Tech Earnings Weigh on the AI Trade 10/29/26

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0:43You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. Thanks very much. Welcome to the Halftime Report. I'm Scott Wapner. Front and center this hour, the tech fallout from several key earnings reports and not just the mega caps either. We'll trade the big movers today with the Investment Committee. Joining me for the hour, Josh Brown, Liz Thomas, Kevin Simpson, and Rob Seachin.

1:14Check the markets for you right now and you will see the clear picture today. We are red. Nasdaq's leading the way lower, Dow's negative, but it's largely as a result of the same story. Alphabet is a hurt on both accounts. Caterpillar is hurting the Dow. Just keep all that in mind. But we need to talk about Alphabet. This is the worst post-earning stock performance ever, ever. Why? Because search revenue missed. That's the headline. And that was the big fear from the very moment that chat GPT came on the market. it just seems to be a lag effect. Is that how you think we should look at this for Alphabet?

1:52I mean, what's your big takeaway here? Yeah, I don't like that YouTube missed either. But putting that aside on the search question, if you go back two years ago, I think it was two summers ago, when Alphabet was under pressure because the narrative around the idea of search was that, Well, why would people bother searching when they can just get the answer somewhere else? And so there's this really big fear that people would go direct to Claude, direct to ChatGPT, and direct to, if you could believe this now, perplexity and bypass the 12 blue links. That is the lifeblood of Alphabet's revenue.

2:31It didn't work out that way. So Alphabet shares got a reprieve when people realized, oh, wait a minute, they're leaning all the way into LLMs also. they have Gemini, they're going to put an AI summary on top of the blue links, the Google search will be alive and well. Maybe it was premature to say that there would be no cannibalization whatsoever. And maybe now that we've got a larger user base on ChatGPT, on Claude, maybe all of a sudden it's becoming apparent, hey, look, Google has competition for the first time in search in its entire history. That's what it feels like the market is trying to decide today.

3:08This isn't a catastrophic day. I know historically we haven't had double-digit sell-offs in Alphabet in a long time after reporting a quarter. But this doesn't seem like we've all decided, yes, search is screwed. It's over. It's another question. In the same way that Netflix now has to contend with people spending more of their time on Instagram Reels and YouTube. Like, everybody has competition. It's just that for Google search, there actually wasn't any competition for its entire 25-year history. And now there is. Not everybody has competition to their bread and butter, to their big business.

3:47I mean, Gil Lurie of DA Davidson on Squawk Box this morning says, quote, this is the quarter that we feared. All of a sudden, the change in behavior to AI is ruining this goose that lays the golden eggs for Google. Ben writes this of Mellius, pretty much just as downbeat, saying the slowdown is not going to be temporary, but the start of even more erosion. He says, quote, we could finally see secular issues rear their head with a second consecutive quarter of deceleration. How big of a problem is this for a shareholder in Alphabet today? Yes, and we reduced to neutral earlier in the year like Jim did.

4:23But the reality of it is I think we're in a place where the entire market is moving from where you're getting rewarded for spending on AI to where you're having to prove that you're monetizing AI. I actually think it's a little earlier than it should be personally. And I think it's going to pay to be patient with Google. They're the alphabet, rather. They're the only company that really has been able to finance their build out from their legacy business really effectively. The reality of it is, though, is that legacy business, which is the cash cow. How do you build a great company is you build an engine two to disrupt your engine one.

5:05That is really what business is about. If you can identify that, you're going to be in a good position. Do you think they can build an engine as powerful as engine one? Because, I mean, engine one. Engine 1 was like rocket ship. And now we're back in the lab. And we're trying to build a more capable engine to compete with that. And that doesn't seem like it's possible, does it? What is the alternative to be completely disrupted? I mean, they're the only company combining compute, internal chips, AI models, and users. By the way, Google Cloud was a bright spot, too. 100%. It was up 103%, right?

5:42I mean, ridiculous results in that. Anecdotally, though, the last 10 things that you wanted to know about, I don't know if it's like, oh, where do I know this actor on this TV show from or how much should I pay? You're going somewhere else. But I'm saying like it was only Google and then Google would say, thanks for using our service. Here's a treasure hunt. You can go to these five sites and attempt to find the answer. And now I tell instinct what I want to know. And the agents do it. It gives me the answer. And now not only what do I want to know, but go do it. I don't want to book a table on Resi.

6:18Connect with my Resi and get me a table. And that's a new world for Google. I think a lot of people didn't want to get too pessimistic because we did that two summers ago and then ended up looking stupid when Alphabet was at a new high. That was the question, right, Josh? Monetizing the AI. Everybody bet that they would not be able to do it. That was a bad bet. No question that that was a bad bet. And they'd be disrupted immediately. The great thing is they've had time to try to figure it out. Again, you're going to get ebbs and flows in these things. You've got to be prepared to stick it out.

6:51I would trim when any of these companies gets too ahead of itself from a multiple standpoint. But the question is, you say you're going to get ebbs and flows. The commentary suggests, no, you're not going to get both, that this is a clear sign that you're going to get more ebbs than flows. What do you think? And I think that has to be the case. Josh is the word cannibalization. and they're doing it to themselves. So if it's an engine 2.0, it's their site and maybe they can even replicate what Instinct is doing. But where you're losing the revenue is from advertising. So they have the eyeballs, they have the users and that's great for a business, but that's not great for the stock.

7:28So I'm a shareholder, I own 3%. I'm gonna wait it out for the next quarter and see what happens. But I think that the reality is that this golden goose, as you totally correctly coined this, is going to continue to see a deceleration of advertising. And that's a problem. You know, Dan Ives is, so I mentioned Luria writes this, and they're obviously more negative. And if Ives was sitting right here, I swear I would say this to his face. He says, this is the cloud print we've been waiting for. And in our view, it matters more than the lighter search number the bears will lean on tonight. I mean, really, the problem with that view is that cloud margins were basically flat.

8:15So if you want to ignore what happened in search and hang on the cloud, even if it was a bright spot, I don't know. I don't know how credible that view is. It's half of what their revenue was from advertising. $60 billion versus$30 billion. The reason why the bears are leaning on the search is because it is their golden goose. Exactly. Well, so management said AI mode queries monetize at a lower absolute dollar level than search queries. That actually makes sense. A lot of the time when you have a question about something, you don't need to click over to someone. You could just get the answer.

8:58So that that actually makes sense. Query growth is at a five year high. So this is not people not using Google. This is people continuing to use Google, but Google not yet having figured out a new model where you deliver the answer to somebody and make as much as when you send that someone to Expedia. And they have to figure that out. That's 100 percent it. It's those companies that own the customer that still have the opportunity. And I wouldn't jettison them yet. Not at all. Because they do own the customer. I think that's Josh's point. People are still going. This is how every innovation cycle goes.

9:34You've got new companies that come out with what is their golden goose. So we've got ChatGPT and Anthropic, right? That's the new golden goose of AI. And then you've got these incumbents, the existing companies that really have the strength, the user base. And over time, they have to figure out how to morph their business model in order to stay relevant. I think Google's trying to do that. Alphabet's trying to do that. I mean, look at what happened back in the Internet when it took us 10 to 15 years for companies to figure out how to monetize e-commerce. But it didn't kill everybody. It's just that a lot of the companies that existed as brick and mortar then had to figure out how to make money with online sales.

10:08I think this will be similar. It's not going to happen in one quarter and it's going to be lumpy as we go. But I wouldn't be betting on some of these large, cash rich, established customer based companies. I wouldn't bet that they're going to just disappear because we've got some shiny. And certainly nobody is suggesting that disappears a strong word. Yes, that's a very strong word. And I think way too strong. And I don't think anybody is suggesting that. But even incremental market share changes are meaningful when you're talking about when you have dominant market share and then you start to see things that could potentially erode that.

10:42Your cash flow negative. You're borrowing a lot of money to continue to spend at the expense of your free cash flow. All of these issues continue to weigh on the stock and sentiment, for that matter. 19 target cuts. Jim Leventhal joins us here. So he trimmed Alphabet back in January. But let's make no mistake about it. And we gave you a lot of praise when you stuck with this name through thick and thin at the ebbs, hoping for the flows. And what are you doing with this stock now and why? Taking it further down underweight to the market. So about 3.5 % is my weighting. S &P 500 is about 5.5%. Here's why.

11:29I just don't think the negative narrative is going to change anytime soon. The search questions that you all are talking about, they're going to continue. There's nothing I can see that's going to change that narrative for the next several months. And on top of that, we're in an environment, Scott, as you pointed out, negative free cash flow, questions about heavy costs across the AI complex. I just don't think the stock is going to go anywhere for the next couple of quarters. I can see a lot of positives, by the way. I can come up with a few ways to fix search and let's not, you know, give short shrift to the tensor processing units or to Google Cloud, notwithstanding the margins of the growth rates there over 100 percent.

12:09But just as a portfolio manager, the money that I'm taking out, I'm going to look for something that's going to move in the next few months where I just think Alphabet's going to be stuck in this narrative for a while. But like, I mean, wasn't the writing on the wall for this? It just is happening a little later than people like you expected it to. That the introduction of the large language models was simply going to present a lag effect until you finally started to see some degree of impact to search and to market share. and the reasons why some at that time had sold the stock, or at least took some profits, rather than stick with it, missing the point that maybe this was, and I'm not saying definitively, but maybe this was inevitable.

13:06It just took longer to actually see it. Yeah. So let me take your question, Scott, and use it to justify even retaining a small 3.5 % position. I start by saying, you know, the search revenue was up 12 % on a gargantuan business, up 12 % year over year with a very difficult comp. I don't think we should be too negative about that. With regards to, though, your overarching point, aren't the large language models going to eat their lunch? I point out that obviously Google is a, Alphabet is a player in the large language model universe. And I imminently think that search is fixable. You know, Josh was pointing out the AI mode.

13:47I don't know how many people like me, when you get the answer from the AI mode, you click on the source. AI mode could simply be truncated so that you're almost intellectually forced to click on the source and get the advertising from that. It just seems very fixable to me. So that's why I'm sticking with it. But I'm not ignoring what you're saying, that there are competitive threats here. Hey, Jim. Josh. I actually agree with what you're saying, even though you're standing in front of the curtains from the Tonight Show. I wanted to ask you, if you're thinking about this the same way that I have learned with Uber, sometimes when a new narrative takes over, the fundamentals almost don't matter anymore.

14:31So Google has decelerated on searches, 19 % two quarters ago, and then 17%, and now 12%. it seems like the pace of deceleration is actually quickening. If they come out next quarter and say search was up 14, is all forgiven? Or is the reason you took this down to a below neutral weighting? Because almost no matter what the fundamentals say now, this will be a cloud that's hanging over, pun intended, that's hanging over this name probably until they can completely disprove. And I don't even know how they do that. Is that the rationale behind just saying, you know what, it's 15 times forward earnings, but I'm getting out of the way because it's not going to matter?

15:13I don't think this is as bad a story, forgive me for saying that, as Uber or Netflix, which you referred to earlier. Those stocks have been in a very long penalty box phase here. I think this is more akin to some of the other mega cap tech stocks that have stumbled over the years. Like Microsoft, a couple of years ago, we were talking about, like, how does it get out of its doldrums? And now it's it's roaring. Meta is back and forth, but I use that as another example. So here's the answer. If you get next quarter 14 percent search growth to use your number, all is forgiven. On the other hand, Josh, if you get another underperformance in search, the time in the penalty box gets extended.

15:53And it's not just one quarter of good results that gets you out. You know this, right? If you have an extended period of underperformance, you're going to have to have an extended period of outperformance to get out of the penalty box. Jimmy, appreciate it. We'll see you back on the desk. Thanks for coming on with us. Curtains and all. We appreciate it. You know, in a normal environment, what Alphabet would be doing is raising its buyback authorization because they are making a ton of money. And that would be the no brainer thing to do. It's not that it would instantly fix the stock or stop it from falling.

16:26it would give the shareholders some confidence that management is going to take advantage of this decline. We're not in a normal environment. These companies are deliberately going free cash flow negative. They spent 10 years buying back stock. Now they're selling stock. They're going to market pricing. They're doing at-the-market offers, which mentally they act like a shelf. Like, oh, anytime Google has good news, don't even bother chasing it because they're just going to dump more stock on your head. Like, I don't really know what the executive playbook here is if you're sitting in the C-suite at Google.

17:01This was either the second or third consecutive quarter with no buyback announcement, which I think was the longest drought in several years. Let's flip to Microsoft because it is the flip side in many ways of this story. Azure growth, 48 percent, up from 42. That's really the headline. And the reason why, if you got 19 price target cuts for Alphabet, you got 19 price target hikes for Microsoft. And you also got a contrasting statement from Gil Lurie. I mentioned what he said from D.A. Davidson about Alphabet. Well, here's what he says about Microsoft. Good quarter for a clean beat. Microsoft continues to take the conservative road by guiding to further CapEx growth, yet also reassuring investors they'll remain free cash flow positive.

17:49We reiterate our buy, raise our price target to$650. It was at$550. You know, Rob, this is the$180 story, I guess, from what we're seeing in the market. Microsoft has since gone negative, but the market's kind of getting dragged today as well. How do you see this? In addition with Microsoft, there's certainly some questions today around earnings quality. Just to the nature of the relationship with OpenAI and how their$10 billion of their revenue was tied to OpenAI. So that was a little bit of an issue. CapEx a little lighter, too. I'm not surprised to see that. But it had a very strong quarter operationally.

18:28Azor, 42 to 48 percent, so accelerating. You know, this is a company that can fire on all cylinders, and it is. And Office has proved to be something that is not replaceable and is benefiting in that ecosystem, where Google obviously has had, Alphabet's had a little trouble with the search business. So I think it is a different business and one that's positioned a little better right here. Microsoft did the same thing that Oracle did where, and Meta did, rather than go further out on the CapEx, it kind of held things intact for the most part. And I know the CapEx number was down this quarter relative to the expected because the delivery timing on a data center, slip the quarter, ignoring all that noise.

19:17What they're not doing anymore is throw$20 billion on top for$27 billion. They're reading the room. They're reading the room. And I think that's going to help. You know what they did last time, too? I think we said the exact same thing when we talked about Amy Hood last quarter, CFO, saying free cash flow positive. I think we literally said those words last time. They read the room. And that's why the stock from last earnings report to going into this looked pretty darn good. They read the room. And maybe now they're reading the room again. God, I hope Amazon reads the room. Well, 1 ,000 % Microsoft is.

19:53And that CapEx delay was only$5 billion. It sounds like a big number. It's not that imperative in the scheme that things are that important. But pre-cash flow was down. I mean, they're saying all the right things. And I'm thrilled with the report. I mean, you look at that Azure number, and to your point, if Amazon's even close with AWS, it's going to be fantastic. Well, it sets the stage. But it sets the point really high, doesn't it? Well, right. I mean, but that Azure growth number sets the stage for now what AWS tonight has to live up to. You see it that way? We bought more Amazon last week with expectations that these would both be good.

20:30Welcome to the party. Wish us luck. My track record with you hasn't been that great. I know we'll get into that later. But I think we're going to be OK with this one. Revenue growth accelerating for five quarters in a row. Obviously, like everybody else, you're worried about the cost to achieve that accelerating revenue growth. That's going to be on the plate tonight. Gene Munster posting on X earlier. I'm also getting more concerned about Amazon because personalized bots will make it easy to find just what you're looking for, making them a logical starting point for anything we buy. Again, this is talking about, in part, eating at the core.

21:07Amazon wins for three reasons. Number one, find what you want. Number two, speed. Number three, trust. Number one will increasingly be under attack. Early data says this is happening. What do you think about that? Well, Amazon basically is blocking other people's personal bots from hitting the site or completing transactions. Because I think that is absolutely true. That is a concern. I don't know how much of a concern it is or how quickly it will show up in the numbers. But I think from the Amazon perspective, their argument would be, well, we have a shopping bot. It's called Rufus AI. It sits on the site.

21:43It's in the app. And if you have a question, you're looking for something, you'll use that. I don't know if that's good enough. That's their answer for now. They don't have Zuckerberg keeps talking about how Muse is going to be the source, which is one of the sources for reason why Munster is as concerned as he as he sounds, Because, like, people are going to use Muse over Rufus or whatever. You know what? So that could end up being true. We're an instinct household. My wife and kids, we're all on instinct. I mean, to me, if somebody's like, Muse is better, I'll be like, all right, cool. I use Muse now.

22:22So I'm not 1 ,000 % sure that Amazon can't do something similar or partner. And actually, it's interesting. Walmart went the other way. They're like, bring it. We'll take all the bots that want to place orders. And that's interesting. People are going to pick their agent partner. Mine's named Pickles in Muse. I am telling you, it's amazing with the capability. I can only imagine what kind of things you said. You don't like Pickles? My friend's name is Meatball. So what does that mean, then, for how you view the stock? So Meta or Amazon? Amazon. Amazon. on. Listen, the stock trades at 22 times earnings.

23:02I think it's re-rated quite a bit. I think AWS is the focus tonight. Capital spendings, the focus tonight. That is what we have to watch. I fully suspect, again, using the ebb and flow, there's going to be different winners that emerge. But I'm going to tell you this. When we look at the private investment landscape and we see the amount of demand for product, whether it be for fiber or anything that goes into data centers and is supporting this ecosystem, the contracted demand is as far out as the eyes can see. And so I fully expected, you asked me last week, are you running the ball or are you throwing the ball downfield?

23:39I was the only one on the desk that said, I'm running the ball. Josh wasn't here. I think he would have echoed it. But the reality of it is it's a time for the market to digest this news. It's digesting that news. I think this is a long-term secular theme. And if you believe this broadening out is going to continue, we're going to get a lower rate. There's two bets I'm making. Number one, the shock absorber that you get from fixed income right now is still as attractive as it's ever been. And number two, this theme is not going away. The spending is going to continue. And while it might be tough right now, and I think it will be, on the other side of this, it's going to be explosive.

24:17They only have the—I'm sorry. Let's go ahead. Again, Liz, why don't you just give us sort of the last word, if you will, on this block. After listening to all the conversations, somebody who obviously doesn't own individual stocks, can't speak to those, but you must have a sort of broad thought now that we're getting through the heart of these. I think we have to separate the conversation around AI as a theme and a technology, which I do still think is in the early innings, and it has a long way to go to be integrated into our economy and businesses and create profitability for a lot of different sectors, if not every single sector.

24:50But then we've got the market side of the equation and investors who are really sharpening their pencils and looking at where do I want to spend my dollars. And I think the discernment that we've seen on behalf of investors this year is absolutely the right way to look at this. I think through the end of the year and into 27, it's going to be lumpy. And it's no longer this theme that if you just say AI, the stock goes up. So I think focusing on companies that are high quality, sometimes low volatility, if you just look at the factors that investors have rotated into, momentum has been all but left for dead.

25:25We've got value. We've got quality. We've got low vol leading that. And I think you have to be careful about where you're putting your dollars. And I agree with Rob that fixed income, particularly treasuries, which I've been pounding the table about for the last month or so, are offering a really good alternative. So don't forget about the little stuff. Okay, we'll take a break. Come back. We'll have some committee moves to tell you about. Kevin Simpson is ready with a brand new buy and later, Josh Brown. Best stocks in the market. Back after this.

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27:32No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. All right, welcome back. Told you Kevin Simpson has a brand new buy, and it's Booking Holdings. Tell us more. Yeah, this is a little step out for us in our flagship strategy. I think Bookings has been destroyed with this disintermediation play with AI. And I think there's an opportunity here. Josh, I know you follow it, but I look at this fundamentally. 17 times trailing earnings, 13 and a half times forward earnings.

28:10There's a dividend here. They did a dividend increase. The management's buying back shares. Those are the things that I like. Could this company be disintermediated? Yeah, I think it's possible. Any one of these could be. But I'm wondering if this is one that's maybe getting the baby thrown out with the bathwater. When you talk about all the agents coming into play and utilizing travel sources, I think that they're integrating their AI to be able to absorb that and make it friendly and convenient. So we have a starter position here. They report earnings next week. I think it can be a big-time winner if they're successful.

28:42Now, of course, if they're not, this could go in the other direction. So I wouldn't follow me into this in a big way, but I like the trade. I like the price here. I like everything you've said about it, and I'm on board. I mean, you had Expedia on your best stocks. I don't think you had this, but you had Expedia in maybe late summer. No. And I always used to think this stock was Burger King because of the ticker. So I favored Expedia, but I do think that I think both I think both can continue to work. I understand the argument about this intermediation, but that argument has been made in prior eras for different reasons.

29:18In the end, it's really hard to secure hotel room inventory. This is not like, oh, just spin me up a list of all the hotels that have available rooms like a startup could just, oh, we're also Expedia now. It's what's more likely is that all of these people's agentic services and products are going to play nice with the companies that are booking travel now for like three decades for people. I think the airlines work like working with these guys to experiences. This is the best part of consumer spending. That's not going to change. So I like Kevin's play here. All right. Let's talk about some other software stuff going on.

29:57ServiceNow, take a look at that stock. Rob, I need you to hit this one because the stock's getting hammered. Looking more like ServiceLater. What do you think, Judge? Down 26 percent in need of service. It is still a wonderful business. It's up 60 percent since the last print. the multiple move from 20 to 30. It's re-rated back to 25. This is a story of good not being good enough, not fundamental deterioration. It's still a strong grower, still a strong free cash flow. It is investing in the AI business, not seeing the monetization. I like that, but it's on that. Yeah. But it's not getting destroyed by AI.

30:41I think this is a great stock. It's probably a time to buy into service now. About Fortinet, that's down a bunch today too. Isn't it their guidance was light? Gross margins? A miss? Same story in software. I mean, again, a company that's up, I think, 120 % and it needed to reset. I mean, it just moved monster. And I think a lot of these other cyber names are down in sympathy. I would be surprised. Not as much. I think the story on Fortinet is they're not going to win if this becomes another platform business where the enterprise chooses one vendor. It's like less likely that Palo Alto and CrowdStrike are going to lose business to Fortinet versus vice versa.

31:28They are the only one that provides end to end, the combination of software and hardware provides a stickier base. So if you have the stickiest customer audience. And I love CrowdStrike, too. I can't say anything bad about that company. It's unbelievable. It's never just been cheap enough for us to buy it. This company did. We bought it. We've done phenomenal. Jeffrey says the following. The biggest question from here, given the magnitude of the deceleration and the elevated historical multiples on any sort of absolute or relative comparison is if this is the all clear for folks to start tactically shorting cyber, right, that this is the first move to that, or if this is just more of a one-off?

32:09You're obviously betting on the one-off, but you call it a reset. I think it's a valuation reset. I really do. I don't believe it's a, I believe it is a one-off. I don't believe that this is a full rewriting of it. How can you say that security, given what is happening in the ecosystem, is going to take a backseat to anything? No, I understand that. But does that necessarily mean that that rising tide lifts every single boat? No, it doesn't. In fact, quite quite to the contrary. I think you have to be selective. What you've noticed in software is we shouldn't be treating all these companies equally.

32:44There should be some distinction in the end. You know, again, we are focused on this one because when we we entered, we had to be patient with it. But it's still been a huge winner. Real quick. I mean, by the way, Josh's best stocks is from this orbit, too. So you'll wait for that. We'll tease that ahead. I couldn't disagree with the shorting of this sector at all in any way, shape or form. We love it. I think there might be something specific with this particular name. I don't want to start a rumor, but I've heard some things that it's very stock specific with respect to this company. OK. That's what I think.

33:17That's what I think, too. So Julia Borson has our CNBC News update. Hi there. Hi, Scott. Ukrainian officials say humanitarian aid is set to enter the Russian-occupied city of Oleschke today as a local ceasefire enters its third day. Military personnel have been clearing landmines from roads around the frontline city to allow for the delivery of supplies and for the evacuation of hundreds of people. Spanish authorities say the death toll in yesterday's deadly high-speed train crash has risen to 69. Spain's transport minister says a train slammed into a stop train ahead of it yesterday after it was authorized to continue on its journey.

33:54The Spanish government called the decision to allow it to proceed inexplicable and declared three days of mourning. And the Pentagon is reportedly treating a series of freezer malfunctions at military bases across the U.S. as a suspected hack. Four officials familiar with the matter tell Reuters military investigators are in touch with their French counterparts about a similar cyber attack on commercial freezers earlier this month. The hack in Europe hit more than 350 supermarkets and could cost tens of millions of euros. Halftime Report is back right after this. Ever notice how every new AI tool asks you to explain your business to it all over again?

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36:05Welcome back to the Halftime Report. I'm Dominic Chiu with today's ETF Edge. With the Fed standing still on rates, should ETF investors move into specific parts of the equities market? Joining me now is Bryant Van Cronkite, Senior Portfolio Manager at Allspring Global Investments. Given everything we've seen with rates and what we know about earnings season so far, Bryant, and the Fed yesterday, where exactly are the opportunities presenting themselves in equity markets right now? Yeah, going to be with you today. Markets are giving us a lot of opportunity to put capital to work right now. Not only is the Fed giving us a chance by their lack of clarity on policy and reaction function, but earnings season right now is creating a lot of opportunities for us.

36:45And so today we're finding opportunities in hyperscalers. I know the Google News yesterday was shocking to a lot of people. That might be a big opportunity when we look back a year from now, seeing opportunity in defense stocks and aerospace. And the healthcare sector looks really good to me too. So between earnings and the macro, a lot of places to put money to work right now. Now, it doesn't worry you at all that we are seeing some volatility in this kind of hyperscaler slash AI trade. There are a lot of factors at play right now, not the least of which is the debt markets and concerns on credits.

37:13What exactly would you be doing and what criteria are you looking at for where these opportunities are? Well, as an investor, volatility is our friend. We need that volatility to create inefficiencies that we can exploit. And so do we worry? Yeah, we worry about things like financing costs and we worry about things like CapEx budgets. But ultimately, we think there's opportunity now to become a stock picker. The market's been very thematically based for a long time, and it's moving stocks in groups. But now we're getting a chance to differentiate. You're seeing it with Google, for example. We think the Google news is a bit overblown in the long run.

37:44We don't need to rush back into it today, but in the long run, it's overblown. And so volatility is good for us. And I think now is a chance to become a stock picker again, where that's been hard to do over the last, call it, 12 to 18 months. You mentioned aerospace as well. Where are you looking there? Aerospace, I like Raytheon a lot right now. Although I would say that aerospace and defense in general is looking more attractive. That category sold off largely because of concerns around some of the funding that could happen. It could go down in the defense area. But aerospace is a very long cycle and visibility is growing.

38:13The book to bills on both the defense side for Raytheon and the aerospace side is looking very good. Visibility is getting greater and greater. And we see a chance for not only really strong revenue growth on both sides of their business, but also margin expansion that will lead to a lot of free cash flow. That free cash flow creates optionality. So we're excited about Raytheon. All right. Brian Van Cronkite at Allspring. We're going to continue this conversation over at ETFedge.cnbc.com. Brian's going to be joined by Jeffrey Rosenberg, senior portfolio manager of BlackRock's Systematic Alternatives ETF.

38:42Scott, I'll send things back over to you. All right, Dom. Thank you. The domino up next. Josh Brown has his best stocks in the market. He is focused on the levels of one big cyber name, as we teased earlier. We'll talk about it next.

38:56Let's do best stocks. We said it was in cyber, but exactly where? Identity. So if you believe in the agentic AI future, and I definitely do, then the one thing that's really obvious is businesses, companies, enterprises, governments. We're going to have a really difficult time deciding who is who and who is supposed to have this level of access. and how do I follow the behavior of this agent while it's inside of my system? So when I was talking to George Kurtz the other day at CrowdStrike, he was saying the entire history of cybersecurity was like defending a wall. Nobody can get in. With agents, it's not that anymore.

39:40Now we're going to let the agents in. So now the question is, well, how do we permission and how do we monitor? So agentic safety is the trade. Okta is the name of the stock. OKTA. Security vendors have spent 2026 basically acquiring identity companies. Palo Alto closed the CyberArk deal for$25 billion back in February. Cisco bought somebody. SailPoint, ServiceNow, everybody's buying identity. This is the biggest. This is the incumbent that owns the identity space as a pure play. Opta has 20 ,000 customers, including two-thirds of the Fortune 100. But while they dominate identity, it's$39 billion enterprise value.

40:22It's tiny compared to the Palo Alto's, the Cyber. So for that, the CrowdStrike. So for that reason, people have talked about this as a takeover target. I'm not going to tell you that I know anything about any M &A here. But what I would say, we're set up here for the potential breakout at 235. The stock's 217. And one of the things I pay attention to with my list of best stocks is not how they handle good news. Good news takes care of itself. How do these stocks handle, when I say handle, how do the buyers and sellers behave in the presence of not-so-good news? Fortinet blowing up 23 % overnight and this stock being down 2 % tells me everything that I want to know about whether or not a breakout is more likely than a breakdown.

41:07So here's what we're doing. 190 is a pretty obvious level line in the sand. Not only is it that rise in 50 day, which the stock has bounced off twice in the last couple of months, it's also where the buyers have been showing up on a regular basis. So we're going to use 190 as our area to say if this stock on high volume breaks below on a closing basis, it's over. We don't want it anymore. If it stays above, I think you want to have your eyes on the prize. That 235 level would be a massive breakout. And I could see the stock going substantially higher. so I like the risk reward from where the stock is today and how it's weathering that Fortinet blow up.

41:45All right. Excellent stuff. I know I went long, but I'm also really good at this. I think it was worth it for the viewers. I feel bad. I don't want to take over the whole show. I actually agree. All right. My guy. Well, you wouldn't mind if you did. My guy. You wouldn't mind if you took it over. No, I don't want to be like. No, you do. I don't mean to. You do. No, I don't mean to be like that. I believe that part of it. I don't. Options Action is next.

42:19Options Action time. Oliver Rennick is at the CBO Global Markets in Chicago. What is the options market saying about Amazon here just a few hours before we get down to it? Nervy, Scott. And I think that's understandable given the mag seven earnings flops that are kind piling up. It's also just been a very choppy year of price action for Amazon. Options traders think it could move almost 8 % after its report today, which would be pretty big compared to most other earnings other than last quarter, which was a huge rally. Problem is that rally has now all but been erased. 450 ,000 options traded on Amazon so far this morning.

43:00Over 60 % were calls with about$100 million of premium tied to likely call buying. One trade I saw, I think reflects the situation well. This person sold both puts and calls expiring for June next year. But the put they sold was much closer to the money at the 220 strike, which is about 25 bucks lower versus the call they sold, which was at 330. That's more than$80 higher. So they think likely number one Vol for Amazon is priced too high right now. But also, number two, if there is a big move between now and next summer, it's more likely to be to the upside, Scott. OK, Oliver, thanks. Kev, you got a thought here before we get to it?

43:43It's a great trade. I mean, I think that that's an excellent trade. I love the play. I love Amazon. Hasn't moved that much. But you're talking about a stock that I think is going to really take its cue from what we saw yesterday. So I'm expecting good things. Thanks. Yeah, well, obviously at three o 'clock, we're going to walk you right up to that. I've got Stephanie Link. She's in it. Snipe, Mark Mahaney. So we'll we'll surround that. We'll do finals after this.

44:15Well, Liz Thomas, those are your parents, right? Those are my parents. So what game was that? That was game two. All right. Game two. Big comeback in game two. First World Series championship ever. Three proud members of the Brew Crew right there, right? Waited a lifetime for that? A lifetime. The last time they went to the World Series was the year I was born. So literally a lifetime. 70, I'm not going to say when. I know when it was. I'm not going to say when it was. Everybody can look it up. No, 82. 82. And they lost. 82. So it was time. I screwed that up. 82. Gets the Orioles. I think it was the Cardinals, actually.

44:49Gets the Cardinals. Yeah. Getting rusty. You did pretty good. They used to be in the American League. Sorry about that. It's okay. What does it mean to the town? I mean, it means everything to the town. Small market team, right? The whole season was a clinic in how to play as a team, not have ego, and to work together to get there. It was a scrappy season the whole way through. Best team in baseball. How can you not be happy? I thought you were describing the halftime report. No work as a team. No ego. When you said no ego, I was like, it's definitely not talking about the halftime. I'm the ego on the show?

45:29Me? No one said that. Do your final trade. eBay, bright spot in the consumer space. I already savaged this whole segment, but go ahead. eBay, bright spot in the consumer space. Okay, Kevin. Natera, this oncology play has room to run. Stick with Wisconsin-themed cows, C-O-W-Z. All right. A bunch of upgrades and price target lifts for Shaq. Earnings coming up. Wish me the best. It's pretty good stuff. So now you've got a World Series NBA title a few years ago. We lost Giannis. Yeah, but they won the title first, though. Packers are always good. Well, they started the season a little slow, but we're coming back.

46:07All right. The exchange is 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. All opinions expressed by the Halftime Report participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet, or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion.

46:40Such opinions are based upon information the Halftime Report participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. To view the full Halftime Report disclaimer, please visit CNBC.com forward slash Halftime Report disclaimer. Call Her Daddy is brought to you by SoFi, the everything app for smarter money. If your money is scattered across five different apps you never open, you're not in control. Your money should move you forward. With SoFi, you get award-winning banking, investing, borrowing, and more all in one app.

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