State of the Markets, Diesel Prices at Record Highs, Regional Bank Merger 9/8/26

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1:04A big week for your money all as the pressure points pile up. Welcome to Power Lunch, everybody. With Kelly, I'm Brian. Oil overseas again closing in on$100 a barrel or even going above that mark in some countries. This as diesel fuel costs soar to a new record and borrowing costs keep rising. But with stocks still close to records, just how resilient is this rally? Plus, a big bet on the future of banking. regional banking, maybe, Wafed and EverBank striking a nearly$4 billion deal to create a$75 billion lender. What scale, deposits, and a coast-to-coast footprint could mean for growth? Wafed CEO Brent Beardahl joins us exclusively today.

1:43All right, a lot to do, but let's start off with the markets and your money, because kind of a mixed day on Wall Street. The S &P 500 and the Dow, they are down a bit. The Nasdaq 100 kind of bouncing back and forth, fractually higher. Oil prices, though, So they are on the rise, although they are lower than they were earlier in the session as news around Iran and Russia hits investors. Traders also maybe reassessing, reevaluating the interest rate outlook after Fed Governor Christopher Waller signaled that he could support not raising rates, but only if inflation does keep cooling, by the way, the next Federal Reserve meeting in just eight days.

2:21So there is much happening all ahead of that and more. Let's start right there. Joining us on set, Craig Johnson, chief market technician of Piper Sandler, and Omar Aguilar. He is CEO and CIO at Schwab Asset Management. Omar, start with you. What are your clients most interested in, most worried about right now? Well, they're following very closely all the geopolitical news. That seems to be like the biggest part of the headline. They're very concerned about impact to inflation. They're concerned about what all prices fluctuation eventually will do. And they're concerned about what these long yields may do to their stock portfolio.

3:00Those seem to be like the big headlines. It is interesting to see that the market seems to be thinking there is a jump ball for a right hike. It's 50-50. It used to be higher. And then after the last couple of weeks, it has gone down to just a jump ball. But our clients seem to be still fairly optimistic, as the typical thing says, cautiously optimistic. but at the same time, they're worrying about the inflation potential. But they're smart, Craig, because how much would you say just the rise in fuel prices has now scrambled the equation as it relates to stocks and the Fed and bond yields and everything else?

3:37Kelly, I'd absolutely agree with you that that has been the case. As we've been seeing energy prices moving higher, oil prices moving higher, we're continuing to see the interest rates pushing up, pushing up from a technical... By the way, I'm just a joke. I'm surprised that didn't happen today, right? We wake up, we see these headlines about the jump in WTO. I go and I look at the 10-year and it's lower. Is it just a weird long weekend thing? There's sort of a disconnect that seems to be happening. And that's what we were highlighting in our note here today is we were watching interest rates, watching oil, watching these pieces move up.

4:07And then you think about what sectors you should be overweight. And, you know, Brian, we've talked energy for quite some time. And energy stocks, they are leadership in this market. I don't know if that's a great scenario. Nobody wants ConocoPhillips, Marathon, Amoy, all new highs today. Today, these are stocks that are hitting almost new highs every day. IXC, XOP, OIH, all the ETFs, soup. They continue to make new highs. And yet it feels like, Craig, nobody cares. You're shouting into a hurricane on this one, Brian. Oh, a story of my life, Craig. Right? It's a story for mine, too. I mean, we've been overweight this sector for a while.

4:42And the more that I keep pounding the table on energy stocks, people just don't want to go there. They're just enamored with AI. competition. It'd be one thing if the rest of the market was a shrug. But when you can turn around and you can make 12 % a day on something else, and you go, well, what if, to Omar's point, what if something beneficial happens with the war and you turn around and the trade is over? And that's the fear that everybody has. But here's the disconnect. Can we have oil go up, interest rates go up, and long-dated technology stocks going up at the same time? I don't think you can get both.

5:11Well, they have been, Omar, but I will say this, and we'll just keep this between the four of us. Don't tell anybody else. it's been 14 weeks since the nasdaq triple q hit a record high so we're looking at like three months since we've had a new high i know tech a lot of it's still done very well software's bounced back omar but you feel like we've seen the high for the biggest of the big tech uh we we believe that we started to see just the second wave that is not necessarily the same stocks that we had in the first wave. I think if you actually just see the evolution of what is the AI capital expenditure cycle, it has gone from the hyperscalers to basically benefit from that, the semiconductors, everything that basically fueled that first wave, to now going through the usage of AI and the capex that is affecting other industries.

6:03So it went from, okay, I'm always hungry. So it went from the turkey to the mashed potatoes. Now we're in the vegetables. So the spending, the trade has gone from the super cap stocks down to the semiconductors. Now to that, to your point, second wave, or I guess third wave. Who are the, what is in that? Who are the vegetables? These are, yeah, that's a good way to put it. You know, but the vegetables could be very rich, could be the entire meal. And which means, you know, the infrastructure that goes into the usage and capital expenditures for AI across healthcare, financial sector, across industrials, across materials, could be as big as what we saw in the first wave of the hyperscalers.

6:46What do you make of NVIDIA, which has been, it was up 6 % last week, is so much of the last couple of days feels like the open AI ecosystem levitating. Look at Lumentum, look at CoreWeave today because of Astra and that release. So is it, are we kind of transitioning through the trade or is it a leadership issue where when Google's in the lead, that's one thing? And then when Astra is back in the lead, then that's a whole other set of trades. Yeah, I think, you know, specific banks in particular, you know, tend to be more specific about their own, you know, cycle on how they manage their own fundamentals.

7:16You know, it's you know, when when you look at the whole industry together, that's what you actually see how these things go. And if you actually look, if you just look at the momentum trade, you know, what is makeup? It went precisely from hyperscalers to semiconductors to now the next wave of those. And even today, small caps are doing better than large caps. Which was so surprising. Go ahead, Craig. I was just going to add into this conversation with Omar here is if you think about where you're going next with AI, it's, again, the hyperscalers are one thing. But it's now think about the companies that have a lot of employees relative to their industries and low ROEs.

7:53That is going to get reset this way. Give some examples. Well, you take some of the financial companies out there. They've got a lot of employees. They want to drive up productivity per employee. And those will be sort of the companies. So it could be insurance companies. It could be financial companies. Some of the areas that can really benefit from it. By the way, Chris Davis, who's on the board of Berkshire, told us like months ago that his biggest AI play was going to be Capital One. To put exactly the reason that you're talking about. Exactly. And to the bigger point here with this, it's not going to benefit just technology stocks anymore.

8:25It's going to benefit old school industrial companies. It might benefit energy companies, financial companies across the board. What is an old school industrial company, Craig? Well, you could go into your charts. You make that giant chart book, which is amazing, by the way. You know, take some companies whose charts look tasty. Well, if you come back and you look at some of these industrial companies like Graco, good local Minneapolis. I knew you were going to go for the Homer. You got to go for the home companies. Or you go look at a Honeywell or you look at a Caterpillar. You look at some of these companies.

8:56All these companies could ultimately benefit from the addition and implementation of AI, which will ultimately drive earnings and earnings drive stocks, even though I look at charts. The whole kind of side, I don't know if it's a side story or the main story, going back to the turkey and the vegetables, but where would you put the bond market relative to all of these AI forces we're describing? Well, right now, for me, as I look at the bond market, we're pushing up against 480. And that's going to be a level that people are going to watch carefully. But 5 % is even a more important level. I mean, we're already making multi-year highs on rates.

9:30Clearly, investors are going to get more concerned. And it's going to be a bigger headwind as we move up closer to 5%, which suggests to me that you're probably not going to get a lot of multiple expansion. To Brian's point of what you were mentioning earlier about new highs, haven't made new highs in 14 weeks, it's probably going to be more challenging to make new highs if rates go up further. Boy, we're in the media, Omar. We're very simple. We like nice, big, round numbers, right? Dow 10 ,000, 5 % in the 10-year,$100 oil. Does it really matter, though? I mean, if the 10-year hits 499 or 5.00, does that one basis point, one one-hundredth of a percent, does it really matter?

10:09Is it a psychological thing? Is it some kind of trigger for algorithms, or does it not matter at all? Well, definitely, you know, the difference between 499 and 5 is not relevant to anything other than psychological. And headlines or anything else, they had to do with technicals, by the way. But psychology is a big part of the market, too. But it's a big part of the market. But I would actually just say, you know, echoing the question about, you know, what the bond market has to do with AI, which is the funding needs to come from somewhere. And these billions of dollars that are in the CapEx deployment are coming from public and for private credits that are being used to basically fund that capital expenditure cycle that is extending.

10:51So I think to me that's where the whole thing gets together. And the credit market has been incredibly resilient so far. But in the future, you've got to watch for where those things will go because profitability for all these CapEx is not necessarily going to work all the time. if we hit 5 % in the 10-year or even at 480, would you be telling people that's a buy? A lot of people would say if it gets there in not a disorderly way, it's a great opportunity. Well, we don't love chasing yields for the sake of just having a higher yield. But we do think that depending on the reasons why you get to 5%, it is a good entry opportunity.

11:27Because if this is because nominal growth is getting to the point where it is more term premium oriented and is the right place is much better than if it's because people are just trying to race to just trade to sell America. Yeah, go ahead, Craig. I was also going to add into this bond discussion that you're getting this sort of bare steepener happening where the short end of the curve is sticking at a very low level and kind of fixed right now. Long end's been going up. When we've seen that happen in the past, you've seen rotation happen in the market. We started to see energy stocks do better.

11:58They typically have done very well. We've also seen tech a bit weaker. So you're getting this sort of rotation happening in the market. It doesn't mean the market has to correct itself, but under the surface, rotation typically plays out. What's your call then for yields? Can we stay here or are we going higher? Do we have to worry about leading into that trade? For me as a technician, if we break above 480, we're probably heading toward 5 and maybe even closer to 5.25, just looking at the charts. But fundamentally, I'd leave that to Omar. Yeah, and I take your point. Is that what you say, Omar, you're just not interested in bonds because of some of those?

12:32Well, you know, yeah, well, it is in many cases, you know, the healthy part of this is that, you know, days like today and in certain cases, the stock bond correlations is working the right way. And in certain ways, that's a big positive piece. And again, getting to the level of 475 to 480 or higher, it is really the function of how we think about growth in the economy that is driving more return premium, which is driving a lot of that, which is not a bad thing. All right. We're stepping on Rick's toes. So you know what? Craig Johnson, Omar Aguilar, thank you. Speaking of bonds and bear steepening, is that what you said, Craig?

13:06Let's bring in Rick Santelli in Chicago. Rick? Yeah, no, he's right. Today there is a minor bear steepening. The long end's, you know, up just a bit. The short end's up higher in yields. So the higher yields in the long end, of course, or in the short end, I'm sorry, are flattening the curve, but not much, like one basis point. Now, let's look at what's really going on here today. I love this 12-hour chart of oil and tens, because up until a couple hours ago, it was tracking pretty good. And all of a sudden, it isn't. And that makes sense for a variety of reasons, not the least of which is Thursday, PPI, Friday, CPI.

13:43And, of course, what we're looking at on the auction calendar. Today,$58 billion. Three-year notes. It was an average auction. I gave it a C. Tomorrow,$39 billion reopened tens. Thursday,$22 billion reopened thirties. Look at a month to date of twos and tens. Basically sideways with a slight bias to the upside. And if we look at the last time yields, two-year yields were at these levels. On the first, it had its high yield close for the cycle at 440. That was the highest yield close going back to July of 24. On 10s, it was the 20s. Let's look at the what the first. We had a four point seven nine nine nine nine ten year close.

14:24That was the highest yield close for the cycle. We have traded a little higher intraday. That was the highest yield close since October of 23. And right now, the percentages of a hike at the next meeting in September, basically a week from Wednesday, it's moved from 60 percent to around 58 percent. But every trader and source I talk to say it's all up to the data on Thursday and Friday. That will be the deciding factor. Kelly, back to you. It's interesting, Rick, that we've gone positive on the session. Real quick, do you know why? I mean, this morning it was like, ah, 477. It's down. Even the oil prices are up.

14:58And now it's 479. I don't want to make too much of two basis points. But do you know why we've had that? Well, in my opinion, you know, we're at a level that's going to most likely just be sideways until we get data. And I know that the guests like to look at charts. I personally have been in a bearish mode looking for higher rates since the 10-year closed above a yield of 4.67. So basically four and two-thirds percent. I think the chances of touching 5 % on a closing basis are rather significant. It hasn't happened in 19 years. Wow. All right. Rick, thank you. Really appreciate it. Rick Santelli.

15:36We've got a whole lot more coming for you this hour. We'll bring you the latest on Novartis as those shares are getting hit hard today and bringing down other pharma stocks, too. We'll tell you what happened. Plus, did we achieve AGI? Jensen Wong thinks so. We'll talk about what that even is. But first, road trippers saw high gas prices all Labor Day weekend. Is there any relief in sight? Patrick DeHaan of GasBuddy is next.

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17:24All right, most of you are probably watching gasoline prices in your area go higher. We don't blame you. Gasoline prices nationally, the highest since 2022, in four years. But the real issue right now maybe with the economy is with another type of fuel, diesel. It is quickly closing in on$6 a gallon nationwide. And your next guest says it can surge as high as$8 per gallon in California. Joining us now is Gas Buddies, Head of Petroleum Analysis, Patrick DeHaan. Patrick Diesel, the lifeblood of sort of the American economy, trucks and trains and big ships. How severe is the refining shortage, not just here, but what's happening in Russia, what's happening in Germany and other parts of the world impacting us?

18:10Well, Sully, by looking at these crack spreads, the market is telling you that there's nothing more critical right now than refineries. It's all about refining capacity. Of course, there's a lot of different things over the last few years. California is seeing the shutdown of a couple of their refineries. Probably it couldn't have come at a worse time. You're talking about diesel price in California that are eclipsing$8.5 a gallon for the nation's most powerful agriculture state. That's huge. Keep in mind that all of those crops harvested have to get processed, distributed. We're talking about a huge cost, not only that, but logistics, getting all that food to where it needs to go.

18:47Americans are now well aware that diesel is going to be hitting their wallets, though they fill up with gasoline. This is certainly an all-time record. In fact, just looking at intraday GasBuddy data, we are now up to$5.90 a gallon, just 10 cents short of that$6 number. Now, you were previously just a couple of minutes ago talking about looking at markets reverse. I can't help but look at ultra-low sulfur, diesel, and heating oil futures have come off their highs today by about 15 cents a gallon. It's a little too early to call that a win, but certainly a nice turnaround here. Otherwise, it would simply be a matter of time before that national average for diesel did hit$6.

19:29Yep. And, you know, I'm not minimizing the rising price of gasoline, of unleaded fuel. Okay. It's at$4.15 nationally. It could be over$6 in parts of California and Hawaii and Washington State. There's a lot of taxes in there as well. But, Patrick, I will say Americans are driving less statistically cars get better fuel mileage. Is$5 a gallon gas today the same from a national economic impact as$5 a gallon gas, say, 10 years ago? Well, thankfully it's not. It's a lot softer of an impact, though Americans are still going to be extremely boisterous when it comes to voicing their complaints. Incomes have gone up, so$5 a gallon today is not even what it was a few years ago in 2022.

20:20That's an important conversation to have because a lot of the time we look at nominal highs, but adjusting for increased wages, Americans aren't quite feeling the same pinch at the pump that they were even a few years ago. But a lot of this, again, centered around a huge disconnect between gasoline and diesel. We've never seen it this wide before, but absolutely. I mean, gas prices are still costing Americans over$350 million more every day than they did just a year ago. So there's sticker shock there for consumers. There's going to be a silent killer of the U.S. economy if diesel prices maintain these levels, which as long as especially these Ukrainian drone attacks keep up on Russia and if we get a cold winter, it's certainly not going to be pretty at all.

21:05Yeah, I think you're in the Midwest. As you may know, I drive back and forth to the Midwest during COVID. I did it a lot. And thank goodness for my GasBuddy app, by the way. And because I'm the dork that tracks gasoline prices. I can tell you that in June and July of 2022 in Ohio and Indiana and, dare I say, Michigan, which is where I think you are, Patrick. You don't have to comment if you don't want to. I paid$5.75 a gallon for unleaded gasoline price 2022. Gasoline prices were higher. We made it through that. How resilient do you think the consumer is in your neck of the woods and maybe our neck of the woods paying these prices?

21:46Well, in the Midwest, and I often travel between Grand Rapids, Michigan and Chicago, where I currently am. And, you know, this is the Midwest where gas prices and pickup trucks and low energy prices are pretty typical, along with the broader plane states. And yeah, I mean, back in 2022, we were hitting 530 a gallon numbers that we got close to this fall, but we've never seen diesel this expensive to put that into context as well. But, you know, keep in mind, if we're adjusting for inflation, looking at wages and gas prices, we're still quite a bit below that 2008 comparison when Americans were shelling out about what they are today.

22:25But incomes were drastically lower. So the pinch at the pump was far worse in 2008 than it is now. Not to dismiss these high prices, which could get worse. And And keep in mind, this is record-setting territory for this time of year. Americans have never seen high gas prices this late into the year. And that's something that may stick around for the next few weeks. And it could potentially worsen. You know, you talk about Russia building drone nets over their refineries. This is not a short-term play. This is something that is going to be at risk for the entire winter. And diesel probably will be more impacted.

23:01But absolutely, there's still a lot of pain at the plumps to go around. unless you're in Indiana, where, of course, the state continuing to waive its gasoline use and excise taxes. That's where I filled up on the way back to Chicago yesterday. Yeah, I don't know if they would ever. I mean, this is what Halima was saying, but maybe really relax the renewable standard. I guess last hour said maybe they'd go to it year round. Who knows? Patrick, for now, thanks. Really appreciate it. Patrick DeHaan. Thank you. Novartis shares are down 13 percent today after another drug trial setback. What do investors need to see from the company now?

23:33And what's happening with the rest of the pharma space? We'll have more on that next.

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25:20A major setback in the race to treat one of cardiology's most elusive risks. Novartis' late-stage trial failed to show a meaningful reduction in heart attacks or strokes. Now, the multibillion-dollar bet on the next frontier in cholesterol is under fresh scrutiny, with Amgen and Lilly still in the race, but shares falling today as well. Annika Kim-Constantino is here for more with us. Now, I like just the name for L-P-little-a because it's so unique. But this is a serious problem that was supposed to be kind of the next vanguard of cholesterol. You explain it. But this Novartis setback is now calling the work that all of these people are doing in the space into question.

25:56You're exactly right, Kelly. And so this was seen as the next frontier of cardiovascular care here, cardiovascular treatment. So LP little a is this genetically inherited form of bad cholesterol. And essentially, it's a huge cardiovascular risk. It is tied to heart disease. And so a lot of drug makers, there's a huge sort of race in the pharmaceutical industry to develop drugs that actually target and destroy this specific cardiovascular risk factor. And so, as you said, this sort of trial failure, Novartis' drug was the furthest in development here. It is casting some uncertainty on some of the other drugs that are in the pipeline from other names like Lilly as well as Amgen here.

26:30Novartis has been a hot company, though. I mean, the stock has done very, very well over the last 10 years or five years or so. This is a big setback. But Novartis is kind of one of these quiet companies that seems to just do well. What are they known for? What is Novartis? It's not a GLP-1 company. No. Maybe the only one that we talk about that isn't. Yeah, they have a very, very broad portfolio here. And what's interesting is, as you said, it is a quiet company. And it is unfortunate that we had some of these back-to-back trial failures that really put a lot of attention on the stock. But when you actually talk to a lot of analysts, they do point out that there have been successes from this company.

27:05You know, for example, last week we saw a multiple sclerosis drug that, you know, it's going to be seen as a$10 billion drug. And that saw a major trial win. And, you know, the trial misses that we saw over this last week doesn't necessarily translate to a sort of a flawed growth strategy of Novartis here. And we'll see if anyone else can now kind of come up with one that does show more efficacy. That's, I think, the fancy word in these trials. Annika, thanks. Annika Kim Constantino. All right. Coming up, it finally happened. We got a bank deal. We're going to tell you who, why, and for how much.

27:52A major regional bank deal is taking shape as EverBank and Wafed agree to a$3.9 billion reverse merger. The combo would create a lender with$75 billion in assets, expanding EverBank's reach from Florida to the Pacific Northwest. Brent Beardahl is the president and CEO of Wafed. He joins us exclusively. Brent, It's great to see you again. And what happens now? Kelly, thank you for having us. We are incredibly excited about this opportunity. We did this because Brian was looking for a bank deal, and we wanted to step up and give him a bank deal. And I think we've got one that's pretty compelling.

28:27He's shaking his head. Why a reverse merger? Why is it structured that way? You know, what's really unusual about this is most bank deals come together and you've got two very similar banks. We're different from EverBank. They complement us in areas that we need help, and we complement them in areas that they need help. And there is no question we can come together and be stronger together. They are privately held. As you know, we've been publicly traded since 1982. So we are issuing the shares. We're the legal acquirer. Their shareholders will own roughly 59 % of the company. Our shareholders will own roughly 41 % of the company.

29:05And the economics are absolutely compelling. Together, our earnings per share, we believe, will increase by 29 percent within the first full year when we're synergized. All right. Let's be clear. I did not want a bank deal. But, Brent, I will say that I got an email from Anton Schutz, who's one of the leading bank focused mutual fund managers in America, if not the world. And he emailed last night. He said, woohoo, we have a deal because we haven't had any. We just haven't seen any deals. Why not? You've done the deal, obviously. So I'm going to ask you to kind of look outside yourself. What do you think is the holding thing?

29:42Banks want to scale up. Is it near 5 % rates? Is it something else? What has held back deals? I think what's held back deals is valuation. People waiting for valuations to tick up a little bit. I think clearly in these next two years, you will see an increase in deals. And, you know, for us, it was about finding the right partner. It's timing and finding the right partner. And that's exactly what we think. So I think more deals will will happen. If you look at the United States, we only have roughly 200 banks from three billion dollars all the way up to JP Morgan at five trillion dollars. So only 200 banks.

30:22And there is going to be a lot of consolidation in that area because scale matters. And we're thrilled that this takes us to 75 billion. We think it provides a real a new layer of relevancy for us, for our clients and for our employees. what's going to happen to everbank field with the jaguars that's actually the reason i wanted to have you on brent was the time the jacksonville jaguars play at everbank field so is it going to be still going to remain everbank you're going to break some news on espn right now like well the better question brian is you know is it the seahawks or the jaguars and we're pretty pretty happy here in seattle with the super bowl champion the hawks touche uh that's a good one That's a fair point.

31:02Brent, what are your, if I could ask it this way, ambitions? And that might help us understand what's possible in the banking world right now and going forward. It has been actually a pretty good period for the financial stocks. We talk about this. Like they're, you know, the biggest one. So is it just a matter of building scale to be, you know, with every passing year, that's what you need? Yeah, you know, that's what's really exciting about this opportunity for us, because it allows us to go from playing defense to playing offense. We have been on this journey. How do we get to a 15 % return on tangible common equity?

31:34We've been around 10 % or 11 % consistently. And how do we increase our profitability? And just by doing this deal allows us to do that because we're able to reprice a bunch of mortgages that we made two and three years ago at relatively low rates. And you know very few people are refinancing with those low rates. So we're able to take those to market rate yields. We have, I think, 11 percent expense reduction on the combined company. If we do just those two things, we take our return up to 15 percent and we think the market over time will reward us for that. And then that will give us a currency that we can do other fun things.

32:09Sure. Quickly, how do you take those up to market rates? Are the people behind who own those mortgages in for a surprise? Kelly, that is the magic of purchase accounting. No, we're not touching the rates for our consumers whatsoever. But we have to fair value those as we do a transaction. So it's the WHA Fed balance sheet that's being fair valued. So all of a sudden, a mortgage on our books that might be earning 4.25 % will be earning 6.5 % per se. Well, I'm in the real the really interesting thing about this. We were able to do all of this without raising additional capital. So if you think about this deal, I love this statistic.

32:47We are the only bank M &A deal in the last, you name it, five years that has over 25 percent EPS accretion and less than 10 percent tangible book value dilution. We're pretty excited about the opportunity. Do you see him rattle off these stats? I mean, I know that's what these CEOs do, but it's incredible. Brent, thanks so much. It's great to have you here today on a really important day for the company. Thank you for having me. I think he said they're staying with the Seahawks then. Well, and they play tomorrow night. So good luck to the Seahawks against some team called the Patriots from Boston.

33:18Brent, thank you. Let's get over to Frank Holland with a CNBC News update. Hey, good afternoon. The secretary of the Smithsonian announced today he is retiring following months of clashes with the Trump administration. Lonnie Bunch said in a statement he will step down at the end of the year with, quote, very mixed emotions. He will leave the post just two months after the White House released a report calling the leaders of the Smithsonian radical activists who cannot be trusted. Meanwhile, voters in New Hampshire are casting their ballots today in a number of primary races, including a key Senate race for the seat vacated by Democrat Gene Shaheen.

33:50Former Republican Senator John Sununu and Democratic Representative Chris Pappas are heavily favored to win the nomination. And OpenAI says one of its internal models found a solution to one of math's most elusive problems. Back in 2000, the Clay Mathematics Institute announced seven unsolved math challenges known as the Millennium Prize Problems and also offered a$1 million reward for each one. So far, only one other has been solved, but OpenAI says its model produced a proof for another, which deals with equations that describe the motion of fluids. Brian, back over to you. Way above my pay grade.

34:2410 ,000 agents. were involved in that 10 ,000. 10 ,000 agents. 10 ,000 agents. I don't even know what that means. It sounds like a lot. I don't know what that means. Coming up, the semiconductor stock soaring on a deal with Amazon.

34:54A new generation of artificial intelligence may have just arrived. Open AI is calling Astra its most powerful model yet. And NVIDIA is once again at the center of the compute build out. CEO Jensen Wan writing on X that Astra was trained on more than 100 ,000 Grace Blackwell GPUs with another 400 ,000 coming online next. So we've gone from ChatGPT, which seemed impressive at the time, to Astra in just four years. The AI arms race is accelerating and the investment stakes are rising with it. Here to discuss is Stacey Rasgon, senior semi-analyst at Bernstein. Stacey, it's great to see you. And as we just talked about in the news update, OpenAI just revealed that a 10 ,000 AI agent swarm solved a thing called the Navier-Stokes problem.

35:38Thank you. Can you explain in lay terms what it means that a swarm of 10 ,000 agents solved this problem? What does that mean? And they talk to each other. They'll say, OK, I got to step forward like this. Now you go do that. It's crazy. I mean, look, you've had thousands of mathematicians working on that problem for quite a while as well. So, I mean, maybe think about it like that. You've got individual agents that are all working on pieces of that problem, talking to each other, reviewing, going back and forth. and it looks like they did solve it. This is the Navier-Stokes problem. This is one of the, I think, seven millennial prizes.

36:14The only other one that's been solved was the point card conjecture several years back. What about Matt Damon? He solved it. He's a janitor, but he was a smart janitor. He could probably solve it in the hallway. Maybe, maybe. My question, Stacey, is what happens when this compute power is put to nefarious uses? First of all, what happens, to quote a friend of mine, who was an early guy in all this. He's much smarter about this than I am. He says to me, what happens when we can't turn off the bots? I'm like, if you're asking the question, then I'm going to take some notice. Yeah, I mean, these are, you start to worry about like building Skynet, I guess.

36:51And that's like, I don't know. I'd like to believe that we can always turn off the box if we have to. But I mean, these are questions that I think the industry is wrestling with right now. This whole idea of guardrails and so on and so forth as the capability of these models increases. And you can see it's been increasing by leaps and bounds over the last several years. And think about this, like we've only, as to your Jensen quote, we're only into this like three or four years. Like this is still pretty early. Like if you think about where this could go and the progress they've made just in that short amount of time, it's pretty remarkable.

37:23So how do you run this through the Stacey Rasgon balance sheet or meaning stock selection, you know, screener? Because we see, and it seems to me, but you would know more than I, that OpenAI ecosystem stocks have been rising since Astra was announced. Can you talk about that? What does it mean for NVIDIA in particular, which was up 6 % last week? Yeah. I mean, it seems to me it means more compute, right? Just more. And this has been the story the whole way along, right? I mean, there's been a lot of, like, you know, angst about who's winning or losing in this kind of environment. And I've said this probably on the show before, but my general view has been is the opportunity bigger, is it not?

38:00And if it's big, I actually think there's room for plenty of folks to thrive. And, I mean, that's what we're seeing. You've got NVIDIA thriving and Broadcom and, I mean, even guys like Marvell and MediaTek and AMD. And, I mean, even Qualcomm, you talked about Qualcomm a little bit earlier. You know, they've got a data center story, which, I mean, even for them is potentially sizable. It's like everybody's doing fine. And everything that we're seeing, I think, from these models, I mean, it just comes down to more compute, more GPUs, more accelerators, more CPUs, more memory. But, Stacey, a lot of the we highlighted this top of the show a lot.

38:32The Nasdaq 100 peaked out in mid-June. Now, maybe it hits another peak. I'm not saying it's permanently peaked, but it's been three months since we made a new high in the Nasdaq. I know you're shaking your head, but for a lot of traders and investors, they got used to making new money, new highs every week. Is the money already made? Look, I'll put the trading stuff aside. I mean, I'll take a look at the socks, for example. So you're right. It's down a lot off the peak. That being said, the SOX index, which those that may not know, this is an index of semiconductor stocks. It's still up almost 70 percent year to date.

39:10Right. And so, you know, clearly, if we'd gotten there monotonically, everybody would be super happy. That never happens. Like you always overshoot and undershoot. But we're up a ton year to date. And by the way, it's all earnings like our forward earnings expectations are more than 100 percent. multiples are actually down year to date. The fundamentals, put the stocks aside from it, the fundamentals have been doing nothing but getting better for these kinds of reasons. And I think that the sector itself has still had a remarkable year, one of the strongest years, probably in memory, certainly one of the strongest that I've seen in a long time.

39:42And again, if you think about where we are in this cycle, it doesn't feel like this cycle is coming to an end anytime soon. And so the stocks on any given day are always going to do whatever they're going to do. But like over, you know, as we kind of go forward, fundamentals are getting better, not worse. Yeah. No, I take your point. It's just more and more and more of everything at this point. Thank you very much. Stacey Rascon joining us from Bernstein. All right. Is SpaceX going to devour the wireless carriers market share? In other words, will SpaceX kill Verizon, T-Mobile, AT &T? Talk about that next.

40:28SpaceX is coming for wireless, but your next guest says phones are not the real endgame. He argues the bigger ambition is a network connecting robo taxis and robots and the world. And it could be a win for cable and towers and more and a threat to the wireless carriers. Joining us now is Steve K. Hall. He is senior analyst at Wells Fargo. SpaceX is disrupting Steve so, so much. So in your world, what companies and what stocks win and which ones maybe don't? Yeah, and thanks for having me on today. So the focus here is SpaceX, since the IPO, has said that wireless is a business they want to get into.

41:07One of the questions is why. You talked about that a little bit. We don't think it's because the economics of adding a fourth player to the U.S. wireless market is so compelling. It's that there are ulterior long-term technology motives. And if you take that as an assumption, then the idea of them building a network becomes a little more logical. And as we talked about in the note, there's some ways to do that from an architecture, but it probably would require towers. It would require a Wi-Fi offload MVNO with cable. So those could be two of the potential winners from a sector perspective, albeit possibly modestly.

41:44And then, you know, telco just facing another competitor, a three-player market going to a much smaller fourth player. That's still a net negative for sure. Yeah, I mean, SpaceX is truly remarkable if you've used it. I'm sure you have. I have. I'm sure Kelly has. It's just, especially if you're on a plane, you're like this. The lifesaver. Yeah, I'm now adjusting flight schedules to see if I can find planes with it. So it just works better. But is it going to permanently, I'll ask again, is it going to replace my cell phone? Is the carrier, is this over, not the phone, but the way I connect, talk, and communicate?

42:21Is that going to change dramatically in the next year or two? Probably not. But I think what a lot of people have dismissed SpaceX for is saying, you know, in order to have what T-Mobile, AT &T, and Verizon have, which is a network that hosts roughly a third of the population for each and works everywhere you are. Because, you know, right, like the idea of the dropped call doesn't really exist in 2026 anymore. Nobody's going to pay for a service where that's commonplace again. So the question about SpaceX Wireless is, you know, can they offer you the same level of service of one of the big three with a different architecture?

43:02And I think the big difference here is that they're not going for a quarter of the market or a third of the market. So they don't need nearly the same amount of spectrum, the same amount of tower and signal projection. And what they do have, as you rightly point out, is they have a big and growing satellite constellation. And there's other things they can pair that with in order to offer wireless as a service. Again, not for a third or a quarter of the population. Right. But for a percentage of the population, you know, for sure, we think they could give you a service that is comparable. You know, and people have reasons to do that.

43:37Craig Moffitt literally got into the physics of this a couple of months ago. The same question to explain why they can't. Why by why beaming Internet to your phone, you know, on the plane is totally different from what's going on with these companies trying to keep a signal over the country. So I will put the link in the show notes podcast style. You also cover Netflix and they're showing the NFL's Australia game between the Niners and Rams on Thursday. Stock has been struggling. The narrative has shifted to you can't watch anything on Netflix anymore. Can this kind of bring some of the juice back?

44:07What do you think about that? Yeah, so I guess just your first question, I think the difference between the way I look at it and the way Craig looks at it is it's not a satellite based architecture that we're proposing. It's using all the spectrum they have, along with a lot of other things, to get around some of those physical challenges. On Netflix, Netflix and the NFL have a shared goal, which is to expand engagement internationally. There's as many Netflix subscribers in the U.S. more than there are pay TV subscribers. And internationally, they have a huge audience. So I think the hope for both is that having the NFL on Netflix brings in a new international viewership.

44:47Yeah, Moffat had said while SpaceX acquired Spectrum from Echo Star, they're heavily concentrated in metro areas. They don't have enough Spectrum to do a standalone nationwide terrestrial network and it would be prohibitively expensive. Clearly, we need to continue and stay on this, Stephen, because there's a lot of interest in whether they could or couldn't. And Gwen, she's going to figure it out, I think. Stephen, thanks for your time. Good debate for us all ahead. Thanks. Yeah, exactly. When we're not watching the NFL on Netflix. More Power Lunch after the break.

45:24All right, guys, a developing story slash breaking news. And I want to hedge this efficiently. This is coming from an Iranian news agency. So take that for what you will, but it's making its way around trading desks on Wall Street. The news agency is called MAHR, M-E-H-R. Iran's mayor news agency saying that they've heard explosive sounds on Iran's Karg Island. That is the main oil export port. I want to be clear. We have exactly one headline. They're saying explosive sounds. Maybe it's fireworks of joy. As I said earlier, we don't know, in other words, what that is. But that headline is out there.

46:04And Kelly, you did notice that stocks here moved a little bit. You can see, you know, it's a little bit hard in the intraday. It wasn't huge. But the Dow, the S &P, there was a downtick. We're coming back from it now, is so often the case. I think the more interesting question it also raises is who's going to blink first, the U.S. or Iran? We have high fuel prices. We've talked about that pain point. Their currency is running out because the blockade is so successful of the strait. Their economy is about to be back. And the U.S. Navy is successfully escorting oil out of the Strait of Hormuz. And so how this event, if it's true, fits into that narrative is what the market is doing.

46:34And it is just one headline. It may not be accurate, but the headline is out there and it is moving a little bit. Certain markets were done here on Power Lunch. Thanks for watching. Closing bell starts right now.

47:06but remember to treat yourself too. Number three, there is no dress code, but always leave them talking. Number two, show off different outfits. No party remains unattended. And rule number one, have it all without spending it all. Happy holidays from House of Burl, Burlington.