Closing Bell 10/22/26

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1:00Scott Wapner: Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make-or-break hour begins with the tech sell-off. Meta leading the mega caps lower. Lamb Research is dragging the chips. Almost every other area of the AI trade is read this hour. We'll cycle through a lot of the names. Look at the power plays. Vistra down more than 10%. Bloom Energy down a lot. GE Vernova is as well. Let's show you core weave singularly today. It's another big mover. Right now, it is down by more than 10%. But you could look almost anywhere and find some pretty good carnage on the street.

1:35Scott Wapner: AMD is down a bunch. SpaceX giving back some 9%. We'll watch all of it right into the close. We'll show you the scorecard with 60 to go in regulation. Yes, the NASDAQ is the obvious pain point today. There it is, lows of the day approaching a 3 % drop. Dow's had a few green moments. It is red, though, and it has been mostly a defensive day within that complex. Health care, utilities, staples, they've all led the way. A real defensive posture. You can see it in interest rates, too. Some buying of treasuries today. You've had yields go down, the 10-year dropping below 5 % for the first time in a while.

2:14Scott Wapner: It's currently sitting there. We'll have a report on that coming up. More from the staples. Look at Procter & Gamble. We'll show you it. best day in like six and a half years. And that underscores everything. We could cycle through the rates story as well. We'll follow that right until the finish. And oil is a story too. It is surging today on fears of more fighting in Iran once the midterms are over. So there's WTI, about 100 bucks. Brent, big story. About 113, 114. Diesel, huge as well. And we're tracking it all. It does take us to our talk of the tape. Cost questions, not so much about what all of the AI companies are spending, though that's part of it.

2:58Scott Wapner: More so, where is all that money coming from? Where's it going to? Some major new developments on that front today. Our Seema Modi is tracking it, joins us now with more. Hi there. Hey, Scott, the market remains fixated on the cost to fund the artificial intelligence build out with hyperscaler CapEx spending expected to approach$1.6 trillion next year. The question is how much of that capital is being deployed? Will it be enough? That's once again pressuring shares of CoreWeave, which is down about 10 percent today and now off 60 percent from its high. This morning, both NVIDIA CEO Jensen Wang and Blackstone COO John Gray coming out in defense of the company, saying the issue is not demand for the chips it rents out, but the capital that is scarce.

3:40The demand for the neoclouds is off the charts. Their capabilities are extraordinary. And so what is missing in the middle is the working capital to fuel that growth, to fund that growth. And because there's just so much demand across so many sectors of AI, there's a scarcity of capital. Their challenge is, do they have the capital, the debt and equity and the quantum that's needed to deliver? I think some of these companies have very talented CEOs. CoreWeave's a good example of this. They'll find a way through it, but that's the challenge they face. The underlying business is actually quite strong.

4:19Those comments come as Meta indicated that it needs to aggressively spend on AI next year, even after revealing a stock sale in a letter to shareholders. Meta disclosing that its special committee recognized that the timing is important to secure capital before competitors like Alphabet, SpaceX, OpenAI saturate various funding options, and that debt required could hurt Meta's credit rating. Now, Meta, Scott, is currently solidly investment grade, AA minus by S &P, But the prospect of additional debt sales is sending its five-year credit default swap to a fresh high today.

4:52Scott Wapner: Seema, it's a great look for us. We appreciate that. That's Seema Modi. Now let's bring in CNBC contributor, Big Technologies, Alex Kanchowitz. Good to have you on. I'm wondering if you think we've reached an inflection point in the funding phase of this buildout. Well, I can tell you that the demand for this debt and the demand for more money to build more AI is only going to grow. And it's not just Meta. It's Google, like Meta pointed out in its note. It's going to be open AI. It's going to be Anthropic. All these companies are going to be looking for ways to fund the backbone of AI, which is compute and which is infrastructure.

5:26And now that's getting really, really crowded. And all of a sudden you might see the fact that it's so crowded start to ripple into the way that these companies are traded, the way that the market looks at their debt. And, of course, this is a technology that's unproven. When you have debt, you want to make sure that you know that you can for sure pay it back. But we don't know what the timeline is for these investments to pay off.

5:48Scott Wapner: And that's why the market is panicking. The numbers are so staggering and not even the near term ones. If you look at the cumulative expectation of 10.3 trillion, according to some sources, through 2032. If you include data centers and chips and power and networking, sort of the entire AI pie is going to end up costing that much. When you hear Jensen Wong talk about a, quote, scarcity of capital, what do you think? Well, it makes sense to me because for many of these companies, it's existential. Like if you take Meta, for example, the company has seen some traction with this Muse agent, but it can't stop.

6:25And Muse is extremely token intensive, which means it's capital intensive to serve. So you're a company like Meta. You're a big company and you have an option here. You continue to raise money and raise debt in order to keep funding this, maybe even an equity event, or you pack up your bag and go home. And the fact is that if this is going to be the way that consumer technology goes, which is clearly what Mark Zuckerberg thinks, he talked about how he wants to scale Muse up to a billion users. If you sit it out, then you're going to fall behind everybody else. So it's all these companies scrambling for the similar pie of money.

7:01And we're starting to see it come to a head pretty much.

7:05Scott Wapner: Is that a threat to the story itself, the scarcity of capital, the crowding out of capital? I want to read you what Seema had in her report, which to me underscores everything about where we are. As they say, quote, the special committee also recognized that timing is important to secure capital before competitors saturate various options. Recent significant capital raises at other notable companies and others soon anticipated to take place to fund the same AI growth. For example, Alphabet, SpaceX, Anthropic and Open have resulted in an increasingly challenging environment for raising capital.

7:44Scott Wapner: We can't really afford a challenging environment for raising capital, can we, if we've promised all of this spend? Oh, absolutely right. And you said it earlier today, and I think you were spot on. where this entire story has been dependent on the promise to raise, the promise to spend, and then the promise eventually to turn in a return from all that spending. And if any one of the legs on that stool starts to break or wobble, you start to see this entire story wobble. So I think it certainly is a risk here. Yeah, I mean, and then you find out, you know, those who are able to remain, at least even for the moment, you know, cash flow positive are the ones who are being rewarded.

8:23Scott Wapner: Look no further than Microsoft. Take a one month look or even look from the past earnings report until now when the CFO, Amy Hood, said we'll be cash flow positive. They were rewarded. Now we're seeing all these others dip negative, wondering when this is going to is going to change its its complexion a little bit. Right. I don't want to be a hater here, but I also think the market is notoriously good at rewarding short term decisions and underweighing long term decisions. And so the companies that are investing in a big way to be able to build out ambitious AI projects, it's going to be tough for them right now.

9:06But in the future, those bets, if they pay off, are going to pay off in a big way. And conversely, if they were not to invest now and the bets from others pay off, then they'd be staring at, you know, maybe a short term stock bump right now, but a long term deficit that they could take a very long time to claw out from. So that is the math that they're thinking about in the executive suites in Silicon Valley. Spend today and take the hit and be competitive down the road or, you know, don't spend right now. Be embraced by Wall Street, but then ultimately be behind in this very consequential AI competition.

9:38Scott Wapner: Yeah, spend and figure out the source for all the money. A.K., thank you. That's Alex Kantrowicz. Now to interest rates where the 10-year, as we told you at the top of our program, had been falling. Senior economics reporter Steve Leisman is here with more. Again, below 5 % as we have this conversation on the 10-year, Steve. Yeah, Scott, I think falling is too weak a word. It's like plunging. This is a big move for the 10-year. Below 5 % for the first time since late September. And the brewing concerns about AI finance and government debt coming together here The 10-year trading at$4.95 right now, the lowest level since the 21st of September, dropping a massive 19 basis points today.

10:18That's the biggest one-day decline since August 2024 when there was a lousy jobs report. It appears to be something of a flight to safety among foreign bondholders where the new ailing security on the globe is the French 10-year. Yesterday, that went the other way, topped 5%, now trading around$5.07 on concerns about French finances. Add to that, as Seema was saying, additional concern about AI debt, and it completes this flight-to-safety trade that we're seeing. And the downdraft in yields affecting the outlook for the Fed, where the probability of an October rate hike has plunged to just 7 % from nearly 30 % a week ago.

10:51And there are some new doubts about a December hike, which trades at a 77 % probability. That's down from 91%. Now, there's a little bit of an upside, little, little, little. Mortgages fell for the first time in months, down eight basis points. And the bond portion of investor portfolio is finally providing some hedge for stock market losses. Scott, I will just remind you that that 19 basis point decline in the 10 year in August was an employment report. Of course, the Fed cut 50 basis points not too long after that. And maybe the bigger story is this decline in the two year down 18 basis points.

11:25That's a bigger mark for or bigger tell on where the market thinks the Fed's going.

11:29Scott Wapner: The Fed has maybe a conundrum on its hands, I'm thinking, in that you've already had the chair come out and suggest that AI has created this shock to the economy, right? It's been burning hot as a result of what's been taking place with AI. But now the market has questions about where we're going, and there is that wealth effect. And the AI trade, AI investment has been a large bonus to the economy and the stock market at the same time. I'm thinking about they're still trying to deal with inflation. They've talked about it being an issue for for things being too hot. But then they got to keep their eye on the other side of the ball, too.

12:13Scott Wapner: And what happens to the market? You know, Scott, the difficulty that you just went through to structure that question is exactly the difficulty the Fed is going through. You have all of these conflicting forces going on. There is the inflation from the AI capital boom. We know that's there. There is the upward pressure on interest rates from the AI capital that's out there. You have some other weaknesses within the economy that are worth watching for. And then if this thing comes off, well, Warsh has said he wants to set rates for the future because of the long and variable lags of monetary policy.

12:48But which future? The next several months promise perhaps more difficult inflation as you get perhaps food inflation and energy works its way through the system. But after that, if this AI trade comes off the bubble, I think Warsh is going to be very informed by markets here. And if we continue to see lower probabilities of rate hikes, continue to see the two-year and the 10-year come down in price, I think he's going to become a little less worried about inflation. I'd be very interested to watch that December probability, which is now 70 percent. That could fall further.

13:17Scott Wapner: Glad you noticed my difficulty in trying to get all those thoughts out. I don't mean to make a point of that, but I heard you struggling. I'm like, that's exactly the way the Fed's going to be talking about this. I feel like that kind of is the point. But I'm glad maybe you made it better than me. Play within a play. Steve, thanks as always. All right, that's Steve Leesman. our senior economics reporter. Let's bring in Solas' Dan Greenhouse now and Yardini Research's Ed Yardini. Guys, it's good to have you here. Ed, you first. What do you think? Well, I think clearly we get a significant risk off day to day.

13:47I think what's the positive developments here is that the bond market is allocating capital now more effectively, as you just saw some of these companies indicating that they're concerned about the availability of capital. And for a while that we were worrying that the pace of capital spending would be excessive and the amount of borrowing would be excessive, but not if the credit markets are going to start regulating it, which is what I think is happening here. So it's definitely going to slow down the AI boom. But I think taking some air out of the AI bubble is a good thing. I don't think it's going to burst and create problems for the economy.

14:30Let's put it that way.

14:31Scott Wapner: Wow. So you do think it's a bubble? Well, I think the bubble is losing air. I mean, clearly there's aspects of it. We can see it in the way some of these stocks have taken a dive. But I don't think that taking air out of a bubble is going to lead to problems for the economy. We all have like a capital crunch we need to worry about. I mean, that in and of itself can take some air out of this. And we can't really afford to have that based on what the spending promises are, right? I don't think we're having a capital crunch in the more dramatic way that you imply it. I think there is a moment in time here where capital is getting dearer for some of the tail parts of the AI buildout cycle.

15:16The companies that are more highly levered, that have more speculative or further out business prospects, more difficulty in terms of execution risk. Those companies are capital is getting a little more expensive. I understand.

15:27Scott Wapner: So if you want to say that the core weave is towards the tail of what you're talking about, wouldn't Meta be at the head? And the quote that Seema put in her report and I reread for our viewers suggests that there's concern about a crunch for cash. I don't read it as Meta saying there's a crunch for cash. I read it as in there's a rush for cash. And we want to get our hands in some of it right now because some of our competitors are trying to do that as well. That's a little different than a crunch. CoreWeave has a bit of an issue right now. Some of those types of companies have an issue right now.

16:03But even in the case of CoreWeave, it's the unsecured debt that's blowing out. All this project debt is doing fine. Demand is fine, et cetera, et cetera. I think right now there is a point where some people are questioning some of those tail parts of the build-out.

16:20Scott Wapner: Throw up MetaCDS, guys, please, while Dan's talking. Yeah, let's throw it up because Meta just reported yesterday, and I don't remember exactly, but I'm rounding. They said they have$83 billion in cash and$84 billion in debt. Cumulatively, when you put those numbers together, that's not a lot of debt, which is why Meta and Google, etc., etc., are, for lack of a better word or phrase, completely unimpacted by what's going on right now. CapEx did not come down from Meta. It went up, granted, a little bit, but still. And I imagine the rest of the hyperscalers are going to say something similar when they report.

16:56Scott Wapner: What do you think? I agree with that. I think that's basically just I think we're on the same page here with regards to the outlook for capital spending. A lot of it is committed. It's going to be finished. And a lot of the capital that's necessary, the financial capital that's necessary to make this all happen, is going to be there for the companies that will be there for the hyperscalers, like you said. Right, but the story depends on more than just the leading characters, right? The movie has a bad ending if it's only the leading characters that can get you to the end of the story. At the end of the day, the most important thing is compute, is the demand for compute, is it there?

17:34And I think we're going to continue to see that in cloud revenues and in backlogs, we're going to see that the demand for compute is extremely strong. Let's pivot off your movie analogy right there. Okay. And let's equate the AI build out to Friday the 13th. Truth be told, I've never seen one of them. I've seen Nightmare on Elm Street, but I've never seen any of the Friday the 13th. Right now, Jason is the interest rates. And Jason, Corweave is like the random person, the camper who was like in the movie for like a minute. You don't really know who he or she is. Jason is killing that camper. The movie does not end then.

18:10The main characters go on till the end. Presumably they win. And I don't know if that'll be the case in real life. But Corey Weave, again, is the camper whose name you're not really sure who they are, and they were only in the middle for five minutes. Not unimportant to the story, but not the determinant of the story. I hope that made some sense for the viewer. It was only a week or so ago that the latest horror movie was what was going on in the bond market. And now the bond yield is under 5%. So it seems like every day we come up with, or every week, we come up with some new thing to get worried about.

18:41Scott Wapner: Well, if you say, if you can't have it both ways, though, If when yields are rising and you suggest, not necessarily you specifically, but the you, broader you, well, they're going up for the right reasons because growth is hot. And if they let it run hot, then the rates are going up and far for that. But now you have to ask the same question on the way down. Are they going down for the wrong reasons? Well, I think the bond yield is going down because there is a flight to safety today. It could be back up to 5 % tomorrow, the way things change in this marketplace. But the important thing is that the economy's resilience has been tested numerous times for certainly this decade.

19:22And it's just recently been tested with interest rates, the bond yield above 5%. And now it's going to be tested by this fear that, you know, for a while, what are we rooting for? Are we rooting for capital spending to be extraordinarily strong? Or are we rooting for this on the AI side? Or are we rooting for it to be slowing down? It seems like we haven't made up our minds. But I think the markets will moderate the AI boom, and I think it will be sustainable, and I think it will be a positive for the economy. And I love your analogy. Thank you. I'll give you another one right now. That was well done.

19:58Wow, what praise. I'm thrilled. Rare, I know. Rare praise on the set. But I'll give you another analogy right now to pivot off what Ed said. How many first shoes have dropped by now? We've got to be 10, 20 shoes in. How many canaries are dead in the coal mine? The resilience of the market, of the economy, in the face of all of these headwinds that any number of people have come on this set and said repeatedly was a strong signifier of the end is a new ring. The end just doesn't end. The end just doesn't come. And to that point, we just found out jobless claims. Fabulous. The single grade, you don't need a PhD, just watch.

20:40It's weekly jobless claims basically at the lowest level ever. Now, again, I think what you're saying is at the end of the day, as long as the economy is growing, we've got a bull market. And this is just another one of scares along the way. I think as long as the economy is growing, you've got a bull market. Now, something will kill it at the end. You know market history as well as I do, arguably better. Some might say. I think everybody would say something will kill this. I don't know where the argument is, but anyway. But history is littered with the graves of people who call the end of bull markets.

21:10For sure. And they come on the show, and they still come on the show, and they will be probably as wrong tomorrow as they were yesterday.

21:16Scott Wapner: I will tell you that more people come on this show and other shows and suggest we're still in the very, very early innings of this story. That we're only three years essentially in to what looks to be a very long story, if you believe what the CEOs themselves are saying. Yeah. They wouldn't be raising this kind of money if they didn't see the end demand now. They're not, like, projecting the end demand. they're kind of like saying, oh, we wish we'd already done this so we could really leverage this up into amazing profits. Well, I'll push back on that point and say, of course they see the demand, otherwise they wouldn't be raising the money.

21:52Of course they see the demand. The question is going to be, when does the issues that are afflicting core weave, when do they spread not from the camper in the background, but to the main characters? That's probably going to take, as you alluded to, some time. That doesn't happen overnight. It's measured in quarters. But this is like a team. This is a band of brothers and sisters in the AI trade. So if one of them kind of falters, I think they're going to come in and handle the problem. In other words, they'll clean up any mess that occurs within that ecosystem.

22:27Scott Wapner: We've made too many movie analogies. Not enough, Scott. You just ended with Band of Brothers. So I caught that. Guys, thanks. It's good having you on. I enjoyed that conversation. Let's get more on that jump in oil today. Hey, Pippa Stevens has that for us. Hey, Pipps. Topping$100, hitting a five-month high amid escalation fears as the U.S. evacuates non-emergency government employees from Saudi Arabia, with President Trump saying last night that the U.S. is not negotiating with Iran. The New York Times also reporting the U.S. and Israeli militaries have drawn up specific plans for renewed strikes after the midterms that would be a short but intensive operation.

23:02Now, all of that points to a deteriorating situation in the Middle East, as well as a potentially growing regional conflict thanks to the Houthis stepping up their strikes, which means that while oil flows out of the region have recovered, the market is nervous. It is simply temporary. As RBC put it, rising crude exports are a lagging indicator of the pressure building in the region, especially when looked at in the context of the curve rising and the slope softening, suggesting a tighter for longer view. WTI now approaching 100 here. Scott?

23:32Scott Wapner: Wow. Thank you. That's Pippa Steven. Shares of Moderna, they are plunging today. Annika Kim-Constantino has more for us on that. Hi there. Hey, Scott. So Moderna and Merck have released the full data on their personalized cancer vaccine after a partial leak of that data earlier today. The companies plan to announce detailed results from a phase three trial on this mRNA-based shot in melanoma patients during a cancer conference in Spain this Saturday. If you remember, we got the initial results from the study in August when shares of both companies rallied. But we now have the specific numbers today.

24:05And despite the pressure on the stocks, the data is quite positive here. Merck and Moderna say their personalized cancer vaccine combined with Keytruda cut the risk of melanoma returning or patients dying by 42 percent compared with Keytruda alone in a phase three trial. The combination also reduced the risk of cancer spreading to distant parts of the body or death by 38 percent. UBS analysts call the results a strong data set that should build confidence in upcoming studies of the vaccine and other cancers. But some analysts say sky high expectations, coupled with the rally in both stocks since August, may have set the stage for a potential sell the news reaction here, Scott.

24:42Scott Wapner: We'll watch that right to the end as well. Annika, thanks. Annika Kim-Constantino just getting started here. Coming up next, a new report shedding some light on the growing risks AI poses on our financial system. We have those details next. Legacy Credit Scores only look at a brief snapshot in time, and that limited view often leaves millions of qualified credit seekers out of the picture. Vantage Score is changing that by modernizing credit scoring. Vantage Score uses 400 % more credit and alternative data to create a fuller picture of financial behavior, including trended credit data, rental payments, and timely utility payments.

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26:40Scott Wapner: New report today, shedding light on the risks AI might have on our financial system. Our Kate Rooney, following the money force, joins us now with more. What'd you find? Scott, well, we are hearing a new report that major U.S. banks are having issues with unauthorized AI bots accessing customer accounts. Axios now reporting that some AI agents are attempting to take actions that appear to be independent of user instructions. We should point out nothing nefarious appears to have happened, but it does highlight this difficulty. For many companies, it's not just banks to tell the difference between a person and then any sort of unauthorized bot out there.

27:16They're becoming increasingly popular, too. We've talked a lot about Meta's Muse that now has around 10 million users. There's Instinct. OpenAI has its own Dots that's been rising in popularity. These are more proactive versions of AI that take actions on your behalf versus just acting like a chatbot. We also talked yesterday, Scott. Ethropic launched its own version of an AI agent yesterday. JPMorgan CEO Jamie Dimon, though, said point blank recently on the earnings call, the bank won't allow outside artificial intelligence agents to access customer accounts and operate on their behalf. He said, we're not going to just allow any outside agent to come inside the company because it is just too risky for clients and for JP Morgan.

27:57He said, we don't want rogue agents and there could be thousands of them. So he's hinting there when he says rogue about some of the cybersecurity issues. But again, this particular instance doesn't seem to be an example of something going horribly wrong and rogue, but they are accessing bank accounts, which makes the banks worry, Scott.

28:12Scott Wapner: I mean, it's almost anything but. In fact, there are instances, according to this reporting, that these agents are doing it with the user's permission and their login credentials. I think it speaks to where this technology is going, Scott, where a lot of us, myself included, are handing over the reins to these AI agents in the name of productivity. And people are willing to give up their banking information, their credit card information. So it is an obvious move in that direction. And the banks are the ones now needing to deal with it and figuring out, OK, is this actually Scott Wapner, the customer, or is this the bot of Scott Wapner, who's doing something that, you know, you might want to have money move and have a bot do it for you.

28:54But the banks need to figure out if it's that or if it's the worst case scenario, which is rogue agents and some nefarious version of it. So I think the issue here is figuring out if it's just normal activity or if it's something unintended.

29:08Scott Wapner: And as you said, Jamie Dimon suggesting this is not going to happen at our bank, but he's not the only one as well. Seems like most, if not all, of the large banks are following suit. Yes, we've heard that from other banks. Goldman Sachs in that category, less of a consumer bank. But it's something that they just want no part of. I mean, they do not want to be giving up access. What's next in the industry and what they've been trying to figure out is to have sort of standards and guardrails to make sure that if this is happening, that they just know who it is. I think that's the biggest challenge in this as people start to use AI agents more is just transparency around what is actually going on behind the scenes.

29:46But it's a way in some ways the banks are going to have to keep up. I mean, retailers are going to have to keep up. If people are just using these, it seems like the economy is going to need to keep up with consumer behavior because that's how a lot of us now are starting to use this technology. You know, whether the banks like it or not, that may be the way that money starts to move. It's even seeping into the stock market. You have companies, brokerage firms like Robinhood trying to enable AI trading. So it seems like the banks must be thinking about this. They've just got to figure out the security side.

30:15Scott Wapner: All right. Good insight there, Kate. Thanks, Kate Rooney. Up next, a big story in the world of media and sports. Alex Sherman is standing by with the details. We're back right after this.

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31:58Scott Wapner: This February, Disney will air Super Bowl 61 on more platforms than anyone ever has. But that decision has reportedly left some company family members frustrated. CNBC senior sports business correspondent Alex Sherman joins us with more. Family squabble, tell us more. Yeah, Scott, once upon a time, the Super Bowl only aired on broadcast television networks. That has changed in recent years where there's sort of been a dual approach, where media companies have put the game on a main broadcast network, whether it be NBC or Fox or CBS. And then they'd also put it on their streaming service, Peacock or Fox 1 last year, Paramount+.

32:38Well, this year, for the first time in 20 years, the Super Bowl is on ABC. It's also on ESPN. That's a little different than before, where the game is going to simulcast on two channels other than one.

32:50Scott Wapner: And Disney's putting it on Disney+. So affiliate stations were not all that pleased with this decision because it's going to siphon off the viewership for their local ABC station. In just the past week or so, Disney has announced that they are launching alt casts, alternative casts to the Super Bowl, which are also live productions of the Super Bowl, but with different announcers and in different forms. And Disney is absolutely flooding the market with these altcasts using all sorts of different platforms for them. There's going to be a Star Wars altcast on the Disney Channel and on Disney+. There's going to be a Next Gen Stats altcast on the NFL Network.

33:35There's going to be a Pat McAfee Show altcast on ESPNU. There's going to be a Manning cast on ESPN2. ESPN2. And so the affiliate stations are not all that pleased with this, as it means lower viewership for the ABC networks across the country. Scott.

33:51Scott Wapner: Really, really interesting story. Alex, thank you for bringing that to us. Alex Sherman up next all over the sell off, especially in tech. Tom Lee joins us next. All right. Welcome back. Another check on the markets. Nasdaq is tumbling, as you know. Dow is now down more than six percent from its all time high set just earlier this month. Our next guest sees opportunity within that sell-off. Joining me now is Fundstrat's Tom Lee. He's also a CNBC contributor. It's good to have you back. You say that AI concerns are preventing AI from becoming a bubble. Some would suggest that these concerns are merely popping what had become a bubble.

34:30God, I know there's going to be two sides of that debate. But the reason I'm going to say AI concerns are preventing a bubble is that we're continuing to see astounding discoveries made by AI. I mean, whether it's the muse and the agents, but maybe two weeks ago, open AI and discovering 770 math problems. This is not the end or late cycle for AI discovery and even the productivity boost. So as long as we're starting to see advances there, every dollar of capital raised for AI is generating returns. I think it's actually really healthy that the debt markets are sort of preventing a runaway speculative boom in AI.

35:15So I think it's actually a very healthy correction that way.

35:18Scott Wapner: So you're focused more on the derivative impacts, I suppose you could say, rather than spending concerns, funding concerns, capital crunch concerns. all of the above? Yeah, I mean, unfortunately, AI does require a lot of dollars. We did a report a few weeks ago showing that if AI is going to spend$30 trillion over the next 25 years, one, there's actually plenty of investment dollars available because interest income from just American households annually is about$7 trillion. So, you know, a trillion of that can be funded by just the interest income earned by Americans. But the mobile network build was about$25 trillion, and roadways are$25 trillion.

36:03I think AI is a more important infrastructure build, arguably, than mobile. And it's about the same dollar. So I don't think there's too much money being thrown at AI today.

36:12Scott Wapner: Would you buy the sell-off yet? Yes. I think we're near the end stages of the sell-off because it's become a consensus short to be shorting tech. And I think yields, which was really worrying markets, as you know, they've backed away. So I mean, you've got two things that were headwinds before. The Fed, quite hawkish, now it's flipping, potentially dovish. And interest rates, which were touching five, people fearing 6%, are now back below 5%. I think the only things you have now is debt markets are kind of closed at the moment, and, of course, the uncertainty about the war. I mean, if you say, yes, I'd buy it, where would you buy it?

36:51Scott Wapner: Would you stay just with these largest AI-related stocks in the market? Yeah. Scott, I think the AI and the bottlenecks of the Memories and the NVIDIAs and the Mag7, they're being sold because it is easy to short them now. And I think, of course, people are worried about the credit side. I think they're bottoming. But I also like the software, and I like the crypto here. I think kind of the whole broad cyclical trade I'd be pretty bullish on. And as you know, financials haven't been rallying, but rates are coming down. So I think there's a lot of opportunity. This is what I view as a coiled spring because the fundamentals have been holding in.

37:30Scott Wapner: Wow. I mean, if you look at, you know, the semiconductor index or the DRAM ETF, for example, we'll show that one. There's so much destruction within that trade. I just I wonder what that chart, what story that chart is really going to be telling in the weeks, if not months ahead. Scott, I think it just shows you what a battle AI is today. But keep in mind that in 1997, three years after the launch of the public Internet and browsers, Cisco, which was the biggest stock at the time, had a massive 50 percent drawdown. partly because Alan Greenspan was saying we had an irrational exuberance and then later kind of hinted at preemptive hikes, not too dissimilar to today.

38:17Cisco had a 50 percent correction, went down to five. A year later, it was 18. I think the setup is similar. You know, ChatGBT is basically crossing its third anniversary. I think we're so early in this AI trade, but it's understandable for people to be worried. I mean, a lot of people made money and there's a lot of profit taking as well.

38:35Scott Wapner: What about other areas of the market? Yeah, the market's broadened, but in a not so great way. Healthcare, staples, utilities, that doesn't exactly exude confidence in the market. No. Yeah. To see waste services, which is a super defensive group rallying, does show the market's nervous. I'd say the half full argument is that that's also a breadth argument. But I did talk with Mark Newton. It does look like we're seeing tech basically touching support. So I think we know that the next couple of weeks are uncertainty into midterms. I think this is the window where investors can buy things because the market is going generally risk off.

39:15But I think post midterms, the market's going to rally broadly and very strongly.

39:19Scott Wapner: I mean, we did have Mark on yesterday or not the day before who said under the surface, the cues and the S &P are stronger than it would seem. So we shall see. Tom, thanks. Tom Lee. Coming up next, count you down to Western Digital earnings in overtime, not much more in the market zone, which is coming up next. All right, we're now at the Closing Bell Market Zone. Mike Santoli and Naveen Saramalek here to break down these crucial moments of the trading day. Oliver Rennick is standing by live from the Civo Global Markets in Chicago. And Seema Modi has the setup on Western Dig as we count down to that company's earnings in overtime.

39:53Scott Wapner: What stands out to you the most today, Michael? Well, I think it's pretty obvious that we have a completely exaggerated version of this mechanical rotation type action that we've gotten used to over the last several months. But it's to a point where it's almost too erratic for the market to get comfortable with it. You know, you have the VIX pushing 20. That probably says that, you know, the S &P low volatility ETF jumping 2 percent on a given day is not what most bulls would want to see right now. And it's a pretty emphatic vote of no confidence in just the sense of open ended AI capex. I don't think it means it's the market saying game over, but that you had vulnerable trends that are now getting an extra push to the downside.

40:34Definitely not positive that semis and related companies are not responding to these oversold conditions that by all appearances should have given you at least a tactical bounce. But with all that said, the S &P 500 is trying to hold in this trend since the July lows and not break it.

40:53Scott Wapner: I'm glad you mentioned the semis' worst day since June 23rd, NASDAQ's worst day since June 5th. And as we said earlier, now down 6 percent from the October 6th all-time high. Just on October 6th, wasn't that long ago. How do you tackle overtime before I let you go? It's a couple of weeks. Yeah, we're obviously going to try to get below the surface of this tech move lower. but also the bond market rally and whether it's something to be believed or what's really behind it and if there's value there with Jeff Rosenberg of BlackRock as well. We'll be there with you, Emil. Appreciate that. That's Mike Santoli.

41:25Scott Wapner: To Chicago we go. What are you looking at, Oliver? Core we've, Scott, implied volatility surged to the highest since February as the stock made new one-year lows and options volume popped to about four times the average by the close. The most popular contract traded by volume was a call, the 60 strike expiring Friday to recover today's losses by the weekend. And about as many traders opted for a cheaper gamble that it could get above the 70 strike. But mostly what the trading looked like today was a lot of in-the-money puts that were sold to close out existing positions, i.e. shorts or hedges taking profits.

42:05The put contract with the heaviest volume bought was the 55 strike that's now right at the money. Perhaps more interesting is that there was much more bearish one-sided flow in the semiconductor ETF SMH, which broke down from a key support level and resulted in traders scrambling to buy almost three times as many puts as it looks like they bought calls today, Scott.

42:29Scott Wapner: All right. Good look there, Oliver. Thanks for that. Another tech test in overtime, Seema, right? It is, Scott. For the memory and storage trade, the real topic has been how durable is demand? Following an epic run in these names like Western Digital and its peers, they've sold off meaningfully in recent weeks. The Street Now will be looking for commentary from the company on demand, specifically from AI data centers, traditional servers, and whether the supply shortages are starting to ease. There has been some concerns that the entrance of new players like Toshiba could create sort of a land grab in the storage world.

43:01We'll want CEO Irving Tan to address those concerns on the earnings call tonight. We are looking at Western Ditch currently down nearly 7 % on the day, Scott.

43:10Scott Wapner: OK, Seema, thanks again. That's Seema Modi. Let's go to Sarah Malik. I mean, we said all along all we need is for earnings season to come. Save the day. Remind us where we are and where we're going. And not so much so far. No, not so much. We're closing out a pretty brutal risk off day driven by two factors. Number one, exhaustion over AI spending and second, escalation in geopolitical tensions. Starting with geopolitics with the Houthis attacking Saudi Arabia, markets now are anxious that the U.S. will retaliate against the Middle East after the midterm elections. And with the AI trade, it's just so far not good enough.

43:45The impact on the bond market from the spending is really unnerving investors. And I don't think we're through this yet because even a company like Lamb Research that is down about 12 percent today, it is still up 33 percent year to date. So we have more to go. And with the FOMC meeting next week and midterm elections, I think we have a little more turn to go through before we can get out on the positive side.

44:05Scott Wapner: What do you make of what's happening with rates? I think the good news is that because the good news with the market moving a little bit more safe haven and tech stocks pulling back is that Treasury yields are actually declining, but they're not doing it for the right reason. They're doing it because people are concerned that because of high oil prices and this constant geopolitical turmoil, that we're going to see the economy start to slow. And that's a real problem. High inflation is slowing economy. So rates are going down, but not for the right reasons at this point. I'd like to see stronger earnings growth out of tech, a more positive view there, and the economy to remain stable.

44:40Scott Wapner: Well, it's kind of the same thing with health care staples and utilities going up, right? Not for the right reasons. Right. They're going up because people are concerned. So we are getting, again, that broader trade that people wanted. but it's because people are afraid. And we've been recommending global equities as a way to keep your foot into the end of the tech stocks, but also get some diversification. That's what people should be doing at this point until we can get some kind of resolution on oil prices and also some window to will all this AI spending eventually turn into the returns that investors want to see.

45:11Scott Wapner: I mean, it is turning into returns, though. They're just spending so much money to get to those returns. You wouldn't be a buyer yet. I mean, fundamentally, it's hard to see how this story is falling apart. I agree. It is not falling apart in the sense that we are seeing some returns, but we're not seeing them fast enough. Given all the spending that's happening, investors want to see more credible evidence of when we'll see some productivity and gains from AI spending. And as I mentioned earlier, though, we're not in a bear market. The S &P is up 12 % near today. Tech stocks are still up pretty handily.

45:48But we are going through a bit of a correction here as companies continue to come out during earnings and talk about spending more and more. It's impacting the bond markets. It's impacting yields. It's causing bottlenecks in terms of building data centers. And investors want to see what is the light at the end of the tunnel.

46:04Scott Wapner: I appreciate you joining us, Sarah. Thank you. That's Sarah Mallett. Good to see you. It's been a nasty day, as you know, all roads leading to that tech trade. semi's worst day again since the middle of june that's that's worst day since the beginning of june that looks like looks like it's gonna eke out a game though but again a very defensive possibility i'll see you tomorrow real talent is defined by what people can do not where they learn to do it so by stopping at the education section of a resume you might throw away the perfect hire skills first hiring helps you see talent others miss like more than 70 million stars skilled through alternative routes.

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