AI debt risks, tech sell-off and inflation 10/15/26

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1:18Good morning. I'm Dominic Chew in for Morgan Brennan. On this Thursday morning, we begin with the global tech trade sell-off that has the Nasdaq set to fall more than 1 % at the opening bell after closing down more than 500 points in yesterday's session for its worst day since July. Right now, the futures picture is showing more weakness for that tech-heavier Nasdaq trade, down an implied 345 points for the Nasdaq 100, the S &P 500 down about 14 points, and the Dow, slightly to the upside, implied higher by about 150 to 160 points. Now, the biggest NASDAQ pre-market laggards are all around this kind of AI trade and ecosystem.

1:57As you can see right now, we are seeing some movement there with regard to names like Rocket Lab, CoreWeave, SanDisk, Western Digital, Lulamantum Holdings. Many of these stocks are at the center of what's going on. The eye of the storm, however, remains the highly levered tech trade. Names like CoreWeave, also a$36 billion data center operator that owes nearly$50 billion in debt. Also, Oracle, with its own$125 billion debt load, both closing sharply lower yesterday and down again this morning. You can see CoreWeave down by roughly 6 % and Oracle shares down by nearly 2 % as well. Concerns over rising interest rates and future debt payments and obligations, sending the cost of insuring companies like these against default to record levels as well.

2:43These are the credit default swap moves that you've seen over the last year. Oracle's five-year credit default swaps up 283 percent. Corwee's five-year CDS up 180 percent. Now, speaking of rates, we're watching Treasuries as well after the U.S. 10-year yield spiked to as high as 5.32 percent yesterday. But we're backing off that markedly so. Check out the 10-year note yield right now, down to 5.098 percent, a massive move in just the last couple of days. Now, if you look at the rest of the curve, the two-year note yield is at 4.74 % and the 30-year long bond at 5.44%, so a bid to U.S. sovereign debt and a drop in rates.

3:23We've got global market coverage to kick off the hour with our own Ben Boulos, our senior technology correspondent Arjun Karpal in London. Also with us is JP Ong, live from the IMF World Bank meetings in Bangkok, Thailand. Arjun, we're going to start with you and the latest on the state of play around this AI trade.

3:43Well, look, Dom, so much happening over in South Korea. Markets in turmoil there overnight with the Cosby index down. Nearly 8 % dragged down by those big heavyweights, SK Heinex, Samsung. And this sparked a circuit breaker from the Korean exchange on both the Cosby and the Cosdaq, with trading halted for 20 minutes earlier today. It was the 10th activation of a circuit breaker on the Cosby this year and the 16th in its history, which just shows you how volatile this trade has been this year. Now, the moves today led to South Korea's financial regulator holding an emergency meeting today on the stock market, vowing a proactive response to ensure market stability and investor protection.

4:22Remember, many of the South Korean tech stocks are being traded with huge leverage, which may explain why we have seen some of these massive moves on the likes of Samsung and SK Hynix, two of the world's biggest memory makers as well. And the memory market itself has faced a number of headwinds this week. You had news of a tech breakthrough at Chinese rival CXMT. That dampened sentiment and a column today in a South Korean publication suggesting there would be an oversupply of memory in 2029, which added to some of the bearishness. But there was some good news in this AI market. TSMC, the world's biggest chipmaker today, reported record profit for the third quarter.

4:59It was the sixth straight quarter of record profit at the Taiwanese firm. And of course, we had those numbers overnight from Anthropic, which reportedly reported revenue of$16.8 billion in the third quarter, up from$11.6 billion in the prior quarter. So around 50 percent growth now. That's still very strong. But the FT reported that some of the investors were actually disappointed by those numbers. So a lot going on in these markets right now. Even that good news, Dom, was not enough to lift sentiment with this tech sell-off reverberating around the world. All right. Arjun Karpal in London with the latest on that.

5:35Thanks you very much for that. Let's get to Ben Boulos now with the market fallout and the ripple effects. Ben.

5:43Yeah, well, there's only one story in town this morning, and that is the AI jitters. We are looking at a sea of red for Europe's tech sakes. Have a look at some of the big names like ASMI and STMicro clocking very significant declines. The stock's tech index touching its lowest level in around three weeks. You can see ASML, which makes those lithography machines. Earlier in the week, it told us it sees a lot of demand for its products. And even so, it's still down sharply on the day. And it's not just chip stocks either. A lot of the European selling is coming from those data center exposed names.

6:22Nokia, Siemens Energy and the rest of the basket all feeling the pressure this morning. that, contributing to very much a risk-off sentiment on European equities this Thursday morning. Tom. All right, Ben Boulos with the latest there on the market ripple effects out in London. Thank you very much for that. Turning our attention now to the IMF World Bank meetings in Bangkok, Thailand, where earlier this week, the bank issued a new warning over the AI buildout and rising debt levels and the concerns there. That's where we find our own JP Ong. Live from the conference floor, JP, what exactly are the IMF folks talking about with regard to AI today?

6:59Yeah, Dom, good morning to you out there. And it's very interesting to note this report that really highlighted what they said were three key risks to watch out for for the global economy is highlighted by the IMF in that very report you mentioned. It's also interesting and timely that Arjun and Ben brought up this tech sell-off for seeing this Thursday tumble in tech stocks here in Asia and in Europe, because that was one of the big risks, one of the three major risks they highlighted, a possible correction in the AI market momentum right now, because we know the market momentum we've seen over the last couple of years, really driven by a lot of this AI exuberance at the moment.

7:30And if there is a correction and questions about these valuations that could see a pullback, as we're seeing signs of right now in Asia and in Europe, at least, this could lead to a market correction and lead to risks that can cascade across asset classes. They brought up also the rising sovereign debt levels and rising sovereign yields on the back of rising debt levels and questions about whether that debts and deficits from many governments can be sustained. In fact, IMF Manchin Director Chrysler Gurgheva actually issuing a warning for the United States, saying that despite solid growth in the United States, the United States or the American economy cannot grow itself out of public debt, and they need to start to trim down some of these deficits and debt levels to try and create more rationality, at least in their markets, unless there be more issues in that area.

8:11There's also the question of cyber attacks because of the prevalence of them and the systemic risk they're posing. Now, it's also important to note, Dom, that these three risks are also intertwined in some way. We have to remember that AI market valuations and the fact that AI companies are starting to dip into debt markets right now could also be one of the reasons why we're seeing debt levels pushed up with the web. Sovereign debt right now also could be raising bond yields and thus also making sure that these questions about AI valuations are also even more pronounced. Of course, cyber attacks because of AI agents going rogue also tied.

8:41We got some interesting comments from Erin Brown, the undersecretary for the Treasury today, who did say that she feels like it's a great time to invest in these high bond yields because she still feels these are risk-free assets. It also said that if she was a betting woman, she would not bet on the IMF because they get a lot of their economic projections wrong. That's the question, I think, for investors right now. Is it a good time to invest in these bond yields because the risks are starting to mount as high by the IMF? I'll leave that to your guests and to investors today when the market opens out there in Wall Street.

9:08But for now, it's back to you guys there and hopefully a good morning this Thursday. All right. Debt very much in focus. J.P. Ong in Bangkok. Thank you very much for that. Let's talk now more about the market action, Taiwan Semi and the overall tech trade. We're going to bring in Derek Yan, the senior investment strategist over at Crane Shares, which is the custodian of the AGIX Crane Shares public, private AI and tech ETF. It's a mouthful, but you should know the top holdings include names like Meta Platforms, Alphabet, NVIDIA, Microsoft, Apple, Amazon and the aforementioned Taiwan Semi. Derek, thank you very much for the conversation here this morning.

9:43Let's start first with the Taiwan Semi results. It's maybe not a surprise in this kind of a market regime to see a slight decline in shares of Taiwan Semi despite blowout results. What is your read on Taiwan Semi kind of akin to what's happened with the rest of the tech trade so far this earnings season? Yeah, I think the market is trading macro, but the TSMC result is a very strong signal that AI investment cycle is far from slowing down. The company delivered a clear beat, raising the full-year revenue growth outlook to 44%. And more importantly, they plan to add more capacity over the next few years because the supply is not really going to meet the demand.

10:32So we see that's really a signal that AI demand is broadening. More than just GPU is now the customer AI chips, the CPUs, networking for agentic AI. So I think like the AI infrastructure is now in the face of a sustainable growth cycle. OK, so if that's the case, we heard from ASML that the orders are going to go all the way through 2030. We've got this kind of big forecast from Taiwan Semi. Just how much do investors want in terms of extra growth to make these stocks go higher, even with the blowout results they've had? Yeah, I think the market is really now looking at the short-term macro signals in terms of the rates, in terms of, say, some news on Anthropik.

11:24But the short-term sentiment is not going to matter when you have multiple years of investment cycle. The fundamentals are going to show up to really help the P-E ratio. So that's something we think is actually an opportunity for investors to harvest those low like multiples right now because the macro signals. How much is the core weave news, the big driver of what's happening, especially with chip stocks, especially with parts of the supply chain, with AI data centers and hyperscalers? How much is the debt concern and spending concerns and CapEx concerns the real issue behind what's happening with some of these semiconductor names?

12:08Yeah, I think like the core weave is only like I think that rising rate is associated with one of their bond. So it's really like one issue for them. But just look at the broad market. The demand for AI now coming to the genetic AI is still very strong. We see multiple players now ready to commit to CapEx. And from the TSMC result, we can see that they want to check the power supply for the data centers on the ground to see if the data center buildup is ready. So with that, I think that's a very strong signal that even with that, TSMC is ready to add capacity, to add a new fab in Taiwan from today's earnings call.

12:59So that's really a validation that those guys are very capital disciplined. And with those capital disciplined, yeah. All right. And we're going to hear a little bit more about that kind of credit story later on vis-a-vis AI. Derek Yana, CraneShares, thank you very much. We'll see you soon, sir. We've got a lot more to come here on Morning Call, including much more on the global tech sell-off and what you should be doing with your money right now. And then later on, Apple makes history under new CEO John Ternus. We've got a very busy hour still ahead when Morning Call returns after this commercial break.

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14:47Get a quote in as little as eight minutes at ProgressiveCommercial.com. Progressive Casualty Insurance Company and Affiliates. Discounts not available in all states or situations. Welcome back to Morning Call. Again, news alert for you here. Axios is reporting that the FTC has sent civil subpoenas to AI giants, including Anthropic and OpenAI, seeking documents about safety incidents. The report says the scope of the probe is focused on potential consumer protection violations. We'll monitor for more headlines in the wake of that. But for now, those headlines are getting some attention with regard to Anthropic and OpenAI.

15:23Another check now on futures as we watch the tech route continue overseas this morning, in part on some of the AI funding worries, debt concerns. Right now, that tech-heavier Nasdaq trade is implied lower by 325 points, the S &P down by roughly 14 to 15 points, and the Dow eking out a gain of roughly 140 to 150 at the opening bell. Also top of mind, possible Fed rate hikes after yesterday's hotter-than-expected CPI report. We get a fresh read on inflation this morning with PPI expected to show a slight uptick from the previous reading. For more on all of this, let's bring in Aaron Gibbs, the chief equity strategist at Slate Stone Wealth.

16:03Aaron, as we take a look at all of the headlines that have permeated through the news cycle this morning and from yesterday afternoon, is it fair to say that the A.I. story is changing markedly because of these debt concerns? I wouldn't say markedly. I mean, we've already seen the significant increase in duration and just being short in duration. I think this is just sort of bringing it back to investors' memories or bringing it back that, like, we do need to be concerned about their debt levels. Fortunately, most of them do have locked in fixed rates for a very long time. And so even as we're seeing rate hikes on the Fed, that is going to be less of a concern for them because they already have their fixed rates.

16:50It's more of a concern of customers that have variable rates and are more on the short end rather than on the long end. But if that's the case, though, those locked in rates are for the spending that has been anticipated thus far. That is not accounting for any spending that they have to do above and beyond that at these higher rate levels. So that's the concern. No, no, no, absolutely. And but I think for me as an investor, yes, it's a concern. But we're looking at three to five years from now and three to five years from now, we could be looking at wafers instead of chips. We could be looking at just the how technology is changing.

17:29And so rapidly, those commitments three to five years down the road aren't concerning as concerning for me as an investor where I just really want to make sure I make money by the year end. Where there are concerns right now about making money is if you're a chip investor and you're waking up and looking on the screen right now and seeing. And by the way, this is not just today. Right. This has been a more near to medium term trend from the peaks that we've seen in semiconductor stocks. From an investment strategist standpoint, is this a buying opportunity or is there more caution to be warranted in the coming weeks?

18:02I think, look, I think we've always held the stance that there should be some caution around some, particularly around the chip makers names. Usually how we've played this most throughout both our large cap and our small cap strategies is usually using tertiary plays. So we're looking at like an ASML or a synopsis where they've got the contract. They already know that those orders are there. They know that they're going to be doing well for the next 12 to 24 months and using that. But I think, you know, just being more nimble. So, yeah, there are going to be concerns. You are going to have down days.

18:38is are they still probably going to outperform the S &P 500 over the next 12 months? Yes. But do you constantly need to be wary of any type of debt issue? I think a bigger issue is, is there particularly a bond contagion that could really send these guys down? And that's something that we're constantly looking at. But I'm looking more at strong cash flows, less these debt balance sheets, and looking at the tertiary plays that are just making money after money without having to take on all this debt. OK, so if that's the play, those tertiary plays with cash flow, what part of the market would you stay away from?

19:13So for now, I think financials, it's a tough market. And we're not seeing them make those significant increases in NII, though we haven't seen any breakdown in the consumer so far. We're definitely seeing that the banks, even though they beat maybe top or bottom line, we haven't seen these types of returns that we've seen for earnings season. It's early, but still not the kind of play that we want to look at. Healthcare, I know, is controversial right now, even though it's this secular long term. Again, margins, compressions, it's tough, tough area. And certainly we actually do like stocks that just have been a little more beaten up.

20:00So the semi is not quite. They're still trading at very high premiums. But again, software, infrastructure, those type of builds, great places to be. Still taking plenty of room to take advantage of these trades. Aaron Gibbs, thank you very much for the insights. We appreciate it. Thank you, Don. All right. Well, straight ahead on the show, the CEO of Lockheed Martin with our Morgan Brennan talking the U.S. expansion and munitions build outs. As we head out to break, a check on Rocket Lab shares sliding after the company said it's delaying the launch of its neutron rocket to next year. The company originally planned to launch it back in late 2025.

20:35CEO Peter Beck says the delay was caused by an issue with the manufacturing process. The neutron rocket had been seen as a possible rival to SpaceX's Falcon 9 rocket program. Morning call is back after this with Rocket Lab shares down 9%. Get ready for Thanksgiving with great deals and crowd-pleasing flavors from Whole Foods Market. Stock your pantry with 365 brand holiday must-haves like turkey gravy, organic green beans, crispy onions, organic stuffing, instant mashed potatoes, and more. Plus, find deals on frozen turkey, appetizers, and produce to check everything off your list early. Save on chef-inspired holiday favorites now at Whole Foods Market.

21:18With the Discover Cashback Card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to Discover. Terms apply. See discover.com slash 5 for details. 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.

21:57You 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. Welcome back to Morning Call. Well, as tech gets hit in the pre-market trade, one area that's not getting hit is defense. Checking shares now of Lockheed Martin, RTX, Northrop Grumman and Boeing. You can see they're all up in the pre-market trade. Lockheed shares coming a more than three and a half percent jump yesterday after announcing plans to expand munitions manufacturing at its Grand Prairie, Texas facility.

22:37Our own Morgan Brennan went inside that facility with Lockheed CEO and has this filed report. Our team here has designed a version of the Patriot that will be about half the cost and also do about 80 percent of the missions. Here in Grand Prairie, Texas, Lockheed Martin is expanding its missiles and fire control campus, part of a more than$8 billion bet by CEO Jim Taiklet to triple production of Patriot Pac-3 missiles and quadruple output of THAAD interceptors. We're marking the milestone of adding huge amounts of capacity to this facility, which is already existing. Hundreds of thousands of square feet of space.

23:18And with Chris's help, the most modern automation and robotics that you'll see in any factory in any industry is coming into or already existing in this site. As the U.S. fights its war against Iran and continues to support Ukraine and allies, the need for more critical missiles and munitions is surging, and stockpiles are dwindling. It's fueling a growing list of unprecedented deals by the Pentagon, with Lockheed and others, to make more weapons more quickly and in turn shift business models. We have a number of companies that in many cases are self-initiating, going out, buying a factory, designing a weapon, and bringing that to bear in a much shorter time frame than we've seen in the past.

24:08And so I think spurring that innovation, creating the conditions for new business to start, knowing that the demand is there, the need is there, and that the Pentagon is open to new ideas that the industry can bring and innovate, I think will give us a very healthy industrial base and will give our warfighter the weapons they need to ensure that we can maintain deterrence. In the case of missiles, the deals are worth hundreds of billions of dollars collectively. The companies invest up front and the government guarantees it will buy a certain sum over the next seven years. That means more factory space, more workers, more tech and more partnerships.

24:47We're bringing embedded manufacturing as a service, which means we're setting up and cooperating an enormous production line for missile components in partnership with Jim's wonderful team. How does that speak to what I like to call manufacturing 2.0, what we are seeing when new technologies come onto factory floors? You're seeing massive advances in physical AI applied to real production skill and production scale, but also a new way of doing business that was driven by people like Undersecretary and Secretary Hegseth, which is how do we bring all partners together, Hadrian, GM Defense, Lockheed, to really serve the mission of getting mass and scale to the warfighter as quickly as possible.

25:21And that is a massive new business model. Hadrian is a fast-growing startup using AI to build out new manufacturing. CEO Chris Powers says Hadrian will stand up two dozen machines just at this facility. It also means more suppliers. The deputy secretary of war called us in and asked GM, asked myself and our CEO of GM to help out. How can we help out? I reached out to Jim and his team, amazing partners to work with. So in a number of days, we came in, rolled up our sleeves. I brought my engineers. He brought his engineers. General Motors traces its defense contracting roots back to World War II.

25:58Now it's making parts for Patriot missiles. We actually had them done in about 10 days, but we were trying to figure out where to ship them to because we hadn't worked together yet. It all speaks to a big policy push to put the U.S. on wartime footing. As defense budgets grow globally, though, it isn't just AI infrastructure that is fueling stronger manufacturing data and economic growth here in the U.S. It's what's happening on the industrial front lines of factories such as this as well. And as reindustrialization takes root, new technologies like robotics are shaping what it all will look like.

26:30But with midterms looming and geopolitical risks rising, the key now is when and how Congress will fund it going forward. And that's Wade on Defense Stocks. So we are partnering with everybody that it makes sense to do so, no matter what space they're in. And what's really critical and enables this is the Department of Defense's openness now to commercial ways of doing business, which allows these kinds of companies to really weigh in. All right. You can see more of Morgan's conversations from Lockheed's Texas facility by going to CNBC dot com. Still on deck here on Morning Call. Much more on the big tech rate reckoning and if the bottom is in or if there's still room to fall.

27:16Morning Call continues after this break. I'm Dominic Chew in for Morgan Brennan. Welcome back to Morning Call. We're going to begin this morning with the global tech trade sell-off that has the Nasdaq set to fall more than 1 % of the opening bell after again closing down more than 500 points or 2 % in yesterday's session for its worst day going back to July. Right now, that tech-heavier Nasdaq 100 trade is implied lower again by 358 points. The S &P 500 is implied lower by 18 points and the Dow higher by just about 100 or so points. Now, the eye of the storm remains highly levered technology. Names like CoreWeave, a$36 billion data center operator that owes nearly$50 billion in debt, and then Oracle with its own$125 billion debt load as well.

28:02Both closing sharply lower in yesterday's session and down again this morning. You can see CoreWeave down by about 7 % and Oracle shares down by nearly 2%. We'll have more on that story in just a moment. Now, rates are a big factor in all of this. We're watching Treasury yields after the U.S. 10-year spike to as high as 5.32 % yesterday. But take a look today. That 10-year yield is now from 5.32 at its highs down to below 5.08, a massive move lower here in rates and a bid for bond prices. The two-year note yield, by the way, 4.73%, and the 30-year long bond, 5.42%. Now, a check on global markets amid that tech sell-off worldwide.

28:43The Nikkei closing down almost 5%. The Kospi falling over 7.5%. And by the way, triggering circuit breakers, a 20-minute trading halt over there at some point. And checking on European markets as well, you can see the FTSE 100 up half of 1%. The German DAX down one quarter of 1%. And the CAC in France up about one third of 1%. A check on some of the European chip names in focus today as well. arm holdings asmlst microelectronics infineon all anywhere from one to seven and a half percent lower for infineon in today's trade this is after steep selling in the asian chip names as well you can kind of see some of those moves there with sk hynix samsung toky electron advantis corporation all down anywhere from six and a half to 15 percent from event test in japan trading checking some of this morning's latest headlines and sticking with that sell-off in Asia.

29:38South Korea's financial authorities holding an emergency meeting today to review market conditions. Regulators now vowing a proactive response to ensure market stability, asking financial firms to make efforts on managing risk and protecting investors, again, given circuit breakers that got triggered over there overnight. Sources now tell CNBC Anthropic is telling investors its third quarter revenue stands just shy of$17 billion ahead of its highly anticipated IPO that's expected next month, adding the company is now profitable on an adjusted basis. Meanwhile, Axios is reporting this morning that the FTC has sent civil subpoenas to Anthropic and AI giants like Anthropic and OpenAI seeking documents about safety incidents.

30:23The company also telling investors its cash flow positive, generating one point seven zero in one point seven billion dollars in revenue for every dollar spent on computing during the third quarter. And Anderil will reportedly give employees a chance to sell their stock in a tender offer that could value the defense tech startup at roughly 90 billion dollars. The company confirming that report to CNBC back in May, Anderil raised five billion dollars in funding, doubling its valuation to sixty one billion dollars. Tesla will unveil the next generation version of its Roadster at an event this evening and has opened reservations on its website.

31:00The event was delayed from October 1st because of bad weather. Tesla originally announced the new Roadster back in 2017. Those shares down more than 25 percent from its high back last December. And then Barkley says a Tesla SpaceX merger could be announced ahead of Tesla's annual meeting, which is expected to be held by December 6th at the latest. Barclay says the true value of a deal would be the vertical integration of the company's AI technology, but a big hurdle would be getting both Tesla and SpaceX shareholders to approve the merger. Traders on Calci putting a 35 percent chance on the company's merger before next February and roughly a 50 percent move before April.

31:40Well, turning back to shares of CoreWeave down sharply again today after closing down more than 15 percent yesterday on growing worries. The NeoCloud company has borrowed too much too fast to finance its AI buildout. CoreWeave's bonds have sold off since completing an upsized offering in April, with yields sitting at near 15%. The cost of protecting the company's debt has risen, with its five-year credit default swaps blowing out past 1 ,000 basis points. CoreWeave isn't alone in showing signs of credit stress in the AI trade. Oracle CDS widening to a record above 280 basis points, and soft banks are also at record levels as well.

32:18Amidst all of that, for a contextual point of view, joining me now is Paul Meeks, the head of tech research at Freedom Capital Markets and the CNBC contributor. Also, Jordan Chalfin, the head of technology investment grade and high yield at credit sites. Gentlemen, thank you very much for being here. Let's start, first of all, Jordan, with you and what's happening with these debt stories around CoreWeave. We're watching rates rise yet again for that debt. What exactly is the ripple effect from the perception for investors that the debt may not be as safe? And how is that going to affect the AI trade?

32:54Yeah. Thank you for having me, Dom. The issue for Corleaf is they already have 40 billion of debt and consensus has them burning 80 billion of cash over the next three and a half years, which means that needs to get funded. And with unsecured bond yields now close to 16%, issuing unsecured debt is extremely challenging. If not, you know, it's not doable. They still can fund through the delayed draw term loans, which are secured by the chips and customer contracts. And they're going to have to rely more on equity and converts going forward. The problem with that is they've already done recently some equity in a lot of converts and the stock has sold off as well.

33:45And so financing their ambitious growth plans is becoming increasingly challenging. All right. Paul, as a fundamental analyst who's looked at a lot of these companies in the past and through various cycles, I wonder if we look at the cost of debt after or before before taxes and then you look at the cost of equity, given these rising interest rates and everything else. It's fairly safe to say that the weighted average cost of capital for a company like CoreWeave is a lot higher than some investors would would like to see. What exactly does that do to not just CoreWeave, but the rest of the AI complex, knowing that the cost of capital is as high as it is for many of these companies now, given what's been going on with CoreWeave?

34:34So, Dom, again, thanks for having me on. I would tell you, let's first touch on CoreWeave, and then we'll go broader. So I concur that the narrative has definitely shifted to the negative. and of course this puts their funding in peril. However, in the near term, fundamentally, and that's what I look at because I cover the stock, I have a buy rating on it, 151 price target. I recommended it in the 70s, now it's at 61. But this is the company that I see once they build out in 2028. I have in my model$43 billion in revenue, $29 in EBITDA. 67 % margin, even a 16 % margin on an operating basis. And I mean, this is a very good business when you get out there.

35:30Now, I've always worried not so much about the near-term financing risk, but more of the old-school construction risk. So I will tell you with CoreWeave, which is obviously the bellwether, and with other stocks that I cover, the AI Colos and other neoclouds, Yes. Unfortunately, when there is worry about the credit, then it spills over to the equity and then they all go down together. However, I don't see that. And fundamentally, this is a good business. Give them a chance to take this contracted revenue, recognize it on the P &L. We'll start to see more and more of that. And the real jump is in 27 and 28, when you go from a company that did 5 billion revenues in 25 to 43 billion revenues three years later with decent EBIT and EBITDA margins.

36:25And so fundamentally, I see a pretty good company. We'll see what happens. I don't like it, but I do think that this has been grossly over-exaggerated on the downside by both credit investors and stockholders. All right, Farah, I mean, interesting view there because you assign ratings, a buy rating and a target price to a stock for its equity. Jordan's job is to look at it from a bond investor's perspective and say whether or not the bond is worth buying and how safe it is. So, Jordan, I don't know whether or not you have any kind of a rating on CoreWeave or if you have any ratings on these other NeoCloud or AI hyperscaler type companies out there.

37:05But what exactly in your models is telling you something more cautious about what's happening with these neoclouds and other AI build outs? Yeah, sure. Thanks for that question, Dom. And look, I agree with Paul that the near term trends are extremely strong. You know, it's very tight AI cloud infrastructure, and it's going to remain that way, you know, at least through next year. I think that the risk here fundamentally is that there's potentially an overbuild over the next several years. And so this comes down to really two risks for Corweave, right? So they have one and a half gigawatts of active power, and they have plans to get that up over eight gigawatts by 2030.

37:48So the growth plans are really ambitious. So the risk here is that when the cycle turns, they're left with too much capacity as well as too much debt. The secondary risk for them is that once these initial contracts roll off after five years, there's renewal risk. A lot of their customers are the hyperscalers, like Microsoft and Meta. So if those companies are building out their own capacity in terms of data centers that are owned and data centers that are released, if there's an overbuild, they would not renew their contracts. So there's two, I think, major fundamental risks here for CoreWeave in addition to just the financing risk and high debt load.

38:33I don't have a recommendation yet on CoreWeave as I'm in the process of initiating coverage on them. I do have a buy recommendation on Oracle Bonds, which is a bit of a safer credit. It's an investment-grade credit. They do have open AI customer concentration risk, but they have a very, very strong existing business, which is something that CoreWeave doesn't have. CoreWeave has to – its OPEX is like 60 % of sales. It's about$7 billion run rate, whereas Oracle has been reducing its OPEX year over year. So they've had to scale up a business, which makes it, I think, challenging to compete on a cost perspective as well.

39:17All right. Now, Paul, I'm going to give you the last word here. In that coverage universe that you have, if it's not CoreWeave, is there a favorite pick that you have with regard to neoclouds slash AI data center build outs? So I cover down the three neoclouds, at least are described that way, CoreWeave, Nebius, and IREN. I really don't think that there's that much difference technology speaking between the two leaders, which are clearly CoreWeave and Nebius. And so I like CoreWeave just because it's relatively inexpensive. In the AI colo companies, I'm fond of Applied Digital, APLD. I also have a buy rating on Flex, which is an interesting story, Dom, because it is a contract manufacturer, been around forever since 1969.

40:08But in the first quarter of calendar 27, they are spinning off their own AI infrastructure business into a separate publicly traded company. So I see a nice opportunity there. I did a piece on CNBC recently on CNBC Pro. So check that out. But I like all three of those stocks now. All right. Paul Meeks, Jordan Chalfin. Thank you very much for the conversation. We'll see you again soon. Keep it right here. We're back after this. Welcome back. Time now for your call sheet. The crew members today are Matt Powers of Powers Advisory Group, Keith Buchanan of Global Investments and Jose Torres of Interactive Brokers.

40:45Let's start with our first topic, which is the tech concern right now. Matt, I'm going to go to you for this one first. Just how concerned are you with the now shorter to medium term sell off that we've seen in certain parts of the market, specifically chips? Yeah, good morning, Dom. Thanks for having me. I mean, can we be surprised? I still wouldn't be selling technology across the board here, though. I'd be taking some of the profits in positions that are oversized and keep companies where earnings can support the valuations and put the money to work elsewhere. But valuation reset here, and chips specifically, I think rough patch is maybe a polite way to put it.

41:21We're an eight-day losing streak on the socks. It's a trillion dollars wiped out. Longest skid we've seen in over a year. So it's just a lot of things, reality check on spending, and then obviously the debt issue. So Taiwan semi-reported, you know, I confirmed demand still there. But my biggest concern here is that should have put a floor, I think, on the drawdown. But I'm not sure that'll be the case here. You know, I think the correction could continue to run deeper from here. Keith, have you found any opportunities given the sell-off that we've seen? It hasn't been massive, but it's been enough in historical terms over the last 10 years where people have started to nibble.

41:56Yeah, we've been concerned about the valuations for this space going on a better part of a year now. So we feel like there's still some room and cushion for some of the expectations and optimism and hope, frankly, to kind of whittle down. And we don't think we're at the end of that phase yet. We're hunting in other spaces and asset classes, but just not yet in that space of AI-related technology spend. All right. Well, a lot of the issues that we've had so far come from what's happening with interest rates, more broadly speaking. So let's talk a little bit about the inflation story right now. Jose, inflation worries percolated a little bit yesterday with the consumer price index.

42:31They may or may not percolate more with the producer price index today. What are your expectations? Unfortunately, Dom, the bar here for both the PPI and retail sales is particularly low. So I do think that the market could be confronted with that headwind later today with those hotter economic reports that could lift yields. However, we are near technical support on the S &P 500 and the Qs right around that 50-day moving average. That has called bottoms recently. So I think that we could have an intraday rally, hopefully midday. Been a long losing streak and seasonals too, Dom, here flipping positive around mid-October into year-end economy doing pretty robust.

43:15So I think we should all be positive here. All right. So let's talk a little bit about the carry through for the Fed, because at the end of the day, that's what's important, if they're going to raise interest rates. Keith Buchanan, given the backdrop that we've seen, is the Fed going to have to raise rates one more time this year? Look, Dom, I think the biggest takeaway of the last week is the Fed has lost some optionality. And as we looked before last week, the market expected the Fed to hike three to four times out of the next five or six meetings. That window's tightened, and the market's now expecting even more hawkishness on the part of the Fed, which kind of closed the window on what options they have going forward.

43:54So it makes an even more difficult scenario for the Federal Reserve going forward. All right. Now, Matt, we've seen a big spike in yields over the last 48 hours and then a big drawdown in yields today. Does it signify to you that there's a buying opportunity in certain parts of fixed income? Yeah, I mean, no surprise. And high rates add pressure to a lot of parts of the market for a lot of reasons. But for individual investors, that's who we work with. I mean, when you can get over 5 % with relatively low credit risk, I mean, you have to think differently about what you're going to pay for stock.

44:30But I wouldn't lose sight of the fact that it's the payout on a treasury is fixed. It's a nominal yield. So you'd have to be looking, and I think you know this, that I work in a lot of dividend growers, a lot of dividend stocks. So certainly you'd look for a dividend grower that has a low payout ratio and can sustain the the payout long term. But, you know, it's I just pay attention to companies right now. If yields stay elevated that are carrying a lot of debt, you know, the rates where they're at, even though they have pulled back, you know, I think refinancing becomes a real problem for them.

45:00All right. Jose, if we look at the parts of the kind of fixed income complex right now, where do you think the relative value is at the current state? Is it in those treasuries on the longer term side of things, shorter duration ones, corporate investment grade, high yield, private credit floating rate. Where exactly would you be going with this? I like the high yield segment here, Dom, because I think spreads have widened out way too much. First off, I think rates jumped way too high due to elevated issuance from both the Treasury and the corporate sector due to AI. And I think the nerves around fiscal conditions are also at extremes when you look at term premiums.

45:37So you put that two together, when you have a little better sentiment on Wall Street, more animal spirits coming back. Expect those spreads to tighten. Expect rates to come down. And I think in stocks, a small cap area is going to have a big recovery as well. All right. Jose Torres, Keith Buchanan, Matt Powers. Thank you guys very much for the conversation this morning. We appreciate it. Futures are very mixed right now.

46:03Oh, look. You just got added to a meeting about coordinating another meeting to prepare for the pre-meeting ahead of the follow-up meeting, which will, of course, require a recap meeting. And then another meeting. Hit your booking point, book with Southwest, and enter airplane mode. So