Investing Outside Big Tech, Oil Prices Rally, Powering AI Infrastructure 10/8/26

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1:03All right, the pop in oil prices starting to ripple through the markets as well. Some open AI headlines hitting technology. Welcome to Power Lunch, everybody. I am Brian Kelly is off today. The escalation in the Middle East, sending energy prices higher. But President Trump saying moments ago that he will not attack Iran before the midterm elections. Oil prices, They are off-session highs of crude oil over 105 bucks a barrel today. What does all of this mean for you and the U.S. economy? We will ask David Zervos, now counselor to Treasury Secretary Scott Besant. David Zervos coming up in just moments.

1:36Plus, an under-the-radar energy company powering the data center revolution. Shares of Solaris Energy Infrastructure up more than 400 % in just two years. They just raised their full year guidance and the CEO of that company is here on set. Talk about exactly what they do. All right. Welcome, everybody. There is obviously a lot to talk about across the macro landscape today. So let us speak with somebody who's right in the middle of everything. And that is now counselor to Treasury Secretary Scott Bessett. His name is David Zervos. And you might remember him from such firms as Jeffries. David, it's great to have you on in your new role.

2:15I hope you're settling in. You're now on the other side, if you will. How has it changed your views? I know it's been just a week or two. How has it changed your views and how you think about the bond market, David? Yeah, this is my second week, and it's exciting. I'm excited, Brian, to serve again. As you know, my career, I started at the Federal Reserve. I spent a little time there during the crisis in 2009. So this is my third time serving in D.C. I seem to have a passion for it. I like it. It excites me. and in a 35-year career, which has largely been on Wall Street. I just feel great about coming back to this town and doing something to serve.

2:54It makes me feel good. So I'm excited to be here, and I'm excited to work with this administration and this Treasury Secretary. All right. Critical time. We're going to call you Servos from now on, Dave. We just changed your name. Niceties are over. Here we go. You always come up with good ones, Brian. I was like polite at the beginning, but now let's jump right in. 5.3 percent 10-year yield. I mean, what can you and the Treasury Secretary and your office do to keep yields from moving higher, assuming you want to try to keep yields from moving higher? Well, I think we have to recognize, Brian, that there's a global shift higher in yields.

3:28And this has come largely from central banks that are responding to the inflation and the persistence of that headline inflation number. They're not looking through it, as some chairs have done in the past, like in 2008. So we have a reset in the expectations or path for short term real interest rates. And that's getting reflected in the long end. But it's not a U.S. specific phenomenon. It's something that's happening in Germany. It's happening in France. It's happening in Italy. It's happening in Japan. This is nothing specific to the U.S. In fact, the U.S. has been kind of a fantastic performer in all this.

4:02These are the many other developed markets, developed markets. So, David, in plain English, no one does this better than you. In plain English, what is then happening? Is the global bond market then reevaluating its view on inflation? What is happening under the hood that is causing this change in bond prices? Absolutely not on inflation. You look at the break-evens, they haven't budged. You look at the survey data over the long run, hasn't really budged. Yes, the short term stuff has gone up a little bit. And yes, the ECB and the Fed and others and BOJ have reacted to that. And that pushes up the expected path for rates.

4:42But, you know, I think at the end of the day, the longer term view on where rates and inflation will be has not moved that much. And we're going to get through this. I think the president said it yesterday in the Oval Office. The secretary also reiterated it. You know, oil prices come back down and we're going to be talking about lower rates, stronger growth, higher S &P. and we'll be back to where we were discussing things in February on the show, which was probably talking about interest rate cuts, not interest rate hikes. That's at least my view. I don't think it's shared by many on the FOMC at the moment, but let's see how the energy story develops.

5:18It's the big change. And the other thing I would say, Brian, and this is important, there is a demand for capital. You're talking about it. Everybody's seeing it. There's a demand to invest in the technologies that everybody's excited about in what we now call SI. And that is putting pressure on global real rates. And that's happening in all the developed markets. So, again, that and the reset on central bank policies at the front end have pushed us up a little bit. And we're just going to have to live with that for a short period of time until we get through this energy price move. And then we can see how long this persistence is in demand for capital.

5:58By the way, let me just say that demand for capital is a hugely positive sign. That means these top companies in the U.S. economy are willing to put their balance sheets on the line to bet on the future growth in the United States. And that is a positive, not a negative. It's not about inflation. We've got Bob McNally to talk about oil and gas in just a couple of minutes. You're going to want to listen to that as well. I'm sure you know Bob. He's one of the smartest out there. What if we don't get through this energy price shock anytime soon? It's on month eight. What if it's what if a year from now we're still talking about hundred dollar per barrel oil?

6:34Can the U.S. economy, David, still grow at its good pace? By the way, it's over three percent. These are good numbers. Can we still do that, even if oil and thus gasoline and whatever stick around these prices for another couple of months or longer? Well, I think the answer is yes. Yes, the biggest surprise this year for the macro world was how resilient the U.S. economy was to the shocks that hit it. There were two big shocks. One was an interest rate shock. We went from pricing two cuts to two hikes this year, and we already got one of them. So that's 100 basis points on rates as a headwind.

7:09And then oil from 60 bucks to over 100 bucks. Normally, if I would have sat in a macro lunch with investors talking about what was going to happen in 2026, And I said, OK, guys, what do you think is going to be the S &P 500's total return for the year in October if oil prices are at 100 and the Fed's hiking rates two times this year? I said that back in February. I don't think anyone at that table, any seasoned investor would have said the stock market's at record highs and it's up almost 15 percent year to date. The resilience of the U.S. economy is truly the story of 2026. So I think the answer to your question is we can hang tough.

7:50And that's bad news for the Iranians, by the way, but we can hang tough. My hope is we don't have to and we can see another big leg up, 5, 10, 15 more percent in the S &P. And rates can come down, energy prices come down. And we can sort of be back to those discussions we were having in February about when the Fed cuts, not when the Fed hikes. Well, you know, I will channel my inner David Servos. and I would say that, you know what, if I look at a five-year chart, 5 % yields are high, right? Because we were off COVID lows of like 0 % and it was free money. If I look at a 40-year chart or a 30-year chart or a 50-year chart, 5.2 % yield is not high at all.

8:28If anything, it's kind of the median. Maybe this is where the 10-year yield wants to live. Is that a theory? You know, I think there's some folks out there that subscribe to that theory, Brian. I'm not one of them. I just don't think that's the sort of neutral rate structure that we've come to know and love over the last couple decades. And maybe I'm missing something. Maybe this technological boom is going to be driving a persistent increase in real interest rates that stays up there for many, many more years. I don't know. But I think we're probably going to find out that these real rates that we're encountering today are probably above the normal long-term average.

9:07And I think back then you had higher inflation expectation components in the yield. So the inflation expectation components have stayed the same. These real yields are really, really high by any historic standard. So I think we have some room to come down in the future. And I think that's important. That's going to be important for the interest rate sensitive sectors that are being crowded out by the central banks that are worried that inflation might develop because of what's happening in the technology sector. I guess I'm looking back in the day. And, David, I don't know if you ever saw the great show The Wire on HBO.

9:42It was a line where he goes, think about back in the day. It was back in the day. And today is today. David Zervos, we're glad you're there. We're glad you're there to serve us. David Zervos, thank you very much. Good to be back on with you, Brian. All right. Take care. All right. So, David just talked about it. Let's dive more into crude oil and sort of the volatility that we're seeing with crude up 4.3%. Brent crude over 105. Earlier today, it's at 104.73. You had a ship that got attacked in the Arabian Gulf. There was a tragic attack on the Riyadh airport. I mean, whoever did it, the Houthis or Iranians or somebody else now hitting civilian targets in Riyadh, just absolutely despicable.

10:22Bob McNally is the president of Rapid Air Energy Group. And he joins us now. There's a lot of stuff floating around, a lot of rumors floating around in the market. But without getting too much into it, Bob, I would say that what we saw in the last 24 hours, unfortunately, was that Iran or the Houthis or whoever's pretending to be Iran these days, they're still willing to inflict damage. Hey, Brian, great to be with you. You know, if you step back and to paraphrase inequities, they say prices climb a wall of worry. I think the story for crude oil is prices are climbing a wall of bearish conviction, if not complacency.

11:00And what we saw really from Labor Day coming into that with the east-west pipeline getting shut down and now other attacks and their attacks of their reports of attacks on other energy infrastructure is that while the U.S. military has, to its credit, been very successful at restoring most of the flows of crude oil through the Strait of Hormuz and workarounds through to the Red Sea. While that is a good story, also risk tolerance is rising, people being paid to take that trip and they're doing it. That doesn't mean we're out of the woods. That fixed energy infrastructure is still vulnerable to attack from the Iranians, the Houthis and their allies.

11:37And having an open Hormuz doesn't really help you if you can't produce, stabilize, transport and load that oil. So we're not out of the woods. The second thing is this bearish conviction, Brian, this this this very optimistic view that with a pure taco move, this crisis is going to end and we're back to the glutted market we all saw in mid-February. This is starting to add. People aren't believing it anymore. And I think the reality is sinking in a little bit. I wouldn't call it pessimistic yet, but the optimism is ebbing and people are realizing we're not out of the woods with regard to this.

12:12this disruption. That's why you probably, I don't know if you heard me give you a shout out, by the way. I was just talking to David Zerva. Yeah, I did. I appreciate it. No, well earned, by the way. And what I said was, what if this goes on longer than we think? I mean, when this happened, it was like, well, we can't, we won't last more than a couple of months. Well, now we're on month eight. What if we're on month 18? I mean, can this go on? You know, if it goes on like it is, we're in trouble because the factors that help cushion us on the crude side are wearing off. The most important one wasn't on my bingo card, wasn't on most people's bingo card, was that China would go on a crash diet for six months, dropping its crude imports by four to half to five million barrels a day.

12:53It's coming off the diet slowly, but it's starting to buy. And it's that buying that we're seeing is what's keeping physical prices, especially Brent. You mentioned 104 futures, but the real price of a barrel of Brent, if you want to buy one now, it is closer to$135 a barrel. And so the Chinese are coming back. The SPR, the strategic stock releases, are wearing off. And they're coming to an end. And the Europeans are being squeezed to do a little more, but they're not doing much more. And so the refined product markets didn't benefit from the Chinese crash diet. And they're still constrained even through Hormuz.

13:30And we're very tight on diesel and now gasoline. So really, I don't think we can hang here at 105. Things have to get a lot better for prices just to stabilize and begin to drop into the 80s. That would be an optimistic case. But if we don't see this disruption end, if China comes back and we're done on the SPR, crude's going to have to chase products higher, I'm afraid. Well, yesterday on the program, we did a segment. I had a ship broker source of mine. Give me some numbers. Ships chartered from the Gulf Coast of the United States to China,$76 million. A normal rate would be 7 to 10 pre-war.

14:04Later on, I found out there was a ship chartered from Houston to South Korea for$77 million. We're literally at 10x. You got insurance rates that are thrown in there as well. What's the real, you said 138 on Brent. Is that the real cost of a barrel? I'm not knocking our futures, right? We're showing the futures market that the rest of the world sees as well. But these are paper contracts, Bob. If I wanted to actually take possession of a physical barrel or ship of oil. What am I paying? You're paying$135 a barrel as we sit here today. That's for a cargo of light sweet crude that you can get your hands on prompt, meaning the next 10 days or a couple weeks.

14:46And if you're doing that because you're a trader, you're a refinery, you need to run that through your refinery. The thing we talk about, The front month futures, which for Brent is now a December contract, that's the price of Brent in December. That is not a prompt price. So there are different things. Now, normally they're quite close. But in the beginning of this contract, they blew out physical prices, real prices, went much higher than paper. Those came back during the summer when everyone was really optimistic, and they're blowing out again. What it tells us is the real folks who are actually buying wet barrels of crude to turn into products the economy uses, they're paying 135 today.

15:26And that's, you know, 30 bucks over the December futures price. Yeah. You see anything that's going to bring that down, Bob? There are two things that are going to bring it down. Either we're going to hit a terrible recession, and that's the bummer way to do it, or we're going to see a durable ceasefire that allows flows to normalize. And I don't see either of them happening immediately. So the direction of travel seems to be up, Brian. Well, let's root for good news. Haven't had a lot the last 24 hours, certainly. And our thoughts out to people in Riyadh who are attacking civilian targets at the airport.

16:00Bobby Daly of Rapid Air Energy Group. Bob, really appreciate your time. Thank you very much. Thank you. All right. So you heard David Zervos talk about it right at the top of the interview about bond yields, not just here, but around the world. Those bond yields have been up and going up. They are a little bit off their recent highs. That's good year. The French 10-year still about 4.8%. The 10-year gilt, that's in the UK, the big mover of the day. That yield hit its highest level since 2007 before backing off. All this, of course, coming. Inflation more broadly elevated around the globe. Central banks wrestling with sort of the right monetary moves to try to hit their target rates.

16:36But either way, yields here are at 5.27%. But yields everywhere lately, they have been on the rise. and going up. All right. We are just getting started here on Power Lunch. It's still on deck. The AI infrastructure CEO, who has a front row seat to the spending boom, Bill Zartler of Solaris. Energy infrastructure is here on set. But after the break, technology today selling off. It's on news. Maybe OpenAI's profits were a lot lower than previously thought. But Mark Mahaney is still bullish. It says that Wall Street is wrong to assume the spending boom will crush hyperscaler cash flow. He'll join us with a new top pick.

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18:58All right, welcome back. Some news that OpenAI's revenue significantly may be lower than previously estimated is sending stocks, the entire AI complex, lower. They were lower before the news, and they're lower now. Now, let's bring in Kate Rooney, who's been gathering more details on exactly what's going on with OpenAI's revenue. Brian, so a source confirming that the FT report that you mentioned that moved markets, we did confirm that there is a potential discrepancy in OpenAI's revenue numbers versus what had been widely reported. I did speak to somebody who confirmed OpenAI is now reporting$50 billion in annualized revenue.

19:34So that's about$20 billion lower than what had been out there. I had heard it was around 68 billion. Some had said 70 billion. That number, from what we're hearing now, included gross revenue from cloud partners, which is something that Anthropic, from what I'm hearing, also does include. This new number,$50 billion figure, does strip out the partner revenue. So investors see it as a cleaner number from people that I'm talking to in the way they're describing it. Many are also doing the same for Anthropic, as they really try to compare apples to apples. The updated numbers, Brian, they're not necessarily a drastic change or a drop, but it is a very different way of accounting.

20:08And it is part of an ongoing fundraise. From what I'm hearing, sources telling me OpenAI is looking to raise around$30 billion. This would be at a$1.4 trillion valuation. From what I'm hearing, that round is gaining some momentum. The new figures are being shared with investors as part of that process. So they were in a pitch deck. No comment from OpenAI on this. But the initial headline, as you mentioned, Brian, did very much move markets. OpenAI is really seen as a barometer for the entire AI trade. It also suggests some fragility in that trade. You saw that knee-jerk market reaction across a variety of names, took the Nasdaq down momentarily as investors read the word discrepancy as a possible threat to the AI buildout.

20:47So the read-through here is that if OpenAI's revenue is lower, that could mean growth is slowing and therefore the industry is overbuilding, which has really been the bear case in AI. It does also speak to some of the fuzziness of these revenue numbers. These are now trillion-dollar private AI companies. They are so tied to public markets, but we don't always have a perfect lens into the revenue numbers, the accounting. But that may change, Brian, if and when they go public. How fuzzy are the numbers? $20 billion worth of fuzziness. I mean, the accounting is not standardized. And I would say these are entirely new asset classes.

21:21So Anthropic is expected to get out there first with its S1. But they are reporting in a different way, and we just don't have visibility. So it is nearly impossible. We get leaks. We get sources telling us certain things. A lot of these people are investors in these companies. So it is hard to compare apples to apples. What needs to happen is for these companies to go public and so that they have gap standards. And you can compare them to other, you know, hyperscalers in this case. But that's sort of the difficulty of reporting on these private companies. 20 billion here, 20 billion there. Pretty soon it's real money.

21:55It's what they call sarcasm. Kate Rooney, thank you very much. All right. All right, so let's now bring in somebody who follows hyperscaler stocks as closely or more than anybody. That is Mark Mahaney is the head of Internet Research at Evercore ISI. All the stocks, the AI ecosystem, Halo, whatever you want to call it, Mark, they are down right now. Your reaction to this OpenAI Revenue News? Well, I'm not sure I got great insights in the OpenAI Revenue News, But I do have insights into how dependent some of the hyperscalers' revenue, cloud revenue, is on names like Anthropic and OpenAI. And this is public information.

22:33There's a$138 billion eight-year commitment that OpenAI has made to Amazon, to AWS. It's maybe about a quarter of that backlog, that$500 billion backlog that AWS has reported. a quarter of that goes to OpenAI. They may account for over 40 % of Microsoft's backlog. So, you know, what happens at OpenAI and in Anthropik, I mean, it matters to some of these companies, some of the biggest tech companies. They are major customers for these names. You know, I remain relatively, I'm sorry, I remain very bullish on long-term AI growth, just because I think enterprise adoption is still so early stage. And consumer adoption, I mean, we're not even at the first inning of consumer AI adoption, if you think about it.

23:21We've had consumer agents for just a month. So anyway, I understand the trade today, but I'm still bullish long-term on AI and on the vendors. You also understand the tongue-in-cheek nature of the comment I made about$20 billion here,$20 billion there, because$20 billion to 99.99 % of people, including myself, is a lot of money. I don't know if$20 billion is a lot of money in the AI ecosystem. Is it? Sure it is. If you had that kind of discrepancy, I don't know exactly what was messaged to OpenAI investors versus what they're doing now. But what I'd really want to know is what's happening to the overall growth rates.

23:58I'd be surprised if there was any sort of dramatic negative inflection in growth rates for the frontier labs. Nothing I've seen in the industry suggests that that's happening. So maybe there's some accounting issues going on. I sort of doubt that. And there are different ways that these companies are going to present their revenue. That's fine. One of them is going to do more growth. One of them is going to do more net, but we'll be able to apples and apples those. So anyway, I think the AI trade is still well intact. I don't see today's news as changing that. And and therefore, I like some of the ways to play that on the infrastructure side.

24:31And the top way for me to play that is Amazon. Why is Amazon your new top pick? What's new in the Amazon story, Mark? Well, what's new is relative to Meta. Meta was our number one pick. It's had a 40 % rally because the muse has spoken. So, you know, I'm sorry, stock goes up 40%. The risk reward just is a little less attractive. So then that bumps up Amazon. I also am really intrigued by the next product cycle for Amazon. So I know we've sort of all forgotten about it, but there's a Starling competitor coming out. It's going to be called Project Leo. It is called Project Leo. And I think that's going commercial in the fourth quarter.

25:06So I got a product cycle catalyst on the horizon. And then I think the market may be underappreciating the ability of these hyperscalers to pull off their own Microsoft moment to show this kind of positive inflection back to positive free cash flow. Maybe not immediately, but sometime we get visibility of that in 2027. And that's another leg up for names like Amazon, names like Meta, and names like Google. They're under pressure because of their free cash flow dynamics, but those are going to flip positive. And I want to long the stocks before they do. Yeah. Is Amazon becoming, and I don't want to say an under-the-radar AI play because that's not true.

25:48We all know it's an AI play, but there's been a lot made, we talked about it yesterday, about the sort of walled garden, if you will, of Amazon. Are they becoming their own pure AI ecosystem, if that's a better way to phrase it? Yeah, or maybe a better way to phrase it, Brian is that it's just a vertically integrated AI play, kind of like Google. You start from chips to infrastructure, all that cloud AI business that they have to the application layer. So they're using AI to increase their advertising revenue. They're using AI to make their shopping recommendations more personalized to you and me.

26:21So they are AI all along the spectrum, chips, infrastructure, applications. So is Google. And they both trade actually, or roughly around the same multiple. And they both have product and free cash flow catalysts coming up, I think, in the next three to 12 months. So I want to be long both stocks. I have a slight preference for Amazon versus Google here, but I like both of them for both of those catalyst reasons. You like Alphabet as well, just like maybe Amazon, just a touch more. Yes, yes, a touch more on Amazon. It's slightly more dislocated. So I think there's just more upside on Amazon. And then just the core business.

26:58Yeah. The core business of Amazon's retail business based on survey work that we've done consistently over the years, it's just getting stronger and stronger. So I find it very hard to see somebody taking share away from Amazon in its core retail business. I do like some of the newer growth initiatives in pharmacy, what's called perishable checkout, their move into groceries. And I think their core AWS, their cloud business is accelerating. And I think the margins are stronger than people realize. And the growth is more sustainable than people realize. That's why we may have this earlier tip to positive free cash flow than the market fears right now.

27:32Mark to market. That could be a new name for this segment. Mark Mahaney, really appreciate that time. Thank you very much. Thanks, Brian. All right. Still ahead, we'll take a closer look at the narrowness of the markets and where to find opportunity outside of just technology. Chat with the head of UBS, head of equities. Next.

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29:26All right, the S &P 500 may be down right now, but let's be clear. Number one, you can't go up every single day. Number two, the index hit a new all-time high on Tuesday. Now, if it feels like the mega caps have been leading the record rally this year, you, of course, would be correct. The RSP equal weight S &P 500 ETF is trading at a record low relative to the market cap weighted SPY. And that's relative to the RSP's inception 23 years ago. So can the tech momentum keep going or is it time to rotate into a different part of the market? Joining us now to talk about it is that of UBS, U.S. equities at UBS, David Lefkowitz.

30:06David, good to have you on the program. You know, listen, it's one day, you got these open AI headlines, things rattle for a day, and then the market just always appears to come back. And the NASDAQ, by the way, is still up this week. What do you see happening the rest of the year? Yeah, rest of the year, I think there's more upside for stocks. And I think the drivers of this bull market are still intact. We've had very solid earnings. I think we're on the cusp, Brian, as you know, of third quarter earnings season. And I think we're going to hear another good set of results from corporate America, not only on, say, the AI-levered infrastructure side, but I think on the consumer side as well.

30:45We're going to hear more resilience, and that's going to be an important story. I think the numbers would belie that. But you know, David, as well as I do, that the stock market looks out well past this current quarter. Of course. They know the numbers are going to be good. That was baked in months ago. How do you see them out a couple quarters from now? Yeah, I think we're still going to see. So when we look at 27, I think you're going to see continued growth in AI CapEx. And that's going to be good news for the picks and shovels guys, the people who sell equipment to those hyperscalers. And I think especially the high-end consumer, I think, is going to be fine.

31:25I think we still have very low job losses. And when companies are making so much money, I think you're going to continue to see low job losses. And therefore, I think consumer spending is going to remain relatively resilient. Now, look, the thing that has changed is the Fed is now. Yes, because you've no doubt heard the most overused phrase in the stock market, which is don't fight the Fed. Right. If the Fed is lowering rates, you buy stocks and let it ride. Is the Fed fighting us, though, right now? Because they're raising rates. They're raising rates. But I think their urgency of raising rates is not as nearly as high as what it was, say, the last time they were doing this.

32:03Right. They're worried about this inflation that's coming from primarily the oil shock that we've seen. And and but they're not worried. This is crucial. They're not worried about inflation coming from, say, the labor market. That's a very different situation than we were in in 2022 when wage growth was just too high. And the Fed was very concerned about that. So I think they can be patient and take their time here. and they don't have to take any drastic action to really upset the markets or the economy. I kind of agree with you. I don't know what the Federal Reserve can do about oil at$100 because ships are getting attacked or bombs are flying into airports.

32:44I'm sure they're much smarter than I am. If you took oil down$20, it's a big ask. We're at$70 or$65, not$90 or$95. Does the Fed cut rates? I don't think initially. I think they're going to want to see the inflation. We still have inflation to wash through the system a little bit. The other thing we're going to hear in third quarter earnings, higher transportation costs, freight costs. You know, you may hear companies passing through that to end consumers. But the consumer, then they will, because I can tell you right now, I can report trucking companies have added surcharges, 25, 35, 75 cents per ton.

33:24One, I know that because I've talked to them, the consumer is held up through higher gas prices, higher diesel prices, higher everything. Sounds like you think they can continue to power through it. I think so. Yes, I think they can. I think there will be we have seen some incremental pressure on certain pockets of the consumer. But, you know, let's bear in mind, wages are growing at around three, three and a half percent. So there's some cushion there. And I think when we think about what is the impact to overall consumer goods from these higher costs, especially on the transportation side, I think we're talking about companies may need to raise prices 1 % at the retail level, maybe 1.5%.

34:06Which the consumer can tolerate. They're annoyed, but they're still going to buy. Nobody likes paying more. No. But is it going to cause cracks in the whole spending story? I don't think so. Okay. And thus the bullish view on financials and industrials and some others, right? Yeah. I mean, I do think we need to see some volatility reduction, especially in the rates market. And we need to see some pressure come off the oil prices to see a true snapback in some of these areas that have gotten beaten up. But that's, in our mind, where the value is today. David Lefkowitz, UBS's head of U.S. equities.

34:41David, it's a real pleasure to get you on the program. Thanks, Brian. Thank you very much. All right, coming up, a rather under-the-radar winner of the AI Buildout, the CEO of Solaris Energy Infrastructure, on what they do and why the stock is up 400 % in two years. That's next.

35:04Solaris Energy Infrastructure has become a major beneficiary of the race to power the AI economy, and investors have benefited as well. The stock's up more than 400 % over the past two years. They recently raised their outlook again, stronger demand for power services, driving the guidance. And joining us now in an exclusive interview is Bill Sartler. He is the chair and CEO of Solaris Energy Infrastructure. And you reminded me that we met six or seven or eight years ago, the last couple of years. Yeah, pre-COVID at an oil field event in Midland, Texas, because then you were called Solaris Oil Field Services, correct?

35:41That's correct. So why the pivot? Why go from what you did to what you're doing now? Well, in our oilfield legacy business, we had a tremendous market share in an area of the industry that wasn't really going to grow that rapidly. So we had helped facilitate a whole lot of the evolution of how things were handled at the well site. A lot of mobility. We generated our own power at the same time. Saw the opportunity to add to the power business and morph it into what was needed. at that point was oil field power needed by the energy industry and midstream folks that needed it and others that were out of electricity.

36:16That morphed very quickly into our first customer in Memphis, helping them build the first real AI data center. And how fast, if I wanted to build a data center and I come to you and I say, Bill, power me up, right? Because you want to do sort of self-contained power and infrastructure. How fast can you get that done? Everything we're doing is all self-contained and and today we're looking at equipment availability for new equipment is probably 2030 we're in the process of building out significant amount of infrastructure right now so today we operate about 4 000 megawatts of power about a meg about a thousand megawatts power that we own so we operate for third parties as well we're rolling out another 2 500 megawatts over the course of the next two years is that your own power that's our own power that we're We're getting that power.

37:02We're getting that power from the Caterpillar solar turbines, from Baker Hughes and Siemens. But is it natural gas then? Natural gas fire. It's Baker and Caterpillar. I assume it's gas. Clean natural gas, yes. Okay. And there's enough gas that you can add, what, two gigs? Just like that. There is enough gas. The infrastructure is in places. I think that's a selection process that the data center has to evaluate fairly firmly about where they're going to put it and what kind of infrastructure needs to be in place to be able to supply that kind of quantity. So you exist. The gas exists. how hard is it to get the gas to you, building a pipeline or whatever it might be?

37:34It's a pipeline, yeah. And what's the backlog? But there's a backlog amongst that, though, too, is there not? Pipeline, it's more about taming the right-of-way, depending on where you are. I mean, as the big data centers migrate to areas where it's easier to get the right-of-way in non-municipal areas, it's easier to get the right-of-way to lay a pipeline. And the bottleneck for that is months, not years. So I'm building a data center. I come to you. You want to offer the power solutions. Get me up and running. I got to sign a contract. How long is a, I know everything's different, but how long, Bill, are sort of the normal contract with a customer?

38:07We're 10 to 15 years. So the cash flow is long term. This is an infrastructure business. Long term, high capital intensity up front, but a long term tail of earnings coming out of it. Yeah, because I've got to assume if you're going to take on that kind of a build, a build out, building power to a data center, Does it have to be a minimum of a 10-year deal in order for it to make sense for SEI, for your company? We're focused on long-term deals. We have a mixture in the portfolio of anywhere from four years to 15 years. And I think we evaluate the price along with the timing of that. So there's a trade-off.

38:42A big part of the build-out is debt-fueled. As you know, hundreds of billions of dollars in debt that is going all around to pay for the build-out. We talk every day on this network about higher rates. are higher rates impacting the build-out as you see it right now? At this point, the rates don't seem to be impacting any of our customers. The customers are out raising money today, and they're evaluating this. The margin and the fundamentals from what I see in our business and others, you can talk about what's happening in the industry, but the market feels like it's very, very early in terms of the adoption.

39:17I can see it in our business. I can see the use of AI and the use of the computer tools both growing in our operations from a mechanics and maintenance perspective, from an information perspective in our HR system. So I think we're just nascent in the adoption of this tool. And it's really just an evolving tool for the industry. Can you find the people? I mean, what's the biggest challenge? Is it the materials? Is it the permitting? Is it the people? Is it D, all the above? D, all the above. I think we know how to control what's in our control, which is trying to make sure that we can get the equipment on time We've built relationships with people.

39:54We've added a couple acquisitions, which added people. We've grown from 300-ish people in 2024 to 2 ,300 today. So as we build out our footprint and our people thing, we've got an alliance with the Maine Maritime Academy where we've built a control room in their power engineering school to help train them on turbine operations. We also have an internship where we rotate them through, actively recruiting through the U.S. Navy. It's a big trainer of turbine technicians. And so the workforce is a really important part of this. And I think as we look to grow it, making sure that we have the trained, skilled employees is a very important part of it.

40:29And they can make a good living, right? I mean, these people can make a couple hundred thousand dollars a year with a high school diploma. That's right. That's pretty good. It's good. It's hard work. It is. They've got to want to work. It's hard. It can be hot. It can be in areas that sometimes they build these things out where there's not a lot of people. But it's an honest work. And Bill Zartler, CEO of Solaris Energy Infrastructure, SEI. It's not making another seven or eight years. You're welcome back anytime. All right. Thank you. All right. By the way, a quick programming note, sort of on this tack.

40:57Don't miss our exclusive interview tomorrow with the CEO of Generac. He's going to weigh in on the demand for backup power. We obviously have a hurricane, first one in the Gulf of Mexico this year. It's kind of going up. But Aaron Jagfeld of Generac will talk about a lot of things, that and more. But for now, let's get over to Brandon Gomez with a CNBC News update. Hey, Brian. Ousted Venezuelan President Nicolas Maduro says he denies a new indictment against him, accusing him and his wife Celia Flores of conspiring to torture political opponents and American citizens. They would each face a mandatory 50 years minimum in prison if convicted.

41:31A judge also denied a request from Flores to be released from jail because of health concerns ahead of her trial next year. Meantime, counterterrorism police in the U.K. say they have arrested two Latvian men inside a Royal Air Force base in England used by U.S. personnel. It comes as authorities investigate a suspected plot targeting another British airbase used by the U.S. Police say there is no evidence so far to link the two incidents. And Taylor Farms will suspend sales of iceberg lettuce from Mexico after it was linked to the summer's deadly cyclospora outbreak. According to a letter posted by the produce giant today, the pause in the U.S.

42:05and Canada will affect lettuce harvested or processed between May 1st and August 31st, which coincides with the parasites peak season. Brian, send things back to you. I want to hear Parasite's peak season again. I don't like those words together. Comes both once a year, unfortunately. Not a good, those aren't good word strings. Brandon Gomez, thank you very much. All right, coming up, higher yields. Are they hitting the real economy? They seem to be. And our market navigator, though, has a way to hedge out things like your auto loan and your portfolio. And that's next.

42:44All right, let's talk more about interest rates because the rise in interest rates is doing more than causing some concern around the stock market. It might be impacting parts of the economy and consumer spending in very direct ways. For example, car loans. But there is a rather smart way to hedge both your loan, your portfolio and maybe a specific stock. Joining us now, CNBC contributor Mike Coe. He is chief strategist at Open Interest Pro. Mike, talk to us about CarMax. Yeah. So, I mean, as you pointed out, I mean, as we've all been talking a lot about how rates have risen and we've been talking about where a year fixed mortgage rates are.

43:25If you take a look, though, at where used car loan rates are right now, I think it would probably startle a lot of people who haven't looked lately. And I happen to stumble across this myself, actually. I was just going to schedule an appointment for my own car. When you do that, you go to the dealer's website. They oftentimes will promote some of the certified pre-owned vehicles that they're trying to sell. And I noticed that the default rate that was being used as an APR on the one that I saw was 13.8. So if you take a look at the St. Louis Federal Reserve rates, you will see that the average used car loan rate is even higher than that.

44:02It is on the high side of 15 % going on 16%. And the average used car loan duration is about 68 months at this point, which means that if you were to buy a used car today, once you factor in the fees and the interest, maybe 30 % of the purchase price is just going to be the interest on the loan. So that's going to definitely put a lot of pressure, I believe, on used car sales. And it's showing up. I was looking at CarMax, and you can see this in a couple different ways. You can see their inventory turnover. That is lower. You can see that their cash conversion cycle, which is how quickly the investments that they make in their inventory actually turn into dollars returned to the dealership has lengthened.

44:39And the average time on the lot is also higher. Put all of that together. And I really think that CarMax, much like the people who are shopping there, has been strangled. And as it happens, that's the options strategy that I would actually suggest in a situation like this. Now, they just reported earnings on September 29th. The stock has done OK since then. But if you go back a year or more, it's not. I would sell the November puts, the 50 strike puts, and sell the 60 strike calls. You can collect nearly 40 % annualized to do that, expecting the stock to be strangled, frankly, much like the people who are shopping there.

45:17You could pay $15 ,000 in interest on a$30 ,000 car if your loan is long enough. That is insane. Mike Coe, thank you very much. Appreciate that. Quick check heading to break. A little good news. The Dow Now, briefly, turning positive. It's about to again. It's down two points. We're back right after this.

45:38All right, shares of IMAX are down. It's on a report that Disney has held talks with some studios about using what's called Infinity Vision. That is Disney's new large screen movie format. According to Bloomberg, those studios include Skydance, Paramount, Comcast, Universal, Sony, and more. Disney's Infinity Vision is seen as a competitor to the IMAX super big studio. Disney up 1.8 percent. IMAX down a touch about one half of one percent. We're back right after this short break. Four billion dollar deal in oil and gas to highlight Crescent Energy, a smaller cap oil and gas firm, paying over four billion to buy assets from Devon Energy and the Eagle Ford shale.

46:17Folks, thanks for watching Power Lunch. I will see you in two hours on Fast Money. You can't get rid of me. But Closing Bell starts right now.

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