Closing Bell Overtime 10/19/26

0:00With the Discover Cashback Card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to Discover. Terms apply. See discover.com slash 5 for details. There are three kinds of investors that listen to this show. Those protecting what they've got, those looking for solid returns, and those swinging big. Most tools pick a lane. VectorVest doesn't. Every stock gets three scores.

0:39Value, safety, timing. You decide what matters most. Stop overthinking what to buy and sell. Go to VectorVest.com slash closing bell. Get 30 days for just 99 cents. VectorVest provides stock analysis tools, not personalized investment advice. Terms at VectorVest.com. The bells bring an end to the trading day at the N1C LXP Industrial. Ringing the bell, not the NASDAQ Obsidian Therapeutics doing the honors. Welcome to Closing Bell Overtime. We are live from Studio B at the NASDAQ Market Site. I'm Melissa Lee along with Mike Santoli. Stocks mostly higher today as markets reevaluate. Last week's tech sell-off, Dow slightly lower, S &P 500 higher, right around 7 ,700.

1:16NASDAQ Composite with the strongest rebound, although well off the highs of the session. For sure. The AI trade mostly bouncing back. SanDisk and Micron both were higher. SanDisk snapping a seven-session losing streak. Twilio rebounding after a 10 % loss on Friday. Still, CoreWeave, the stock at the center of last week's weakness, lower once again today. Much more on the software trade coming up. Bond yields, meanwhile, on the rise as the recent safety bid eases, somewhat adding a few basis points higher across the curve. Earnings season picking up tomorrow. MRO 3M and GM reporting in the morning.

1:50Netflix and SpaceX reporting in the afternoon. We'll get you set up for those reports. But first, the first take on the close. It was a very interesting session. There was an effort at the beginning of the day. But as you went into the close, you definitely saw a leg lower, especially across the board when it comes to the chip names, NASDAQ 100. Yes, I don't think there's really a lot of strong conviction behind a lot of these moves. I think as a positive, and there was a lot of talk over the weekend that we were gearing up for something uglier. It seemed like forced liquidation potentially last Thursday and Friday in some of the semis.

2:19So they got a little bit of relief. I think it makes some kind of sense. Credit spreads did not blow out again. But even under the surface, all you really show is the most oversold stuff in the market get a modest bounce. Banks were down 1 percent. Market breadth overall was negative. So I do still think we're kind of fighting this out. You have the fundamentalists out there saying earnings are going to bail us out. Everybody else saying, you know, financial conditions are tightening. credit conditions are different than they were just three months ago. Yeah, I think it's also interesting to see if you pull up all the activity on, for instance, a core weave, right?

2:50You had Goldman Sachs upgrade of core weave. You had almost every firm out on the street defending core weave today, and it still didn't do the trick. You had Intel upgraded by JP Morgan still closing at the lows of the session. They're just, it's falling on deaf ears at this point. It's sort of like we still don't know if the situation is resolved at all, if anything is different from last week. No, it's tough to know exactly what might change that equation. Obviously, we have a Fed meeting next week. I think that there's some hesitation in there in terms of whether, in fact, this is exactly what the Fed was trying to do, is essentially create a little bit more of a higher hurdle and tighter conditions in the market.

3:25So we'll have to see if anything kind of breaks the fever. It has been a rough go, as we've been talking about, for the tech trade. NASDAQ tumbling 4.5 % last week on concerns about AI debt and spending unnerving investors. CoreWeave became the poster trap for that sell-off, plummeting 25 percent last week. It was its biggest one-week drop in nearly a year. The company's credit default swaps reached distressed levels as well. And while the Nasdaq did post gains today, CoreWeave, as we said, unable to hold the gains. It was earlier up about 7 percent. So now, are concerns actually over? Are they easing?

3:58Joining us now is Tyler Radke. He is Citi's co-head of U.S. software research. Tyler, good to see you. Thanks for having me. Certainly will get you on the whole setup for software and IT spending trends and everything. But CoreWeave, I mean, you have the market questioning the capital structure, really the business model of the neoclouds. How do you assess it? Look, I think this is simply a financing issue, right? I mean, it's not helpful that the 10-year rates have gone up, you know, 30 percent off the lows in March, right? That has ripple effects to anything that's not investment grade. So I think the bond market is really in control of this narrative right now.

4:35It's very tough to fight that, especially ahead of a Fed meeting, ahead of some big midterm elections. I think if you look at everything from a demand perspective, demand could not be stronger. You look at the spot rate for H100s, these GPU rental prices, they're basically at record highs. The AI demand, you know, as we think about the labs out there that are talking about going public, is very, very robust, right? So these companies are locking in contracts at the highest prices they've seen. They're telling us that the margins are higher. Now, the cost of capital, that's super important. That is part of this model.

5:11But our view is if this is simply a financing issue, those higher financing costs will get built into those contracts when they go out and negotiate with customers. So we think this gets figured out. But again, in the very near term, as we have all this uncertainty on the financing market, I think that's why you're seeing a lot of the volatility today. We're getting a lot of news out of Nscale, which is also in the neocloud space. And there was a report from Bloomberg that Microsoft is walking away from a lease. And that may signal that perhaps hyperscalers are in the driver's seat when it comes to walking away because of bottlenecks.

5:46In this case, it was because the U.K. didn't have enough power. But certainly we face the same issue here in the United States. potentially with power grid bottlenecks, but also zoning bottlenecks, et cetera. Can you speak to how solid these contracts are and if they can, in fact, be canceled? Well, you have to deliver on a contract, right? That's kind of what it comes down to. We've seen, I think, Google walk away with the contract with Caruso, right? So we've seen this thing play out in the past. Interestingly, with these bottlenecks, whether it's power or regulatory that you talked about, This actually increases the scarcity value of the things that the neoclouds are selling, right?

6:24If it is harder to stand up capacity to build these sites, the supply that's out there today, and very limited supply, is only going to be worth more. But look, I think you've got to do the right things, right? You have to put these in the right places. You can't route things through residential areas and expect there to be no issues. You've got to go through the right permitting process. I think that will improve as we get past the midterms, especially it's very politically sensitive right now. But yeah, I think the hyperscalers, they need this capacity. They're willing to do it in-house. Microsoft builds a ton of their own data centers.

6:59And so I think that's a good sign that Microsoft has confidence in their own ability. I do think there's this ongoing debate about just once things are built out to a greater scale, where the profitability is going to settle at what layer of the whole food chain. And the market seems to be saying neoclouds are at the end of the line. Right. I mean, in other words, you have the ability of either these big companies to find other solutions beyond just paying up for these massive data centers. They're trying to do things more locally. And then you have the software layer where it's kind of implementing them on the enterprise software side.

7:36Yeah, absolutely. And look, most of my coverage is kind of more of these software companies, the Microsofts, the Palantir's. I mean, these are some of the best margin profiles on the planet, some of the highest, highest cash flow. So I really do think that's where the value is headed. And in particular, enterprises are kind of grappling with, do we use frontier models? Do we use open source models? Do we use small models, large models? But the software ecosystem is really what's kind of selling that vision to enterprises. You think about the things that Microsoft and Palantir and some of the others are doing.

8:10So ultimately, we think those are the best positions, especially Microsoft. They're not relying on the debt market. They're still free cash flow positive, yet they're spending tons of money on CapEx every year. So you really think the value is going to be accrued at the software level, not necessarily the neocloud? It sounds like there are a lot of questions about how much is going to be needed later on. And so, therefore, isn't it sort of a question mark as to whether or not you should be in the neocloud layer? Well, look, I mean, I don't think they're mutually exclusive, right? I think, you know, as we know about the tech chain, right, like the semiconductors and the hardware layers where we're seeing, you know, those stocks have massively outperformed software since the AI boom.

8:49Now you're starting to see some software stocks really, you know, respond favorably here. But, look, I think there's fewer question marks about Microsoft's long-term profitability, their long-term value. You don't have to make a call on GPU depreciation, financing, et cetera. So I think that's sort of where our highest conviction ideas are, kind of more of those pure software ideas. Tyler, good to see you. Thank you. Thank you. Well, Netflix is set to report earnings tomorrow after the bell. The stock has been under pressure so far this year, down more than 25 percent. The report comes during a time of change at the company.

9:23Today, it was reported that the head of its film unit is out after three years. Last week, the company's chief content officer was shown the door. And the company also cut 6 percent of its total jobs. Will tomorrow's results get the street back on the streamer's side? Joining us now is Needham senior internet and media analyst Laura Martin. Laura, great to have you with us. Nice to see you. It sounds like you think the stock's sell-off or, you know, the sagging nature of its stock is overdone at this point. You want to take a look at ads, which you're actually optimistic on? Yeah, they've said they're going to do$3 billion in ad revenue this year, which would be sort of a doubling from last year.

10:00And I'd say it's long overdue and about time. But that form of revenue has an 80 percent margin, which gives them upward pressure on their margin and free cash flow return on assets. So that's great. And, Laura, you would think that at a time like this, when everybody is obsessing over, you know, the A.I. trade and companies that have too much leverage and where is the next, you know, kind of earnings boost going to come from. Netflix might have defensive properties, you would think, as a business model and where the valuation is right now. It doesn't seem as if, though, the street is willing to kind of underwrite that that idea.

10:35I think that's fair. You know, for sure, leisure time and media feels defensive. However, their biggest competitor is YouTube. And YouTube aggregates 10 million creators. And the cost for those creators to make better content is falling because of generative AI. Like people can make users like around the world can make better videos cheaper by using generative AI. And that then competes in the short version, three minutes, five minutes, seven minutes with TV shows and films for time. So I think there's this competitive aspect of, you know, sort of user-generated content on TikTok and Reels and YouTube sort of eating into the market share of Netflix and Disney and Peace Guy.

11:23In terms of Netflix's strategy to combat that, Laura, we heard earlier this year that they are going to start these micro dramas, for instance, going more towards that YouTube-style short-form content. And I'm wondering, from an advertiser's perspective, do you get concerned that their ability to monetize the advertising is less if they offer similar sort of short, if they went the other way and did less of the sort of the big picture sort of films, et cetera, and more of the short content? Is that better or worse from an advertising profile perspective? Right. So much worse. But the key point is right now, Netflix is doing like 20 percent sellouts.

12:01So they have another like three or four years before they're totally sold out in long form, at which point then it matters that short form doesn't monetize as well. But they have been very slow at growing their ad revenue. I think this is our fourth or fifth year we're in advertising. And we thought they should be 10 billion after two years. And we're now like four or five years in and we're at 3 billion. So they just have a lot of unsold ad units in their long form stuff. And I think it's smart. Look, the job to be done here is to aggregate leisure time for consumers and monetize it. So you're right to ask, does short form video or vertical video monetize less?

12:42Yes, but they're not sold out on the other stuff. So eventually they'll sell out on that and then they have to worry about how to monetize short form video, which is problematic, but not in the next three years. What does aggregating leisure time look like in addition to what Netflix has already you've been doing with things like podcasts and the occasional live event? My opinion is they must be in more live. I think they've got to be in news. I think they've got to be in more sports. I think they've got to be in the film business, meaning more windows of monetization. Remember, Netflix started as pure play TV, which means you only monetize in one window.

13:18And that window, called television, is mature. So now they're growing engagement 2 percent. And everybody, on this call has probably already watched everything on Netflix. So now their growth is slowing. So they need to add more types of genres, more types of content, and they need to then figure out how to monetize those. So they compete with the Walt Disneys of the world. Or, you know, we have this new Skydance competitor, which is the combination of Warner and P. Sky Paramount. And I think that's really a material new competitor for them. So they need to sort of up their game, in my opinion.

13:55When you say news, Laura, what do you mean by news? Ask an anchor on a cable TV network. Like what you guys do. Like a CNBC. Yeah, they should buy you. No, I'm just kidding. But they need to do news. They need to have some kind of news, even if it's targeted at Gen Z. They must have all genres of content in order to amass the maximum number of audience. Yeah. I mean, who knows? Maybe that blurs with the podcast stuff they're doing. The theatrical window, Narnia, two months next year, IMAX. We'll see if this all morphs the business model along the way. Laura, good to talk to you. Thank you, Laura Martin.

14:29Thank you. Russian President Vladimir Putin reportedly wants a summit to negotiate an end to the Ukraine war, but doesn't want to include Ukraine's Vladimir Zelensky. Eamon Javers joining us now with more details. Eamon. Mike, that's right. President Trump responding this hour to that Wall Street Journal report that you mentioned today that said that Russian leader Vladimir Putin is pushing for that three-way summit between himself, Trump, and Chinese leader Xi Jinping to end the war in a deal that would not include input from Zelensky in Ukraine. The president said he would take that meeting.

15:03We would schedule a meeting based on the denuclearization, and that's a very positive thing for the world. So I would do it if they want to have a, I just heard about it, if they'd like to have it. I think it would be held in China. He just left here. If President Xi wants to have it, I'd have it. I'm sure we're talking about other things like trade, too. But yeah, I would do that. Meanwhile, Ukrainian President Vladimir Zelensky lamented the U.S. government's pivot towards supporting Russia over the weekend, calling the U.S. government's reversal unbelievable. And the Ukrainian government said that it hasn't been able to get a response from the Pentagon or from SpaceX about its questions regarding the throttling of the company's Starlink and Starshield services.

15:49Guys, back over to you. All right, Eamon, thank you. Eamon Javers in Washington. And take a look there. We want to show you Global X ringing the closing bell at SIBO in Chicago, ending the regular trading day for options there. Well, the regular session for options may have just ended, but today marks the beginning of extended trading, a first step on the path to 23.5 trading. We'll have much more on that next. And we will also discuss plans by Anthropic and Elon Musk to spread the wealth from AI. Will it sway public opinion? Closing Bell Overtime. Be right back.

16:22With the Discovered Cashback card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to discover. Terms apply. See discover.com slash five for details. There are three kinds of investors that listen to this show. Those protecting what they've got, those looking for solid returns, and those swinging big. Most tools pick a lane. VectorVest doesn't. Every stock gets three scores.

17:02Value, safety, timing. You decide what matters most. Stop overthinking what to buy and sell. Go to VectorVest.com slash closing bell. Get 30 days for just 99 cents. VectorVest provides stock analysis tools, not personalized investment advice. Terms at VectorVest.com. This holiday, all plans, even unlimited, are just$15 a month. A holiday deal this good obviously deserves an enormously expensive holiday song, like All I Want. Right. Okay, we can afford that. You know what? Forget the music budget. We're going to stick with whatever's in the public domain. Give it a try at MintMobile.com slash switch.

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17:51Today, the NYSE extending options trading on a handful of stocks and funds beyond the regular hours. But that's only the beginning as 23 hours a day, five days a week trading begins soon. Oliver Rennick joins us now with more. Oliver. Hey, Melissa, the world demands 24-7 trading, and today just concluded a big step in that direction for options. We just finished the aftermarket extended trading period for single stocks and ETFs from SIBO and NYSE. As you guys know, taking this closing bell at 4.15 every day, this has been going on for index options for years, but today was the first time for two dozen stocks and five ETFs.

18:28Looking at the tape over the last few minutes, there was some notable activity in SPY, QQQ, but keep in mind a lot of brokerages also offered aftermarket trading for the deepest and most liquid ETFs. This morning, Q's did the most volume with 7 ,000 options traded. This afternoon, there was some GLD trading going off as well. This morning, there was a lot of Tesla. My gut tells me the afternoon or curb session, as SIBO calls it, will be a little bit more familiar for traders given the brokers that have been doing this already and the fact that in the morning, it's just a little bit of a different demographic.

19:00You're going to be dealing with European and Asian traders who kind of pioneered this whole 24-7 trading to begin with in the crypto and perp world. So in the morning, might be a little different. In the afternoon, probably a bit more familiar. Yeah, Oliver, it's a good point about it. Being familiar in the afternoon, I've been trying to puzzle around, you know, let's say earning season, right? I mean, a lot of companies, either they do or they don't want people to be able to transact easily, you know, as they release that news. So I just wonder how that might get reflected in this extended session on these handful of names.

19:33A hundred percent, Mike. In fact, I think most of the feedback that I've gotten from individual traders or viewers has been about how this is going to affect their trading around earnings. No word yet. In fact, it seems like the message also is from brokers is that they didn't really communicate a lot with their clients about what this was going to be today in terms of this actually getting off the ground. What's going to be available? I expect more coming over the next couple weeks and months as we get going with this, that we're going to find out more about how companies respond to this as well.

20:01Because to your point, those kind of blackout, brownout periods, they might have to change and it might shift some of the timing for that. And certainly the way you want to trade, also the implied volatility, the way we talk about market maker moves, in theory, that could change as well. It's only been one day, Oliver, so far at CIVO at least. But what have the volumes been like? I would imagine they'd be pretty thin. very thin that's the big thing here i made the analogy earlier and not to hammer it home but i think it's the best one think about this as basically a poker room the guys who are waiting for a new table to open up they're usually the ones that either are looking for higher stakes to play because they've got bigger bucks or it's their preferred game so in the morning traders probably need to be very careful now it was this morning we saw people going out and buying like far out of the money 14 cent flyers on Tesla.

20:48The price of that type of option is not really going to change no matter when you trade it. But if you're used to trading more liquid, deep, SPX or S &P or individual stock options, you want to be careful about the bid-ask spreads you're getting. You want to be very attuned because when there's low liquidity and low volume like there was this morning, we're talking companies like NVIDIA, they did 150 contracts. I mean, this is like a fraction of a fraction of what they do throughout the day. So you definitely got to be on your toes in the early morning session. We'll see what the numbers come in for this afternoon.

21:19But as more people pour in, in theory, more liquidity, more hours for trading should bring price discovery over the long term. Yeah, that would be what history would suggest. Ultimately, Oliver, thanks so much. As Anthropic marches on toward an eventual IPO, the company says it will put 5 percent of the equity of the company in a public benefit fund, but not in a nonprofit charity. At an estimated$1.5 trillion market cap, that stake would be worth$75 billion. On X, Elon Musk saying Anthropics should give the shares to the public and says that that's what he'll do, pledging to give one share of SpaceX from his personal holdings to every kid in America.

21:58Anthropics still needs approval for its plan, and statements made on X are not legal and binding, so neither of these plans may ever come to fruition. and immediately everyone is sort of saying, well, maybe that sure makes sense. It's a little bit of a down payment on a societal insurance policy about AI. Or cynically, they want to become too big to fail in everybody's account and essentially become endorsed by the company, by the country. I mean, my first question was, first of all, what are the mechanics of this? How does this actually get done? But also, if you're putting 5 % of shares into some sort of public trust, who owns the voting rights to that?

22:35Right. So who will control that? That's that's also an interesting sort of, you know, thing to think. Is it founder shares? Right. Are they super votes? Is there a separate board for it or something like that? I mean, obviously, people do pledge these big chunks to foundations and you have their own their own board, no doubt. You know, and the Musk piece of it, I mean, from his personal holdings, it would be just a sliver of his ownership. Ten billion dollars in total. Yeah. Not bad, but I don't know if it's life changing. Mackenzie Bezos, by the way, has given away$26 billion. Actually giving it away.

23:06So, you know, it's doable in another way. If you believe the TAM is like all of the universe in outer space and beyond that, then maybe one share is... $150 a share goes to millions, yeah. Well, AI is drastically changing the way we work, but we've been through changes before. Up next, we'll take a look at women, how women in the workforce have adapted before and could again. And we're also watching a new theme emerging in AI, agent swarms. teams of AI agents that team up to complete your tasks. But will they do more harm than good? We'll ask Fox CEO Aaron Levy.

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25:19Every major technological revolution has reshaped. women's role in the workforce, from the washing machine to the typewriter to the PC. Today, AI may become the next great turning point. Steve Leisman's got the story. Before there was Siri or ChatGPT and Claude, there was... Go ahead, please. For much of the 20th century, connecting a phone call required a human being. And that human was almost always a woman. Telephone operation became the single largest occupation for white U.S.-born women under the age of 20. By the 1940s, nearly 95 percent of America's telephone operators were female. Today, the nation's far-flung telephone network has become the nerve system of this democracy.

26:03A decade later, automation caught up, allowing Americans to place long-distance calls themselves. The need for switchboard operators slowly disappeared. Research shows the women working the switchboards, they mostly dropped out of the workforce entirely or wound up in lower paying jobs. Most people are not changing careers very often. They make their career decisions early and they stick with those careers. If the value of that work, not just the specific job, but the type of work they do suddenly goes out of fashion, becomes technologically obsolete, they're going to, in general, do something not as good.

26:39Just as switchboard jobs faded, millions of office and clerical jobs emerged. And it was just in time. Not for the switchboard operators, but for the next generation of women and those who could now enter the workforce because of another technological development, the washing machine. This piece is part of a CNBC series, The AI Economy. You can read about it and watch the documentary on CNBC.com. And there you'll learn how the washing machine and the PC had profound effects on women in the workforce. My personal takeaway from the research, there's no perfect historical analog for AI, but history shows there will likely be job losses on the one hand and new opportunities on the other.

27:21What's different this time, Melissa, more women are more highly educated. They hold more professional and managerial jobs. That offers some protection compared to past innovations. But then again, the whole point and the whole promise and threat from AI is that it moves up the human value chain. Sure. And Steve, I'm just wondering, because the flip side to it are jobs that are seen as AI proof. Are women represented well in those professions compared to others? Better than they were, but not as much as you would think. There has been gains for women in executive roles and gains in managerial and professional, but still a lot of these jobs.

27:58The latest study that we've seen shows women are perhaps three times more likely to be vulnerable to AI developments than men. Yeah, and I guess you have to make some call on exactly how quickly this change is going to happen, too, to know how potentially disruptive it might be to a bunch of folks. Steve, thank you very much. Steve Leisman. Pleasure. Time for CBC News Update with Julia Borst. Julia. Hey, Mike. A federal judge ordered the Saudi national accused of bugging an open AI conference room to be detained without bond. A court filing says he planted a recording device at the company's headquarters.

28:31It also claims he was in frequent communications via WhatsApp with a member of the Saudi royal family who tried to recruit him for a kingdom-backed AI project. Attorneys for the BBC subpoenaed former special counsel Jack Smith to testify in President Trump's$10 billion suit against the news organization. The president is accusing the British network of defamation over claims, a BBC documentary about January 6th, falsely implied he incited violence. Smith, who led a now-drop probe into the president's alleged attempts to overturn the 2020 election, will be asked about Trump's state of mind on January 6, 2021.

29:08And Jon Stewart will continue to host The Daily Show one day a week until the 2028 election. Comedy Central announced today he signed a new deal extending his contract for another two years. It was set to expire at the end of this year. Back over to you. Julia, thank you. Coming up, much more on today's market rebound. The Nasdaq up more than 1 % today, but that means it's not gone anywhere in the last month. So which is more likely to come next, a breakout or a breakdown? Stay with us.

29:41Welcome back to Closing Bell Overtime, live from the Nasdaq market site. Tech stocks bouncing back from last week's sell-off. Both the Nasdaq Composite and the Nasdaq 100 gaining 1%. Rebounds spread throughout the AI trade, memory and software as well. But Corweave, which has been at the center of the latest concerns, closed lower once again. Well, last week's news revealed how exposed the market still is to the AI trade. Excuse me. But we did see a market rotation into so-called safety sectors. Is that a sign the markets can hang in even if AI concerns linger? Joining us now is Adam Forster. He is Schroeder's head of Multi-Asset Americas.

30:14Adam, great to have you with us. Great to be here. What do you make of the sell-off last week? And it sounds like you think that yields have this pull higher just because of what's going on around the world. So what are the ripple effects of that then? You know, I think we're seeing this competition for capital in the fixed income markets now. So it's not just concern about inflation, although I think if we look at the inflation prints, you see there's a lot more pressure than people were acknowledging just a month ago in the inflation prints. On the technology side, you're getting to the show me state, which is, are you going to actually deliver the earnings?

30:49We're hearing all of the talk about how much you actually need to return to justify this capital investment. So people are getting to that point where they're starting to think about how do I sort out the winners from the losers? What's off balance sheet? What do I need to worry about? So as the questioning process goes on, we have still a, you know, S &P 500. That's like 40 percent the AI trade. And, you know, these ripples in the credit markets, things that are at least suggesting that some of these late cycle disturbances are kicking up. Is that something to be concerned about or is it just another gut check for the bull market?

31:24I think you're looking at a mid cycle correction. I mean, famous last words. But we think there's still a lot of earnings power within technology and the broader market. It is interesting outside the MAG-7, you're seeing the earnings really coming through. We're going to all be very attuned to what happens in this earning season. We want to stay long equity markets in our portfolios. However, you have to watch for these signs of deterioration. You could think it's like 2006. You know, it's the early warning shots that could go on for a very long time. But how do you put resilience into your portfolio when you have such a concentrated market is the question.

32:02What are those signs of deterioration that you're looking for? Have we checked the box for some of them already? What we're looking for is, do you see a slowdown in any of the capital expenditures? I mean, I think that's the obvious point. When you look beyond that, though, is what do companies actually do with their spend? And I don't mean the hyperscalers. I mean companies like Schroeder's. We are spending a lot of money to put these AI tools into place. We see a lot of benefits from them. But will we actually get the returns before you actually get the compression on the inflation side of the future?

32:38So what are the ways that you would suggest adding resilience to a portfolio if that's what needs to be done? OK. So the first thing is we're seeing that barbell outside of the U.S. in global portfolios. You look at the performance of value stocks outside the U.S., it's been strong. Now, you have to be careful because the semiconductors appear in those value indexes. So you have some pretty concentrated returns in Korea and in Taiwan. But we look at the cyclical exposures in Europe where the manufacturing sector continues to be strong. We see some concerning signs about maybe a slowdown, but I think that's a mid-cycle slowdown in Europe.

33:17And then we look at the opportunities and like financials in Europe. That also looks very strong. You're getting to a point where yields are compensating you in portfolios. We're staying away from credit, but you don't need to be short the government bond market. And then you think about diversification from the dollar. So things like gold that can give resilience into the portfolio. In Europe, are you concerned at all about what's going on in France and the ripple effects that will happen to you? Yeah. Right now, we haven't seen the ECB say they want to step in to support what's happening in France.

33:49We think ultimately that will happen. They're not going to let France completely fall off the side of the cliff. But France has got to sort out their own fiscal house. And if you look at what's happened over the weekend, that makes the picture much harder for the politicians to sort out. And, of course, we have the elections coming up and people are concerned about what does a Le Pen presidency in France potentially mean. So if the ECB is waiting out there maybe to be some kind of a backstop, I mean, what does it mean in terms of actual monetary policy, Europe versus the U.S., which is looking to tighten a little more?

34:20Yeah. So we think the U.S. is going to continue to tighten. And in Europe, we think that you're very nearly at the end of that tightening cycle. You don't see the domestically driven kind of inflation that we've seen in the U.S. So if you look at the U.S. inflation print, it's coming from services. That's very domestic. It's not just the energy side of the equation. Whereas in Europe, if you get a pullback in energy prices, it looks like they are in a much more balanced state and the ECB doesn't need to hike as aggressively. Adam, we're going to leave it there. Good to see you. Thank you. Thank you.

34:51Ahead is a group of AI agents working together. Are positive for getting work done or could it pose a real threat to safety? We'll take a look at the next evolution in AI. Agent swarms next with Foxeo Aaron Levy. And Amazon won one of the bigger, one of the big winners in the S &P 500 today. Morgan Stanley naming it a top pick, raising its price target to$350 from$335, implying upside of roughly 40%. The analyst there believes Amazon Web Services growth and profit runway is underappreciated. Close the bill over time. Be right back.

35:24First, it was a chat bot to talk to. Then it was an agent to help you. Now, it's agent swarms, groups of agents working together on large tasks. In a long post on X last night, Box CEO said in part that agent swarms are going to be a very big deal because they are not limited by some of the constraints we face now. He concluded by saying this changes a lot of fields, as well as even the competitive dynamics in these fields. He's joining us now exclusively to explain his optimism about agent swarms, Fox CEO Aaron Levy. Aaron, great to have you with us. Hey, thanks for having me on. Appreciate it.

35:58Agent swarms at the surface sound terrifying to me, but explain how they can be deployed and what sorts of problems you're thinking about. Yeah. So first of all, obviously, the industry needed to come up with a different name. So, you know, that's our bad. We're going to work on that one. But the best way to think about agent swarms is if you just think about some group of agents, it could be 5, 10, 50, 100. There's some examples of OpenAI using 10 ,000 agents to work on some collective task where the agents are actually able to collaborate together just as people would on whatever task they're trying to pursue or goal they're trying to pursue.

36:36So the recent examples have been some of these great math breakthroughs where you have lots of agents running around looking at research, pushing the limits of what's possible based on their level of intelligence and then coordinating in some central system where they can leave messages and coordinate together. Now, we're obviously seeing some of the risks of these agent swarms, so this will be one of the ways where we see maybe cyber attacks begin to happen. But on the very positive side, imagine any kind of problem that is constrained by our collective ability to go attack a set of information or be able to build tools or automate software to be able to make any kind of discovery or push some workflow forward.

37:19So this could be life sciences breakthroughs. This could be continuing to automate the software development lifecycle. This will obviously show up in areas like financial trading. So it's going to be a very big deal in the productive use of AI, both in the medium and long run. So, Aaron, what has to happen for the infrastructure to get to a place where you could have just this background hum of all of these agents constantly working? I mean, at what cost, I guess, is some of the questions, because even with things like Muse, the question is, what is the cost meta to deliver on some of these relatively simple consumer applications?

37:56Yeah, so I think you're going to see the market obviously split in two ways. So on the consumer side, the subsidization will likely come from the actual agent vendor themselves. And they're able to subsidize this due to either advertising or transactions happening through their platform and commerce to some degree. So I think the consumer side will be kind of a very simple equation about can you flow commercial activity through your platform. On the enterprise side, it will eventually converge with the ultimate value that enterprises are getting from these agents. And that will be whether life sciences companies can accelerate drug discovery.

38:32It will be whether financial services firms or trading firms are able to create better alpha in the market. It'll be, can cyber firms or companies that need to protect themselves from cyber attacks, can they use agents to better protect their organizations? And so that's ultimately where the ROI will manifest. And to your point about infrastructure, you do need a lot of build-out of infrastructure to make this all possible. Some of that comes down to the raw materials like the GPUs and the CPUs that agents need to power their tokens and the sandboxes they operate in. But there's a lot of software infrastructure that you will also need.

39:07So the ability to protect data that these agents are working with. That's obviously the role that Box plays in this ecosystem. So how do you make sure agents can access and work with unstructured data in a secure and well-governed way? This is going to mean that the systems of record that agents have access to will grow in importance because you will want to make sure that those systems are governing, effectively creating the rules of the road for these agent swarms to operate in. So we think there's going to be a modernization of infrastructure that enterprises will need to be able to run these agent swarms.

39:39And then obviously you're going to need the raw compute as well, all of which will continue to grow in the future. Embedded in this idea, Aaron, of the agent swarm, do these agents have a level of judgment? Because if they're collaborating, they're deciding effectively what to do next. Is that judgment of some sort? Well, you know, all of this, it's, first of all, a great question, and it's going to follow the general capability or intelligence curve of these models. So the reason why you're hearing this now be discussed, and this wasn't really practical to talk about six or 12 months ago, is the models themselves were just not smart enough or capable enough to let you have long-running agents that were coordinating with each other with a set of tools and in a shared space.

40:25That just was not something that the models were capable of doing. So as the capability level of AI continues to improve, as the coordination ability of AI improves, and to your point of the judgment or intelligence or intuition or alignment to our values or our safety improves, then you can basically let the agents work for longer and longer periods of time or on wider and wider scoped projects. Now, humans will have to stay in the loop throughout the entire workflow that is being run. And so that might be regular check-ins. That might be looking at the final output of what was produced. That's obviously the work of validating what the agents are actually working on or setting up the prompts and the goals properly.

41:09So this does not mean that all of a sudden all of our systems become autonomous. This is just the ability to now throw more compute at discrete problems inside of an organization where we did not have that as a variable before in the economy. Three years ago, there were very few areas in a company where you could say, I will put compute in and get productivity out. That was a very sort of finite part of the economy where you do that, maybe in trading, maybe in media, a few other places. But now, for the first time ever, you can say, we're going to put compute in to a drug discovery process. We're going to put compute into a manufacturing automation process, and we were going to get business value out.

41:47Again, with humans in the loop the entire time. That has not changed from any of this. This is just our ability to now have the agents be able to do more work inside of their tasks. It's reassuring that they'll try to keep us in the loop. I appreciate that, Aaron. Well, that part's up to us to some extent, but that's the goal. Let's try to make sure. Aaron Levy, thanks so much. Appreciate your time today. Well, industrials have been significantly underperforming the broader market over the last three months. Up next, we'll discuss whether earnings season could turn things around with 3M set to report before the bell tomorrow.

42:20Closing bell overtime live from the Nasdaq MarketSite. We'll be right back.

42:26Industrials have lost some steam into earnings. The XLI Industrials ETF down nearly 7 percent over the past three months. With GE Aerospace, 3M and RTX all reporting tomorrow, can earnings restart the industrial trade? With us now to discuss is Stephen Tusa, Wells Fargo Managing Director and Senior Analyst covering the electrical equipment and multi-industry sector. And Stephen, it's great to have you on. You say that essentially, you know, AI CapEx is kind of the only horse driving things in terms of the overall industrial story and the growth. Where does that leave you in terms of figuring out potential winners and losers into earnings season?

43:03Yeah, thanks for having me on, first of all, and it's great to be here at Wells. I think you talked about it going out of going out of the break there that the setup for this earnings season has changed dramatically since I had my break about five months ago. Performance has been pretty bad. There's now a lot more risk priced into these stocks. But there's a lot of trepidation around the concentration of growth, which no doubt is all about this data center CapEx. And that's why in the last couple of weeks, the risk reward into the quarter has changed with this data center related sell off on a couple of those data points that came out last week.

43:40I think the setup is pretty good. And you can definitely start to pick away at some of these things that have pulled back. Stocks like Vertiv and Johnson Controls, a couple of our picks on the upside, look a lot better today than they looked a couple of weeks ago. So Goop is still relatively expensive, so the earnings are going to have to come through. But I think, by and large, they will. And I like the fact that people are much more negative now than they were three months ago. At the same time, Stephen, I mean, when you talk about a name like Avertiv, we also show G. Vernova on that screen, too.

44:13I mean, these names are closely tied to this data center trade. So do we need that overall trade to pick up? So if we're looking at, for instance, concerns continuing to linger over the trade, over CoreWeave, over all of that. Should we expect this particular subsector of your coverage to remain beleaguered? Yeah, look, I'm not a tech analyst. I think there are people that are better positioned to call the trading nuances day to day on certain data points. I kind of look at the fundamentals on supply demand. Demand is very strong and we are in very short supply. And so ultimately, the question is, you know, when is peak?

44:52We are mid cycle, but when is peak? And I think right now the market is debating whether 27 is peak. And if you look at AI data center related CapEx out there from the hyperscalers, you actually see a pretty slow rate of growth for 28, which is what people are debating. I think that number is ultimately going to be a lot higher. And I don't think the market is going to discount, you know, a peak three years ahead of time. And so we're very comfortable buying this weakness, you know, despite what may happen, you know, day to day. So that's kind of the core of the call. And if CapEx continues to, you know, outperform to the upside, then the revenues for these companies are going to blow away numbers.

45:32And ultimately, that matters because, frankly, I mean, Vertiv, 340 to 200. Our downside case is now 175. Our upside case is north of 300. That's a very different risk reward than when the stock is at 250. So we've chopped a lot of wood on this trade in the last couple of weeks, which makes it set up a lot more attractive. And we think 28 is definitely going to come in much better than probably the street thinks right now on CapEx. We did mention we are going to be waiting for 3M numbers. This is not a company particularly geared to the the A.I. CapEx. So how does that set up into the results? Yeah, so 3M is one of the lower growth companies.

46:13Management has done a phenomenal job of taking out cost and being more productive. Margins are up very nicely. The debate right now is around growth. And, you know, literally something close to four on organic will be viewed positively and something below three and a half will be viewed negatively. They've got to show some acceleration exiting this year. And with their end markets like automotive, consumer electronics, a little bit of housing here and there, a lot of consumer exposure, I really struggle to see an upside case on that organic. So we're a little more cautious on that front. And we'd rather buy beaten up stuff with a lot of growth than than, you know, trying to play that trade.

46:54All right. Fair enough. Yeah. A lot of those connected industrials down 25, 30 percent. We'll see how how that leaves them as we get this quarter underway. Steve, thanks very much. Appreciate it again. Good to have you from your new home. Great beer. Thanks. Thanks for having me. All right. So we were saying, you know, to start things pretty tentative recovery, only in the most hard hit parts of the market as we get into a little bit of a heavier earnings flow tomorrow. Definitely do it for overtime today. Fast when he starts right after this.

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