The AI Race Deepens as Access to Capital Shrinks: Your Next Move 10/22/26

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1:12Carl, thanks so much. Welcome to the Halftime Report. I'm Scott Wapner. Front and center this hour, the latest on the AI trade is Meta and other key names sell off today. Oil surging, bonds getting a bid. We'll trade all of it with the Investment Committee. Joining me for the hour right here at Post 9, Josh Brown, Rob Seachin, Malcolm Etheridge. Go to the markets. We're not down by much on the Dow. NASDAQ's obviously down more than 500 points. You can see why we're at a near 2 % decline there, speaking of those AI stocks. But before you look at the Dow and say, well, we're really not down that much, I mean, look at what's leading.

1:44Staples, health care, utilities. The three best sectors today. it sort of defines how defensive this market has felt lately. The bad price action, though, from Meta is a bit telling. And the question is why. As they bump up the midpoint of their spending range, you really didn't get much on 2027. The free cash flow negative. The street doesn't really expect a return on that until 2029. Expense growth is outpacing sales growth. When does that reach an equilibrium or reverse? Operating margins down, all key issues for why the stock is down. You highlighted it not that long ago on Best Stocks. Mr.

2:25Seachin owns the name. What do you make of the price action in this stock? Well, I think it's indicative of the need to be a more capital-intensive company. It's almost as simple as that. and the fact that they weren't able to give guidance into 27 on their spend. You know, I'm not that worried about it in the short run. The core business is firing on all cylinders. They've showed proof of AI monetization. I think we've talked about that pillar of strength, Scott, that underlies the, and I heard Josh say it the other day, I think it was said, well, underlies the whole economy. You know, this AI or super intelligence trade.

3:09For better or worse. For better or worse, underlies the whole economy. And anything that's going to be a threat to that is going to cause a wobble. And one of the threats that we're seeing live right now is, you know, just with this recent split in Meta, they're doing that so they can retain control and still finance their growth prospectively. They're moving into negative free cash flow next year. These are uncharted waters for these companies. But my view is they wouldn't be spending this if they did not think they could monetize it on the other side. Well, of course, they think they can monetize it on the other side and that all of the spending is going to lead to the kind of sales growth that justifies the spend.

3:51That's why I said expense growth is outpacing sales growth for now. You need, at worst, an equilibrium out of the two. and a big hope that it goes way beyond that and the sales growth is going to show all of that return that all of the spending is being made for, right? I mean, that's the whole thing comes down to. If you just look at some of the stats, though, revenue beat six straight quarter plus 20 % growth, raised guidance, continues to raise guidance into 27. Oh, this number doesn't reflect the results, right? You know what I'm saying? That's the point you're making. It reflects fear about the ability to maintain.

4:32Are we at peak margins? Semis are doing the same thing. Are we at peak margins? Are we at peak profitability? What if we're at peak availability of money? I mean, that's it. I would give a hat tip to Joe Wiesenthal and a Barclays analyst for flagging this. And Joe highlighted it on X, and I thought it was so interesting on this note, where in their filing, because of this new class of stock, effectively a split, as you say, they say in a note to shareholders the following. The special committee also recognized that timing is important to secure capital before competitors saturate various options.

5:11Recent significant capital raises at other notable companies and others soon anticipated to take place to fund the same AI growth, for example, Alphabet, SpaceX, Anthropic, and OpenAI, have resulted in an increasingly challenging environment for raising capital. So the weighted average cost of capital is going to go up, no question. But the forward returns that they're earning on that, there's still margin in that. And so what you worry about is that their expenses go so high that it compresses margin, compresses returns, while at the same time the cost of capital continues to climb. David Solomon, I don't know if he said it on this network, on one of the shows, or in an interview, said companies that have the ability to have that R between the way they're growing and the cost of capital will find that capital.

6:04I believe that to be true. So I think there are questions about that, the scarcity of capital and whether the big numbers that have gotten the market to its biggest number of all time in terms of the rally in stocks will be questionable because of the availability of all of the capital that's needed to make this story play out the way that we think the chapters are going to go. So I think there will be scarcity of capital, but not for meta. And I think the key thing here that hasn't changed and likely will not change, the demand side for AI. The demand side doesn't care who builds the data center.

6:51What the demand side cares about is I have now made these technologies central to how I run my business. I need access. I need this stuff to work. and you figure out which data center my workloads get routed to. I really don't care. I'm contracted with an enterprise-class version of Claude, or I'm working with OpenAI, or I'm working with Gemini, or all of those things, or I'm bringing my own open-weight models into my environment at Snowflake. I don't care which data center those workloads happen in. That's for the tech department. As a business owner, as an enterprise, What I care about is that it works.

7:32And so long as that demand's not going to go away, the thing that we now have to focus on is who has the right to the economics? The right to the economics will be the builder who can, at the lowest cost and with the most rapidity, build out that data. So we know SpaceX is going to win. It might be the best builder in the space. It's an open question as to whether or not Oracle might win. It's an open question to whether or not the Google Cloud will be better than the AWS Cloud. These are the questions now which is more interesting than just every line goes up. I think in the case of Meta, they have this trick up their sleeve.

8:09They can play this card anytime they want. Look at the credit that SpaceX got this week for saying we are going to build 10 gigawatts. You make about$20 billion per gigawatt in contracted revenue. They could probably build it faster than anyone else. But Meta has built a lot. They're in their contract to build more. And any time they feel the need, they can come along and say, you know what, actually, we're in the cloud compute business, too. And what will the stock do on that news? It'll go 75 points. I feel like the availability of capital issue is starting to make its way through many different stories and is almost a bit of an overhang over the space itself.

8:54like Corwee, for example. That's one of the concerns around that name. And if you listen to what Jensen Wong told CNBC over in Berlin, he speaks about the very same issue. Listen. The demand for the neoclouds is off the charts. Their capabilities are extraordinary. And so what is missing in the middle is the working capital to fuel that growth, to fund that growth. And because there's just so much demand across so many sectors of AI, there's a scarcity of capital. The demand of the capital is much greater than the availability of the capital. That's going to get solved. Okay, you want more? John Gray was on the network this morning of Blackstone.

9:42Speaking of CoreWeave, quote, their challenge is, do they have the capital, the debt and equity and the quantum that's needed to deliver. I feel like more people are talking about this issue and what happens if capital becomes harder to come by. And then you've got to raise it in an environment where rates are up. Now they're down a little bit now, obviously, but nonetheless, the environment is the environment. How much of a potential problem is this for this trade? I'll take it a step further and say what happens when we've got to walk back some of those commitments. Who gets left holding the bag, right?

10:16If there's a scarcity of capital, it basically means Facebook's going to have to break a promise that it's made to someone. Anthropic's going to have to break a promise to someone, on and on and on. And so the question is, who is actually going to be left holding the bag who's doing all of this building? You saw where Microsoft, for example, backed away from a data center project that it had over in Europe, where now the neocloud company is left holding the bag. That's the question around CoreWeave 2. We've also seen your, I wish I shared you guys enthusiasm over meta, but we've seen now there's a zero tolerance policy for companies, hyperscaler companies going cash flow negative.

10:53And that's basically what we got on this last earnings call that I think is what's being reflected in the share price that we're seeing. Zero tolerance, the stock's down 5%. There's a zero tolerance. Well, we don't know yet why they moved the earnings call up either. Right. So I think there's, you gave us the known knowns, right? All of the positives while we'd want to own it. The unknown unknown still lingering out there is what is the reason why the earnings call got moved a week earlier than it has been in a very long time? And the answer, the assumption is that there's a debt issuance coming behind that, that they wanted to get out there after the story has already come.

11:27We'll find out if there really is some willingness to take up anything meta when it comes to the fixed income market. I think you're right directionally, but I think the more likely thing, given this C-share project, is that they want to raise via equity, not debt. But the effect will be the same. So I agree with you. I think they'll probably have to do both. I think because they basically said we're pushing all of our chips to the center of the table on this AI trade, Muse is supposed to be stacking itself up next to the frontier models now because we've made so many improvements that corporate enterprises should be choosing us over Anthropic and over OpenAI.

12:06We're going to find out whether that bet actually pays off, but they are betting the house. I just wonder, in some respects, if the issues around CoreWeave and this comment from Meta, just as we're discussing it as well, eventually becomes, or maybe it's the early stages of it sort of weighing on this trade. I mean, if you look at what the stocks are doing, this story has always been about capital, right? The promise to spend it, the ability to earn it, and the return on it. And don't you need all three of those things to continue to work? Staying on meta, to answer that question. And I'm not necessarily being meta-specific either.

12:47In fact, I'm not. But to answer that question, what are the numbers one and two publicly traded companies that have made the most money from the usage of AI in the form of ROI? What are the numbers one and two? It's meta and Google. Yep. I don't even know who number three is. It's meta and Google. Well, that's why Jensen Wong told us, and I've said this a million times, days before the Super Bowl when we sat down with him, is nobody does AI like Meta. So I think there will be a normalization period. And these companies are still going to be growing at above market rates. They've re-rated to a point where they're trading at a 9 % premium maybe today.

13:30I don't even know what it is to the S &P. But it's certainly compressed a lot. And that's reflective of rates. That's reflective of the difficulties raising capital. That's reflective of meta having another class of shares that they're going to use to issue equity. And so once you get to a normalization period or a steady state period, you're going to look across the investable universe and you're going to say, OK, is that growth at this price something that I want to own? And you'll find the leveling off. And it's not going to be zero. It's going to you're going to look at it relative to the other sectors you can invest in.

14:04And my bet is when that all shakes out. Right now, we're only focused on the second derivative, the change in the rate of change. That's always the first move. That's what's caused this. We see a change in the rate of change going forward in earnings, in margins, in financing ability. Now, once that normalized, and I don't know when it's going to normalize, but when it does, I want to be here. Let's talk semis, because I think that's a critical discussion to have. and it's going to lead me into something that you've got coming up. Lamb Research. I mean, first of all, the SOX is about 25-ish, 27 % off of its high.

14:44Here's a stock that's down almost 10%, Lamb Research, LRCX. Just to mention the DRAM, that's in a massive drawdown in and of itself. That's like 40-something percent off of its high. What was the problem with Lamb? The guide was only slightly ahead of expectations. Demand? Robust. Supply, a problem. Like we've heard from so many of the different semiconductor companies. Barron's, I think, sums it up well. Good enough, just not good enough. Which problem would you rather have as a shareholder of business? You could have one of two problems. Not enough demand, so you miss revenue because people don't want what you sell, or so much demand that you can't actually supply it and hit your numbers.

15:27Which problem would you have? Well, of course. I mean, it's a rhetorical question. Sure. So that's why the stock is getting, quote, punished off 9 % after this result, as opposed to 20%, which is what we've seen for companies that actually miss earnings because of a lack of demand. 20 or worse so far in the last couple of earnings seasons. Applied and KLAC are also in sympathy on this? It's sympathy on this. And the whole semi-complex, which we own a lot of, is trading down. But let's not forget, these stocks are up still enormously for the year, way outpacing the market. So the results have been ultimately terrific.

16:06And even on LAM, their revenue was a record. Their EPS grew 74 % year on year. These are epic numbers. They're reflecting the macro concerns right now. And there's no doubt that there's a risk off trade in the market. Even though we're broadening out, which would normally be healthy. You said it at the beginning of the show. We're broadening out to utilities, health care, all the defensive names. Yeah. So I do think that's the tone for now. But that doesn't mean you jettison these investments, because when you look at the fundamentals, eventually we'll get to equilibrium and we'll reevaluate everything.

16:45Procter's having its best day in six and a half years to give you an idea of how defensive the tone has been. So Cerebris, you bought more. Yeah, so I'm swimming into the tide a little bit with this one. So this is probably the most speculative name that I own personally. But I'm also looking at an opportunity to own a chip stock that I think it was at 180 the 1st of October. Now it's down to about 110 today. It's sold off tremendously. It's all-time low. It's down 37 % this month. And to your point, 71 % from its high. So a lot of the concern is that their revenues right now are tied to just one company, OpenAI.

17:21So as more doubts swirl around open AI, obviously more doubts swirl around any company that supplies it, whether it's going to have the money to spend with them. But where I think this is setting up to be an opportunity is Cerebrus has already proven itself to help solve the latency problem that exists inside of data centers, inside of the chipsets. And where that's really helpful in being applied is the companies right now building in this world of agentic governance or the cybersecurity companies that are building these agents that run autonomously to fight off attacks, where latency really could be the silent killer between you solving the problem, catching the problem, or not.

17:56And so I think them being able to add more partners than just CrowdStrike, which is their major partner that they've landed so far, them being able to add additional partners and customers in the cybersecurity spaces where they have a tremendous TAM. And so this is me making a bet that this company that's been beaten down a lot, like you just said recently, has an opportunity to turn the corner. This company already liked before at about 175, 180. So I love it now at this discount. When do they report? They report at the end of the month, too. The end of this month. OK. Questions, comments, complaints?

18:31None. I mean, it's interesting, though, if, you know, the willingness to step into a stock that's down 71 percent off its high. And if you like it, it's impossible to time everything perfectly. to his point, stepping in a little bit against the tide. And he's probably, I would guess, you're not taking a full position. You're probably nibbling it. No, he already has. This is actually me adding to what was a full position because it pulled back so significantly. I just saw an opportunity to buy at a discount. All right. So let's talk about IBM. I mean, maybe you can make the case. I know it sounds kind of crazy, but maybe you can make the case that it has the most to prove of anybody in the AI story right now.

19:13Why do I say that? Because remember what happened after the earnings report last time in the second quarter? Let's back this out to a year to date, and you'll see the cliff, because that was a cliff jump, right? And they reported, they sort of, it was basically a pre-announcement, they shocked everybody. Why does it look like Batman, though? Stock was down like 25 % that day. It was the worst day ever. Expectations have been dramatically reset as a result of that moment. They beat and raised last night. But in this environment, with that chart, after those earnings last time, it's not enough to really lift the stock, even if they have a pretty good story to tell.

19:54And Arvind Krishna does. And everybody loved the story pretty much until that earnings report. You own the name. I do. And they beat and raised last night. This is a stock that obviously hasn't worked. It's a little more expensive than where we got in. We got in at about 12 times. I think it's one that we are being patient with. They still have to prove that they can leverage AI versus being disrupted by it. And I just do not think they're there yet. They had some evidence across this quarter that they can navigate it effectively, but I think there's still more to prove. You have six target raises, though, today, so there's still belief in the name.

20:41You sold it in July. Throw that year-to-date back up, guys, please. You sold it after it did go off the cliff, right? So I think IBM's the perfect stock to answer the question that you were asking before in a different way. So the question is, what if we've run out of money or what happens when we run out of money? And I think we're asking the question in terms of the companies doing the building, being able to raise the capital to put shovels in the dirt, build more data centers, buy more chips, whatever. The other side of that equation that we haven't talked about any at all, which is absolutely ludicrous, is what happens when the companies buying these products refuse to spend the money to buy the products anymore?

21:18Like, you guys, I know, talk to CFOs on a regular basis, as do I. They're walking around with their chest puffed out a little bit more than they were before in the sense that they've finally wrangled control of corporate budgets and been able to tell people to stop spending at all costs to get AI into the system and actually tamp down on token usage. J.P. Morgan was talking to me. Well, because they're going around the frontier models to more open source ones. They're finding the cheaper solutions. I don't care what you have to do. Find the cheaper solution. There was a Business Insider article recently that quoted an executive at J.P.

21:51Morgan that said they had people inside the company spending more than their actual annual salaries on tokens, which they realized was absurd. Once those companies find ways, find alternatives to stop that level of compute. I did an interview with an executive from AT &T about how that company has done just that. So we're getting away from experimenting. We're now talking about deploying it in a reasonable, responsible way. And that kind of pullback on spend is also what raises the questions of whether all of the spending that has happened from the hyperscalers will actually pay off. It's the reason the Nebbias, the CoreWeaves and whoever else are taking it on the chair.

22:27Well, there are a lot of questions and we're antsy for answers. And we're going to have to probably be a little more patient before we can actually get all those answers as this story continues to play out. Let's squeeze a break in. OK, when we come back, we have a downgrade for Netflix. It had a big sell-off yesterday on the backside of earnings. We'll see where the committee stands today on that name. And we do have a new name in Josh Brown's best stocks in the market coming up as well.

23:12business you can pay overseas suppliers without exchange rate markups have customers worldwide get payment details in 22 currencies so you get more of each hard-earned payment without hidden conversion fees be smart get wise business download the app t's and c's apply with 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.

23:52See discover.com slash five for details. Weren't agents supposed to take things off your plate? Building another to handle the others is a bit much. Don't make more work out of work. Gemini is the one agent that knows all parts of your business and actually gets stuff done. You 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.

24:36I'm going to get right to our Julia Boorstin. She has a news alert on Elon Musk and Skydance. Julia. Well, we see Skydance shares now down 3 percent on a report that Elon Musk has invested about one billion dollars in Skydance. This report from Semaphore. Now, trading was halted for volatility in Skydance shares. They have reopened and are now down 3.2 percent. We have reached out to Skydance as well as Musk for comment have not heard back yet. But Elon Musk was speculated about as one of the individuals that David Ellison was considering looking to for an investment in this company. Shares of Skydance now trading less than$8.

25:17So are down dramatically since that deal went through. Back over to you. Okay, Julia, thanks for that update. We'll continue to follow that. Let's follow shares of Spotify because they hit 306 million paid subscribers that did beat estimates. It was enough to convince Josh Brown to boost his stake by some 30 percent. Yeah, so I didn't have a big position on. So I like to add on strength as like confirmation that I'm on to something. Normally, when I own a stock that's for a trade, it's a smaller size. But what they had to say, what their guidance was going forward, I think strengthened my conviction.

25:55And it's an average up, so it's a little bit easier to do. They basically gave you a 14 % revenue growth number. They told you gross margins were 33%, which is up year over year. Monthly active users up 11 % year over year. They now have 788 million active users, not just people that have signed up, people that use the service. The guide is to 818 monthly active and 316 premium, which would add another 10 million net paying subscribers. So the business is doing great. And, you know, the stock had been tethered to Netflix for a while. If you looked at them trading together, they were almost like up and down on the same days.

26:40This one seems to be breaking away from Netflix because, quite frankly, they're just doing a better job. There you go. So it's a very different situation. So I think there's a lot of room here. This stock formerly was much higher than it is today on not as good results. So I actually think there's a lot of room in this move. OK, up near 9%. Spot is, let's talk Netflix. Since you went there, we'll go there. Downgraded today at Wolf to pure perform from outperform. The stock's coming off, obviously, a rough day. It's been a rough stretch, to say the least. So the stock's up 3 % today. Now back it out.

27:17Tell the real story. Because it was down a lot on the earnings and the longer term trajectory of this name has been brutal. If you own it, you know it. There it is. Wolf says engagement failed to respond to rising investment and last week's content leadership changes convince us solutions require require patience and lower margins. Everybody owns it. You already lightened up. Yeah. Right. Yeah. What are you guys doing? Holding now, however, kind of an inline quarter in weaker guidance are not going to be enough to turn this stock around in the short run. I think there's a lot of opportunity in front of them.

27:58They're now a weaker grower than they've ever been in a long time. And my sense is it'll be a tax loss sale candidate for us at some point this year, honestly. Yeah, I've been pretty defensive of this name because I thought, I still continue to think somewhat, that it's probably gotten as bad as it'll get. Like, the story has gotten as bad as it can. The downgrades have come. The downgrades are coming. The one thing in the earnings that I really didn't love that is starting to make me question the stock turnaround anytime soon is the declining ad sales numbers. That was one of the things that we've been saying very positive things about Netflix.

28:36They figured out a way to get into the ad sales business and do a really good job of it for a company that was super reluctant to do that for so long. But for that number to be declining doesn't actually speak well of what the future prospects for this company could look like at least near term. I think you're right. Weaker engagement, of course the ad sales number is going to disappoint. You can't jack up the rates that you're selling ads or insert more ads if engagement is falling. And you're 100 % right. That is, I think, a big overhang in addition to all the other things. All right. Let's talk CrowdStrike.

29:10Target goes to 275. It was at 250. It's Mizuho. Outperform. Give me something on this. I think it's the best stock in the world. So, I mean, I've been pretty consistent on that for six years now, and my opinion doesn't change with the seasons. I can't imagine all of this trillions and trillions of dollars in AI spend not being accompanied with stronger and stronger and stronger use of cybersecurity. I think George Curtis on the network tomorrow. I think I saw a promo for that. And that's the man, by the way. Leadership is important. Tomorrow at 11. 11. All right. Don't miss that. George will be on.

29:47Let's hit Lockheed real quick. They lift their annual forecast. I think everybody can sort of figure out why. You own the name. What do you think? Listen, this is a great place to be. The stock is up quite a bit year to date. It's still not expensive. They had some issues with the F-35 that they've rectified. There's incredibly healthy demand for their missile systems. And my sense is that this is a great way to play a lot of the tensions in the world and what is really a shortage of this type of product in the marketplace. How about UNP, Union Pacific, Higher Profit and Revenue on Volume Growth?

30:29What do you think about that one? Listen, this is an oligopoly. All aboard? All aboard, baby. Look at that. So, I mean, listen, I think there's going to continue to be quite a bit of pricing power here. They're levered to industrial volumes. And, you know, the stock's performed well. not too expensive. I think it's another great place to hide. Obviously, very sensitive economic activity decelerates dramatically. OK, Dom Chu has a CNBC News update for us. The domino. What do you got? All right, Judge, a federal judge ordered President Trump to sit for a deposition soon in his$10 billion defamation lawsuit against the BBC.

31:07He warned that if he does not appear before December 11th, he faces sanctions that could include a dismissal of the lawsuit. The BBC's lawyers complained that the president has delayed his appearance for a matter of national importance. And he was actually campaigning in Georgia. The Justice Department says a top Democratic state senator in Virginia and longtime critic of President Trump has been charged with drug trafficking and money laundering. The DOJ accuses 82-year-old L. Louise Lucas of leading a criminal enterprise that acquired and distributed large quantities of marijuana and then laundered the proceeds.

31:42In a social media post, Lucas wrote she will not be intimidated or back down. And lab testing giant Quest Diagnostics said today that its systems were hit with a cyber attack this week and that certain patient records were accessed. According to a regulatory filing, the hack targeted a platform clients use to place test orders and look up the results. The company says it has paused access to the system while it investigates, Scott. I'll send things back over to you. Appreciate that, Dom. Thank you. That's Dom Chu. Up next, Josh Brown, best stocks in the market. Do it next.

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33:58All right, we're back. Best stocks in the market. Malcolm thinks I made this up like it's not even a real company. IQVIA. It's in my fantasy stock portfolio. What's the ticker? I swear to God, this company's real. The ticker is IQV. This is actually one of the best parts of the research that Sean and I do for best stocks in the market. It actually forces us to go beyond Meta, Microsoft, and look at other names that we otherwise wouldn't even take notice of. This is not a giant market cap. I think it's$25 or$26 billion. But the company's been in business since 1954, Malcolm. I wasn't around back then.

34:37Me either. IQVIA is a company that the drug makers hire to help them run their clinical trials, but also, more importantly, to help them track how their drugs are selling. They have one of the most important, if not the most important, private data sets for health care in the entire world. Like a lot of information companies, it got absolutely slaughtered earlier this year. Look at this. During the SaaSpocalypse, when people thought MSCI and Morningstar and all these data companies were going to be worthless in the age of AI. And then everyone realized a few months later, oh, wait, no, that's actually not how it works.

35:16The data becomes more important than ever. And that's what's happening here. So Q2 was announced. They beat on revenue. They beat on earnings. Adjusted earnings were up 12%. More importantly, R &D bookings were up almost 20%. And that's your sign that this is the company that's going to be the go-to for AI-related drug discovery. That's why the stock is working. You've got higher highs in the chart, higher lows as well. The stock went from about$155 in the spring to where it trades today. On CNBC Pro, Judge, we have all the levels that both traders and investors want to pay attention to. This was a lot of fun to write about.

35:55because I think we're putting it on people's radars for the first time. All right. Appreciate the push to pro. Again, Josh Brown's best stocks in the market. Make sure you check that out. Health care, by the way, another record high today. Underscores what we said at the very top of our program. Health care, staples, utilities, three best sectors. You have a lot of health care, don't you? AbbVie, Amgen, Gilead, J &J, Lilly. Massively overweight sector. I think it's an enormous beneficiary of a lot of secular trends in drugs. obviously, but there's also the forward benefit that I think we're going to see from the usage of superintelligence.

36:32I think this is going to be one of the ultimate beneficiaries, which really been interesting is we were able to do well in our growth strategies at the beginning of the year with our overweights to the core AI infrastructure and those names. And now we've handed the baton to healthcare, which is our other significant overweight in the portfolio. We are still continue to be optimistic on each of the names that we own, you know, whether it be Advey with Sky Rizzy and Renvoke. Our mutual friend Adam Parker had something out, I think, last weekend where health care among the 11 S &P sectors was one of the slowest to start hearing CEOs say we're beating our estimates because of some such AI investment.

37:18In forward growth. But right. But going forward, this is the sector where if investors start to hear about sped up data use and all the things that AI is doing for everyone else, I think it bodes well for a lot of the names in the sector. Do you not like the space? Well, I like the space. I'm starting to warm up to the space based on what these guys are talking about. I think it's one of the most obvious places that the deployment phase of AI starts to actually make waves. I think financials, obvious component, and I think that health care is an obvious health care, pharma, biotech specifically with bringing drugs to market faster.

37:54Those all seem like great places to be. But I also want to do my homework and make sure that I know the places that are most likely to benefit. All right. We'll take a break. We'll come. Sorry. We'll come back. Mike Santoli, his market memo is next.

38:20Senior markets commentator and overtime co-anchor, Mike Santoli, with his market memo. The tenure just broke below 5 percent. First time or the lowest in a month. I mean, if you continue to sort of dangle high yields out there at some point, there's going to be a lot of buyers. That's one of the takeaways. Who is doing the buying? Yeah. Are we worried about growth related to cracks in the AI trade? All the above? Well, I think it depends which direction you want to draw the causation arrows, because, you know, maybe it's a real world experiment saying that AI CapEx overheat was a significant component of why yields went up that much in the first place and why we had to build in a little more Fed, perhaps.

39:02And now you have a lot of these cracks on the credit side. Everyone's saying, you know, well, the market's doing the Fed's job for it. Right. We're tightening financial conditions. Part of the reason the market's doing that job is because the market got the message from the Fed saying we're going to be vigilant about inflation in the face of this CapEx binge. So I think all of it is working together. But, you know, from an investor's perspective, I do think the message got out as well that yields now provide a cushion, you know, at 5%. I think wealth management bought 5 % in size, just anecdotally.

39:32Yes. Advisors were rebalancing. Well, the flows show you that. Yeah. The ETF flows into fixed income, into treasury. I know we were buyers. Absolutely show you that. And you got around and it wrapped around a quarter end where all of the asset allocation of the mechanical funds were buyers. So here we are. I mean, it does show you that you can have the index weaken up when yields come in as well. That's that's the other switch. And we know it's a breath story now and it's a defense story. Oh, I was just literally going to go there. That's an understatement, too. Yeah. Right. Before you say, well, the breath looks really good.

40:06it's kind of bad breath. I mean, the staples healthcare utilities. Yes, in terms of the signal it's sending about macro, you know, maybe it is just the market reaching for the stuff that seems like it's stability. I do think it's kind of the market feels like it's late cycle tremors and you're trying to fight against that, but it can stay late for a long time. So, you know, you never want to say it's over. By the way, the low of the day in the S &P today perfectly held this uptrend from the July low. So, I mean, sometimes there's these kick saves happen for a reason. How are you thinking about the way that, you know, we started our program today and the conversation we had about this idea of scarcity of capital?

40:44Yeah. And what that could mean to the overall story when you hear it, you know, Jensen talking about it related to CoreWeave and then this meta note to shareholders within its filing about this dual, you know, this next class of shares. I mean, I think the market has been, we keep saying rationing capital and somebody's going to be left out and the marginal borrower is not going to be there. I don't think there's literally a scarcity of capital to complete what's been started and to kind of have a clearance of next 6, 12 months of what it's going to look like. The market's definitely, though, pulling in its enthusiasm about how open-ended this is.

41:24I think that's why Meta's getting hit, because the message from Zuckerberg is this is what we do. We consume capital to build, you know, whatever's next in technology. and they're just not signing up for it right now. I mean, sure, there's plenty of capital for those companies, but it's also to what degree are you willing to drain it to reach the goals that you set? And if you have to raise it, what are you paying for it? So if you go cash flow negative, then it's coming from one place. If you're raising it, it's coming from another. And it's coming from another at a much different cost of capital perspective than it was before.

41:59Yeah, so the market is resetting the incentives. for management to say, you know, show us a clearance toward going back to free cash flow positive, show some payback, whatever the metrics are supposed to be. You think it's a shock that Microsoft over the last month is up 5.3 %?

42:45All right, we're back. Houston, we don't have a problem anymore. We're back. Can you hear me now? Options Action, Oliver Rennick is in Chicago from the CBO Global Markets. And was it either yesterday or the day before you were looking at the K-Web? So we're staying global today. That's right, Scott. And as we mentioned, then the call buyers and K-Web have gotten beaten up all the way down. They are again today. But what's fascinating is that with everything going on in the market today, the most interesting options action is actually in the international market ETFs. If you go by unusual volume, not just K-Web, but EWZ in particular, the Brazilian fund.

43:25They're both down, but traders apparently see the pullbacks as a place to buy the dip. K-Web volume is twice the 30-day average with 64 ,000 calls trading versus just 10 ,000 puts. Lots of calls selling there, but also very few put buyers. But EWZ still is the one to really watch here. It's had a great run, and the options action is downright eye-popping. Over a million contracts have traded this morning, and about 80 % of them are calls on volume. That's eight times the 30-day average. And get this, the most popular contracts to buy in EWZ by a long shot are the 43, 46, and 48 strike calls expiring December 18th.

44:06That 48 strike is the cheapest, it's the furthest away, but it did the most volume and needs a 17 % rally to pay off. Oliver, thank you. Oliver Rennick, I'll see you this afternoon. You have Baba still, right? We do. We bought it in December of 23. It's up 50 % still. It's given a lot back, obviously, but it's still up 50%. They're suffering from the same capital intensity concerns that you're seeing across the enterprise. They do have a growing cloud business and a dominant e-commerce business. So whether they can monetize these things is still the question that's endemic for everybody. Here's the thing here.

44:46The valuation is much more reasonable. All right. The setup is next.

44:54There's your Nasdaq right now, 2.5 % decline. That's more than 660 points. Ugly-looking price action in some of these names. Meta, lows of the day, 7.5 % decliner. SpaceX giving back 7%. AMD, Micron, Hynex, Marvell. How about the power names in the AI complex? Vernova, down 11. Vistra, almost 10. How do you make this? Well, if you're at the tail end of the caboose, you're the companies supplying the components or building the power and counting on more and more and more and more CapEx as far as the eye can see. Yes, Meta firmed up the CapEx expectation, notably, did not up the ante. This is the first quarter in a while where we've been able to say that.

45:47And we still haven't heard yet from Alphabet, which may or may not do the same. Now they have cover. So now you could say, yes, we are every bit as bullish, we're every bit as aggressive, and we're just tightening up the range. And that is not the same as we're taking up our estimated CapEx next year by 20 million, which had been the trend for, I don't know, 12 quarters. I think it was a lose-lose, though, because if you did increase the CapEx expectations, then that means that you're going to raise more debt capital to do it, which the market obviously. May not have helped better. I think you're right.

46:19So that wouldn't have been a good outcome either way. So it wouldn't really matter. I think that leads to the conundrum, if you will, of how we started our show. If you come full circle, you have to make decisions on where the capital is going to come from. Balance sheet, debt market, somewhere else, issuing new stock. I mean, all of these decisions that are being made are a different kind of decision. based on a number of factors that have now entered the marketplace, don't you think? 100 percent. And I think the market will ultimately find equilibrium and digest that. And when you talk to any of the private credit funds, when you talk to the investment banks, they are saying that the companies that need it and have proper contract will get the financing, will be able to underwrite that growth.

47:08I think Josh pointed it out best. We are in a world of haves and have-nots here. Yeah, meta is not core weave. Correct. It is not meta. Especially when you're talking about when some of this debt comes due. The terms are so wildly different for the core weaves of the world. Much shorter time frame relative to some of these others, like the hyperscalers. It's pushed out over a much longer period of time, years if not decades. If you read the S1 that came out this week, the revised S1 on Anthropic, you very quickly learned the extent of adding up all of these commitments. And these are, whether you use the computer or not, you're going to honor these deals.

47:51This is like hundreds of billions of dollars worth of commitments that are going to go to the Google Cloud, to Amazon. The more important thing that needs to happen, SpaceX needs to keep delivering at the rate that it is and talking about building more compute. The component suppliers need that. The power companies need to hear that. And then you need to get this anthropic IPO. And it's got to open well. And I think if those two things happen, these stocks are not going to be blood red day after day after day. But they need this constant assurance now, which I think is a different environment than what we were in this summer.

48:27Looking at some of the banks, too, I mean, there's been some belief, certainly lately, that maybe they've woken up. Earnings are in the rear view. The trends for these stocks started to look a little bit better, not just on a couple of days, but I think more recently. You know, they're obviously red today. JPM's red. Goldman's down one and two-thirds. Citi's red. Morgan's red. B of A and Wells are not, but they're modest, only modest gainers. How are we thinking about these stocks? You're going to get American Express tomorrow. People will be paying close attention to that, not only because of the read-through to the consumer, but, of course, business spending.

49:06So I think that's a big one. They're expected to do$20 billion in revenue for the quarter, which would be a 9 % increase year over year. They can do that, and the usual, the consumer looks good from our end. The high-end consumer. Sure. But we got Capital One two days ago, and that was a great report, too. So if you get what I think you're going to get from AXP, there could be follow through to this rally in the financials. Some of the names levered to markets and crypto. Robinhood, five and a half decline. Coinbase, almost 5 % decline. So, you know, it's reasonably broad based. And again, it's Lamb Research, as we talked about earlier.

49:45Good enough, maybe not good enough. And that's why that stock is down, dragging a lot of other stuff in that complex with it. Let's do final trades. Good stretch. Good vamp. Thank you. Thank you. Hey, my first rodeo. Hey, my first rodeo, cowboy. He knows what he's doing. All right. What do you got? Z-Scaler. Service now. Spotify, Beast Mode. Love to see it. All right. So I'll see you at 3 o 'clock. Dan Greenhouse, Ed Yardenny. We'll kick all this around, obviously. We take it right to the bell. 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.

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