this hour, earnings season in full swing. Investors are closely watching company outlooks as rising costs, higher rates and AI uncertainty weigh on the market. So can strong results drive further upside for the S &P 500? Well, elevated expectations and valuations limit that upside. Joining us now is Evercore ISI Managing Director Julian Emanuel. Good to see you, Julian. Great to be here. You know, you've been behind the kind of main locomotive of this bull market, the AI trade, for a while. But you also, you know, in your recent work, you've been kind of keeping one eye on signs that, you know, we're in a mature part of the cycle.

22:30Maybe we have to be mindful of what could upend things. Where does that stand? Well, we are. And if you look at the last sort of six weeks, what we found out was that interest rates matter, okay? There has been this denial of this idea that hyperscaler capex can grow to the sky and is completely price insensitive. And, you know, obviously what we've seen was sort of the secondary companies running into financing issues and credit widening. But it does tell you that there is a finite aspect to this and there is capital discipline. And actually, the fact is, if you look at the market's reaction the last several weeks with longer term yields coming in, you can argue that this is part of what we think is ultimately going to lead to significantly higher prices in 2027.

23:23Tony Wang: Capital discipline from whom, Julian? Because it seems like the only thing that that limited the idea that CapEx could go to the sky is higher yields. And you just said yields are coming in. So, again, it's one of these things where, and if you look at past booms like Y2K, Japan in the late 1980s, you had this stocks up, yields up until they no longer went up. And the arbiter of it was credit conditions. And that's why it was so important to watch what's been going on the last few weeks. And there's certainly been a number of idiosyncratic issues, Melissa, in, you know, halting various companies.

24:05But broadly, the economy is still good and credit is still plentiful. And that to us is medium term to longer term bullish. Yeah, you mentioned so into next year. You do expect this all to resolve higher. But you are sticking with, you know, basically a flattish call for the S &P through this year. I mean, how do you think it's going to play out between now and then? So I think we have to acknowledge that there is an end. Today's a perfect example, right? You had a couple of headlines that you were having a very strong update, had a couple of headlines. The market sold off very quickly, rebounded, which tells you that the liquidity is a lot lower.

24:44People are essentially waiting to see how the midterms are going to sort themselves out. There's a lot of risk around what may or may not happen. And obviously, there's geopolitical knock-on effects, as we've seen. And so from our point of view, if you look at the entirety of this bull market, there have been sort of macro gyrations. And frankly, when you think about the midterms in 2022 and 2018, the fact that this one seems to be resolving in a sideways churn instead of a major sell-off is quite positive to us.

25:20Tony Wang: How do you think about inflation? financial conditions obviously have tightened, affordability issues front and center in the midterm elections, and oil prices, energy prices seem to be much stickier than what people had thought even just a month ago. So how do you see that filtering through here? So this is another one of these issues where if we are talking about WTI north of$100 in 2027, it's almost impossible not to conceive of some form of economic slowdown based on that. The economy has been incredibly resilient. We know the headlines about diesel prices are really, truly affecting people in the pocketbook, but the spending has been resilient thus far.

26:05But we don't take that for granted. And that's part of why I think there's as much political volatility as there is and why things are so sensitive to the headlines on a moment-to-moment basis right now. And just quickly, you mentioned that the credit markets are kind of the arbiter in terms of whether higher Treasury yields are going to really get conveyed into equity valuations. What's the line in the sand there for credit? So I think if you think about it, throughout the bull market, if you're looking at credit default swaps and those type of indices, they've had lower highs throughout the bull market.

26:42If we were to take out sort of the levels of stress that we reached in the peak of the conflict in March, that in our mind, and again, understanding that the numbers around the CapEx buildout have gotten incrementally larger and the risks have magnified, that to us would be the level where we would probably want to start reevaluating.

27:06Tony Wang: Julian, good to see you. Great to be here. Thank you, Julian Emanuel. Well, up next, more on this hour's big earnings movers, including Meta, which is about to start its conference call. Stay with us.

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28:57Welcome back to Closing Bell Overtime, live from the NASDAQ market site. Stocks ending in the green but off the highs. The Dow up 360 points. The S &P higher by half a percent. The Nasdaq up 1%. Here are some of today's biggest movers. AT &T, the worst performer on the S &P. Strong results were overshadowed by Starlink fears and slightly lower phone subscribers. Chipotle hitting three-year lows after getting downgraded at TD Cowan and getting two price target cuts as well. United higher today despite slashing its outlook on fuel prices as the company says passengers continue to book. MetaShare is higher as revenue beats.

29:32We are not comparing EPS estimates due to a settlement charge. The company forecasting capex of$135 to$145 billion, raising the low end of that range by$5 billion. It will not be providing full-year 2027 revenue outlook. Meta also announced a new non-voting C-class common stock that will become effective in January. IBM also higher, the company reporting higher profits and growing revenue across its software and infrastructure segments. The company reaffirmed its full year guidance for four to five percent revenue growth. And Las Vegas Sands lower as EPS and revenue both missed. Performance at both Macau properties and Singapore Marina Bay Sands also missed revenue estimates.

30:14The company did, however, raise its dividend shares down four and a half percent. And CSX, higher as EPS and revenue per unit, was up 7 percent versus estimates of 5.9 percent with higher pricing. Time now for a CNBC News update with Pippa Stevens. Pippa. Hey, Mike. The State Department ordered non-emergency U.S. government employees and their family members to evacuate from Saudi Arabia. The move, according to Reuters, is due to a possible resumption of hostilities in the region, particularly with the Iran-backed Houthi rebels. Pope Leo's doctors say he will not need further cancer treatment following his lung cancer surgery last week.

30:50Tony Wang: According to a statement released by the Vatican, further testing showed the cancer has not spread. The news comes after Pope Leo held his first general audience since the surgery in Vatican City earlier today. And the Trump administration filed an emergency application with the Supreme Court today, asking justices to allow the construction of the border wall in a contested area of Texas to resume. A judge ordered Homeland Security to halt construction earlier this month in Texas' Big Bend National Park. The government argues the pause creates a, quote, massive vulnerability in border protection.

31:24Melissa?

31:25Tony Wang: HIPAA, thanks. HIPAA Stevens. Coming up, do today's earnings present a buying opportunity in Meta and IBM? We'll ask the head of T. Rowe Price's technology fund, plus counselor to the Treasury Secretary David Zervas, will join us exclusively to talk rates, inflation, and what he expects from the Fed meeting just one week away. Closing bell over time. Be right back.

31:48Tony Wang: Breaking news out of Washington. Let's get to Eamon Javers. Eamon. Melissa, President Trump was talking to reporters in the South Lawn of the White House just moments ago, and he was asked about this controversy over the slowdown of Starlink in Ukraine. He was asked whether Elon Musk personally ordered that slowdown. Remember, the Wall Street Journal reported yesterday that Elon Musk did order that slowdown. The president said, I wasn't involved. And the reporter pressed him and said, but did Elon Musk order it? The president said, I didn't I don't know who did it, but I was not involved. So President Trump distancing himself here from that decision to slow down Starlink and Starshield service in Ukraine.

32:29Obviously, this is a political and sort of economic controversy over exactly who ordered that slowdown, But also really getting into this question of Elon Musk's role in American life and foreign policy, a fascinating one. Clearly, the president doesn't want to be associated with that decision. Presumably two weeks ahead of the midterms, he sees that as politically not great for him. Melissa, back to you.

32:55Tony Wang: Eamon, thank you. Eamon Javers. Well, Meta and IBM moving higher after both earnings beat analysts' expectations. Meta is raising the bottom end of its cap X from 130 to 135 billion of$5 billion higher. Do these results solidify the AI spending boom? Joining us now is Tony Wong. He is a portfolio manager at T. Rowe Price. Tony, great to have you with us. Great to be back. And the conference call is ongoing as we speak. And Zuckerberg is just talking about Muse's growth, saying that growth, engagement, retention are all strong. He also says about 25 percent of people who downloaded Muse use it every day.

33:31Tony Wang: This doesn't necessarily make Muse a business in and of itself yet, though, Tony. What do you want to hear from this call in terms of the roadmap to monetization? Yeah, I think that's exactly right. I mean, the market needs to hear that, you know, there's CapEx expenditures are going to have a lot of ROI, right? So I think the Muse usage is very impressive. It's kind of the first way for consumers to have agentic, you know, kind of on their devices. And so to me, I think it's a massive opportunity. But at the same time, I think we need to know how this is going to pay off and the new businesses and the new markets that Mark can create.

34:07I think we've seen time and time again that the most important thing is usage and attention. And once you have that, the big install base is an immense opportunity. So I think that's what the market is going to be looking for, to continue this kind of spending. And at this point, it doesn't need to be dependent on what the market can tolerate here. And, you know, along those lines, Tony, I mean, the last 24 hours, we've heard of SpaceX just massively ramping its expectations for how much computing capacity it's going to be adding, what it sees as the longer term opportunity there, as well as, you know, this this sort of leaked IPO filing from Anthropix suggesting its long tail of orders and how much its revenue has grown.

34:47Have any of that sort of changed your view on the trajectory of things or how you would look to play it? Yeah, I think that, you know, the bulls would say that there's tremendous demand right now. And I think the bears would say that, you know, we have to see how the economics prove out. Because right now, the, you know, demand dynamics are strong, but you're also capitalizing perhaps pricing that's too strong, especially when new capacity hits the market. And so I think that's why it really goes down to the end demand and where the new products are. also the acceleration of revenue from the Frontier Labs, the existing cap expenders like Meta and Google.

35:24I think you have to have existing businesses be really strong, and then you have to have the market believe in these new TAMs that are going to emerge as a result. So I think it's hard to say with today's evidence, but that's why the next few ports are super important, especially when capital markets are tightening a little bit.

35:41Tony Wang: Tony, you mentioned return on investment and how that's going to be strong, And I'm wondering if we really know that at this point. I mean, they keep increasing capex. It's not really clear what the driver of that increase is. It could just be rising costs. You know, that$5 billion increase could be the rising costs associated with building the same amount of compute that they needed before. Zuckerberg's making some comments about near term, how it's costly to deploy Muse in terms of compute power. Do we know that this is going to be worth it when we don't have a roadmap for monetization? We only know that it's been helping.

36:14Tony Wang: AI has been helping its ad business so far. Yeah, absolutely. And so, you know, I think it's just that in terms of, you know, essentially Meta's providing everybody with their own agentic computer, right? Like in terms of what we saw with OpenClaw earlier in the year. And so that's kind of really costly, especially with memory inflation, the cost of constructing these data centers, the cost of financing. And so I think that we are in that phase of, like, you've got to show me the money here in terms of what these companies need to provide. I think that's part of the current businesses need to continue delivering acceleration, including operating profit strength.

36:51And then at the same time, they have to convince the market, yes, we do have these new ways to improve commerce, have consumers be able to transact more on our platform. And essentially, I think that they need to be able to take a piece of the transaction and go forward in a way that they weren't able to do before. So I think that that's probably what a Gentec needs to deliver is like, you know, you have these agents that can essentially like do what you could never do because your time is really, really constrained previously. So to me, I think that's what I'm looking for. Yeah, it's a company that knows how to, I guess, get usage up and then figure out how to get paid for it later.

37:31We'll see if that follows. Tony, good to talk to you. Thank you, Tony Wong. Thanks. All right. Up next, with just one week to go before the next Fed rate decision, we'll discuss how the surge in yields and worries over AI financing could play into the central bank's decision with David Zervos. He's advisor to Treasury Secretary Scott Besson. Closing bill over time. We'll be right back.

37:58Welcome back. We are a week away from the Fed's next decision on interest rates. The market is expecting the community to hold steady. But as we saw late in today's session, rates remain sensitive to geopolitical headline risk. So what is the best strategy for the Fed right now? Joining us now is David Zervos, former Jeffries chief market strategist and currently counselor in the office of the secretary of the Treasury. Good to see you, David. Good to be here, Mike. You know, last week I was saying that the Treasury market was like a stock that bottoms on bad news. In other words, you got slightly warmer than expected CPI and PPI at the core, and yet yields came in.

38:33And in fact, the expectations for Fed action this month did not really move. So I wonder what you make of that in terms of the interplay of where inflation is, what Kevin Warsh has said he wants to do to get inflation down and market expectations. I do think the price action was was fascinating to watch. You had strong retail sales, you had strong IP, you had oil prices going to new at the back months in particular, I think, hitting new highs. This little bit of a, you know, I wouldn't call it a big move up, but certainly the core was hotter than people wanted in the CPI. And we're 20 basis points below the highs we set in yields in the first week of October.

39:15So I think that tells you a lot about positioning. It tells you a lot about what's driving the Treasury market. And it's not the traditional focus. So I think we're getting to a point where maybe the Treasury market has put in its highs, and we're going to find ourselves debating for the next few months where this energy move ends. And once that ends, which is hopefully when these conflicts, maybe both, come to a head, we can start talking about hopefully much lower yields.

39:50Tony Wang: I don't know when the last time we spoke was on air. You spoke to our network, of course, recently. But a lot's changed. I mean, is inflation, in your view, stickier than you thought even a month ago, two months ago? I really think, Melissa, this is an energy story. It's just you can trace the whole thing back to energy. And you watch even, you know, putting together a chart of energy and 10-year yields, you can kind of overlay them. And it's just the whole story from February 27th going forward is that we shocked energy prices almost 80 percent higher in WTI. We reset the rate path because of that from 50 bips of cuts to 50 bips of hikes.

40:31And the most important takeaway from that, from those two very negative headwinds traditionally for markets, is that everything's been incredibly resilient. I mean, we're sitting here on a record high. Again, I think this year we're going to have, we've already had 60, no, I think not 60. I think something like 30 new highs. 30 new highs. 60 new highs since Trump won. You can say it's an energy shock. But yeah, 30 new highs.

41:00Tony Wang: It's flowing through. I mean, that's what we saw in the last PPI print. We saw what transportation costs were up 3.4 percent or so. And so we are seeing it flow through. So at what point do you say, you know what, this is an energy shock, yes, but it is going to influence what the Fed does. It certainly is influencing what companies do because there's only so much that margins could be threatened going into next year. I guess I'm just optimistic, which is typically for me, I am an optimistic guy, that as this conflict comes to an end, the energy story does pull back. And we're talking about$60 oil again, which is where we were at the early part of the year.

41:35And then all this discussion goes away. Everything goes away. Now, maybe that's too optimistic. People are going to have to rebuild stocks. And, you know, the back month oil moves make me think a little bit more that that's a little bit of a riskier proposition. But the core CPI, the trimmed mean CPIs, all these core numbers are basically, with the exception of core PCE, which still sits at around three, are all in the low twos. So, I mean, of course, CPI just did pop up to two six. It was two four. But, you know, the trimmed means are all there. They're showing downward trends and have been showing downward trends for well over a year or two.

42:09And all of this is happening with second-order effects, apparently. Oil was around here in the spring when 10-year yield was like four and a quarter, right? So, I mean, yields have disengaged on a kind of one-to-one basis. Now, as that happened, this whole other storyline got built up, which was nominal growth is really strong. Maybe the neutral rate is higher for whatever reason down the road because of productivity. Whoever knows. My point is that there was people kind of trying to make their peace with five point something percent 10 year treasury yields because of general macro conditions, not just because we got this headline inflation surge because of oil.

42:48I think there's two things and there's two parts of the trade that are maybe feeding back into yields that I think are important. One is we have seen some reduction in hyperscaler issuance. And a big part of this driver has been the duration that has been sucked out of the market by all of that debt issuance. and the optimism that these companies bring by putting their balance sheets on the line to make these bets on building compute. That seems to have slowed a little bit. And the market noticed that, right? That's a little bit what's correlated with this last 20 basis points in 10-year yields.

43:20And then there's just the whole question of what are we debating in that bigger picture, low-frequency storyline for superintelligence, intelligence, which is how how is this going to affect the long run disinflationary storyline that most people want to talk about is years or many years down the road after some of the inflationary build story. And all of those have kind of come in, I think, at this yield level and just made a difference. So I attribute a lot of what we've been debating in this last move, lower in yields to a little bit less crowding out of issuance and a little bit more of, wow, this thing is really actually kind of taken off in many ways.

44:05And if you went to the conference today where the secretary spoke earlier, which is where we all were for Robin Hood and listened to a lot of the speakers, including Stan Druckenmiller and others, the sort of the super intelligence overarching theme was just sort of rampant. I mean, that is what everyone in the market was focused on.

44:28Tony Wang: And there is no problem. There is no systemic risk. Yes, that's the headline, and that is what the secretary said, that he doesn't see the systemic storyline. He sees a lot of really good—I think it's a great story. These are companies that are on the forefront of technology, making tons of money, that are willing to put their balance sheets, their senior secured part of their capital structure, their debt on the line, to build out, create compute, and compete with each other to deliver that compute to us so that every service we want, legal services, travel services, medical services, financial services, all of that's going to come to you on your phone, and it's going to come in a way that is 10 times better, 20 times better, 30 times better, and ultimately cheaper.

45:08Tony Wang: David, always good to see you. Great to see you guys. David Zervos. Meta's conference call is underway. We'll get the very latest right ahead.

45:21Meta moving higher following its earnings. The conference call is underway. Julia Boorstin has some highlights. Julia. That's right. Meta shares rising now about 5 % in after hours as Mark Zuckerberg talked in detail on the call about the success of the Muse personal agent, saying it's one of Meta's most successful launches ever with more than 10 million people using it with strong retention and people shopping on it, saying there is average spending of over$200. Zuckerberg saying that while Muse is expensive to run, it will be profitable once revenue lines are at scale. He said if compute efficiency continues, then Muse will be highly profitable.

45:58Muse, he says, is also the most important part of Meta's glasses, saying they're pricing the devices not to make a large profit on hardware, but to build a large software and super intelligence business on top of them over time. One other key piece of news out in Meta's 14C filing just out, saying that if California's Proposition 40, which is California's wealth tax, is enacted as law, then it's expected that Zuckerberg could be liable for a multi-billion dollar tax payment based on the company's stock, his ownership of Meta's stock. And Zuckerberg has said he's evaluating relocating his primary residence outside of California if that does indeed happen.

46:36They said in the filing it would, quote, raise questions for management of the company going forward. Just a key thing to flag, the conference call is ongoing. Mike? And Julia, you mentioned earlier that the company's issuing this new class of non-voting shares. Now, presumably that's to facilitate a capital raise without diluting Zuckerberg's voting power. Yeah, that would be to help effectively finance all the spending on AI that they're doing right now. Got it. All right, Julia, we're going to continue to look for for highlights from that call. Yeah, the cost of delivering Muse, maybe people are going to look through that for a while, but it is, you know, in everybody's hands, they're experimenting with it, and it's really fascinating to get that side of it as opposed to just the opportunity.

47:21What's going to do for overtime?

47:22Tony Wang: Yep, Fast Money Search right after this.

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