10AM Hour: AI Trade Comes Under Fire, Bending Spoons CEO on Berkshire Investment, New Anthropic Revenue Numbers 10/15/26

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1:04Good Thursday morning. Welcome to Squawk on the Street. I'm Sarah Eisen with Carl Cantania and David Faber. We are live, as always, from Post 9 of the New York Stock Exchange. Tech stocks under pressure again as questions grow around funding the AI buildout. We'll talk to the head of the popular DRAM ETF about this downturn, plus a red-hot inflation reading this morning. Again, PPI more than doubles estimates. We'll be joined by Joe LaVornia, former senior counselor to the Treasury Secretary for his take on the latest inflation readings. And also ahead, the CEO of Bending Spoons, which owns companies like AOL and Vimeo, will join us to talk about Berkshire Hathaway's increased stake in that firm.

1:41The stock got 40 percent yesterday on the news. And we'll discuss these new revenue numbers that Anthropix shared with investors ahead of its expected IPO next month. But guys, with all the focus on AI and debt, decided to put some charts together, They're just showing you why the market is a little bit concerned. Number one, this chart has been going around. This is the issuance, the supply in September. Tech companies raised$23 billion in September. That was less than half of the amount raised in August. And this is according to Morgan Stanley data. And they looked at public bonds and private placement transactions.

2:16And you can see it's kind of this decline, this steady decline dropped from June when companies raised a record$113 billion. So there's a lot of chatter about why that is. Is it higher yields? Is it the fact that they couldn't find demand? Or, you know, it could be as simple as a lot of the supply was front loaded, you know, that a lot of announcements came at once, as we saw in June, where it reached a record$113 billion. Or, you know, there's growing political backlash and resistance to data centers. And, you know, that could be part of the equation as well. If you look at, here's another, oh, sorry.

2:55No, I don't know if that's going to be the key part is the resistance to data centers as a result of perhaps the reluctance of credit investors to put more capital to work here. I think it, I mean, maybe, I guess, to your point, if you're delaying the data centers, you're not going to get the returns as quickly. So that's a concern. That was PIMCO's point yesterday. It's not necessarily about the moratorium. It's the longer permitting. It's the more community outreach friction and getting deals to close. Right. Not as easy. And by the way, what we just showed is the additional interest rates. I mean, the amount of it's not necessarily that investors are pushing back on the supply, but they're definitely charging more.

3:36You know, they're demanding a higher premium. The cost of capital is going up. Correct. And there you see that. I don't have the exact pricing, for example, on the SpaceX bond deal, that huge deal, but I've heard it was as much as 9%. Correct me if I'm wrong, but that's the number I'm hearing. Anthropic did something last week that was in the double digits,$5 billion. And then you've got Broadcom out there in the market for huge amounts of capital for all this chip stuff involving Anthropic and OpenAI,$60 billion. And again, the borrowing costs are going up, Sarah, and that's a concern. That's the perception of risk there.

4:06And, you know, I guess part of it is maybe this question that investors are asking about whether all the heavy investment will generate the kind of returns, especially in an era of political opposition. That was kind of my point. Maybe that that's that's part of it. By the way, we have a good map that shows some of the political resistance or the friction, Carl, that that you just mentioned about data center moratoriums. and you can see, you know, it's kind of spreading the resistance that we have there. The other chart that I just want to show is just how dependent, first of all, the credit market we've talked about, and it's not just the hyperscalers.

4:44I think hyperscalers, according to Goldman, are only 40 % of the AI, basically, supply that's been out there. But just how dependent the economy is on all of this and construction. You know, here's a look. There's a great real construction spending growth chart that shows that it's all happening in data centers. And there's the flip side. Manufacturing down 24 percent year over year in terms of spending growth. This is through August of this year. But everything else in the middle is down as well. The only thing that is up in terms of construction growth is data centers. Powers down, multifamily, single family, residential construction.

5:23So this is what's driving a lot of the economy. This is the Jason Furman chart from the other day. Yeah. Yeah. We know it's an important component of economic growth right now. Very important, not to mention employment, of course, which obviously figures into that as well. We all hear about the shortage of electricians and everything else related to the building of data centers. There's no doubt it's really of great importance to the U.S. economy right now, to the extent that the cost of capital goes up and or the willingness of investors to continue to fund this build out slows in any way. Conceivably, Sarah, it will have an impact, right?

5:55Right. I think that's the point. And that's what I'm trying to show. And I guess it's a test, right, for the credit market of just how much it's willing to handle. And I do think one healthier, you know, reading through some of the research notes, one healthier feature of this sell-off and the higher rates that we're seeing, and especially some of these junk bonds, it's not everything. I mean, it really depends on who you are and what part of the AI trade you sit in. In other words, the hyperscalers are just definitely perceived as less risky, for instance, than the neoclouds. I know you've been talking about CoreWeave.

6:27There's the semiconductors. Those spreads are a little bit elevated compared to the hyperscalers. So the market is discriminating. It's not like, you know, a big credit collapse or anything like that. But we're watching. No, and to be fair as well, the starting point we had here when the spending really began in earnest, the spreads were at all-time lows to a certain extent, right? And so, you know, sometimes it's just a normalization that's taking place as opposed to some real blowout. Right, exactly. Because at first there was just so much excitement about all of this. And I think the question is, you know, how long it's going to take, what the returns are, and whether they're going to show up ultimately.

7:07Well, we also went from a period where hyperscalers were asset light, right? I mean, their users were the raw material in a sense. And that changed in a hurry when they decided to spend all their free cash and then some on CapEx. It's expensive. Yeah. I mean, what's happening right now? The biggest, most successful companies the world has ever seen are now mostly free cash flow negative. But they are all willing to spend the money because they all believe that the returns are going to be incredibly high. I mean, I would say that. They do still see that. You know, Hoctan is not sitting there going, oh, I'm not going to borrow at that level.

7:41He's going to borrow at that level, most likely, because he thinks he's going to get a huge return at the end. None of these concerns are really backed by a problem with lack of demand or lack of bullishness from the issuers. I mean, that's what's driving it, ultimately. And we haven't really seen cracks in that, which is why it's interesting that we have seen this bond yield move. I think it's also volatility at the long end of the curve. We've seen it in treasuries as well. And the Fed's raising interest rates, and we're getting hot inflation reports. And all of that factors into, as well, demand for debt.

8:14All right, let's kind of move on to a related part of the market here. Take a look at the DRAM ETF. It's tracking for its third negative week in a row. It's longest weekly losing streak since the ETF's inception. That was just earlier in the year. This ETF's top holdings include Micron, SK Hynix, Sandisk, Western Dig. And, of course, all of them are getting caught up in this recent sell-off. Our next guest calling the sector in transition. He joins us now, CEO of Roundhill Investments, manager of the CTF is Dave Mazza. And there he is. Dave, what does that mean we're in transition? So essentially, when we think about what's happening with the memory names, they are the tip of the sphere from the bottleneck of this AI buildup.

8:52And they were market darlings earlier in the year. But what they're doing from the business model perspective is changing from cyclical businesses, meaning we have these boom-bust cycles, to one that has more consistent revenue streams, which is occurring with these long-term customer agreements. The challenge that the market is facing right now is when you have the big picture macro news as challenging as it is, micro news needs to be very strong. And in the last few weeks, we haven't seen that with memory, right? So we've seen concerns with CMXT, the Chinese semiconductor company, perhaps entering the space in a more material way.

9:31You have comments from Hock Tan. What Elon Musk is saying hasn't helped anything. So investor sentiment has turned, even as the fundamental story remains quite strong. Right. I mean, everything is still in shortage, isn't it? Yes. These chips are sold out in 2026, 2027. We're talking now about 2028. And the challenge is that these companies have always been valued, again, as highly cyclical. So low price to earnings multiple. A big bull case here is that that multiple will continue to expand going forward. We still believe the long term fundamental case is there. The challenge is, is that when you have a interest rate environment that we've seen now concerns about credit, that's going to feed through the entire AI complex and something like the DRAM ETF, like memory chips and the companies that make them are really going to get caught up in that, especially as they have been an area where hedge funds, retail investors have moved in size to put positions on.

10:30But now we're seeing that being taken off quickly as the macro concerns come to bear. CXMT. This is the Chinese memory chip maker that also caused a recent sell off with an update. I think it's in there in your DRAM top holdings. What do we need to know about about that company, their capability and the potential threat to some of these American memory giants? Here's what's interesting. So if we were to more favorable macro tape, the news that came out of CMXT, which is unsubstantiated, unverified, probably would have been more of a blip on the radar. The challenge is that the tape investor sentiment has turned sharply on AI.

11:08But to take a step back, when we think about CMXT, they are a beast in China, but they generally make sort of lower margin type memory chips. The news that came out this week was that they were going to be entering a space using a new technology, which Samsung, SK, Hynex, Micron have tried for years. But the reason why the Chinese memory companies like CMXC are looking at this is because of export controls, they can't get the systems imported in that they need to be able to make these next generation chips. So they're trying something new. The reality is this wouldn't come to bear until perhaps 2028, 2029, even 2030, because of the time it takes to build these chips at scale.

11:51But investors are not looking at valuing these companies based off of what's happening in 2026, 2027. They're actually starting to look out to 2028. Dave, were you were you interested in Hawk Tan's interview the other day? We keep coming back to it, this notion that investors, in his words, have no clue what they're investing in. that enterprise AI is not productive yet, that memory shortages could ease in a year. He said a lot. No, he really did. There's a lot to unpack there. Some of those comics were taken, in my opinion, slightly out of context. The challenge is that when you have a CEO of that company, which, as we said in the intro to this segment, still raising tons of capital, looking to raise it at perhaps higher interest rates, that's quite concerning, especially when they're talking about memory shortages, perhaps coming in sooner than expected.

12:43But again, the reality is, is like CMXD, like the comments from Hocktan, like what Elon Musk has now been sort of putting fuel on the fire, if you will, about with his posts on X regarding these comments, none of this helps sentiment in the short term. And I think this is one of the reasons why buyers are stepping away from the memory names until we can reassess, especially in the context as these companies are transitioning their revenue models. Yeah. Finally, you know, we mentioned casino, South Korea's market. My colleague, Jim Cramer, talks about this almost every morning because he's watching SK Hynix overnight.

13:23How much of an impact does that have, particularly given how that market operates? It has an incredibly large impact. So we talk about the rise of the retail investor in the U.S. and we know that they have, especially since the COVID period, played a greater and greater role in capital markets in the U.S. In South Korea, if you look over the last 10 years, retail investors generate about 70 to 80 percent of participation in the Korean equity market in the last month, in the last week, that has dropped to the lowest levels in 10 years. So both foreign buyers are stepping back from Samsung SK Hynix.

14:01But now South Korean retail investors are not necessarily stepping in to buy the dip as they have been. And so that's further adding pressure on the stocks. Dave, appreciate the time. Thank you. Thank you. Here's our roadmap for you for the rest of the hour. Still ahead, economist Joe Labornia joins us, former senior counselor to Treasury Secretary Besant. We'll talk about the renewed concerns around inflation following another hot read here on prices. Flossanthropic shares new revenue numbers with investors. That is ahead of its expected IPO next month. Is growth slowing? We're going to have some details in just a moment.

14:38And shares of tech conglomerate Bending Spoons jumping more than 40 % yesterday after Berkshire revealed a bigger stake in the company. We're going to talk to the firm's CEO as we try to come off of some opening lows almost back to 7 ,700. Stay with us. Legacy Credit Scores only look at a brief snapshot in time, and that limited view often leaves millions of qualified credit seekers out of the picture. Vantage Score is changing that by modernizing credit scoring. Vantage Score uses 400 % more credit and alternative data to create a fuller picture of financial behavior, including trended credit data, rental payments, and timely utility payments.

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16:29Taxes and fees extra. New customer offer for initial plan term only. Greater than 50 gigabytes may slow when network is busy. See terms. Welcome back. Of course, there'd been a lot of focus yesterday on Anthropic, and a meeting was having in San Francisco with its investors, potential investors as well, ahead, of course, of what we expect will be an initial public offering of this Frontier Lab, perhaps as soon as, let's call it, the next month or so. We're expecting an S-1, obviously, ahead of that as well. And they did share numbers as was anticipated. $16.8 billion was the third quarter number in terms of revenues for Anthropic.

17:11Perhaps some believing that that number was a bit lower than they might have anticipated. Obviously, we've talked so often about the annual run rate of revenue and how important that is for the overall valuation of the company, a company that some say will be seeking a valuation of as much as$2 trillion when it does come public. Now, investors I've spoken to who are bullish, as many are, of course, as you'd expect, do think that next year things will accelerate again and that you're talking about a company that will end the year at more than a$200 billion run rate on revenues. It's not a gap number, but a revenue run rate number.

17:49One thing that may have held the company back in the third quarter was cracking down on the distillation taking place by the Chinese open source model, something Anthropic has talked a good amount about and actually put a paper out the other day around indicating that they had figured out largely a fix for that. Essentially, many of these open source models they were alleging were actually hitting anthropics models billions and billions of times with all sorts of different types of queries to try to basically get at the underlying model itself and help to build their own models. They say they've ended that.

18:23What could the hit have been? As much as 5 % to 7 % of revenues, maybe as much as$3 billion. at least is what we're hearing. Don't know, guys, if that's actually the number, but the bulls will tell you that certainly had a potential impact as well on the revenues in that third quarter. Again, the expectation being that they're going to still end the year at over$100 billion in annual run rate. And I guess, I mean, on the positive side, some saw potential deceleration given OpenAI's leadership over the summer after it released the 5.6 model. And so that was good news. And they didn't get forward guidance, right?

19:00But I guess the run rate still has a tracking at$100 billion by your end, which is where the buy side is. Kind of roughly, roughly, I mean, 100 to 110 seem to be some of the talk. Enormous numbers, obviously. It continues to be a private company, at least for the next few weeks. There's still the question among some that why would you have such a large institutional meeting if you filed confidentially and didn't want it to leak. Why wouldn't you just have a few large investors and try to keep their cards close? I know. I don't completely understand the strategy. It's not been communicated to me fully.

19:36There does seem to be an expectation, Carl, that we're going to get an S1, which is going to be must-reading for all of us, certainly around the risk factors. We've talked about that a lot as well for Anthropic. But we'll see if that comes in the next, let's call it, week to 10 days. Yeah. I mean, generally, it confirms that they're still in pole position, right? They are. Yes, they are a very powerful lab. Let's put it that way at this point. Getting close to recursive self-improvement six to nine months away. And then who knows, Sarah? Right. Then that's been painted as scary. Yes. By Anthropics' own researchers.

20:10Oh, yeah. Yeah. All right. Well, they got to figure that out in the meantime. Options traders are using perpetual futures to bet on the debut values of these stocks, OpenAI and Anthropik, when they become public. Look, let's get to Oliver Rennick at the SIBO in Chicago with a look at the numbers. So what do you see, Oliver? Hey, Sarah. The crash yesterday in the neocloud stocks is putting some pressure on those valuations for OpenAI and Anthropic, judging by the perpetual futures, and perhaps not as much as you think. It actually looks pretty tame right now. Now, the early morning single day, you can see the pull back.

20:45But OpenAI is down just 5.5 % over the last 24 hours to a$1.5 trillion value. It's the lowest in a month. Bananthropic today actually has barely changed. It's trading at just under$2 trillion after recovering losses overnight. These perps are tracking the total valuation. Now, that one, too, is down 15 % from its high last month. But in this short term, we're seeing quite a bit of sticky optimism here. The panic actually has been just very focused on essentially the rent-a-centers, the data centers, and the GPU businesses like CoreWeave and Nebius that are selling compute as a service. Those are still getting hammered again today, down at least 10%.

21:27There's a lot of put-buying still happening that's very bearish in both these names. Though even there, it's not as one-sided as it was yesterday, so there's a measured response here happening. The best of tech remains MAGS, the group of old reliables, just over 1 % off fresh records. That's not bad either at all. The traders are loving Apple as an AI safety trade where there's more calls being bought. So even though there's a lot of action here today, we did see some good volatility in the last 24 hours. It's hard to go into a panic when they're buying calls on Apple, still a giant. And the perps on the actual private companies are still pretty close to where they were just a few days ago.

22:08Can you just remind us about how these perps trade, how liquid they are? and how it works? Absolutely. So they move a lot, number one. But right now, I think that the movement is actually fairly calm compared to what people are used to seeing in perps. Basically, what they're using is what they call an Oracle technology, which takes a couple of different points of contact with the private market, sends that data up, and gives you a sort of echolocation, if you will, of what that private market valuation looks like. What happened in the last fundraising deals? what's happening on the secondary market.

22:43And then of course, the fun is when the traders pour in and add liquidity, that element of speculation comes in as well. Keep in mind when we watch these going into say like the SpaceX debut for the IPO, by the time we actually got the pricing by the bankers, there was very little difference. The perps did come down, but they did have a little premium in them because this is the only way to trade these things. It makes sense that they probably should have a little premium by virtue of the product themselves, giving us access to something that otherwise we would not have had access to before. Oliver, thank you.

23:17Oliver Rennick at SIBO. Still to come, a first on CNBC interview with the CEO of Bending Spoons. This follows an additional$330 million investment from Berkshire Hathaway. That gave those shares a nice boost this week. Plus, data centers becoming a key issue in the midterm elections. Sarah mentioned that earlier. We're going to head to Ohio, where calls are growing for a pause on new construction. Don't go anywhere. Hi, I'm Roman Mars, host of 99 % Invisible. It's a podcast about all the thought that goes into things most people don't even think about. You're going to see stories everywhere. Follow and listen to 99 % Invisible wherever you get your podcasts.

23:56Weren't agents supposed to take things off your plate? Building another to handle the others is a bit much. Don't make more work out of work. Gemini is the one agent that knows all parts of your business and actually gets stuff done. You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. If you're a parent and want to help set up your child for success, then iExcel is right for your family.

24:30As an effective and affordable online learning program, IXL covers math, language arts, science, and social studies using interactive practice problems for kids from pre-K to 12th grade. Listeners can get an exclusive 20 % off IXL membership when they sign up today at IXL.com slash 20. Visit IXL.com slash 20 to get the most effective learning program out there at the best price. Welcome back. Berkshire Hathaway just unveiling yesterday a fresh$330 million investment in Bending Spoons, the owner of Vimeo, AOL, Eventbrite, bringing its stake to 4 % of the tech conglomerate and sending Bending Spoons up 41%.

25:12Best day ever. Joining us this morning in a first on CBC interview is Bending Spoons co-founder and CEO Luca Ferrari. Luca, it's great to have you with us. We were just chatting during the commercial break, the three of us, not just about the Berkshire stuff, but how you're kind of in the zeitgeist right now as a topic of conversation, buying some of these remnants of the, I guess you'd call them the old internet. And we're wondering what it is you see. Hi, thanks for having me. It's a pleasure to be here. Well, we buy a lot of companies that are on their way up, to be honest, but for some reason, you know, some of the older brands are more newsworthy.

25:51So yes, people have now associated us with AOL, for example, but that's only 15 % or so of our revenue. But we will buy any company, whether it's more legacy, more modern, as long as we think we can make it a lot better through our technology and our people. Is there something about the tech changing that make these more valuable, or is it more of a function of mismanagement over the years or something else? I think it's a matter of mismanagement. There are some very significant advantages that our particular structure and our platform afford us. We have built powerful proprietary technology that would be uneconomical for individual businesses to build on their own.

26:33And, you know, we can bring it to bear to run them more effectively. We also have access to, I think, exceptional talent that sometimes some of these businesses struggle to attract. They may not have the strongest employer brand. And then, sure, with AI creating a lot of disruption in the market, some of the non-native companies can struggle to adapt and take full advantage of new technology. And we'd like to believe we are extremely well positioned to take full advantage of AI when we apply it to already well positioned businesses with substantial customer basis. Well, Luca, can you explain then, give us an example of one of the businesses you bought where you've been able to, as you just described, take technology and people and improve the operating margins?

27:22Yeah, certainly. I mean, Evernote is an example we have disclosed, so I can refer to it with more detail. We've owned it now for close to four years, and we have basically rebuilt the entire code base, re-architected the cloud infrastructure. We launched probably more features in the last four years than in the previous 10 years. The previous owners had in the previous 10 years. We have completely redesigned the UI. We rebuild the team. We currently run Evernote with a very lean talent-based team, shipping innovation and new features faster than ever. And we bought the business where it was a little better than breakeven, but not very profitable.

28:03I've greatly improved revenue over the subsequent three years. and massively expanded margins. And then we take those additional earnings and we put them back into new acquisitions and into strengthening our technological platform too. Right. All right. Well, I mean, you're obviously following a roll-up strategy. As you point out, your revenues were up, I think, 126 % in the second quarter. But organic growth was 3%, down from 6 % in the first quarter. So investors who are looking for sort of underlying improvements, what do you say to that decline in organic growth? And can you grow if you were to stop buying?

28:37Yeah, so our organic growth has ranged from that 3 % to about 13 % in the past three years. The overwhelming majority of our growth has been and we believe will continue to be from new acquisitions. Organic growth depends primarily on the mix of assets we own. And as we have mostly bought assets that were more stagnant in terms of trajectory, our blended growth will be more stagnant as a consequence. Now, for every new acquisition, we typically greatly improve revenue for the first, say, two, three years. We recently released these dates as part of a debt raise where we showed that over the first six quarters after an acquisition closes, on average, we have improved revenue by well over 30%.

29:24but that doesn't mean that the organic growth of the acquired businesses will be much higher indefinitely. There are certain opportunities for improvement we can unlock over the first few years, and then the business will have whatever organic growth is intrinsic in that market and in that particular business and its competitive position. So, yes, anyone who's looking to invest in Vendings Foods, I would recommend they consider doing so on the premise of and on a belief that we can acquire plenty of companies going forward, not that our organic growth will be particularly exciting. But does that change?

29:56I mean, we were just talking about how interest rates have gone up. Does the financing environment has changed? Cost of capital is up. So does that change the ability for you to do these deals, finance by debt? It definitely changes it. I think it mostly improves it. There are two forces at play, and it's difficult to know which of the two will be strongest. One force, and that's an adverse force, is that interest goes up. It means when we raise debt, our interest expense grows. Now, our unlevered returns on our acquisitions have been extremely high. We shared in our perspective for the IPO that our hurdle rate has been 25%.

30:41So that's the minimum return we have accepted. So whether interest rates are at, say, 6 % or 10%, it doesn't make a huge difference for us. We're not a kind of slim margin type of business. However, we'd rather pay less than more. Then there is a positive force. Yeah, go ahead. Sorry. No, just in the time that we have left, someone referred to you when I was originally hearing about your strategy and the model. Someone said to you, it's like someone said to me, it's kind of the exit that private equity investors are looking for right now with all these software companies that nobody wants, that you're giving them hope and that you're giving them sort of a path to to have some sort of exit.

31:22Is that how you think of yourself? I mean, we we certainly didn't build a company to be anyone's exit. I mean, we're just trying to be the best operators of digital businesses in the world. And we believe that if we can be that, then we should be able to acquire a lot of businesses and make them more successful. I'm very happy if we can be an acquirer of choice for many, as we have. We have acquired plenty of businesses from founders and plenty of businesses from private equities. I have no reason to believe that we won't continue doing it going forward. Finally, we talked a little, obviously a lot of these names are in tech, but would your envelope extend to media?

32:00Would you want to own content one day? I mean, we have never discussed it internally. We have no plans in that regard. Never say never, but I don't see that as likely in the foreseeable future, at least. Yeah, I mean, like Yahoo. You didn't want to buy Yahoo? Seems like it would fit right in. Well, we would take a look if it were on sale. But I would say, to me, Yahoo, a bit like AOL, is more of a tech company. I don't think their differentiation is on content. Sure, they show content, but that part is, again, you should ask them. I'm no expert. But in my understanding, the content part is a little bit more commodity.

32:41And where they try to win is with better user experience and better technology. Really fascinating, Luca. Obviously, stock's been on the move. And you're getting some chatter. Please come on back sometime soon. Appreciate it. Thank you. Have a great day. Let's get a CNBC News update with Dom Chu. Morning, Dom. Hey, good morning, Carl. President Trump says the planned execution of the Fort Hood shooter will not be live streamed. Defense Secretary Pete Hegseth previously said his death by firing squad would be made public. The president said today immediate families of the victims could view the execution if they wanted to.

33:17The former army psychiatrist killed 13 people back in the 2009 shooting. Ousted Venezuelan President Nicolas Maduro and his wife are due in court later on this morning to respond to a new indictment that accuses them of conspiring to torture political opponents. The additional charges were brought last week. They expand the U.S. criminal case against Maduro, who previously pleaded not guilty to drug trafficking charges. Maduro's lawyers say he will deny the torture charges as well. And Pope Leo's doctors say a chest x-ray showed his recovery is going well following his surgery for lung cancer on Tuesday.

33:52They removed part of his lower left lung in the operation. The doctors say the Pope started to do a little work today. It's not yet clear whether the cancer has spread to other parts of his body. Sarah, I'll send things back over to you. Okay, thank you, Dom. Coming up after the break, the former senior counselor to Treasury Secretary Scott Bassett, Joe LaVornia, joins us with his reactions to another hot inflation report this morning. Plus, next hour, do not miss the CEO of Anderil, the defense company now valued at$90 billion. We'll get to that, valuation, the company's newest defense contracts with the government, and much more.

34:27And the check on Dell as we had to break, seeing more heavily selling pressure down 9 % at the bottom of the S &P right now. It's kind of been a poster child for the AI trade. No fundamental news, right? I don't think so. I hope it doesn't mean he doesn't want to come back on with me again. Yeah, it was your interview. Yeah. No, it wasn't. I mean, he was very positive, as you know. But they put a lot of stuff in data centers to kind of make it very simple. Anti-data center trade, anti-AI trade. We're going to be right back on Squawk on the Street. Welcome back. Diverging market here this morning.

34:59Dow's up nearly 400 points, while the Nasdaq falls three quarters of a percent. That's the AI trade under pressure. The September producer price index comes in hotter than expected this morning. Largest gain, in fact, since 2022. Today's report comes after yesterday's CPI data also exceeded expectations. Let's bring in Joe LaVornia, SMBC America's chief economist, also former counselor to Treasury Secretary Scott Besson. Joe, welcome back. It's good to see you. Thank you. Same here, Sarah. Thank you. How problematic are these inflation readings? They're problematic, Sarah, in the sense that inflation is not coming down as quickly as many have been thinking.

35:37It's the reason why the Fed always needed a hike this year. We've got a boom. It's just not a disinflationary boom. It's an inflationary boom. And inflation is going to be sticky to the extent this Middle East crisis continues to drag on. That's also a factor. It will mean there are more rate hikes coming, Sarah. They're just not going to hike in October. I do give you credit because you were calling for a hike before, certainly before the Fed hiked and before most people thought and the bond market priced in that the Fed would hike. So you think there's more on the way? I do think there's more on the way.

36:11So Kevin Moore, I take him very seriously when he says they need to get inflation down. And the Fed does control the price of money. And through the price of money, they do control the supply of money and credit in the economy. And he's well aware that they need to correct prior sins that were made not under his watch. And therefore, I do believe rates will go higher. I just think that there's other factors at play, Sarah. The fact that they got the rate hike moving in September. They've got some optionality to wait and see how things play out. Financial conditions have tightened a bit since September.

36:46December is an opportune time for the chair with his colleagues to sit back and think, how much do we need to hike? It is possible they go 50 in December if the data turned out to surprise to the upside. It's possible. Sure, I don't think that's the base case by any means at the moment. But Kevin Warsh is doing a great job, and I expect him to follow through at least on another several rate hikes. Here's my pushback. It's not like the demand side. Look, the economy's in good shape. Consumer's strong. We've been documenting that. But not going gangbusters and not overheating. And you don't see it with wages either, especially when it comes to wages versus inflation.

37:24So, Joe, it feels like we have this double supply shock. Oil prices and artificial intelligence. And that's what's going gangbusters. But the Federal Reserve tightens interest rates. And that affects the borrowers. The consumers, those folks who are trying to buy homes, and that's kind of the wrong place. Well, here's the thing, though, Sarah, that is in some sense correct. The problem is, number one, inflation has been above the Fed's target for some time, and they need to slow that target. Demand is, the reason I said it's sort of right, but not fully, is demand has been strong. We're going to generate 6 % plus nominal GDP growth in Q2 and in Q3.

38:05rates are very low relative to growth. Wages have been slowing, but Kevin Warsh is very clear. You know this Phillips curve, Nehru output gap approach to inflation doesn't necessarily work. Wages could be low and you have inflation, wages could be high and you could have disinflation. The AI boom certainly is increasing the cost of many sensitive materials such as copper. We've got this oil shock. The consumer is doing very well and they're going to have 3 % plus consumption again in Q3. So, you know, the Fed, yes, the Fed can't print molecules, but the reality is underlying demand is pretty robust.

38:42When you have, you know, gross final purchases running at 4%, you know, demand is solid. And if demand is outstripping supply in the short term, that's going to lead to inflation pressures and the Fed has to deal with it. Joe, where are you on the wealth effect if stocks do continue to draw down? Does that Does that curb consumption? And would that be a good thing? I've already seen some calls for the consumer. Maybe we get one five instead of three for the next couple of quarters. What's interesting, Carl, is last week the Fed came out with a survey of consumer finances, and it suggested the spending at the higher end wasn't as powerful as what people had expected, that overall wealth trends hadn't really changed much in the prior 10 years.

39:24Which, if you believe that, that means, yes, if you have a stock market correction, it will dampen consumer spending, but perhaps not as much, Carl, as people expect. For me to get bearish on the economy, I've got to see the labor market deteriorate. And what we have now is a continuation of a very low-hire, low-fire environment. And as long as that remains the case, the economy is going to be healthy. What do you make of the backup in rates, though, in the market? Do you think how much is tied to Fed policy, fiscal concerns, competition for capital? Yeah. So if you look the other day, Sarah, when we looked at the five-year rate, we were up around 565, and we priced about 125 basis points of tightening.

40:05Then the equity market wobbled. We've taken some of that tightening out, but rates have rallied quite significantly. I think most of the sell-up has been due to just expectations of stronger growth, which you see in nominal GDP. And we're probably in a range, say, in a 10-year between 5 and 535, and we'll trade that range until something breaks. And equities are probably in a range as well, maybe pull back a little bit. But the earnings news is great. I mean, the profit margins are high. The profitability is high. The guidance is good. Like, I can't get too bearish on risk assets, although there is a risk on midterms that there's a blue tsunami.

40:42We may have to reevaluate our near-term tactical call. Well, you would totally change your call if the Dems sweep? Well, I wouldn't totally change my call to tactical call. I think that if the Democrats win the House and the Senate, it's probably risked off as the market just has a knee-jerk reaction, thinking that policy might swing from one extreme to the other. Whether that actually happens is another matter, but I think people could be surprised at how the Democrats could do very well in November. It doesn't make me very popular with my Republican friends, but I do get worried when I follow some of the really good polling, such as a big data poll from Richard Barris, those numbers do not vote well for Republicans.

41:22I guess. I don't know. Polling might be more comparable, though, to consumer confidence numbers, which are not great. And yet here we are talking about how good spending is. You have to know where to look, though. And the spending has been good, which you're right. The sentiment numbers don't really reflect what's happening at the fundamental level. But on the polling, if you follow the good people, Sarah, you know, they're saying there's a problem. And Because the administration has been very friendly to financial services, AI, crypto, you know, the data center build out. You might see a little bit of a wobble, at least temporarily, if November 4 or November 3 doesn't go well.

41:59OK, Joe LaVornia, thank you for joining us. Always a pleasure. SMBC America's chief economist now, Joe LaVornia. After this one, a space says his main competitors is seeing its shares get hit hard today. We're going to get to that story. Plus, KPMG's U.S. CEO joins us with a new survey, the results of which reveal the AI spending plans of 400 top executives. That's when Squawk on the Street comes back. Energy is far and away the best performing sector in the market so far in 2026, given the war in the Middle East and higher oil prices. But is there still upside left? And if so, what's the best way to try and profit?

42:39We'll speak with one trader focused on downstream activities. Tune into our Market Navigator segment later on today on Power Lunch for more on that story, 2 p.m. Eastern time. Welcome back. Three big movers were watching. First up, LNG firm venture global signing deals with GE Vranova and Baker Hughes, boosting plans to support 16 new power generation units used to power data centers. Those names all down as the AI trade does come under pressure today. Number Financials reporting today. PNC reversing some early losses with after a revenue miss. BNY beat across the board. Schwab, new record of$190 billion in new assets to go along with record revenue.

43:15And U.S. Bancorp beating on EPS but seeing revenue underwhelm. And then there's shares of Rocket Lab under pressure this morning after saying its neutron rocket would not make its inaugural flight until 2027. Company had previously targeted Q4, neutron rocket central, to the company's expansion into larger satellite launches. All right, up next, opposition to the data center buildout is growing across the country as we've been covering. We are live in Ohio for you, where new proposals to slow construction are becoming central to the upcoming midterm elections. We're back in two. Welcome back. The data center build out quickly becoming one of the biggest issues on midterm ballots.

43:51Our Pippa Stephens is outside Toledo this morning with more on that story. Morning, Pippa. Good morning, Carl. Well, data centers are top of mind here in Ohio as people prepare to head to the polls. Now, I'm here in Oregon, which is no stranger to large energy infrastructure projects. You have a Synovus refinery right back there, PBF refiner down the road as well. There's a power plant right there, as well as these transmission lines from First Energy, a number of manufacturing facilities as well. But it's a proposed data center that is now dividing this community of 20 ,000. Vantage Data Centers wants to develop this grassy land behind me into a 500-megawatt facility.

44:29Now, this also happens to be within Ohio's 9th Congressional District. This is a key toss-up rematch race between Democrat Marcy Kaptur and Republican Derek Maron that was decided two years ago by fewer than 2 ,400 votes. And Speaker Johnson was actually in this very county just last week talking about how this is a top five race. He said every single vote is going to count and that it is going to be close. But driving around this community, we were struck by the number of signs we saw focused on issue number 25. So this is a first-of-its-kind ballot issue that is looking to limit the size of data centers in this community to 25 megawatts.

45:14And this now basically transcends party lines, and that has made it a very thorny issue for candidates. And whether it's Captor or Marin in the House or the toss-up Senate race between Sherrod Brown and John Husted, they're basically all now saying the same thing, which is that these decisions should come down to local communities. Now, President Trump was notably in Ohio earlier this month. He was talking about the benefits of data centers, saying they will bring a lot of money, a lot of revenue to Ohio. So it's a notable shift from the Republicans on the ticket here in Ohio that are clearly responding to backlash, not just in this state, but, you know, a national movement kind of against data centers.

45:54And so they have softened their stances and everyone has kind of converged around this middle ground. It should be up to local communities. Definitely important for state races, as you point out, even more so than on the federal level. We'll watch it closely. It's great to have you there, Pippa. Thank you, Pippa Stevens. When we come back, CEO of defense firm Andurl's with us, valued at$90 billion, just winning some key Defense Department contracts as co-founder Palmer Luckey takes on that new policy role in D.C. dows up almost 400 on some strength in UNH and Amgen and Sherwin-Williams. Stay with us.

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