Anthropic IPO, AI spending and Fed outlook 10/27/26

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0:49Shop Black Friday early in-store and online now at Lowe's. Valid through 12-2 while supplies last. Selection varies by location. See associate at lowes.com for details. I'm Morgan Brennan, and this is your morning call.

1:17Good Tuesday morning. Let's get a check on U.S. stock futures with the S &P 500 coming off of its best day in nearly a month. The Dow seeing a fourth positive session in five. So basically we saw gains across the screen for the major averages yesterday. As you can see right there on your screen, it's a mixed picture this morning. The S &P poised to open up ever so slightly higher, about two points. The Dow, 49 points. And the Nasdaq, flat to the downside right now, poised to open lower to the tune of about six points. Treasuries are also in focus here as the Fed kicks off its two-day policy meeting today.

1:49And you can see right there on the screen, U.S. 10-year Treasury yielding 4.98 percent, essentially unchanged right now. Fed-sensitive two-year, a bit lower here. The yield, 4.71 percent. And a 30-year Treasury, 5.30 percent. We're also getting reads on durable goods, housing, consumer confidence. And let's get a check on what we're seeing in the energy complex as well, because we've reversed course here after some pressure overnight for crude prices climbing again, with WTI up about trading right up about three quarters of 1%, trading around$102.50 a barrel. Brent crude is also up about half a percent right now, trading around$116 a barrel.

2:30Keep an eye on NatGas, though, because that's under pressure again this morning. We're basically at the lowest levels for NatGas prices, at least here in the U.S., since April. We're going to turn to some of this morning's big stock movers. Blackstone, Bank of America, Citi, and Morgan Stanley are forming a$63 billion financing vehicle for Broadcom's AI technology. This is to buy AI chips and to lease them to Anthropic. Deliveries to the new vehicle are expected to start next year. And, of course, that comes on the heels of that S1 from Anthropic. More on that throughout the hour. Meantime, let's get a check on JetBlue because it says it's still on track to be profitable in the near future, despite projecting a deeper operating margin loss this year.

3:10JetBlue reporting a wider third quarter loss, largely on higher fuel costs. But the company does say that strong travel demand and higher fares are helping to offset that impact. This is what we've been hearing throughout the earnings season from all the major airlines. And you can see shares of JetBlue are popping up 6 percent. There had been a lot of concern. The bar had been very low going into this report. Whirlpool swinging to a third quarter loss, an unexpected third quarter loss and revenue missing estimates as well. The company expects to report a full year loss and is cutting its revenue guidance, citing higher raw material and fuel costs, the impact of interest rates on home sales and inflation and consumer spending.

3:48You can see shares of Whirlpool are down big pre-market, about nine percent right now. and NVIDIA and Meta are teaming up to expand their work on Meta's Muse AI Assistant. Meta plans to expand the use of NVIDIA infrastructure, including Vera Rubin chips and CPUs. NVIDIA will invest$3 billion into Meta's new Class A stock offering, which the company has upsized to$25 billion. That offering is expected to close on Thursday. You can see shares of both are essentially flat here pre-market, but that was some of the new news here, the number that we're getting,$3 billion from NVIDIA. Let's see how Europe and Asia are shaping up.

4:25Ian King is in London with that trade. And Ian, it's great to have you on the show. Welcome.

4:32Hello, Morgan. Thanks for having me. Yes, Asian stocks have climbed today as Anthropics' easily anticipated IPO filing has lifted risk appetite. Investors are also watching tech earnings this week, as well as key central bank decisions. The Kospi and Korea gabbing the yellow lead of vest in Asia overnight. Meanwhile, here in Europe, AI optimism is ebbing away as investors focus on a raft of earnings this morning from the likes of HSBC, Porsche and Novartis, among others. Here in the UK, we're gearing up for Chancellor Healy's first autumn budget due tomorrow, which will no doubt keep investors and bond market watchers occupied.

5:09If you look at HSBC, its profits surged by 32 percent in the third quarter, with the lender seeing a major boost from higher interest rates and cost cutting measures. Pre-tax profits hit$9.6 billion, which was a tad weaker than expected. But investors are focusing on the lender's wealth business, where revenue came in flat at$2.7 billion. HSBC off nearly 7 % here in London right now. elsewhere in Europe, well, Novartis raised the outlook for its fully a core operating income after stronger demand for its cancer and multiple sclerosis drugs. The pharma giant reported a 4 % rise in third quarter net sales, slightly missing expectations.

5:46but core earnings per share grew by 9%. The CEO, Vaz Narasiman, told CNBC the company is well positioned for the fourth quarter, saying that next year will all be about new growth and new product launches. Morgan, back to you. All right, Ian King, thank you. Let's talk more about the markets, which are coming off a positive start to the week as we gear up for an onslaught of earnings. We got the kickoff of the Fed meeting today. Much more that we're tracking. Joining me now is John Stoltzfus, Chief Investment Strategist at Oppenheimer. John, it's great to have you back on the show. What matters the most to you?

6:18What matters the most to markets right now in a critical week like this? Oh, great to be on the show. I think two things really sort of the old word. It's in stereo. I think it'll be the Fed's decision tomorrow. But today, the ongoing story, our earnings looking, all the market really cares about ultimately is revenue growth or sales growth and earnings growth or profit growth, basically the same things. And when you look at it, We're still in a world of remarkable resilience, considering all the concerns out there. When I was looking this morning at the earnings for the S &P 500, with 132 companies out of the 500 so far reporting, sales growth up 11.59, earnings growth up 36.6 percent, better than Faxet's expectation of around 29 percent growth at the beginning of earnings season.

7:12And all in all, you know, it's it's a little bit slower than than it was just a couple of weeks ago, you know, about a week ago when we were on 49 percent earnings growth. But this is looking good. It looks like that resilience remains. So in light of that, what are the areas of the market that you see as most compelling as we go through this earnings season? Well, I think it depends on what day you look at. But, you know, when we have a risk on day, it's going to be tech communication services for the rally potential that those sectors have. And then in addition to that, consistent on industrials.

7:49We can't help but think that the industrial sector makes sense. We also like energy. We think energy continues to be a focus point. Iran's situation not finished yet. And then materials, because to do all the building, all the stuff, whether it's for data centers or whether it's for pharmaceutical companies or chip companies that are building something in this country now, you've got to have materials and you need industrials. I mean, and to your point, we see Exxon and Chevron trading at record highs right now. I mean, we started the week with quite a few headlines regarding AI and AI funding.

8:25I mean, you've got Meta launching a$95 billion share offering. You've got Andy Jassy over at Amazon coming into the weekend talking about cloud capacity sold out, mostly sold out through 2027. You had SpaceX close that$40 billion debt deal. Anthropic, of course, dropping its S1 finally. Long anticipated and certainly poised here to go out before Thanksgiving. Is this a boost? Is this a confidence boost that the market needed? Or is this just a sign that more capital is going to the biggest companies within this AI ecosystem right now? And perhaps there is going to be some consolidation with some of the smaller players.

9:03I think it's a combination of the two things. In essence, you know, if you hear the comments that were recently in an interview with Rick Ryder of BlackRock that came out, There seems to be plenty of appetite for buying debt in terms of the build-out related to the data centers and the AI story. In terms of whether there are going to be problems along the way, inevitably. Any time, whether it was digging canals, early steam railroads, big-time railroads, trucking, automobiles, the Model P, any time you get technology involved, you're going to have good things, bad things. But technology, once the genie is out of the bottle, never goes back.

9:47And if it's not doing it right, it tends to morph. And ultimately, up to today, we're all on the upgrade cycle, whether we like it or not. So we have to stay flexible. And the investment area for growth appears to be better in tech and in the communication services than other sectors overall because of the growth rate. But you need to be diversified across all the sectors because this is an 11 sector story, Morgan. It just is. And it's exciting. All right. John Stoltzfus, thank you. Thank you. Kicking off an exciting start to the hour. We've got a lot more to come here on Morning Call, including a roller coaster ride for Brazilian assets in the wake of presidential election runoff and upset.

10:35Plus, Israelis heading to the polls in what's seen as a critical test for Prime Minister Benjamin Netanyahu's staying power. We have a live report from Jerusalem next. And later, Anthropics IPO filing, boosting tech trade sentiment. We're taking a closer look at one detail you may have missed and what that could mean for the AI build-out narrative. We've got a very busy hour still ahead when Morning Call returns. This message comes from Wise Business, the only account your business needs to scale globally. You're building a business with global ambitions, but hidden fees are eating into your margins.

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12:32Welcome back to Morning Call. We're turning to a developing story and the wild market and election action that we have been witnessing in Brazil. The latest, Brazil's leading right-wing politician, Flavio Bolsonaro, says he is backing off his calls to challenge the outcome of the presidential election that saw Lula da Silva secure an unprecedented fourth term in office following a runoff over the weekend. Bolsonaro now effectively conceding defeat, instead saying he will file a lawsuit accusing Lula of abusing the power of the presidency to influence the vote. This is a move experts say is routine by losing candidates and one that usually does not succeed in court.

13:08Now, on the back of the Bolsonaro defeat, historic swings in the country's equity, bond and currency markets, starting with the Brazil trading EWZ ETF here in the U.S., closing down more than 19 percent yesterday. The market had been pricing in a Bolsonaro win. Keep in mind, Congress was a right-leaning sweep in Brazil as well, but the Lula result was a surprise. Names like Petrobras and Itaunibanco, the largest bank in Brazil, closing down double digits yesterday. On the currency front, we saw huge swings in the real in the past 36 hours. And you could see maybe a little bit of stabilization here, but still weaker against the dollar.

13:47It's the same with the country's benchmark 10-year bond yield, too. But if we shift, because it is political season, and while we're one week out from U.S. midterms, we're going to shift from one election to another today. Israel stocks are riding high as that country heads to the polls today to decide the fates of its embattled prime minister, Benjamin Netanyahu. The iShares Israel MSCI ETF is up more than 20 percent in 12 months, nearly double that of the S &P 500. And this is the country's first election since the 2023 Hamas attack that killed more than 1 ,200 people and saw another 251 taken hostage by the militant group.

14:24MS Now's Josh Einiger is live in Jerusalem with the latest. Josh. Well, Morgan, good afternoon here in Jerusalem. This is one of 12 ,000 polling places across the state of Israel right now in what is expected to be perhaps the most heavily turned out election in the country's history. As you said, embattled Prime Minister Benjamin Netanyahu is fighting for his political life. He's actually running behind his most prominent opposition leader, a man named Gadi Eisenkot. But this is not actually about an election just for prime minister. This is a parliamentary democracy here in Israel. So what people are voting for is to seat the Knesset.

15:07It has 120 seats. There are more than three dozen political parties running for seats in the Knesset. So it has never happened in Israel's history that someone wins outright on Election Day. What will happen after a long day of voting and vote counting is that the president of Israel will get involved and will try to determine which leading candidate has the best chance to form a coalition that will then get that person's party over the 50 percent mark and then that person would then be prime minister. So even if Netanyahu is unpopular and unlikely to get the majority or at least a plurality of votes today, It still does not count him out for perhaps continuing in his reign as prime minister.

15:46All of this, of course, fraught with tension. As you say, it's the first election since the October 7th terror attacks and all the wars and all the drama since then. Tens of thousands of Israelis returning home to cast their ballots today. Morgan. In light of all of this, how long potentially could we expect it to take to come to an outcome of a decision of a new prime minister? And I ask that knowing that Israel is fighting wars on multiple fronts right now, but we also here in the U.S. are awaiting midterm elections here and the possibility of renewed strikes that would include both the U.S.

16:20and Israel, too. All of it is so closely interwoven, Morgan. It's a real complicated web here because one thing obviously leads to another. First question, it could be weeks, if not more than a month, for this coalition building exercise to take place. Look, it's possible there could be a significant outpouring for one candidate or another or even a whole different candidate, a different party that is not at the top of the polls. The polls have been all over the place. I sat down with President Isaac Herzog the other day and talked extensively about this. He said the process could take a month or two, and he has wide discretion to make a decision.

17:00The thing no one wants is for him to have to call another election. And as for Iran, look, it's very clear Benjamin Netanyahu has made no secret about his desire to resume kinetic activity with Iran. He has been in close contact with President Trump, who has endorsed Netanyahu. The world is really waiting to see what happens here, because, of course, it will have huge ramifications on the war in Iran and all the other entanglements that are ongoing all throughout the region. Yeah. And of course, all of this amid reports coming out of the weekend, too, about Netanyahu's attempts to, I think, restoke some of these strikes ahead of the elections.

17:39It's certainly as we see in every political cycle in every country, there's been no dearth of controversy coming into today. Appreciate it. Josh Einiger, thank you for joining us. Keep us updated straight ahead. Thanks, Morgan. The mobile network battle is heating up. Why my next guest's company could offer SpaceX a blueprint for its future cellular network ambitions stateside. Plus, what the CEO of Verizon just told analysts about its plans when SpaceX's cell service comes to market. Reaction to all of this when Morning Call returns. And if they build a terrestrial network, it will basically look and feel like every other network.

18:22There's no magic wand. There's no secret sauce. There's no shortcut. There's no radically lower structural cost advantage. And then sometime over the next four, six years, they have the possibility of becoming the sixth, not the fourth, the sixth competitor in the market. And frankly, at that point, I welcome the opportunity to compete against them. It's very hard to throw a punch against something that doesn't exist. But once they come into the market, we will be ferociously competitive. This is Blue from the UPS Store with a very special holiday announcement for small business owners. We're open!

19:08Let's be real. Your deadlines don't take holidays. So while the other guys are checking out, the UPS Store is here to pack, ship, print, shred, notarize, and check more things off your list all year long. With over 5 ,500 locations, there's a blue near you at the UPS Store. Shredding services are provided by Iron Mountain as is. Visit the upsstore.com slash shredding for full details. Most locations are independently owned. Products, services, prices, and hours of operation may vary. See store for details. Ever notice how every new AI tool asks you to explain your business to it all over again?

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20:17Welcome back. Ukraine says access to the Starlink satellite service and military-grade StarShield system have been restored to connectivity speeds that it had before disruptions that lasted more than a week, impacting Ukraine's fight against Russia and stirring controversy about where, how, and why service was curtailed and who gave the orders. Well, in a post on X this weekend, Elon Musk acknowledging that SpaceX had slowed the civilian Starlink service, claiming Ukraine violated the terms of service by using it for offensive military activity, which is which Ukraine's government disputes. And using Starlink for such activities has been a long held red line for Musk and the company.

20:51It's a reason the U.S. government actually owned and controlled military version. Starshield was established in the first place several years ago amid the Ukraine war. Nonetheless, Ukraine saying service has been restored. And the bigger topic perhaps now is how this accelerates demand for alternative satellite broadband. Few services are operating at scale, but a number are being developed and deployed from Utilstat, Amazon, Blue Origin and others. That's just one piece of the Starlink story. Vion is a telecom and digital services company that operates in Europe and Asia, counts Ukraine as one of its largest markets and partners with Starlink to offer direct to sell consumer service in Ukraine, Kazakhstan and Bangladesh.

21:31Joining me now is Vion CEO Khan Terzullo. Khan, it's great to have you back on the show. Welcome to you. A lot to talk about. First, I do want to start with the fact that you have a big operation, Kyivstar, in Ukraine. Was it impacted by the throttling that we have gotten reports on regarding Starlink earlier this month? Thank you for having me back. No, since the start of the war, Kiev Star has been providing connectivity services to all of its customers. And as you can imagine, terrestrial networks during difficult times, it can be earthquakes, floods or war, has limitations. And that's why we took the decision to integrate our terrestrial networks with the Starlink satellite platform.

22:18And we have been providing direct-to-device services actually in the last nine months. And our services has not been impacted. It's a commercial service. It provides safety and security for civilians, and it will continue doing so. And I'm very proud to say that this approach of focusing on what matters for the customer has resulted in 11 million people in our markets, like Ukraine, in Kazakhstan and Bangladesh, benefit from direct-to-device services, directly connecting their smartphones to satellites. That is actually more than half the number of global direct-to-cell users. And it shows, you know, it has an immediate impact on how people feel when they need connectivity.

23:04And I think, you know, this is what we need to do as an industry. If there is a solution for the limitations of terrestrial networks, we should take action and do these integrations as soon as possible. I mean, and what you're saying sort of speaks to what it is to operate a wireless service in a conflict zone. But how does it also speak to how that mix between terrestrial-based assets and space-based assets, in this particular case, SpaceX and Starlink, are continuing to evolve here? Yes, absolutely. I'm just actually back from Astana, from Kazakhstan, a country bigger than the size of entire Europe.

23:41And we have launched our direct-to-sale services about a month ago in Kazakhstan. and what we are observing is one out of four Kazakhs during a period of 30 days a month, they are outside of coverage of terrestrial networks. And I think, you know, that's so important to have 100 % connectivity everywhere, whether it's a steppe or a desert or a mountain. And I think, you know, that's a big advantage for people. And our purpose is to bring better life for all and how it can do without having them connected every time they need connectivity. We got Verizon earnings yesterday and the CEO, Dan Schulman, had quite a bit to say on the conference call about Starlink Mobile.

24:23And I did want to get your thoughts on that and sort of understanding this business, particularly outside of the U.S., because he basically said this is going to take a minimum of four to six years to fully build out in the U.S. Starlink Mobile, it's going to cost, he says he estimates, somewhere between$300 billion and half a trillion dollars over the next seven to eight years. I want to get your response to that and also how it speaks to the U.S. market versus international markets. Look, every market has its own dynamics, and I respect the comments by the CEO of Verizon. But in our markets, which is Kazakhstan, Uzbekistan, Ukraine, Pakistan, Bangladesh, our partnership with Starlink actually relies on our license, on our capabilities in terms of spectrum ownership and our own core networks, which allows us to deliver our responsibilities against the governments and this public in the countries that we operate in.

25:20So I think this is a perfect match in our markets. I do not see this as a competitive potential foul play. I think, you know, we work together and we provide a better service for our customers. And we will continue doing that in all the markets that we serve today. Will you, as we see other services come to market, will you partner with others as well? Look, I look forward to having more alternatives because, you know, better alternatives and naturally more services available. We will, of course, look, neither us nor Starlink is exclusive on these deals. I think it's a matter of pioneering a new technology.

25:58And I believe today's cost to send a satellite to space has an advantage on SpaceX and Starlink. and we don't want to wait. We will use whatever is available and today's solution is very clear and it is working. Okay. Kondterzilo, it's great to have you on. Avian, appreciate it. Thank you very much. Still on deck. The$112.4 billion anthropic question, what it means for the future of the AI build-out. Morning Call continues next. I'm Morgan Brennan. Welcome back to Morning Call. Let's get a check on U.S. stock futures, which have flipped positive in the past few moments. You could see all the major averages are poised for gains again today.

26:41That's after gains yesterday. To start the week, S &P is indicated to open up about six points. The Dow up 70. The Nasdaq now up 16. So modest moves so far pre-market, but in the green nonetheless. A number of stocks on the move as well, including Broadcom on the heels of its new financing deal, a number of big banks and financial firms, NVIDIA and Meta with their new partnership and share sale. And Whirlpool and JetBlue on the back of their results. Whirlpool is down 9 % right now. JetBlue is popping almost 7%. And again, keep an eye on Broadcom, which is up more than 1 % pre-market on that financing vehicle tied to what else?

27:20Chips. Let's take a look at the bond market, too, as the two-day FOMC meeting kicks off today. We get that decision tomorrow afternoon. You can see, for the most part, yields are lower across the curve. U.S. 10-year Treasury basically unchanged here, 4.98 percent. Fed-sensitive two-year Treasury down a bit, 4.71 percent, and the 30-year Treasury 5.29 percent. Let's also get a check on energy and what we're seeing in the crude complex right now because it is moving higher oil prices. WTI is up about two-tenths of 1 percent, trading around$101 a barrel. Brent is also up fractionally trading just below$116 a barrel.

27:58Our Bob gasoline futures are higher, and actually keep an eye on natural gas because that's under pressure again this morning. And we're basically in the U.S. at nat gas prices that we haven't seen, levels that we haven't seen since April of earlier this year. Let's turn to Anthropic and the S1 IPO filing, boosting sentiment across the tech trade in a very big, big way yesterday. But buried deep in the numbers is one multi-billion dollar figure that could make corporate American history. Our Leslie Picker is digging through the report and joins us now with more. And Leslie, digging is the word, almost 400-page prospectus.

28:37Yes, there has been a lot of digging, Morgan. But one surprising finding from that digging from yesterday's S1, Anthropic could soon have more cash than almost any other U.S. tech company. This nearly six-year-old company reported a whopping$112.4 billion in cash, plus another$19 billion in short-term investments as of June 30th. That amounts to more than Meta, more than Microsoft, NVIDIA, even Amazon. And if Anthropic were to raise, say,$100 billion in its IPO, it would surpass Apple's cash hoard as well. In fact, it would rank among the most cash-rich companies in the U.S. outside the banking system.

29:23Now, to be sure, Anthropic hasn't shared specific details about its offering size yet, and it insinuated in yesterday's filing that secondary shareholders would also be selling, meaning that the company itself won't collect the entire fundraise of the IPO. And those details will be disclosed in roughly two weeks' time, hopefully. Additionally, relative to its big tech peers, Anthropix cash comes pretty much entirely from its prior fundraising, which is likely to do more of even after the IPO. Other incumbent cash-rich companies typically generate cash from profitability, of course, although Meta just yesterday announcing plans for a$95 billion equity raise.

30:06On an adjusted non-GAAP basis, Anthropic generated$1.6 billion in operating income for the first six months of the year before deducting for stock-based compensation expenses. So profitability on a non-GAAP basis. However, the company also outlined a variety of future long-term compute obligations, leases, and fixed commitments that span 1 to 20 years. Anthropix said these amounted to about$587 billion as of June 30th, plus a separate$245 billion tied to new and amended agreements. So if cash is king, compute may be the biggest claim on the crown, Morgan. I think you just touched on it, but I want to dig a little deeper.

30:49I mean, Anthropix is on the hook to pay more than, what,$475 billion in compute capacity agreements over the next, call it, 7 to 10 years. The bulk of those deals, the exception, I think, here being SpaceX, but the bulk of those deals are non-cancelable. So the fact that they're sitting on this giant cash pile, is it anticipation of that or something else? Yeah. Yeah, exactly, Morgan. So the cash is in there now, and the S-1 that was filed yesterday indicates a huge pile of cash. But as you mentioned, compute is expensive, and they have these commitments. They have these agreements, but they did mention in the prospectus that from an accounting standpoint, those don't kind of flow through to the cost line until that capacity gets utilized.

31:33So while they have those agreements, they just haven't necessarily hit the income statement or the balance sheet in a way that would be super visible at this point in time. For the first six months of the year, they spent about a little over, let's say, just shy of$9 billion on compute and infrastructure relative to more than$16 billion in revenue, which didn't sound absolutely crazy, terrible, especially for a company as young as this one. But when you dig a little bit deeper and look through those footnotes and see the various commitments that they have, the various lease agreements that they have, you see that there are plenty of expenses out there.

32:11They just have yet to really filter through to the bottom line. OK, Leslie Picker, thank you. It's great to have you on to lay all of this out. And there's so much more. We could just dedicate hours just to this. Let's get more on Anthropic. Let's bring in Moritz Potts, founder and CEO of Temma ETFs and custodian of the Temma Photonics and Optical ETF. The ticker here is LAZR, and that counts Anthropic among its top holdings. So before I start getting into the S1 and your thoughts on the company and the details we've gotten here, Moritz, I do want to just first start with what Laser has in terms of Anthropic holdings.

32:48You're holding actual shares of Anthropic ahead of the IPO. Correct. So first of all, thanks, Morgan, for having me on the show. In our lazy ETF, we have the highest exposure to anthropic of any ETF through preferred shares that are structured in an SPV, which we do not charge any incremental fees, and we keep the valuation at the$1.4 trillion cost until the IPO. So this is the only way to get over 3 % anthropic exposure in an ETF today. OK, so you said until the IPO, does that mean that you will reconsider your position once the company starts trading publicly? So once the company starts trading publicly, the valuation of the anthropic shares move from cost to market, at which point the basis is determined by the share price.

33:35We do not write up the share price before the IPO. OK, in terms of this nearly 400 page prospectus, which includes 94 pages of risk, risk factors associated with the company and AI overall, what were your key takeaways? I think there was three real key takeaways. It was compute efficiency, code efficiency, capital efficiency. Compute efficiency, the revenue per dollar of compute has grown 500 % over the past year. Code efficiency, the code contributor per engineer has gone up an incredible 45 times over the last 18 months. And then capital efficiency, the business has$130 billion of cash available today, having raised$140 billion, which would suggest that net-net, it's only cost$9 billion to date to build the business.

34:22Now, what's also revealed in S1, that the company has$400 billion of long-term compute commitments. So ultimately, this is a very capital-intensive business, but to date, the business has been very efficient on both compute, code, and capital basis, how they've grown the business. Yeah, we're just talking about the cash pile as they go into this IPO and the fact that they could make history with how much they're sitting on here. At a time where there's this bigger, broader debate about AI companies running out of capital or access to capital, even Jensen Wong from NVIDIA saying it on the show last week, that that's the biggest bottleneck here is actually the capital piece to be able to deploy all of this AI infrastructure.

35:05Does this put Anthropik in a tentpole position? Well, I think Anthropik's clearly being very careful will have a managed cash today. If you just look at the first half of this year, they even generated an operating cash flow of almost$4 billion. Now, the reality is that the capital commitments are large, but they are also long-term. And if you believe that the business will be able to grow those capital commitments, we do not worry that capital will actually be the constraint short-term. What we do realize is that computers are still constrained, but ultimately the business has been also diversifying its customer base significantly.

35:37Today, we see 900 % revenue retention, And we see over 250 clients spending over 10 million annually just on Claude. So the fundamentals of the business combined with the capital efficiency put the business in a relatively comfortable position going forward, given the staggering capital coins that would be expected. And finally, we just mentioned it before, about 94 pages dedicated to risk factors. I mean, the company even talks about the possibility of misaligned models and that AI models can show self-preserving qualities, can generate responses that resemble blackmail. What do you see, whether it is AI bot behavior itself or something else, what do you see as the biggest risk to Anthropik or to the AI investment story overall right now?

36:20So I think there's a concern that will the returns on the capital being invested in AI take longer, be lower or frankly pan out differently. I think FrontBank has been on the front foot about being very open and very transparent about the risk it sees and really trying to address those risks head on to the extent that it actually has those risks, has abilities to control those risks. So ultimately, I think we think that the concern potentially is about the expectation of returns on the AI capital short term, you know, the long term potential that we believe is very clear and very, very, very compelling.

36:52OK, Moritz Pott, great to have you on. Appreciate it. Thanks for having me. A lot more to come here on Morning Call, including the stocks you need to watch ahead of the open. Intel's big bet on quantum is one of the things we're tracking. Morning Call is back after this. Welcome back. We're checking in some of this morning's big stock movers. Intel confirming that it is buying Israel-based computing startup Classic for a reported$2.3 billion. The deal marks the largest acquisition to date in the global quantum computing industry and Intel's first major acquisition in four years. You can see shares of Intel are up about half a percent.

37:26And if we get a check on other quantum stocks, they did rise in sympathy after the market closed last night. You can see under a bit of pressure now here this morning, fractionally lower. We're also watching shares of SteelMaker Nucor. Third quarter earnings and revenue topping street estimates thanks to a big boost from higher steel prices. Those shares are down almost 2 percent, though. Guidance was stronger than expected. And then BE Semiconductor higher overseas. Applied Materials announcing that it's increasing its investment in the company to 20 percent of outstanding shares, broadening its strategic collaboration and AMAT noting that it has no intention of increasing its stake beyond 20 percent.

38:04Also, Cadence Design reporting modest upside on both earnings and revenue for Q3. Also raising its full year guide as management talks about, quote, broad based business momentum and growing momentum from AI driven designs. They also added two and a half billion to the stock buyback. Those shares are popping 3 percent. But straight ahead, we've got the morning call crew teeing up the trading day ahead with earnings taking center stage. Stay with us. Welcome back. Here's what to watch today. It starts with a big batch of earnings before the open Boeing, Coca-Cola, UPS, Visa, others, Robinhood, Seagate.

38:38We've got more after the close. Speaking of Boeing, don't miss the CNBC exclusive with its CEO, Kelly Ortberg. That's at 9 a.m. Eastern time this morning. And they've had quite a few milestone markers just in the last couple of weeks. So that's going to be one to watch. On the economic front, the Federal Reserve kicking off its two-day policy meeting today. Users across CalShin and interest rate traders tracked by the CME's FedWash are all banking on the Fed, keeping rates unchanged in that decision tomorrow. We're also going to get durable goods, August S &P. Case-Shiller home braces before the open.

39:10We get October consumer confidence, September new home sales, and more out in the 10 a.m. Eastern hour. And if that weren't enough, we are officially one week from midterm elections. Well, it's time for your call sheet. The crew members today, Matt Maley, Managing Director and Chief Market Strategist at Miller-Tabak, Patrick Frazzetti, Managing Director at Rose Advisors Hightower, and with me on set is Doug Bonaparte, bona fide wealth president and a CNBC Financial Advisor Council member. Great to have you all here. Lots to get through. Doug, I'm going to kick this off with you. I'm actually going to kick it off with a thing we didn't mention in What to Watch, And that is the nearly 400-page prospectus of Anthropic, which the market is still very much digesting.

39:49And oh, by the way, we got a Broadcom chip financing deal overnight, too. Yeah. So here it is. People have been waiting for this S1 for quite some time. And what can we say? This is like the prove-it moment, right? We're at the tail end of all this AI hype. The spend's crazy. I mean, that's what we're looking at. It's not the revenue. They can get money in the door. But how do we get to profit? They say it's on an adjusted basis, but that's not what the headline is reading here. So compute power costs a lot of money. Yeah, we were talking about a little bit earlier in the show, Patrick, the fact that they're committed to almost half a trillion dollars over the next seven to ten years in terms of this AI infrastructure build-out compute capacity, and some of that is non-cancelable no matter what actually happens.

40:34But they're also sitting on a huge cash pile, And 1 ,300 percent increase in the first half of this year versus last for revenue is nothing to thumb your nose at. No, that's true. I mean, I think it's just still a lot of uncertainty on what they can produce, what the return of capital will be. And, you know, for for those that feared A.I. put down, you know, the most recent dystopian novel and just pick up the risk factor section of the Anthropic S1. I mean, you know, all jokes aside, I think that, you know, one of the things that stood out to me is that much of this business may be, you know, rather uninsurable.

41:13So I think that that is something that could could grip some investors as they price this thing out. Yeah. And they did mention that in the S1, to your point. Matt, I know you've been writing about this a lot. And so I want to get your thoughts on this specifically. But you've been writing about the availability of capital as you have all these companies coming to market, as you have rates that have been rising this year, too. So does Anthropic going public unlock the IPO pipeline or does it further freeze it because it's going to suck so much capital away from everything else? I worry, Morgan, that it's going to be the latter, especially when you have so many other deals that are becoming when it comes to mostly on the fixed income side.

41:51But it doesn't matter. The supply is just crowding out a lot of investment. And I also worry that Anthropoc talked about this yesterday, but also we've been hearing for the last week, two weeks from everybody in the AI industry that the ROI isn't coming for quite a bit longer. I mean, we've been hearing, you know, it's going to be six months or nine months out. And we've been hearing that for three years. More recently, they've been saying, well, it's going to be 2030. And now with these issues of saving humanity and, of course, the financing issue, it's being pushed out even further. So, you know, how much are we going to pay for all this in terms of investors when we really don't have the return coming for quite a long time?

42:35We also got an Oracle analyst meeting today expecting news there, too, a little bit later during the day. But, Doug, I see you nodding your head to what Matt is saying here. So how does this now funnel into earnings season and beyond? Well, I think he has a really good point. You know, we look at investment time horizon here. It's hard to ignore the fact that, like, AI is the place you want to be over the next 10 plus years, 20 years. Crazy to think that, you know, this isn't something that's going to provide you returns. But in the short term, yeah, we're not going to get there anytime soon. And I think a lot of people are already exposed to AI as it is.

43:10This is, you know, not the first company to come along that you can put dollars to. It's why I said it's not late stage for AI, but late stage as far as companies that you can invest your money in. So, you know, if you're an investor with time on your side, this is one of the big boys. You know, you want to participate, go for it. But at the same time, you're going to be involved no matter what. OK, Patrick, what do you think about some of the other types of companies that are reporting earnings, including some of the names blue chip names we're going to get today, like Boeing, like Visa after the bell, UPS, Coca-Cola?

43:40I could go on down the list here. Yeah, I always like paying attention to the payment companies. So Visa is a perfect example. You get direct access to how the consumer is behaving on a global scale, and that's one to watch for sure. And I think it definitely is, in my view, a leading indicator of spending going forward. So I think that's one you really want to pay attention to. But so far, they've actually done a very good job through the first two quarters. And I think, you know, as they set up for, you know, for 2027, it'll be interesting to hear what they say this evening. Yeah. Matt, is it earnings or is it the Fed that matters more this week?

44:21Well, I think it's going to be earnings because the Fed, we do. I think it's pretty well understood that they're not going to be hiking rates this week. The one thing I'm going to be really interested in when it comes to the Fed is what the chairman says. And hopefully he'll be asked about it if he doesn't mention it. What is he going to do with the balance sheet? I mean, the balance sheet has actually grown since he became the chairman. And he was talking about he wants to shrink it. Well, it's been continuing to grow. If after the election or some other time and frame, he starts to pull back on that, at the same time when Japan has got to do something to defend their currency still, that may have interesting implications for the level of net liquidity in the system, which is, you know, would start to shrink and that could create some problems.

45:09Yeah. And speaking of, I mean, on hold seems to be the trend this week, or at least that's what markets are pricing in. So whether it is the Fed, whether it is Bank of Japan, ECB this week, too. But how does it speak overall to the broader macro climate here? Yeah, you got signals all over the place. But there's a point being made here. I'd be focusing on earnings, right? You got to pause your ice till December when it comes to the Fed. As far as a balance sheet is concerned, shrinking it, I mean, that's something we're probably not going to see almost ever, not to be too cynical about it. But focus on those earnings.

45:44You mentioned Boeing. You know, kind of a similar story with the AI thing. You've got to prove it here. You know, the top line is looking better for Boeing, but we're trying to get better profitability. You go over to Coca-Cola, you've got seven quarters in a row. That would have been great. So, you know, take your pick. What are we going to get? But ultimately, I think we come out positive and I'd like to see a nice strong end to the year on equities. OK, we're going to leave it on that note. Thank you to our call crew. We've also got Israel elections in focus. We're a week out from U.S. midterms.

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