Closing Bell 10/13/26

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0:55Scott Wapner: All right, guys, thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live from the Case Alternative Investment Summit in Beverly Hills. Let's show you the scorecard here as the last hour of trading gets underway. As you know, we've been mostly lower for the afternoon. It is the day that financials report earnings. We're following that. We're watching interest rates. We're watching everything. And like it is almost everywhere else, AI is the topic of conversation, both in credit opportunities around the infrastructure buildout and what's been happening in the enterprise software arena. And on that note, our headliner is one of the world's foremost software investors.

1:31Scott Wapner: He is Robert Smith. He is the founder, chairman, and CEO of Vista Equity Partners. And he is, as you see, live with us once again. It's nice to see you. Thank you for taking the time. It's good to see you. Always a pleasure. So I feel like when we spoke last year, it was peak software is dead, right? And everybody has been talking about that. The IGV is up 50 % off its lows. Do you think we've gotten better at identifying the winners and the losers and how the winners are actually going to win? I'm not sure that we've gotten better, but I think it's become more clear that there will be winners and losers.

2:06And those winners will have invoked a process to show investors how they're going to utilize AI to not only, in our case, from an enterprise perspective, deliver solutions to their customers, but solutions that they can rely on. You know, the enterprise world, very different than the consumer world, we focus on governance, guardrails, trust, security. And you have to build systems that are reliable. We call it operational intelligence for our customers, through our portfolio companies. That is what I think investors are now starting to see. There's going to be a differentiation as in the marketplace from systemic, call it enterprise class systems versus consumer systems.

2:48Scott Wapner: You mentioned the difference between consumer and the enterprise. It feels like most of the conversation these days is around the consumer, right? You know, Muse comes out and we're talking about that and everybody's checking it out and Metastock goes up. Why so? Why are we fixated on the consumer side right now? A big part, of course, at consumers, we have given away our data, OK, for a decade plus to these platforms that they now use and use AI to make our lives more productive as individuals. But if you really look at the companies that are bringing the infrastructure, they are relying on the enterprise to actually drive value.

3:24And enterprises aren't going to just adopt systems, what I'll call willy-nilly in early stage. They're looking for trusted vendors who actually can deliver to them systems that actually have governance procedures around them on guardrails in a way that is not going to pollute or damage the intellectual property of businesses. You know, Satya Nadella has been talking about this. Alex has been very vocal about it. I've been talking about it. You need to bring these models to your data, not your data to the models.

3:50Scott Wapner: You like saying that. That's one of your key sayings. Right. And it's important to do that because if you do that in an environment, you can preserve intellectual property. You can utilize the capacity and capability of this artificial intelligence capability and not leak enterprise value into some third-party system that you don't own and you actually have to buy, call it your inference tokens from. I'm kind of surprised to hear you say that you don't think we've gotten better in being able to identify the winners from the losers and how the winners are going to win. I mean, the business model is obviously changing for enterprise software from per seat to usage or outcome.

4:28Scott Wapner: Right. But we're still, you told Faber when you guys were sitting, I think, in this very same spot during Milken that we were in the messy middle. We are. We're still there? We still are. And when I say, you know, we haven't identified, there's still, we call it the diffusion rate, the utilization of these solutions by enterprises. It's still really early. When I look at our portfolio companies, less than, you know, although we have 68 of our companies which are now agentic, when I look at the 750 million users of our software, it's still a small fraction that are actually using agentic solutions.

5:03What's interesting, though, is that group that is using them, there's a massive economic rent pickup from just a SaaS system in terms of the value that's created. Over time, as that becomes not only clear and those signals become clear and then communicate, again, our companies are all private. But once they become more clear to the public markets, public markets will then be able to discern who's actually growing, utilizing agentic solutions, and who are people trying to recharacterize what an agentic solution actually is.

5:33Scott Wapner: Okay, so you said 68 of your portfolio companies are now agentic. You have 85. 93. Okay, 93. The delta between that, are those ones that cannot be agentified? When you break things up into three different categories, right? Those that can be agentified, those that AI enabled, and then those that are going to be disintermediated. Right. So where's the discrepancy for those that are left? Do they fall into the third category? No, no, no, no. A lot of them actually end up in, we call it that rule of 70. In fact, we have one of our portfolio companies already operating at a 76 % EBITDA margin. I was with the CEO the other day growing almost 10%.

6:14Think about it, that's a rule of 86 software company that when we first built that business, it's around 39 % rule of 40 type of company. Those AI-enabled businesses, they may not have agentic offerings that are going to drive top line growth, but you can enable them to deliver a massive amount of free cash flow. That's going to be an interesting and great place actually to invest in enterprise software. The agentic solutions can also become rule of 70. So those are the two sustainable states that we talked about that enterprise software will ultimately end up in.

6:44Scott Wapner: If the business model is changing, right, and we went from, I guess, a fixed cost into per seat, and now we're talking about usage and outcomes, doesn't the outcome become more subjective? Like when you're trying to figure out the terminal value of a company, before you can say, well, you're paying X per seat, I can understand that math. Right. Is it more subjective now? And so it's a great question. So I'll give you the specifics. And I've got my Q system, which we've talked about, feeds me real-time data across our portfolio of those who are adopting new solution sets. Typically what is happening, what we're seeing is more of an S curve versus a J curve.

7:27we're getting a certain amount of subscription revenue in SaaS from a company. They then move to an agentic platform. They're often paying a bit of both. But as what we're seeing, as you're using more agentic, you're seeing a massive inflection in the value that's created and the value that we can now capture. Over some point in time, they're going to decrease, I'll call it the SaaS piece, but the expansion of ultimately what we call the agentic revenues is a multiple of what we're seeing in SaaS. That's real-time data that we have today. So as the diffusion rates increase, the productivity increases, and we actually had to build what I call telemetry agents to not only track, but also to bill again and say, listen, here's the value that's created.

8:09We can show you that the value was created, and we're going to bill against that as opposed to bill against the seat. And it's a multiple of what the seat revenues were.

8:16Scott Wapner: You have this agentic factory. I mean, have you agentified all of the companies that you're able to in your orbit, in your portfolio? It's all in process. It still is in process. When we sat here this time last year, we had 30 or so companies agentified. We're now at 68. Okay, as we drive that forward, you have to build that capacity. There are compounding learnings. We call them operational intelligence that from 25 years of doing this, that you have to do it right for the enterprise. You can't just sell some product. You have to have governance around it. You have to have all the elements of guardrails.

8:53You have to deliver enterprise-class solutions. So it isn't just as simple as, oh, use some solution set and sell it as an AI solution or just recharacterize the numbers. You actually have to build with operational intelligence capacity for enterprise-class solutions. So it takes time. We built our agentic factory. We have an agentic lab or an AI lab is associated with it, a software factory, a migration factory. All of those are components that enable us to move and migrate these businesses with certainty and with intention. And that's the point. That's what our customers want from us.

9:27Scott Wapner: Let me ask you about, you use guardrails. I think about trust and safety and security. And that conversation is ongoing. And I feel like it's louder now than ever. When we hear about agents going rogue, Anthropix says AI models could soon copy themselves across home devices. I think that story just came out today. How concerned should we be? Are we in some respects in a period of we don't know what we don't know? There is a bit of that. That's why, again, from our perspective, the enterprise is different than the consumer. We always talk about the consumer aspects of it because it has a higher frequency of utilization today that we see.

10:12And the testing of a lot of the frontier labs often is on consumer data and consumer environments. In the enterprise, which is how we do our testing, what we're focused on is how do we ensure that we're able to contain and enable these agents to be productive, give us what we call deterministic outputs and not live with what I call probabilistic dynamics that can compromise our customers, compromise our companies, and frankly create errors and issues outside of our environment.

10:39Scott Wapner: You mentioned Satya. He had a post over the weekend, which you may have been referring to, and I'm sure you saw, in which he said, quote, as traditional software systems were being deployed across the economy over the last few decades, We had the tools and capacity to train behaviors to a specific code path. That same kind of mechanistic understanding eludes in today's superintelligence systems, even as the frontier models powering these systems are now more capable than traditional software systems. We need to separate the supply of intelligence from the authority over it. Does that resonate with you?

11:16It does. And so that's a big part of what I'm seeing with the CEOs of some of the largest corporations in America. They're now understanding that. The paradigm is, how do I bring, again, the model to my data? And then from that, control that dynamic. And what Satya is talking about is, what is the regulatory environment that we're going to need to live in? I like to say we can live in any of those regulatory environments because we think about it from an enterprise perspective. We enable our capable people through our operational intelligence of 25 years as to what enterprises want. That's going to be the paradigm under which these businesses now operate.

11:54The regulatory environment right now feels more fluid, I think, than it should. Well, it is fluid. Yeah. I was going to say, is there a regulatory environment? You know, the self-regulatory framework is a challenging one to think about long term when certain organizations are incentivized for mass proliferation as opposed to, call it, constructive, intentional building of infrastructure. How can those companies then police themselves? It's a hard question to answer, but that is an issue, and I think that is one we have to take seriously. We've got the geopolitical forces that are driving these dynamics more so, what I'll call the forces that Satya was talking about, the importance of those separations, and those are issues that are going to have to be dealt with as an industry and as a society, And, you know, it's critically important that we do that.

12:39Scott Wapner: I mean, do you think we need at the federal level, you know, a commission, a nuclear regulatory commission, an FAA, something that's designated to look at these actual systems and think about how they may operate? But then as I ask that, I say, well, how do we know what's going to happen? Because I feel, again, like we're in we don't know what we don't know. Right. I think personally, I think we need to have a lot more thought and a lot more structure about how do we create that separation that Satya talks about and create frameworks and environment that give the public a feeling of safety and a feeling of trust in those who are actually the purveyors of this.

13:20We have to do it for our portfolio companies and for our customers. We operate, again, in the enterprise, so we have a smaller sandbox in some respects that we can have a lot more control over. But when you think about the elevation across the entire construct of how AI is going to permeate everything, there needs to be a lot more thought and, frankly, some frameworks that are actionable and then people are going to adhere to. You have the geopolitical dynamic that's pushing against that, and I think that's what we're wrestling with as an American society.

13:47Scott Wapner: Are you talking about sort of the idea of pacing the frontier like Dario Amadei wrote, but then we're worried about what China's doing and we don't want to fall behind? When he says pace the frontier, do you agree with him? Yeah, I think so. You do? Yeah, he came and spoke with our group just a couple of weeks ago, and I think most of the executives are going to say, yeah, this makes a ton of sense. How do you do it is the challenge, and to whom are they reporting to in a way that this is the proper amount of pacing or safety procedures that are going to be in place that protect us as a society.

14:20Interesting.

14:21Scott Wapner: Let's end on a question about your own business. Sure. Your last exit was WorkTango in July. Yeah. You've had four in 2026. Right. Is that kind of what you expected at the beginning of the year? Again, we have plans for how we're going to distribute capital to ensure that we continue to drive DPI to our investor base. Strategic investors have become a lot more active of late. Why? Because they're seeing what we're doing with the agentification of our businesses. And they're viewing that and saying, wait a minute, this is an effective way for me to agentify other parts of my business where my team isn't necessarily engaging at the rate or the speed.

15:02So that's a dynamic that we're seeing. That activity is actually picking up pretty dramatically.

15:06Scott Wapner: I mean, they also need to make sure that they're going to be buying a Category 1 or Category 2 company in the way that you list them, as I said earlier, and not the 3, which is the disintermediation. And you say it as they don't have the right to exist. Right. That's exactly right. There is also a dynamic, and we'll talk this on our next one to believe it's a cliffhanger. Some of the work that's come out of our software factory is amazing in what it's capable of doing to the next generation of existing enterprise software companies, what they can become, and how we can use those to create category leaders going forward.

15:41So we'll save that for the next one.

15:42Scott Wapner: All right, that's a good teaser. That means you've got to come back on with me. Of course. I appreciate it as always. Robert, thank you. Thanks. That's Robert Smith of Vista Equity Partners right here at the K Summit, where we're just getting started today. Up next, alternative investments continuing to boom, as you know, and with everyday investors getting greater access than ever. Is the next wave of growth just getting started? We will ask the Case founder and CEO, Matt Brown, next.

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17:57Scott Wapner: Welcome back. Despite all the noise and news around private credit over the past year, alternatives continue to be one of the fastest growing areas of investing. Retail investors as well have more access to them than ever. Thanks in part to our next guest, Matt Brown. He's the founder, CEO and chairman of Case. It's a platform linking asset managers and wealth managers, and it's on full display here. Thanks for having us back. It's great to be back. So 1 ,250 attendees,$20 trillion in assets represented here. I mean, I guess that says it all when you think about where demand for alternatives is.

18:30Yeah, look, we definitely found a white space. You know, five years ago when we had our first event, I was hoping people would show up. Now, you know, we were at capacity 45 days after even announcing it months ago, six, eight months ago. We really hit, you know, a spot where the wealth community really wants to spend time with the asset management community in the alt space and this forum allows them to do that.

18:54Scott Wapner: I feel like this movement, if you want to call it, that's going to slow down anytime soon. I mean, we talked earlier today, we're looking at 30 plus trillion dollars in assets going towards alts by, you know, in the next two, three years. It's definitely not slowing down from anything that we're seeing. If anything, it's accelerating. Case is actually on from the platform standpoint, see more usage, more volume, more allocation, and more growth in the last 12 months than we've ever seen before. So all momentum pointing in the right direction. And if you think about just as a percentage of wealth assets in alts today, it is so, so tiny compared to say an institutional allocation.

19:35Scott Wapner: I think everybody, and it's pretty clear, everybody's thinking about AI and the impact on all of their businesses. How are you thinking about it impacting the wealth management business? You know, I might be a contrarian, but I actually think that there'll be more wealth managers in the future than fewer. I think that the AI will absolutely help them become better advisors, but AI is not going to replace the judgment piece, the advice piece, and it's certainly not going to replace the relationship piece, which is really what the Case Summit is all about, building those relationships. You said that Case has entered the agentic phase of your strategy.

20:10Scott Wapner: What does that mean in practical terms? The AI is not just a tool that an advisor will use, but as it steps beyond to the agendic phase, it's really going to be the partner of the advisor, carrying out activities and tasks. And that, of course, goes back to what I was saying, more leverage for the advisor to be able to do the things that they clearly should be doing, spending time with their clients and using their judgment in complex situations. You just did a capital raise,$170 million, values the business at$2 billion. What do you do with the capital? It's a great moment for the firm, for sure, to be able to have such investors like that give us the confidence in both the market opportunity and, of course, Case.

20:53We have three core priorities here. One is that we need to invest in the services and expand them in products on our platform. So that's going to be the investment portion. Two is we are doubling and tripling down on our AI initiatives. Everything we do at Case on the AI side is really empowering the advisors to access the data on our platform in a more efficient way to answer their questions faster. And then third, there's a really interesting market out there. You've seen a lot of big M &A deals recently. You saw Schwab acquire Forge. You saw Vanguard acquire Altruist. That's right. We too, as a platform of scale, see an opportunity for us to really connect with some of these smaller fintech players that maybe haven't scaled on their own, but they may have great products or services, I think Case would be a much better home for them.

21:43How do you think about the prospects of going public? It's now on the table. It is on the table. I think in a, not in the near term, but I think the opportunity to go public in the outer years is definitely now something we're talking about versus even a few years ago where it didn't really seem possible with the market conditions.

22:00Scott Wapner: Really, does that speak in part to where the demand has gone and how fast you've seen the growth that you have no choice but to consider raising more capital through the public markets? Well, we're profitable, so we don't necessarily need to raise more capital. It's just a question of the, really, what I've said, or considering it, is because the regulatory environment, more companies are going public, we're in a sweet spot, we're growing organically over 40 % per year. So, you know, the eventuality of that, we're putting IPO as an option for us, It's not the only option. I was wondering, you know, from last year to this, there was kind of crescendo, obviously, I think, about private credit.

22:39Scott Wapner: And, you know, how much appetite for more risk retail investors were willing to take after hearing, as I said at the outset, all the noise and the news. Goldman Sachs did a study recently in terms of their own clients. They haven't seen waning interest in alternatives and private credit at all. Surprise you? Look, I was just speaking about this on the stage a minute ago. It largely became what seems to be more of a media story around the potential risks of private credit. But I've spoken to all the great private credit managers that are here, and they all are here. None of them are seeing default range change meaningfully.

23:22Volumes may be down year over year, but last year was such a huge year for private credit. So that's normal. And we're seeing kind of more strategies gaining traction. So right now it seems to be status quo.

23:35Scott Wapner: Private equity is still the lead strategy, and it has been for four years. It has. Private equity is just a place where advisors are now really getting their first chance to really participate in. We're also seeing infrastructure up huge on our platform, real estate, core assets, and tax-aware strategies are really coming into favor right now. Is the infrastructure in real estate, is that around data centers? the AI build out? A subcomponent for sure, but that's not the only story. You're seeing infrastructure across the board, hard assets, and then also you're seeing of course a subset of that being the data centers.

24:12Thanks for having us.

24:13Scott Wapner: As always, good to be here. Scott, thanks so much. Get a pulse check on what's happening in the alts world. That's Matt Brown, again, founder, CEO, chairman of CASE. Thank you. Thank you. All right, coming up, the AI build out as we speak, creating billions in investment opportunities, but are data centers becoming too risky a bet? why one top alternatives investor is sounding at least a little bit of a note of caution. He's the Fortress co-CEO. Drew McKnight joins me next.

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26:08Scott Wapner: All right, welcome back. Many asset managers here at TASER looking for opportunities around the AI build-out. Our next guest taking a more cautious approach, at least when it comes to investing in data centers. Drew McKnight, co-CEO and managing partner of Fortress Investments, is here with us now. It's nice to see you. Why the more cautious approach? Look, I think we're incredibly bullish on AI and what it's going to do from a productivity perspective. I think where we're just a little bit more cautious is the insatiable demand for capital and the amount of capital it takes to build these data centers.

26:41We don't think every one of them is going to be a winner. And I think particularly on the credit side, you've got winners and losers. And your winners can't pay for your losers because you don't have the asymmetric upside that you do on the equity side.

26:53Scott Wapner: You think there are too many investors chasing the different aspects of the AI trade now on all sides of it, whether it's equity versus even credit? Look, I mean, I don't think you can. There's not something that's been more disruptive in our lifetimes. And I think we are incredibly convinced of that. I think the real issue is, again, the amount of capital it takes to build these data centers. The way some of the financing structures are being built, there's an ability for the manufacturers to walk away from the contracts. And it's just incredibly risky from a financing perspective, from what we see.

27:29If you were getting asymmetric returns, asymmetric upside, that's different. From our perspective, you're getting credit upside with equity-like downside.

27:37Scott Wapner: Did you learn anything from what you saw with private credit and software? I mean, does that give you pause when you look at, say, concentration risk that existed in that area, that it's just morphed into the next hot thing and the hot theme of AI? I think you've got to be mindful of your exposure to data centers in the overall fund. I think where some folks got sideways on software wasn't necessarily getting sideways with AI. It was software where they were eight times leverage, one times interest coverage, incredibly aggressive capital structure with aggressive leverage facilities. Well, I mean, you only have 6 % software exposure.

28:13Scott Wapner: I've heard from other managers who, you know, at first they're thinking, well, they missed it. So what was a curse now turns out to be a virtue by missing it. Tell me about the 6%. Why such a small level? Yeah, you know, it didn't go to 6 % overnight. I think going back to 2019, 2020, we were probably as much as 25 % in the software space. It was much more of a bottoms-up, deal-by-deal perspective where as the capital structures got more aggressive, As the leverage multiples got higher, we just slowly took our exposure down over time. And when in 2025, where you saw software as much as 30 or 40 % of issuance, depending on how you calculate it, we were just much more cautious, not because of a top-down call, but really a bottoms-up, making sure the capital structures make sense for the businesses.

28:59Scott Wapner: What's the best opportunity you see right now? It's a good question. Look, I think where we have played in the data centers is what we call picks and shovels around data centers. We owned 30 mobile gas turbines that we actually bought two years ago. We just sold those to SpaceX this summer. We had an investment in a structured equity investment in a business that sold cooling solutions for data centers. So we've tried to be sort of data center adjacency or data center picks and shovels, but not necessarily trying to pick the winners in data centers. Let me ask you general questions about kind of where we are in the market itself.

29:36Scott Wapner: as everybody looks at interest rates backing up. And what's your thought about what you've seen, not only here, but globally? Look, Elizabeth Burton, who's our strategist, actually made a call on interest rates going back to this spring. And I think a lot of folks thought she was crazy. She's been proven to be right. She was on with us last week, by the way, talking about that. So I think we were fortunate to have her with that perspective. And it wasn't some, you know, when you heard her talk about it, she was very, you know, Again, had the numbers done where she really didn't see a scenario where it wasn't going to go, rates weren't going to get into this 5%, 6 % range.

30:10I think she's much more sanguine now about where they go from here. From our perspective on the credit side, you know, 99 % of what we do is floating rates. So from our perspective, these higher interest rates are leading to higher income for us. I do think over time it's going to put pressure on capital structures across the board just with higher interest costs.

30:29Scott Wapner: Well, when do we have another credit cycle? I mean, what causes that? the very backup of rates? Well, I think you're starting to see some of that credit cycle already. There have been some conversations around what the shadow default market is versus what the public default rates are. And we are starting to see that. I also think you've got inflation, you've got energy prices. The world is very difficult for certain businesses. I think headline numbers where you've got high GDP based on data center CapEx is very different than what you might see under the hood. You think the Fed is in danger of hiking us into a more significant credit cycle?

31:08I mean, look, it's hard to know. I don't know how many more hikes we have ahead of us. I think they have, you know, obviously taken things up. I think part of it was trying to get credibility with the markets. And obviously, the bond markets were holding the Fed to the fire. I think the real question is, do they feel like they have that credibility? And then the other conversations around just the competition for capital, where you've got all this billions of dollars, trillions of dollars of data center demand for essentially fixed income. Does that put pressure on rates as well, just from a competition for capital?

31:42Scott Wapner: Why do you think rates have principally gone up? Is it because of the AI build out? Is it because of growth? Is it because of what the Fed is talking about doing, among other things? Or is it like check the last box, all of the above? I think it's a confluence of all of those, right? I think you look at inflation, you look at tariffs last year, and at least the first part of this year, you look at energy prices and diesel prices, those are immense pressures, and then the CapEx boom from data centers, really across the board, you've had rising inflation. Drew, it's good to see you. Thanks for spending time with us.

32:15Scott Wapner: That's Drew McKnight of Fortress. Coming up next, fresh news out of Apple, the stock today hitting an all-time high. We'll give you the details next.

32:28Scott Wapner: We have some news from Apple as that stock gets a new all-time high today. Mackenzie Cigalos joins us now with more. Tell us more, Mac. So, Scott, tomorrow's much-anticipated hearing in Apple's trade secret fight with OpenAI has been canceled. But the judge here in Northern California just now granting Apple limited expedited discovery, which means that it gets access to evidence now rather than having to wait for the normal discovery process to play out. That includes forensic images of devices already collected by OpenAI and former Apple employees, as well as internal materials used to interview Apple candidates for OpenAI's hardware teams, plus encrypted messages between former Apple employee Chang Liu and current OpenAI engineer Alyssa Peng.

33:09Apple will also be allowed to depose multiple OpenAI employees, while OpenAI and Johnny Ives startup, I.O., will each have to designate corporate representatives to testify on behalf of the companies. The judge agreeing with Apple, saying there is enough concern that digital evidence could disappear or be overwritten and that Apple trade secrets could become deeply embedded in OpenAI's hardware work to justify moving this quickly. But this is not a finding that OpenAI stole anything. The judge rejected some of Apple's broader requests, including sweeping access to OpenAI's hardware R &D, and told Apple to narrow what it considers Apple-originated information.

33:46We're expecting an update there in the next five days, Scott.

33:51Scott Wapner: Okay, Mac, thank you. Mackenzie Segal is coming up. We'll break down the banks as earnings season gets underway. That and much more inside the Market Zone, which is next.

34:05Scott Wapner: We're now in the Closing Bell Market Zone. Mike Santoli here to break down these crucial moments of the trading day. Oliver Rennick standing by live from the Cibo Global Markets in Chicago. Leslie Picker watching the banks for us. Annika Kim-Constantino is looking at the big move today in J &J after its own earnings report. Michael, I'll begin with you. Your thoughts on this market as we are officially in earnings season. Yeah, we certainly are, Scott. And, you know, the S &P 500 continues to hold firm in this trend, not far from the highs in sort of the messiest and ambiguous of ways. Obviously, there's always a lot of give and take under the surface.

34:39Did have some firming internally over the course of the day. Yields cooperated to some degree, maybe some dovish Fed speak helping that out. And I still think we're going to need a sort of a critical mass of earnings reports to tell us what the market's reaction function here is to these results. You still see some of the sell the news impulse in some areas of the market in health care and some of the banks kind of a yawn today. Nothing too damaging, but I'm very interested to see whether the market continues to view great earnings as a given as opposed to fresh reasons to do aggressive buying.

35:17Scott Wapner: Well, it depends on which companies we're talking about as well. We're not going to hear from the biggest tech companies around for a bit, so we're going to just have to deal with the fact that there's going to be a dearth of information, at least from the biggest stocks in the market. No doubt about it. But I do think that going into earnings season, the narrative has been earnings reports give an opportunity for the non-tech parts of this market that have been absorbing a lot of the pressure from rates and from oil to actually have a little bit of a relief and a release higher. So we'll see if that happens.

35:49Obviously, it's going to be give and take. It's always very noisy as you get through earnings season. You have to wait until the story takes shape. But so far, I don't think that you're seeing anything to particularly worry about in terms of either the macro side or equal weight has tried to come off the mat relative to the market cap weighted S &P. I think a lot of folks think it's timely to have that continue. I'm going to say prove it.

36:16Scott Wapner: Well, I mean, the moment of truth is going to be, you know, when the market decides that it thinks that the big tech earnings are either, you know, they have peaked or they're in the process of doing so. And then it's going to have a decision to make. There's no doubt about it. And, you know, the decision has been kind of a passive one, which is to say we're going to allow valuations to compress. The stocks are not really going to suffer on an absolute basis, but we're going to wait until we see next year's, you know, a line of sight to next year's earnings and CapEx plans and all the rest of it to decide whether we're going to give credit to those big, big tech companies.

36:51And again, the rest of the market, which has been, you know, really having a little bit of a lag for months now, or I'd say a couple of months, that's its opportunity to see if it can either be a catch up or a catch down by AI tech.

37:07Scott Wapner: All right. See you in just a little bit. Less than 10 minutes to overtime. Look forward to your program. That's Mike Santoli. Let's go to Chicago. Oliver Rennick watching one part of tech today. Where? Micron, Scott, the stock is slumping again after getting to within 10 percent of its all time highs after earnings last month. The stock dropped 5 percent today alongside Sandisk and a slump in South Korean stocks. That said, after seeing some heavy put buying in Micron last week, the flows look closer to dip buying today. The number of calls purchased on Micron exceeded puts by just shy of a 2-to-1 ratio.

37:44The most popular contract by volume was the 1 ,000 strike call expiring tomorrow, which needs a 6 % rally to work. Now the catch is that we also saw some big call spread sellers, So this may be more about Micron finding a near-term low rather than a big rip higher, Scott.

38:03Scott Wapner: Yeah, well, tough day from memory. The way Korea was down overnight, too, was pretty astounding. Oliver, thank you. That's Oliver Rennick in Chicago. We mentioned the bank's earnings season underway. Leslie Picker following that for us. Hey, Les. Hey, Scott. Yeah, bank's third quarter results were powered by stock trading, although the September bond route garnering questions about the future. You've got prime brokerage, which really helped drive higher revenue across the firm's equities divisions, although the fixed income currencies and commodity side was pretty light across the big reporters from today.

38:36The September rate shock proved to be a mixed bag for the big banks. Those who provided guidance either maintained or lifted prospects for net interest income, the profitability metric for loan making. but paper losses, impacted capital levels, and higher financing costs caused a quarter-over-quarter slip in investment banking revenue across the board. So far, credit quality, though, hasn't taken a hit, but the executives warned that could change if rates continue rising. The read-through for Bank of America is strong for its NII prospects, although this firm leans more toward the fixed side of things, and CEO Brian Moynihan already guided the street to expect a flat quarter for sales and trading.

39:15The trends we saw in today's reports should bode well for Morgan Stanley, which has a big equities and prime brokerage business. We'll be sitting down exclusively with Morgan Stanley CEO Ted Pick tomorrow morning. He'll join us live on Squawk on the Street following that bank's third quarter report. Scott.

39:35Scott Wapner: Les, we'll be paying attention to anything that any of these CEOs say about the consumer, Thinking about Brian Moynihan, who always has a good read in on that. Obviously, Ted Pick on the capital markets business where interest rates are going. You'll be keying in on all that, right? Absolutely. And also, they have a really big Asia business, which proved to be really strong in the quarter as well. We've obviously seen what's going on with the Korean markets. So, you know, any insight on kind of the international business and also whether or not we've seen peak sales and trading and peak investment banking will be really critical as we think about what this means for the seasonality of Q2 moving into 2027.

40:16Can these banks really sustain the growth that they've had on the Wall Street side of their business so much of 2026?

40:24Scott Wapner: All right, good stuff. Leslie Picker, thank you. Annika, tell us more about J &J. Hey, Scott. J &J had a solid quarter overall, beating estimates and raising its full year outlook. But a mixed performance across two core business units is overshadowing those results. Prescription drugs fueled strength in the pharmaceutical unit. That includes the autoimmune drug Trimphia, which saw sales grow 68 percent and is seen as the successor to the company's blockbusters to Laura treatment. But pressuring shares today is weaking is weakness in the company's medical technology business. That unit raked in$8.64 billion in the third quarter, which came in under expectations as all four subunits, cardiovascular, orthopedics, surgery and vision underperformed here.

41:08The company's CFO said on our air this morning that it's targeting a spinoff of its hip and knee business in mid-2027. But J &J also said it's working to improve results in the MedTech unit and is confident in its long-term trajectory. Scott.

41:22Scott Wapner: All right, Annika, thank you. Annika, Tim Constantino, bring in Humulus' Brian Belsky. Good to have you on, B. This market doesn't feel that great, but in the same breath, it doesn't look that bad either. It's just kind of hanging in there. You know, I'm trying to find the right term for this. Are we in purgatory? Are we having a hangover? What's going on? I think what's happening is the companies are actually walking the walk. Now the stocks have to talk the talk. We talked the talk ahead of earnings. The market did a really great job bidding up these companies with the great earnings. Now let's see how you had a great point earlier with respect to what's going to happen when we have an earnings peak.

42:08I think the next big threat of the market and the negativity with respect to the bulls is the second derivative, less positive earnings, which I think is going to be a major, major trend over the next six months. Remember, positive is still positive. Double-digit earnings growth is still really good for the market, Scott. And I think that we're going to kind of get through this malaise. We've got to get through the midterms. We've got to get through CPI and PPI. And then I think the market has enough data where it can actually talk the talk again and reward these companies for the great earnings that we're seeing.

42:41Scott Wapner: Do you think the mega caps alone, Brian, are enough to keep us climbing? I do for now because, you know, when people are nervous, they seek liquidity. What's liquidity? The biggest companies in the market so they can go in and out of these companies, whether or not if things begin to change, they can go back out. They can come right back in. So I think for now, however, again, everyone's talking trash about the broadening trade. I really think you got to think about what's happening into the second half of 2027. If rates begin to mediate, if growth begins to slow down and we start to see more diversified market, the broadening out is going to work.

43:20Not right now. Let's get through the near term. But I think the tech stocks are doing exactly what they should be doing, and they're being rewarded for the great fundamentals and the great operating margins of what we've seen so far.

43:32Scott Wapner: Well, speaking of, we're showing Apple on our screen, Brian, as we speak. Like, we might close above$5 trillion in market cap for those shares for the very first time ever. The stock just keeps humming along. Well, think about September, right? I thought everyone was supposed to sell Apple when they came out with new products. Well, how'd that work out? Not very well. The Magnificent Seven and these big tech stocks have done a wonderful job rotating leadership all year long. You had the malaise with Microsoft, and then you had Apple underperforming, Then you had Google get going. Look at NVIDIA taking off.

44:09So I think they're doing what they're supposed to be doing, and they're being rewarded because of the fundamentals. Now, again, I think we've got to get through this period of negativity and skepticism, which, oh, by the way, is very good for the longer-term breadth of the market in our 25-year secular bull market call. But in the meantime, let's kind of get through this, and I think tech stocks are doing the job they should be doing.

44:31Scott Wapner: I mean, you're Mr. Financials, financials, financials. So what is your takeaway from day one of bank earnings? I mean, look at the record revenues from Citigroup. I will take that. Wells Fargo was the one that was a little bit more squishy. We're not hearing enough about wealth management. I think the strength is going to be in the fourth quarter and into 2027. And I think any kind of consistency, if we see them continue to talk about capital markets and investment banking revenue kind of being steady in 2027, especially after the huge uptick in 2026. I think it's going to be really positive for financials.

45:08Scott Wapner: I mean, you own J &J, too, which reported today and obviously is having a big day. What's your reaction to that? Steady, Eddie. You know, their device business and their other side of the business, aside from drugs, has been very, very steady. And of all the big pharma's, if you want to throw it in there, that has been the most consistent and really did not take a lot of water after the big pharma stocks got hit in 2025. Yeah, big in a negative way. Obviously down almost 6%. Brian, thank you. That's Brian Belsky. They're going to start ringing the bell. As you see, the S &P is going to fight it out right to the finish, see if it can turn green.

45:44Scott Wapner: Elsewhere, we will be red. Day one of bank earnings, got more coming. And obviously, Mel and Michael have more on that as they look ahead to more of earnings season in overtime, which is less than 10 seconds away.

46:23We'll see you next time.

46:30Thank you, Rob.