AI debt Fears Fuel Tech Volatility: The Investment Committee's Strategy 10/16/26

0:00I'm Mike McNerney, Equity Investment Strategist. Markets move fast. My mission is to provide market insights to our clients that help turn uncertainty into opportunity. Janice Henderson, investing in a brighter future, together. Some of the most important design choices are the ones that go unnoticed. The details that together make an experience feel intuitive, comfortable, and above all, exhilarating. At Acura, that means looking closely at how every detail can make your experience behind the wheel more rewarding. Every lesson learned and every idea refined becomes part of what comes next, and it lives inside every MDX, ADX, and Integra.

0:36That's precision-crafted performance. That's Acura. I'm Scott Wapner, and you're listening to CNBC's Halftime Report, the podcast, the most profitable hour of the trading day. We record this live weekdays at 12 Eastern. Listen in. Welcome to the Halftime Report, everybody. I'm Leslie Picker in for Scott Wapner today, front and center this hour. Big spend, bigger questions as we close out a tough week for the tech. For tech, with AI funding costs coming under more scrutiny, we'll discuss and debate with the Investment Committee. With me for the hour, Kevin Simpson, Jason Snipe, Rob Seachin, and Malcolm Etheridge.

1:12Good crew today. Let's check on the markets. Near session lows, you can see the Dow approaching the flatline right now. The S &P down 0.6 percent. The Nasdaq, The key laggard with tech under pressure today down 1.4 percent. The 10-year pretty stable today at 5.098 percent at this time. So it has been a week. I was just kind of reflecting back. We had the AI rethink. We had anthropic numbers that people perceived to be weaker than expected. We had bank earnings that came in and really underwhelmed the street as well. How are you thinking about just the overall setup, given everything that has changed?

1:53Oh, and by the way, CPI, PPI coming in hotter than expected, too, on the macro front. Was this kind of an inflection point of a week on the multitude of factors that have really been driving the markets? I think, Leslie, it was a multitude of factors, but we still have to focus almost squarely on the AI trade, because I think that what we saw this week was a reality check. You look at CoreWeave, the NeoClouds, even some of the semis. They got hit very, very badly this week. And I think it makes sense that the investors are wondering, you know, what is going to happen with this super spend? Can we just continue to perpetuity to spend hundreds and hundreds of billions of dollars without some type of return on that capex?

2:34And I think what we're looking at now is something that's kind of healthy, which is, you know, show me a little bit of a return. And from that standpoint, you know, we'll be sitting here in five, ten years from now, and there'll be haves, there'll be have-nots, there'll be some of these companies that survive. But I think it's really impressive that we're starting to identify at least some sanity in this trade. Who's going to be the profit centers and maybe the have-nots will be suffering. So I think it was an important week, but really a week about AI. As we think about, though, the haves and have-nots, how much does cost of capital now play into that?

3:07Because for so long, as we were talking about higher interest rates, as bonds were selling off, AI was kind of seen and held up as this, you know, special place that wouldn't be affected by higher interest rates. And this week really felt like that conversation changed. Credit is now a key pressure point, as made evident by Corweave, in the AI trade. Is that what we should be looking at? Those who have too much debt, higher interest costs, higher cost of capital if they need to go out and do some more financing? and those who are in a much better place on their balance sheet? No, I think that's absolutely a story.

3:42I mean, obviously, yields on the move. Oil, obviously, has been a structural issue throughout the balance of this year. And I totally believe that yields have not peaked as of yet. I think they could potentially go higher. So there's no doubt about it. Anyone who has leverage on the balance sheet and the cost of capital continue to increase is disproportionately affected by what's happening. Clearly, the story with the neoclouds this week hasn't been great. I mean, the semis are down 10%. They've been in a protracted drawdown. You know, and obviously, to your point, Leslie, the financials have been somewhat of a mixed bag this week.

4:20I think the Wall Street-oriented names like Goldman Sachs was a clean beat, but others, maybe the money center is not as great. So it's been an interesting start. You see Staples and the international and health care obviously performing this week. So it's kind of the market has taken somewhat of a defensive tone. But I think you'll see some chop. And I think part of that is healthy for the market as you see the RRSP and the broader story starting to work a little bit better than the S &P. Yeah, it's definitely been kind of violent under the surface. How much higher, though, do you think yields could go?

4:50If we haven't seen the peak, where do you see the ceiling? I could see another 30 basis points potentially. From here or from peak levels? From here. From here, for sure. So we'll see. There's a multitude of kind of various factors that could potentially push us. But I definitely don't think that peaked as of yet. And Rob, tech is on pace for its worst week since June. It's the worst sector of the week. It is down again today, one of the few laggards today. Do you see that as a blip or the beginning of more of a market trend? Well, I don't think it can be more of a market trend until these financing issues actually manifest themselves writ large.

5:32I think you heard it from David Solomon not too long ago where he said the companies that need financing are going to get financing. We'll figure out a way to get that done. At a price. At a price. Always. Well, it's always at a price, and it's always at a relative price to what else you could get in the risk-free rate. But nonetheless, they'll get financing, and I think the growth rates on some of these businesses are so high that they can handle that. There is a drag-up effect to other parts of the fixed-income market, though, in businesses that can't quite handle higher rates. So I don't believe that the spreading out, the broadening out trade is going to continue to work.

6:12Honestly, I think interest rates staying persistently elevated but probably reaching an interim peak. I think, you know, you certainly can buy fixed income here, there's no doubt. But tech right now trades at a 9 % premium to the market. OK, that's one of the lowest we've seen in a long time. Back in the dot com, it was 100 % premium to the market. In addition, the market has paid attention to these possible issues, has paid attention to the possible rotational slowdown, just the delta, the change in the rate of change of the way they're growing. and it's paid attention in the form of multiple re-rating.

6:53And now what you can do is you can buy a lot of these companies at 20-ish times earnings that are the healthiest, highest quality companies in the world. And I still think you want to gravitate towards those in a high rate environment. I think we can guess intermittently as to when the trade's going to end and everybody's going to try to time the semis on when to get out a year in advance. Good luck with that. I'll start to go when we see the fundamentals really starting to deteriorate. And the financing, tough. The fundamentals, still very strong. And so the pillar that we rest on, I think, is pretty solid.

7:30If I had to place my bets anywhere, it would be fixed income as a shock absorber, quality fixed income, treasuries, munis, those type of things. And then still maintaining your exposure to this theme, which I think is the theme of a generation. Malcolm, do you feel like valuations have compressed to the point where you would be buying some of the places that have been overstretched? Or are you still kind of nervous about the headlines that we see with regard to regulation, data center, moratoriums across the country? I mean, there's, you know, pick it any day. There are concerns about safety and overbuild and debt levels.

8:10I mean, there's just no shortage of headlines to kind of scare you out despite the valuation. Yeah, Les, I think what you're essentially getting at is that there is a sentiment problem that is building right now with the AI trade, even if, to Rob's point, the fundamentals are still there. I completely agree that the fundamentals look good. I think the sentiment shift is really going to be hinged on what the earnings look like over the next few weeks from the big tech companies that are doing the spending here, especially the guidance part of those earnings calls. If the companies are still talking about increasing their spend to build out the data centers you asked about as an example, I don't know that the market is going to be willing to reward them the way that it has been over the last two or three years.

8:57now that we're really focusing on the fact that the debt pile is going to have to grow in order for that spending to happen. So Kevin used the word sanity, which I think is the perfect word to use. Maybe we're seeing investors get a little bit more sanity to their approach to the markets right now, where before we were willing to suspend our collective disbelief and buy into this idea that we could just continue to grow and grow and grow into perpetuity. And somehow it was going to all work itself out, that magical thinking aspect of it. But I think now we're starting to get indications, maybe from like an Anthropic, for example, which its IPO is going to have a tremendous impact on this market and where we go.

9:35We're starting to get indications that maybe these things that we've been ignoring all this time should be mattering, should have mattered all along, but they definitely should matter now. And so I think to answer your point a little bit more succinctly, it's probably a wait and see moment until we get to the earnings period rather than trying to jump in and buy some of these beaten down tech names now. That's interesting because Scott was, of course, out in San Francisco with Altimeter's Brad Gerstner. And I think we have Assad available of kind of what he said about the potential to kind of pick up places that have sold off quite a bit.

10:14I have to acknowledge that there's going to be chop along the way. So it doesn't surprise me at all that we've had some of that chop, some of that consolidation. Why am I getting more positive? Why am I leaning in and maybe start buying over the course of the next couple of weeks? Because I'm seeing prices come in and start to get enticing again. Anyone else in the Gerstner camp here? Well, I understand his argument, but I also want to recognize that just because the stock is down off of its highs doesn't mean that it's cheap just yet. Now, I'm saying that from the perspective of owning six semiconductor names across our two portfolios.

10:48So I'm not bearish on these names by any means, but I'm not sure I'm as enthusiastic to rush into it just yet. I think they may get a little bit cheaper. What do you guys think? Robbins? You know, my stance on it is the broadening out trade helps us rotate out of some of the stocks that have underperformed. We've done it on the show perhaps a little early already where we are upping the quality of the portfolio. And I think the quality of earnings is highest in those names. And oh, by the way, they have re-rated to a point where they're cheap relative to history and cheap relative to the market.

11:21Right. So that is an important re-rating. Now, I'm not overly enthusiastic about anything is evidenced by the fact that we are building fixed income exposure. But the reality of it is I think you need to be incredibly surgical. You need to pay attention to credit and financing issues. You're seeing some of those manifest themselves in the triple C. Just as Malcolm said, you just saw Anthropic possibly reprice their IPO target. I read it on the way in to probably a trillion and a half relative to where they were thinking about. It's all those things have an impact. And I think the healthy thing that's happening is investors are paying attention now to this.

12:03And usually when there's an issue, it's not something that's so obvious like this. it's a derivative consequence to what's happening in the markets. It could be a rate move. I think it would have to come from earnings, honestly, because that's been the central tenant that underpins this. And if you see a wobble in earnings, that's when I think the market gets nervous. I don't suspect we're going to see that yet, given what we're seeing in some of the spend. I think it really depends on whether you're in some of these names or not. Right. And, you know, to Kev's point, I mean, a lot of them have run a lot.

12:41You know, the AI infrastructure names, neoclouds, you know, the nebbias of the world have really moved. So as prices have come in some and even to Malcolm's point earlier, you know, respecting 30 percent earnings growth this quarter. Right. So we want to see what these reports say over the next couple of weeks, what the guidance is going forward. and, you know, you could potentially start to inch in as we've seen some of the pullback over the last couple of weeks. I think that could be an opportunity if you're not there. Malcolm? Yeah, I think the chips conversation that you guys are having is the perfect place to be talking about this.

13:18It's indicative of basically everything that's happening with the second order and third order effects in the market. I don't feel like as an investor you need to be out of this market. We've all seen the studies about how you end up getting yourself into trouble trying to get out of the market in time. When to get in, you miss the 10 best days of the year. You miss the whole year, basically. But I do think this is a moment where you need to be looking at whether you really need to own the third, fourth or fifth best name in that particular sector or the fourth, fifth best name to play that trend.

13:50Right. So you can be in the chips. But NVIDIA is a great chip name to own. AMD is a great chip name to own. Do I really need to go all the way down to the more speculative names right now as we're having these questions about the market? Do I really need to own seven or eight or nine or 10? I can own ASML and be part of the value chain. I can own Taiwan Semi and be part of the value chain. I can own AMD, as I mentioned, and NVIDIA. And that is a very safe way to play the chip space where all of the real traffic is going to flow through all those names I just mentioned. The others are just sort of the other way to try and game the system, if you will, to squeeze out a little bit more juice above the biggies.

14:30And I think that might be where you stand to get into some trouble in this particular market where things are looking a little more cheap. How do you define best, though? Is it best performance? Is it best margins? Is it market share? I mean, how should investors be assessing what number one, two, and three are based on a variety of metrics? That's a fair question. Really, what I'm saying is the majority of the market share, the majority of the capital is going to flow through certain names. So ASML, they basically build the machines that all of the chips that get delivered flow through. So they're in a very important part of the stack.

15:06Taiwan Semi basically produces every single chip that happens outside of North Korea for all the American chip designers. So it's got to flow through Taiwan Semi. They have the lion's share of the business. NVIDIA, we all know it's the biggest company in the world for a reason. So outside of that, everything becomes a little bit more speculative. So really, I'm just talking about where the capital flows the most and where the purchase orders are likely to stick, even if some of these companies get into trouble and say, maybe those commitments that we made a year ago, two years ago that the market got so excited about, maybe we've got to walk them back.

15:43Where's the last place that people are likely to cancel those orders? That's what I'm looking for. Yeah, and Malcolm makes a great point. It's the core plays versus the derivative plays. And those four companies you mentioned do touch every part of the production ecosystem, right? And at the periphery, there's some companies that are higher beta ways to get that exposure. I would say this, though. You don't need to think about selling because one of the great things, and I know Kevin does a lot of this, is in the options market where you're getting a lot of money for writing calls. And you can do a put spread caller on the downside to manage your risk.

16:22And I'm telling you, as cheap as I've ever seen it because volatility is not that high, it's come in a little bit this – I mean, it's moved up a little bit this week. And so it's a little more expensive. But sometimes when we're worried about a period of time, a digestion period, we'll put on these hedges, portfolio hedges, using the S &P or the Qs as a proxy hedge. And ultimately, that allows clients that if markets re-rate, those positions increase in size and they can effectively buy the market down. It's a great way to manage risk. And I think it's something a lot more people should be thinking about versus selling.

17:00You can't do that in an IRA account. This is more for your traditional high net worth investor. Yeah, more tax efficient, too, presumably. 100%. In the IRA, you can sell a covered call. Right. So there's always a way to hedge. And I think Rob makes a great point. Now, it's interesting because just in kind of reading the notes this morning, Barclays says the best of the AI trade may be over and investors should be more selective, which kind of speaks to what you were talking about. The best may be over, but that doesn't mean it's over. It doesn't mean it's over. But in terms of more dispersion, more stock picking, more selection, and being more choiceful with regard to your portfolio outside of semis, does that still hold up, do you think?

17:45Or is that, you know, basically a semi play and then everything else will kind of follow along? Jason, I'm looking at you. Yeah, I think it's a few things. as we kind of look at the macro effects and, you know, what the cost of capital, like we were talking about earlier, you want to be in companies that can absorb and grow through that is not nearly as leverage to the capital stack, right? And what that potentially could mean to their bottom line. And I do think it's important to kind of be selective going forward. I mean, as you know, we look at the hyperscalers, whether it's NVIDIA or an Apple, and Apple obviously has had a great year, which has taken a very defensive tone.

18:27It's pricey. But those are the types of names that I think that are CapEx light, right? You're talking about buybacks, very strong balance sheets. In a cycle that we're in, I think those are the names that have better return upside in the short run, right? As we kind of start to see some more stabilization of what's going on, you know, across capital markets. So I think those are the names I'd be more attracted to here in the tech sector. Is Apple, you all own Apple. Is Apple in this environment a hedge to some of the volatility in the tech trade? You can make the argument that it's a little bit safer because they don't have the CapEx play.

19:07They sat that out. So one of the neat charts to look at is looking at CapEx from the hyperscalers versus the decline in CapEx for Apple. So they're not going to capital markets to raise money. When interest rates are higher, it's more problematic. I don't know. Well, it's kind of at what price, right? So Apple is probably one of the more expensive, if not the most expensive right now of all the Mag 7. We own it. We own it as a neutral. You know, it's tough to be underweight, Apple. That has proven to be one of the most dangerous trades in finance. And they make up such a large constituent part of the indices that it's tough to be underweight.

19:45And as you saw at the beginning of the year, if you came into the beginning of the year underway to Apple, you would have been licking some wounds. So most we go is kind of neutral there. Plus, we've owned it for a very long time. But I think when I think of long term, just like when we were thinking about the cellular theme, the benefit doesn't accrue to the foundation. It accrues to the application layer above it. And the application layer gets most of their benefit from those that own the customer. If you think about who owns more customers than anybody, Apple, Meta, those type of firms are going to do it.

20:19Now, Meta happens to be much cheaper. That's why we're way overweight. But these are the types of things that I think you need to think about for Chapter 2 of this beyond the foundational layer. And Meta, of course, reporting earnings next week. So we should get an updated snapshot on what they're up to and what they're doing. And speaking of earnings, it was a pretty rough week for financials this week, namely banks, which are getting a decent bounce today, despite some of the sell-off going into earnings, sell-off on some of the names after earnings. What do you see as the biggest pain point of the week, Malcolm?

20:59Yeah, I think that the whole conversation around net interest margin with yields being what they are has been a tremendous challenge for all financials, right? It makes perfect sense. It's perfectly logical. But I also think that focusing on net interest margin for the big six and even more specifically the big three, Goldman, Morgan Stanley and JP Morgan, which have such diversified mixes of what they do to generate revenue, is a missed opportunity. So I actually have been adding to these names. I added to all three that I just mentioned as recently as last week. Once we got to a place where they were 10 percent sold down or more, because I think that what we're missing, Brian Moynihan made some remarks earlier this week where he pointed out the fact that the company has like 130 open activities right now as it relates to AI and deploying AI projects throughout the company.

21:49one company with 130 projects, and they're expecting it to yield starting next year about $700 million in savings, which probably doesn't sound like a lot for a company that did way more than$100 billion in annual revenue. But when you just think about that across the entire financial sector, all of the banks, the big six banks that have the resources to be able to spend that way to find these little inefficiencies that they can solve using AI, on a long-term basis, I'm talking five years, roughly. Imagine what an uptake that looks like for these companies, regardless of what interest rates happen to be going forward.

22:25I think that's where investors are getting hung up, that they might be missing the opportunity that's unfolding. Do you think, though, that the expenses are also rising alongside those potential use cases, given that these are institutions, they're heavily regulated, the cyber risks are bigger in the banking system, potentially, than maybe anywhere else, just given how important it is to the sanctity of the economy, they have to spend to keep up with all of these model developments and make sure that there's no bad actor that infiltrates the system. Are you concerned that those expenses could outweigh some of the efficiency gains of the AI that they're using internally?

23:03I think it's a perfectly reasonable concern, but I also think it's a temporary expense versus a long-term solve. So the companies who are spending, you know, a couple hundred million dollars, I'm continuing to use Brian Moynihan's remarks as my example, a couple hundred million dollars to save$700 million next year. Well, we're missing the fact too that as that number increases, the investment's already been made. So you will see that return on those dollars presumably faster than the companies that are spending to build out the AI infrastructure in the first place can realize the returns themselves.

23:36The companies that are deploying the tech that they're building are the ones that will see the more immediate, more tangible benefits. And that's where I think investors who are becoming a little bit disenchanted with the AI conversation in general need to be looking. Where's the next place that it's actually going to be weaponized throughout the organization to improve those margins and improve my returns as an investor? Now, worse performance, even worse than the banks within financials was the alternatives this week. Jason, I know you own a few of these. And, you know, I'm curious how much of that you think relates to the AI build out questions, the private credit vehicles within these these firms and kind of their potential exposure to any default risk or any distress risk that has come to the forefront, you know, in terms of sentiment this week.

24:25Yeah, I mean, I still think the majority of the story is about yields and why, you know, and fundraising, the potential pressure on fundraising. What I'll also say is, you know, Blackstone and APO or Apollo are the names that I own in the space on the private equity end. You know, Blackstone's at$1.35 trillion in terms of AUM. So scale is a real deal there. I do like both Blackstone and Apollo in this sense that they do have very diversified revenue streams in this space. It's not just AI. It's not just data center. For Apollo, as an example, they have a very rich insurance business in the theme.

25:10So I think that's an opportunity. And to your point, Les, I think private credit redemptions are still happening. They're not front and center anymore. right? But they are still happening. But for these particular two, I think they're better positioned because of their scale than some of the others in the space. But I do, I continue to see the pressure and be perfectly honest with you as kind of the macro starts to unfold a bit more, there might be an opportunity for us to add, you know, in a few quarters from now. Yeah, it's funny you mentioned the private credit redemptions because the redemptions are still happening.

25:44But compared to previous quarters, even on the bank earnings calls, and I listened to the The big six this week, nobody really mentioned private credit at all, whereas in previous quarters, it's been a much bigger piece of the conversation. The solve for that, though, is kind of self-fulfilling, right? Because as financing gets tougher, their importance matters more. Forward returns will elevate. It will attract investors. That is what's happening in the bond market right now. As yields go up, it's attracting demand, and that's a self-correcting mechanism. Oil's the same. All these things, when supply adjusts, the market adjusts.

26:22And I think you could see in this space, and we may re-add to Blackstone or Apollo or one of the names that we held, because I do think, you know, they're throwing the baby out with the bathwater. And let's remember, there is a lot of equity that sits under the credit. Most of these companies are—the right companies are going to get financed. And if you're working with the best underwriters, you'll be in good shape. All right. Coming up, committee moves. Kevin Simpson is ready to walk you through his brand new buy in one sector at record highs. The trade is next. Halftime is back in two minutes.

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27:35With higher predictability and greater access to credit, everybody wins. Get started at VantageScore.com. Some of the most important design choices are the ones that go unnoticed. The details that together make an experience feel intuitive, comfortable, and above all, exhilarating. At Acura, that means looking closely at how every detail can make your experience behind the wheel more rewarding. Every lesson learned and every idea refined becomes part of what comes next, and it lives inside every MDX, ADX, and Integra. That's precision-crafted performance. That's Acura. Ever notice how every new AI tool asks you to explain your business to it all over again?

28:13Google Workspace with Gemini skips that. You get Google's AI built right into the premium versions of Gmail, Docs, Sheets, and more. No new tools. No extra logins. Just one subscription that gives you personalized AI right inside your actual workflow. Make work less work. Try Google Workspace with Gemini at goo.gle slash workspace with Gemini. We're back on Halftime Report. I'm Contessa Brewer with your CNBC News update. The NCAA is suing Ohio Governor Mike DeWine over his executive order that allows the class of 2022 college athletes to play in a fifth season. The order lets Ohio schools ignore an NCAA eligibility rule, excluding athletes who have already completed four seasons.

29:00The NCAA says individual states cannot set their own eligibility standards. Sean Diddy Combs being moved from a New Jersey federal prison to allow a security to a low security facility in Pennsylvania. The Bureau of Prisons confirmed the transfer, but gave no reason. It follows reports that Combs smuggled alcohol and a phone behind bars. Officials denied a separate report that he was injured in a fight. He's serving more than four years on racketeering and sex trafficking charges. And the President Trump is taking his midterm campaign push to Georgia today, rallying with Republican Senate nominee Mike Collins and gubernatorial nominee Rick Jackson.

29:40The battleground state visit aims to energize Republican voters ahead of the November 3rd elections, which really could reshape the final years of the Trump presidency. All right, that's the news now, Leslie. I'll send it back to you. Contessa, thank you. Contessa Brewer for us. We have a committee move today in health care. Kevin, you brought AbbVie. Yeah, we've been really high on biotech, really high on pharma. These have been stealth winners over the past quarter. I've been listening to you talk about AbbVie for three years now, so we're going to follow you into the trade, Jason. You know, we were a little reluctant early on, and regrettably, because it's done so well, but we thought this may be a turnaround story that would take more time.

30:19They had a super drug, Humana, that came off of patent, and they've replaced it with SkyRizzy, Renvoke and other immunology drugs that are up like 24%, 24 % respectively,$8 billion from these things over the last quarter. It's not just that. It's also neuroscience was up 20%. And I'm not looking at you when I talk about Botox or some of the other things that they do, but it's a great company. It's a great business. More peptides, I would think, when you look at me. Juvederm and Bo-tex are in other parts of the business. So we like the 2.5 % dividend. We like the double-digit growth rate. And this just fills out our suite of health care stocks that we're super excited about moving forward.

31:02I mean, it's up 25%. It hit a record high yesterday, up again today. I mean, would you be chasing it at these levels? Yeah, good stocks going higher. So when we buy a position, Leslie, we take a small position to start. So really, we initiated a 1 % position. We ultimately want to get it up to 5%. On any pullbacks and any weakness, we'll add to it. But I've waited for a long time, and I feel like there's enough going right for this company that we don't want to hang on anymore on the sidelines. As we see kind of rotation out of tech this week, a little bit out of banks as well, I mean, is health care the place that is poised to benefit, you think?

31:35Yeah, no, I think there's a humongous opportunity. Obviously, the tone of the market has been somewhat defensive this year. I love what, obviously, Kev has done here with AbbVie. It's run a lot since July. It's up 25%, as you mentioned, Les, so far this year. But it has been about diversifying away. They have replaced that Humira revenue, right? Immunology, oncology, and neuroscience obviously doing the work here. So we like companies in the biopharma space like this that are diversifying revenue, margin expansion, and just growing the business overall. So I think there's an opportunity in health care broadly.

32:10Definitely one to watch as well as the sector. Mike Santoli's Market Memo is next. Some of the most important design choices are the ones that go unnoticed. The details that together make an experience feel intuitive, comfortable, and above all, exhilarating. At Acura, that means looking closely at how every detail can make your experience behind the wheel more rewarding. Every lesson learned and every idea refined becomes part of what comes next, and it lives inside every MDX, ADX, and Integra. That's precision-crafted performance. That's Acura. Ever notice how every new AI tool asks you to explain your business to it all over again?

32:46Google Workspace with Gemini skips that. You get Google's AI built right into the premium versions of Gmail, Docs, Sheets, and more. No new tools. No extra logins. Just one subscription that gives you personalized AI right inside your actual workflow. Make work less work. Try Google Workspace with Gemini at goo.gle slash workspace with Gemini. At Fanatic Sportsbook, we're talking real fan cash on every bet. Spend it on jerseys, tickets, collectibles, and more. Rewards hit different here. New customers can bet and get up to$1 ,000 in fan cash over 10 days. Fanatics, the only sportsbook to reward every bet.

33:26Must be 21+. Gambling problem? Call 1-800-GAMBLER or 1-800-MY-RESET. CT, call 888-789-7777. MA, call 800-327-5050. NY, call 877-8HOPE-NY. MD, visit mdgamblinghelp.org. Offer not available in all states. Terms apply. See Fanatic's app for details. We are back with senior markets commentator and overtime co-anchor Mike Santoli with his market memo. Mike, you got the AI trade on the reverse again. Yes. Yesterday you had this intraday levitation. You seemed like you got short-term sold out in some of the hardest hit parts of hardware, the core weaves and semis. Today you're kind of going back and testing to see if yesterday's lows were for real.

34:03If you look at the semiconductor index, the NDX, all that stuff. So it has the feel of something that's a little bit forced or it's a little bit let's really try to reduce risk here. Don't know of anything specific going on, but that's the kind of erratic action you sometimes get when you're having some people really have to get blown out of those lever positions. But the equate S &P, and everybody loves it, right? Everyone wants a broadening, is barely down at all. So you do have the market trying to kind of rotate around into strength here. I don't know if you can extrapolate this week and say this is the world we're in.

34:41For a little while, everybody seems to be talking about hyperscaler earnings is going to be the thing that you'll be able to anchor to going toward the end of the month. It's a little ways between now and then. But I think the credit markets are going to be the arbiter of whether, in fact, we have to keep worrying or if this is just another one of these mini panics. And I also keep pointing out this process has been going on for four months. That's when we saw the peak in all this stuff. And it's been this like waves of reckoning in that area in terms of, you know, what we're expecting out of earnings from especially the memory names and those like.

35:16Yeah, I guess what's different this week is Corweave is a potential canary in the coal mine. And, you know, is that the financial conditions have tightened? It's registering where it's kind of supposed to register. So I don't know that you should necessarily say that's an unhealthy thing, but it's an uncomfortable thing because of how the indexes are basically skewed in that direction. Yeah, that and the interconnectivity of the whole trade as well. Mike, thank you. Straight ahead, the setup on Netflix and layoffs and executive shakeups. How the committee is positioned ahead of earnings next on Halftime.

35:47Welcome back. Shares of Netflix are lower after announcing a major content leadership shakeup ahead of the company's earnings report next Tuesday. Everyone owns it. I mean, 2.7 percent lower today. What do you make of this shift and the content suite that they have? Well, Peter Rice is in. He starts on the 26th. I think this company is incredibly well positioned. We just added to it in March. When I look into next week, given that we're not going to get much news on subscriber trends, I think the big news is where content goes and what potential acquisitions might they be considering. And, you know, I think you continue to be patient around this name.

36:34I think it's a fine name to own. Again, relatively new for us, down a bit since we bought it. It's kind of one of those things where we should have probably waited until it reached a level to get in. But I like the company. Malcolm, what do you think? Are these good levels? I mean, East of Eden was great in terms of content, but not getting a boost from that quite yet. Yeah, I'm honestly surprised to see the market's reaction to the news today. I think that this whole time, the market's basically been saying, when are you going to do something to shake up the existing business model? When are you going to do something to compete with YouTube because you have a YouTube problem?

37:12This is them sort of answering that question in a way. It kind of tips the hand in the direction that they're heading in the sense that they're bringing in a guy who's got a background in, like, legacy live TV coming from, you know, the Disney, ESPN, ABC universe, and trying to focus now on live sports, which we already knew was going to be a focus for them. But the bigger events they can have a spectacle around, have a draw around, those kind of things. Yes, they do still need to figure out a way to create the cheap, user-generated content that keeps people hooked to the platform the way that YouTube and YouTube Shorts has.

37:46But this is at least them showing a step in the right direction and a willingness to pivot since the market has, the street, the analyst community has obviously turned sour on the existing model and saying we want to see something different from you. You own it too. You think this is overdone? Yeah, I love the move. the only reason I would give for the stock being down today is the timing. Doing this a few days before earnings, that biggest shakeup is probably making the street a little bit nervous. Obviously not to Malcolm, Rob, or me. How about you? Yeah, no, I think that's probably part of the story.

38:19Listen, it's down 25. They've obviously really heavily focused on profitability over the last year away from what the streaming ads are. So the ad business, I think, will be strong. I think they really need to focus on the content spend. Obviously, the sports is expensive, but potentially maybe a new Squid Game sequel would be profitable. I mean, I think that's what they really need to kind of focus on. And I think they will. Cut of 6 % of the staff, 1 ,000 positions, kind of going into earnings on Tuesday. We'll see. But I think it's attractively priced at this point. Yeah. Repositioning there.

38:58All right. Coming up, We'll take you inside the alternatives universe and the increasing popularity of all investments. We've got fresh data plus who is the most bullish next. Welcome back to Halftime. Investors are turning to alternatives to diversify exposure and protect against concentration risk. And new data shows the momentum is set to build. Robert Frank joins us with a look inside the alternative universe. Robert. Leslie, good to see you. Well, millionaire investors planning to add to their alternative investments in the next two years. 38 % of millionaires surveyed plan to increase their allocation to alternatives, with only 7 % planning a reduction.

39:37That's according to a nurse new survey from Goldman Sachs. Now, 93 % agree that they are, quote, overall happy with their alternative investments. So what about all these headlines about private credit troubles and all these redemptions? Well, nearly two-thirds of wealthy investors view alts still as, quote, high risk or very high risk. And that is up from last year. Alts investors cite risk and volatility as their top concern. Also big concerns, lack of liquidity and lockups. We've seen a lot of that with those redemptions. And, of course, high fees. Now, the more investors know about alts and those risks, the more likely they are to invest.

40:1726 % of those familiar with alts plan to invest in the next year. That compares with only 5 % for those who aren't as familiar. Now, millennials are the most bullish on alts. Half of millennials plan to increase their alts in the next two years. That compares with just 18 % of boomers and about a third of Gen Xers. Leslie, I know you do a lot of reporting on this space, and we'll have to see how these higher rates and the tremors in the neocloud affect private credit. But for now, at least the wealthy investors seem to be adding to their allocations. Yeah, those are the big questions we were actually asking in the A Block today, Robert.

40:57Thank you. And Rob, I want to come to you because I know we were talking about the broadening trade and whether it's the time to be doing more of that rotating out of the AI trade and into other places. And we actually spoke with the Warburg Pincus CEO in a rare interview earlier this week, Jeffrey Perlman about the top questions he's getting from investors right now. One of the single biggest things I'm hearing from our investors as I travel around the world is they look at this and they see one large single correlated bet. And in the public markets, you have 10 companies that essentially represent 50 percent of the S &P 500.

41:34They're looking for ways to diversify. And actually, in private assets and especially private equity, there is a lot less exposure. In a way, if this continues, that level of concentration is, I think, going to be net additive to private assets and especially to private equity. What do you think? I think he's absolutely right. We are big believers in the asset class, have been for a long time. Obviously, there's times in certain parts of the asset classes where forward returns elevate, whether that be coming out of a real estate crisis and diving in to fund that or coming out of 22 when venture companies were having trouble raising money and going into venture debt.

42:17I think we've done too much categorization of alternatives as one asset class. And it's really broad and it's really diversified. And it really, as he said, provides the ability to get returns that sometimes are even uncorrelated with the market. There's attractive income. You can go into hedge funds, which are usually tax inefficient for individual investors. But there's ways to wrap that in private placement life insurance, which shields some of that burden. And I think the portfolio benefits of having alternatives are significant and will continue to be, especially as you see elevated concentration, again, as outlined in the public markets.

43:00and really the lower end of public markets not trading as well is kind of mid-market private equity. You see some of the companies that trade in mid-market private equity, it elevated multiples to what you see in the public markets. And so I think this is going to become a much more interesting space pro forma. Yeah, maybe less of an alternative and more mainstream as the years go on. Up next, options action with Oliver Rennick. Halftime is back in two. Let's get to today's options action. Oliver Rennick joins us from Sebo Global Markets in Chicago. Oliver. Hey, Leslie. The combination of a rally in oil prices but a drop in Treasury yields is creating some interesting trades this week as investors reconsider how to hedge stocks.

43:49On the energy side, the most popular trade is Petrobras, now up 115 % year to date, with a handful of the biggest options trades on the tape today, and some of the most one-sided flow we've seen recently. Options volume was 10 times the average this morning across 200 ,000 trades, and 94 ,000 of those were call trades likely initiated by buyers. By comparison, it looks like less than 2 ,000 puts were bought. Meanwhile, the firming of Treasury bond prices might be enticing some traders back into gold. There was more call buying than put buying in the GLD ETF. The number of open calls reached to the highest relative to puts in a month.

44:30And the biggest trade was someone selling$11 million of puts expiring in mid-January. All right, Oliver, thank you. Oliver Rennick for us. Final trades are next. We are back with final trades. Malcolm. Yeah, I'm going service now today. I'm encouraged by the way this company is leaning into agentic governance with the new AI passport tool. They've also gotten a couple of rating upgrades and some price target increases. So I'm glad to see it's not just me and Bill McDermott out here telling people they're missing something on this one. Rob. J.P. Morgan, the headline miss gave you an opportunity to buy a world-class franchise with some healthy trends in play.

45:12Jason. Eaton, border growth is up 40%. I like this one here. And Kevin? I would use today's pullback in cybersecurity to buy Sentinel One. Yeah, down 9 % today. Pretty mixed picture with regard to sector specifically. You can see the S &P down 0.7%, the Nasdaq down by about 1.5%. That does it for halftime. The exchange starts right now. You've been listening to CNBC's Halftime Report, the podcast. You can always catch us live weekdays at 12 Eastern, only on CNBC.

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