10AM Hour: Akamai CEO, Trump-Xi Updates, and AI Banks Risks 9/25/26

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1:04podcasts. Good Friday morning. Welcome to Squawk on the Street. I'm Carl Cantoneo with Leslie Picker and Mike Santoli, live at Post 9 of the New York Stock Exchange. Sarah Eisen, David Faber out today. Some green on the screen and some early trade. The Dow is still pacing, though, for its fourth losing week in a row as these rising yields remain front and center. We'll talk to a former Bridgewater chief investment strategist about where things head next. China's president back at the White House this hour on the third day of his state visit. We'll talk to one expert who says the trip has had a lot of pomp, not much substance.

1:34Also ahead, the debut of Meta's Muse is hitting a number of stocks in the financial services sector this week. We'll talk about whether that weakness is warranted. And the CEO of Akamai will join us exclusively as that stock spikes on news of a big deal with Anthropic. Let's begin with some market action, though, as we get some consumer sentiment data. Mike, what are you watching today? You know, mostly watching to see if we get relief on yields has usually meant that the majority of stocks can kind of make a little bit of headway after a really brutal pullback. So I do think that's what we're sort of seeing here.

2:06Breath is not particularly impressive, but it's not weak as it has been for a while. So I do think that's been the way we've gotten through this period. The market's kind of hoping it makes its way through September with anchoring to the AI trade once again. And credit spreads have stayed fine. I do think that the weakness in things like consumer cyclicals, if you look at an equal weighted basis, consumer cyclicals have been absolutely terrible. And, you know, we are going to get the University of Michigan sentiment numbers 48.1, consensus 47.8. That's been super weak for a very long time. And it hasn't necessarily translated into how people are spending.

2:45We know that, especially Michigan. The methodology changes have skewed it to the downside. But those stocks have registered that there is going to be a challenge from oil and rates. And, you know, there's just kind of no escaping it. That's consumer discretionary over two years relative to the S &P 500. And it's just been no progress at all. Over two years. What do you think kind of changes the equation there, especially given that, to your point, consumers are still spending? I believe the wallet share for gas is about 5 % on an aggregate basis for consumers, and the rest is going to other things.

3:21I mean, is it just that there is too much competition out there? We get a jobs number next week. There have been signs of an uptick in jobs and wages. And so that at least can kind of allow people to continue to tread water. I always go back away from the question and say, not sure how much it matters for the stock market, because it just is not that directly linked to what drives the major indexes at this point. And they've already been so depressed and de-risked as part of the market that it probably wouldn't take much for them to bounce a little bit here. What about our reliance on basically NVIDIA, Apple, right?

3:57Yeah. Was that 15 % at this point? Sure. Of the weight together. Absolutely. We used to talk about concentration of the seven. No, exactly. I mean, the 10 are close to 40%, top 10. I think we have$10 trillion companies now. And so, you know, it kind of is. It's not so much good or bad. It just kind of is the reality. And I do think it explains a lot of the quirky stats we keep talking about. Yesterday, there were almost 900 new 52-week lows on the NASDAQ and the New York Stock Exchange combined. And the market was kind of a shrug. It didn't really move much. Obviously, Monday, we had that other instance of a lot of new lows, even though the S &P was up a percent and a half.

4:35The only way that can happen is if you have a handful of stocks that dictate what the index is going to be doing and everything else below it just sloshes around and can actually be sold off. Yeah. Goldman's trading desk writing in a note this morning asking what the outlook for AI is the what outlook for AI is the equity market pricing. Yes. Remains a key question that everybody is really answering. And they say while market participants expressed skepticism about the durability of AI infrastructure stocks earnings growth, the view is at least partially priced. The median AI infrastructure stock has derated from 32 times consensus forward earnings in April 2026 to 22 times today.

5:17And my read on that is that the market is just expressing less confidence on the duration of these earnings estimates going up and the demand boom. that we've seen right now. So they're not pricing in a slowdown. The D rating doesn't necessarily mean slowdown. It doesn't seem like it's explicitly pricing in a slowdown. We're going to pay less for these earnings because we don't think it's necessarily we can extrapolate them far into the future. There's an interest rate component on that. Carl, you're talking about the Barclays trading desk line on that. I don't think it's a precise science in terms of what level of yields mean for what level of PEs, but there is a pressure applied.

5:53Yeah. There's also, I mean, The BTIG note saying, yes, market's been up even as the 10-year win from four to 520. Right. Who's to say it can't drop if yields fall too, right? Yeah. Yes. I mean, it certainly could. Anything could happen. I do think, though, so that's Jonathan Krinsky there, who has been really talking about the weakness below the line and the resilience of the index. He thinks the resilience is fragile. So he's in the catchdown camp. S &P has got to catch down to the rest because there's a lot of disorderly stuff going on, a lot of warning signs building up. And there's another camp that says that shows we took our pain.

6:33And now we already, you know, kind of priced in a lot of the macro pressures and you can get relief from there. So, you know, it really is a matter of interpretation. It's not so much that the market is telling us today which way it's going to break. Well, speaking of macro pressures and one in particular abating a little bit today, crude prices lower after news the U.S. in Iran are discussing a phased deal to reopen the Strait of Hormuz. Megan Costella has the latest from Washington. Hi, Megan. Leslie, good morning. So Iran's foreign minister told reporters at the U.N. General Assembly yesterday that Iran was proposing a plan to end the war within seven days.

7:08He said it would be a phased deal that would start with reopening the Strait of Hormuz and then comprehensive nuclear talks would restart. The key here, though, is the foreign minister said all of this would happen if certain conditions are met. And we haven't gotten a formal White House response to this proposal yet, but Iran's conditions have long been full of red lines for the United States. Iran said it wanted to return to the Islamabad MOU that briefly established a ceasefire over the summer, but President Trump has previously said he did not want to return to that agreement. Iran's President Pazeshkian told Fox News last night that America must choose whether or not it wants to end this war.

7:43All of that is happening in the backdrop of the China state visit still ongoing here at the White House. Last night, we saw a CEO studded state dinner where three Supreme Court justices, the Fed chairman, Kevin Warsh, and Chinese government officials dined alongside dozens of tech and finance executives. The leaders of OpenAI, Apple, Google, Meta were all in attendance. But it was NVIDIA's Jensen Huang, SpaceX's Elon Musk, and AMD's Lisa Su that got the honor of sitting at the head table with Presidents Trump and Xi. Now, guys, later this hour, we'll see President Xi return to the White House for a private tea ceremony.

8:14Then he and his wife will visit the National Archives for a tour alongside President Trump and the First Lady. Guys. Megan, thank you. Megan Casella at the White House today. We'll keep an eye on that TikTok later on. For more on the market action, let's bring in former Bridgewater Associates Chief Investment Strategist Rebecca Patterson, who joins us here at Post 9. Rebecca is also a senior fellow at the Council of Foreign Relations. Good to have you back, RP. Good to see you. I think we were on last time and someone asked you about whether you would buy the 10. Yes. And you said no. Right. That's been good.

8:45So far. Unfortunately, right? Right. Would you renew that bet now? Yes. Wow. Yeah. How long can this go? Well, tactically, we need to keep an eye on Iran, right? We're seeing the sensitivity to Brent crude prices. I think someone needs to build a tracker to see how many imminent deals to open the straight. There have been so far that haven't panned out, but obviously that's taking some pressure off oil that flows through to yields. But the bigger issues to me are growth, right? Brookings put out a report yesterday that we You could see$10.3 trillion in AI CapEx spend between 25 and 30 to 2032, eight years, 10.3 trillion.

9:23That's 3.6 % of GDP every year. So there's this wave of stimulus coming into the economy. So you have strong growth. That's good for equities, but it pushes up yields. You also have the supply issues tied to AI, right? So that's crowding the market, but also tied to our budget deficit, which is large and growing. So if the demand doesn't meet the supply, that pushes up yields. If growth hangs in there and inflation is sticky, that pushes up yields. So structurally, I think we're just in a new yield regime. Do we blow past this sort of average going back 100 years? You know, blow past is a blow word is a key word here because the speed of the move matters.

10:02The yield level doesn't bother me so much as the cause and the speed and the overseas contagion. With the speed factor, as you know, right, you cover this every day with hedge funds. You have a lot of systematic traders out there that manage their portfolio risk depending on volatility. And we saw the volatility index for bonds this week get to the highest level since March, since the beginning of the war. When you have that risk go up, you bring down your positions in every asset class. Right. So if we blow past anything, if we have a continuation of this quick move, it could weigh on stocks.

10:37That could affect financial conditions, which could affect growth expectations in the Fed. So that could be something that kind of helps steady it. But if it goes gradually more than this week, it could keep marching higher for a while. Yeah, the risk parity strategy obviously levered to volatility in various asset classes and what that means. So far, though, we've seen equities essentially move higher with yields. Right. Do you expect kind of given what you outlined with regard to the causes by which we are seeing higher yields, that to continue? Well, look, supply and inflation are negatives for equities coming through the bond market.

11:14But growth obviously provides a buffer, right? Bond yields going up when you have good growth conditions, you often have good equity conditions as well because it supports earnings. And we've seen that in the quarterly earnings all year long, much better than expected. And we're seeing that in the data as well, like weekly jobless claims. You know, we know this as as well as anyone else, that is the timeliest job market indicator out there. And since late 05, they've been steadily coming down. And that shows you people, it's not a great job market, but there are people getting jobs and that means they have income and that means they can spend, even if your coffee now is$8.

11:54Which it is. It is literally. It is. I got one on my way here. And apparently you're not supposed to bring it to a job interview either. I saw that yesterday. Yes. Yes. Note to self. Exactly. Yes. Speaking of commodities, there was that piece in the journal we talked about it last hour about should there really be such a strong correlation between the 10 year and what oil prices are doing? And I'm just curious your thoughts on that as someone who's studied those spaces for a long time. I mean, I have to assume that we're just having more algorithmic investment out there in general, right? People using AI to trade, people setting up machines to trade that are tying the two as very, very short-term indicators.

12:30But actually, it gives a lot of other investors opportunities, because I think that link is not as strong as the market has been telling us of late. Obviously, oil matters. It feeds through into core inflation. That affects the Fed. It obviously affects the consumer as well. But what the Fed is looking at are the secondary impacts from all of these shocks and demand. And right now, yeah, inflation's high. We're seeing them likely to raise rates even in October right before the election, which is interesting. But it is inflation isn't shooting up. Inflation expectations stay anchored. So I wouldn't overly focus on oil.

13:10I'd be looking at the bigger picture. So I do think people are a little more focused on oil than they should be. And I would guess it's the algorithmic traders who are doing it. Actually, on that point, and this, in my view, shouldn't be the biggest market movement, but within the University of Michigan sentiment report that was just out at the top of the hour, consumer inflation expectations for one year jumped to 4.6 percent. Previous was 4 percent. Now, this is around what the forecast were saying it would be, and also the five-year inflation expectations up to 3.4. We did see tens are above 5.2 percent again.

13:43And we saw this little blip lower in the indexes, the small caps down a quarter of a percent. So I think it maybe just shows the sensitivity of the bond market now that it's been kind of wound so tight in this direction. Right. That makes sense to me. And we'll probably see Fed fund futures price in an even greater chance that the Fed raises rates in October and December and one or two more times next year, at least taking back the cuts they did in 2025. That makes sense. Right. If consumers' inflation expectations are going up, there's a greater risk that it flows through into underlying inflation.

14:14That's what the Fed cares about. So then preferred sectors, I mean, energy, defense, I mean, are we going to rely on financials and health care doing what they were doing earlier this summer? I mean, it depends on your time frame. I know you hate that answer. But if you're a tactical trader, I mean, God help you trying to play these oils ups and downs in the Iran headlines. If you're a slightly longer term trader or investor, as I would be looking six months to 18 months out, I mean, health care obviously is a nice defensive play. If I believe that interest rates are going to settle at higher structural levels, then you want to be really, really selective with things like small cap that have more floating rate debt and more debt in general.

14:56You want to be really careful with real estate. Financials are interesting, but you need to know what kind of financial you're looking at to play that market. So I actually think active investment, whether you do it through an ETF or something else, it's really the only way to go in this environment. Rebecca, thanks. Always good to have you. Great to be here. Thank you. Mike's right. Took a little bit of a spill on the UMich data. Only a couple sectors now in the green industrials, just barely. Our roadmap for the rest of the hour when we come back this morning. why one expert says it's important to focus on what's not being discussed at these Trump-She meetings and why the trip so far has been long on pomp and short on substance.

15:36Plus, as Meta's views an existential threat to the banks, why one analyst calls agentic AI, quote, a multi-year evolutionary risk. And the CEO of Akamai will join us exclusively as that stock jumps on news of a multi-billion dollar deal with Anthropic. Let's walk on the street back after this practice. 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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17:00Make work less work. Try Google Workspace with Gemini at goo.gle slash workspace with Gemini. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash market update podcast, or find Schwab Market Update wherever you get your podcasts. Our view with the Chinese is we have extensions from time to time.

17:43On the one hand, it's good for the two countries to have stability. At the same time for us, we view these periods as compliance periods. As you know, the Chinese have agreed to buy more soybeans, more ag, and we're monitoring that closely. They've committed to give us the rare earths we need for our factories and our manufacturing. And so whenever we have these compliance periods that roll over, it's a time for us to assess, reassess, and determine whether or not to continue this period of relative peace on the economic front with the Chinese. That was U.S. Trade Representative Jameson Greer on Squawk Box earlier.

18:16His comments coming as China's Xi Jinping returns to the White House this hour after last night's state dinner. Our next guest says the meeting had little substance and could allow China to run out the clock on Trump's second term. Joining us now is founder and president of China Moon Strategies and former assistant U.S. Trade Representative for China, Jeff Moon. Jeff, thanks for joining us this morning. So a little of substance seems like was the expectation and maybe the point heading in. Do you think it's a missed opportunity or is it OK to kind of just emphasize stability in this relationship?

18:51Well, stability is fine and it's important because U.S.-China relations have been volatile at times. But if you look at things from the Chinese perspective for a moment. Trump is telling Xi Jinping that he's a close friend. He's a great leader. Relations have never been better. This is not the art of the deal, because if you're the Chinese side, why should you change anything if things are so great? Why should you meet the commitments you've taken on in the past? Why should you take on any future commitments? Why should you deliver on any of them? Why should you stop espionage or trade theft or release American citizens.

19:25So I haven't heard any asks from Trump going forward. And other than the truce, the deliverables have been two pandas to the Atlanta Zoo, which is fine for zoo goers. But I think we can expect more. You can expect more in what regard? I mean, I guess, you know, heading in, there was a little bit of momentum on the whole, you know, AI control type debate. It doesn't seem like there was really a lot of room there for any kind of lasting agreement, given the incentives on both sides and maybe suspicions on both sides. Well, that is one of many deliverables that were promised in May and are still being recycled during this summit and are not being delivered.

20:11We can agree to start an AI dialogue, but we don't have consensus either in the U.S. or in China or between countries on who should be at the table, what the topics should be, what the purpose should be, how the international community is affected. So anything is going to be very exploratory. On a more concrete level, China agreed back in May to various purchases. They agreed to$17 billion a year of agricultural purchases. 200 Boeing aircraft haven't heard anything about those aircraft. They agreed to supply critical minerals, which by all accounts they've been deficient on. So there are a lot of things on the table here to talk about and that China ought to be supplying in order to meet its commitments.

20:56And of course, the timing of this comes a little more than a month before the midterm elections. Do you get the sense that the base wants to see more cooperation with China, or is it still kind of the same MO? I think it's kind of mixed. I think that the base, for example, in farm country, wants us to have cooperation to buy soybeans. And yet, if you look at the congressional reaction to this state visit, there are a number of Republicans from the base that are not very happy. They think that Xi Jinping didn't deserve a state visit. And in fact, there's really no reason to have a state visit. State visits are for close friends or when we think we're on the cusp of some major breakthrough diplomatically.

21:40That's not the case here. And in fact, Trump's fawning over Xi Jinping, I think, is seen by the Chinese as weakness. He thinks he's making a great friend. They're going to get some benefits from it. I don't think so. And so, you know, I think there's a mistake there. Yeah, we heard some critical words from Armed Services Chair Wicker earlier in the week. I think Tom Tillis called it a WTF moment. Is this all because we're beholden to them not assisting Iran in this no-win war that we can't find an exit to? I think it's more complicated than that. I mean, I think that it's the economic relationship and the fact that they hold critical minerals over us.

22:22You know, what's really interesting is the difference that a decade makes. You go back a decade to Trump's first term and look at the rhetoric, the rhetoric was really fierce and quite nasty and is now fawning because the Chinese have made it clear that unless Trump shows respect, they won't get critical minerals. As for Iran, I think that China could play a role in the Iran conflict, but it will only do things that are in China's interest. And the only thing in China's interest really is to keep the straits of Wormuz open. So I think that Trump may be able to persuade China in its own interest to talk to the Iranians about how keeping supplies flowing.

23:02But I don't think that there will be much movement beyond that. I think the Chinese are delighted that Trump has planted himself in a forever war that is a quagmire he can't get out of. In terms of asks, there's been some reporting that that she would have liked the president to have some words on Taiwan. that would go a little bit closer to having the U.S. adopt China's stance on that. I mean, maybe if we don't get that, it reflects a little bit of a net benefit that at least Xi did not win that concession. For China, Taiwan is always the top priority, and Americans, I think, frequently forget that.

23:43But what they are asking for is a reformulation of our policy. Our policy now is that we do not support Taiwan independence, And she wants Trump to say openly we oppose Taiwan independence. And that sounds like a word game, I guess, to most people. But there are 50 years of history and policy behind that. The Chinese have been aggressive in their exercises around Taiwan. And any wavering from that commitment will also upset our relationships, our security relationships with other countries in the Asia Pacific. Those countries are watching this very carefully. So this is not a small, discreet issue that we don't need to pay attention to.

24:26This is something from a national security perspective that is very important and Trump needs to hold firm. Jeff, appreciate your perspective this morning. Thank you, Jeff Moon. Thank you. Still to come this morning, the big banks, big underperformance with financials on pace for one of their worst weeks since March. Is it worth buying the dip here? Microsoft announced some big changes for its AI assistant co-pilot. The man at Microsoft heading up that charge is going to join us later on. And we will check in with the CEO of Akamai. Shares popping here up almost 8%, though off the highs on a new blockbuster deal with Anthropic.

25:00Don't go away. Ever notice how every new AI tool asks you to explain your business to it all over again? Google Workspace with Gemini skips that. You get Google's AI built right into the premium versions of Gmail, Docs, Sheets, and more. No new tools. No extra logins. Just one subscription that gives you personalized AI right inside your actual workflow. Make work less work. Try Google Workspace with Gemini at goo.gle slash workspace with Gemini. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S.

25:45and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts. Something amazing is happening in data management. Even though storage needs are constantly changing, companies are only paying for what they need now. That's because CDW customized an ever-pure, Evergreen One SLA-driven storage-as-a-service solution, delivering hybrid cloud storage that's easy to manage, efficient, and continuously evergreen.

26:21Simplify storage administration with Everpure and CDW. Make amazing happen. Find out more at cdw.com slash everpure. Welcome back. We're about 30 minutes into the hour. Here are three big movers we're watching today. Twilio under pressure as analysts at HSBC downgrade the name from hold to reduce, saying that while Meta's AI news agent will be a tailwind for cloud demand, they see limited evidence that Twilio would capture that higher margin AI software layer. You can see shares there down about 6.5%. Shares of Barry Diller's People, Inc. are jumping after a report said that MGM was considering a bid for the company.

27:01That's after People, Inc. just backed out of its own bid to buy MGM. You can see People up about 9 % right now. And Costco gaining after reporting and earning speed despite slowing membership growth rates for that name, cost go up about 2.4 percent. Let's get a CNBC News update with Dom Chu. Morning, Dom. Good morning, Carl. A new report accuses Immigration and Customs Enforcement, or ICE, of wasting millions of taxpayer dollars in a push to expand its detention capacity. According to the Government Accountability Office, or GAO, ICE purchased 11 warehouses for$1 billion and is now intending to sell seven of them.

27:40The report says that will come at a loss of$20 million on costs ICE cannot recover. The watchdog is calling for urgent planning to prevent further waste. Russian officials said today President Vladimir Putin's party secured a record number of seats in the country's parliamentary election. United Russia now holds 349 of 450 seats. It was the first parliamentary election since Putin launched Russia's invasion of Ukraine. He has posed it as a test of wartime support. And Florida's Brightline says it will be business as usual after filing for bankruptcy protection. The passenger train company says it has secured an additional$490 million in loans in a move that will significantly reduce its debt.

28:23Brightline says its high-speed rail operations from Miami to Orlando will not be impacted. Big news there in transportation in Florida, Mike. I'll send things back. Yeah, for sure. Railroads in Florida, you know, going bankrupt is a tradition that goes back 100 years. So we'll see. Hopefully this one resolves OK. Dom, thank you. Financial is one of the worst performers this month as tough conference commentary and rising rates take a bite. Why AI could be the next headwind. That's after a break. Plus, a read on AI demand from the street's latest beneficiary, cloud computing company Akamai. The company's CEO joins us in a moment, fresh off a big deal with Anthropic.

28:59Welcome back. Take a look at bank stocks currently on track for their worst weekly performance since March. The moves lower from names like J.P. Morgan, Wells Fargo, PNC and Bank of America. Coming as investors fear AI advancements like Meta's Muse will hurt the financial sector more than they'll help. Let's bring in Ibrahim Poonawala, head of North American banks at B of A. I'm so glad you're joining us because I found your note earlier in the week really helpful in terms of describing the impact of Muse. some of the market concerns. You write that a chatbot is limited to informing a customer they could earn more on their cash.

29:33An agent has the potential to act on that same insight. So maybe if you could just help break down exactly what these new products from Muse and elsewhere mean for some of these bank stocks and why the market's been so concerned. Sure. So first of all, Leslie, thanks for having me. And there are a few things going on with bank stocks, but let's stick with the Muse and AI disruption risk. We call this out, again, going back a month ago, that the first quarter, if you recall back in February, March, and you said this was one of the worst weeks since March, there's a lot of AI disruption risk in focus.

30:06It faded away. So not shocking that it's back to the forefront. I think when we think about AI, the ability of AI to probably provide better liquidity management on certain types of deposits, taking out some areas of friction where maybe banks benefit from a margin or a revenue standpoint. I think that's real. What's also real, and I think you referenced our note from earlier this week, is we do expect this process to be evolutionary, given the need for trust, security, cyber attacks. I don't think folks are going to rush into providing access to AI agents running havoc with their financial accounts.

30:49So what should banks be doing strategically to be defensive here? Is this something where they need to be creating their own AI agents that help direct customers to what would already be figured out by a Muse agent? Is there some sort of other type of, you know, defensive posture they should be taking here? So I'll turn that around. Offense is the best defense. Banks have massive insights into AI technology. If you think about who are the biggest consumers of tech spend, banks, banking sector is. So there's no question in terms of banks knowing where this technology is going, what the latest AI models are capable of.

31:30What we said this week and what we said earlier in the spring was banks need to prepare for some degree of self-cannibalization. It's uncomfortable when you sort of just the thought of that if you're running a business, but you need to be prepared for that. And I think tied to that, I do envision a world where you could log into your Chase account and maybe you have your own AI agent providing you, helping you with services around checking, savings, credit card usage, et cetera. So I do think it is a possible scenario where the end state is banks offer you a personalized agent that is at your service as soon as you log into your accounts.

32:05Yeah. But then it also comes in the backdrop of higher interest rates, which would presumably impact deposit betas a bit. So how do you think the market is thinking about potential margin pressures, you know, as the sector really figures all of this out? So, yes. And the other thing that's weighed on the group is, so back to interest rates, I think one of your previous guests talked about it's less about the absolute level. The rate moves in the last week or two have felt a little unanchored. You've seen flattening in the curve. And that's, it immediately leads to the debate about what does this mean for the health of the economy six to 12 months from now.

32:44When you think about bank balance sheets, generally they are still asset sensitive. For the first leg, when the Fed hiked in September, and if you get a few more hikes, you probably benefit because your asset yields are repricing at a faster pace than your deposits. Now, it is happening, as you rightly pointed out, Leslie, in a backdrop for deposit competition. That's sort of the holy grail right now in terms of the banks that can actually drive strong customer deposits at a lower cost. And that's old school, right? That you go back to the late 90s when rates were at a normal level, how banks competed.

33:18It also drove a lot of consolidation in the sector. So I think that's happening. But I think what's weighed on the stocks in the last few weeks, again, is just the market's starting to digest whether the Fed needs to hike a couple of times or does this become something more? And then at some point over the next 12 to 18 months, does this lead to a growth scale or even a recession risk? You know, it seems there's been a consensus that's built up over the last couple of years that banks could be one of the larger net beneficiaries of utilizing AI and making it making their businesses more productive and finding savings.

33:52We know we had that Bank of America line item of spending four hundred million dollars, I think it was, on AI and getting eight hundred million back. But historically, aren't those types of gains competed away? In other words, everybody kind of gets a little bit more efficient and then you're still competing against, you know, peers that have similar capabilities. Yeah, so great point. I think banks are going to be massive beneficiaries of AI. When you think about all the usage in terms of bank spending to software vendors, duplicative works, feedback office, call sender out with the bank CEO last night.

34:24and they were talking about just the improvement in AI over the last year, and this individual was just back from Silicon Valley, is exponential. So yes, I think at the back end, absolutely the productivity gains will be significant. I see it in what I do day to day. To your point, I think, yes, it is a commoditized sector, super competitive. Does it get competed away? Yes. Now, does it get 100 % competed away or does it get 80 % competed away? I think that's the unknown and whether there's a lag between the two, I think that is a bit of a TBD, but it's fair to assume more likely it gets competed away.

35:00It will also allow banks to do interesting things, and that's where I think the real value comes in. If banks are able to actually intelligently deploy AI in better servicing their customers, I think you can end up with a much more stickier customer relationship than what we've witnessed over the last decade or two. Finally, I know you mentioned a solid consumer and all the commentary seems to hint that delinquency rates are on trend, so to speak. But are there pockets? I mean, I keep seeing pieces on office CMBS delinquencies. They are going past 08 highs. Is that are there are there areas of worry?

35:37So, Carl, here's what I say. I think the biggest worry on credit quality for us would be the job market. as far as jobless claims, unemployment seems in a good place. It's a consumption-driven economy. Folks will pay their auto bills, credit card bills, etc. So that's what we watch hawkishly in terms of just the overall credit cycle. Will there be pockets? I think the office theory was a bit more sort of an idiosyncratic in that old office buildings really took a hit coming out of the pandemic. Work from home, folks didn't want to go into old, stodgy buildings. And a lot of that you've seen in terms of the way bank accounting works.

36:17You reserve for that, which we did see happen in 23, 24. And now if we get a period of higher rates, maybe there are some customers who thought they might make it through and might struggle over the year or two. So there could be pockets of pain. And that's when we think about it, our viewers, a good chunk of the U.S. economy is struggling, right? And higher rates make it worse. And then there's an over-dependence on all things AI CapEx. But again, I would think that maybe credit gets marginally worse. But as far as the job market and employment hold the line, I think overall credit should be OK.

36:50Yeah, we should get some new numbers on that front as well in less than three weeks when earnings season begins. Looking forward to that. Ibrahim, thank you very much. Thank you all. Have a good weekend. When we come back, Microsoft's executive vice president co-pilot in his exclusive interview as the company does release an update to that AI agent today. Speaking of AI, the CEO of Akamai is with us, too, discussing their new deal with Anthropic that is sending shares a bit higher here. He'll join us next. Shares of networking and cloud company Akamai hired this morning after announcing a seven-year,$11.6 billion agreement with Anthropic to support growing AI demand with the potential to expand to around$20 billion.

37:30As part of the deal, Akamai has issued a warrant to Anthropic for up to 5 % of their common. Joining us here in a CBC exclusive is Akamai's co-founder and CEO, Tom Layton. Tom, what a day. Good to have you. Thanks. It's nice to be here. Can you walk us through some of the terms and how this all came about? Well, we've had a very good relationship, and Akamai is well known as a very reliable, high-performance provider with the world's most distributed platform for compute delivery and security. And we were very pleased that Anthropic chose Akamai to help with their AI infrastructure needs. Is this the result of investments that you made over the years or something else?

38:12Oh, yeah. We've made major investments to grow our platform to the point where it can support the compute needs for the world's most important enterprises and their most critical applications. And it's really nice to see the validation. This year so far, we've signed up close to$15 billion of multi-year commitments for our cloud infrastructure services. And we're going to start seeing the revenue for that start to come in in the fourth quarter and then flow and increase through next year in 2028 to the point where it rapidly accelerates Akamai's overall revenue growth. And what sort of workloads are you going to be providing here?

38:56Just trying to figure out where within kind of the spectrum of these services your business lies. And then I guess who you'd be going up against. Yeah, I can't talk about the particulars in this particular deal. But in general, enterprises are using us for physical AI, robotics, interactive media, interactive voice, tailored experiences. So if you're shopping online, you can try out your clothes and see yourself wearing them. Just all sorts of applications as AI starts proliferating. There's some analyst discussion about how this new business could be lower margin than your traditional business.

39:41Can you speak to that just in terms of the economics? Yeah, over time, this business is going to help our margins. This is very profitable business for us. And I think, you know, today we operate in the mid-20s because as we start a new big deal and rapidly grow the business, there's cost up front. But as you get past that initial startup period, it's accretive to our margins. What time frame are you looking at for that accretion? You'll start to see that within a couple of years, and it depends how fast we grow. You know, as we take on a lot of new business in that first six-month period, you're buying the CapEx and getting the Colo.

40:22And then, in a steady state, very profitable for the business. Tom, the street's wondering a couple things. One, how you're working your way around bottlenecks that have bedeviled all kinds of competitors of yours and others around the space. And then the other is, I mean, you have the added benefit of having seen multiple cycles. And I think there's curiosity as to how this one is different or similar to ones prior. Yeah, two great questions. First, Akamai is different in how we deploy our infrastructure. We are not out there trying to build, you know, gigawatt data centers, getting approvals and all that.

41:01You know, a large point of presence for us, you know, would be 10, 20 megawatts. We just do a lot of them. We are in 4 ,000 points of presence in 700 cities. And so it's not a situation where we need some approval. We're taking a relatively small presence in many existing data centers all over the world. So a lot easier for us to deploy and get capacity. And to your second question, this is very much like, you know, the advent of the Internet. You go back into the late 90s, you know, in a big boom period. And I think AI is going to be very much, you know, as important and impactful as the Internet has been.

41:44And, of course, when there is a new technology advance, mostly it's used for good. And we're going to see that with AI. sometimes people use it for harm. And that's why we have a big effort at Akamai with our cybersecurity business to keep business safe in the age of AI. Have any of the examples of reported examples of rogue agents and the word that's come from them, how does that resonate with you? Are you on the, do you lean toward the doomer side or do you think some of that rhetoric is irresponsible, as some have said. You know, it's a concern. And what we need to do as an industry is to develop the guardrails and the security to keep the agents in line so they don't do things they're not supposed to do, and also to defend the critical infrastructure.

42:37Now, there's already a lot of cyber attacks out there. You know, that's been happening since the dawn of the internet. Now the attackers have more powerful tools. So it's even more important that you have state-of-the-art cybersecurity defenses. And that's exactly what Akamai does, is we provide the defenses for the critical infrastructure. And we're now deploying the capability to put the appropriate guardrails around the AI and the agents so they don't go rogue and cause serious harm. As part of this agreement, there's also the potential for about nine billion dollars more. What needs to happen for that to be executed?

43:19There's no thresholds we have to meet. It's simply a matter of deciding that this is what we want to do. And I think that's where the warrants are helpful. Also, it creates an economic incentive to to make that happen, because as we take on more of the business, the remaining$9 billion, then more of the warrants are granted. And I think they also help keep the companies aligned. So I'm very optimistic about the growth of our cloud business and business overall. You know, just really an exciting time. Yeah, Tom, you've been with us through all kinds of environments. This is definitely your square in the middle of an exciting new one.

43:58Appreciate you talking about it today. Good to see you. Tom Layden over at Akamai. Nike under pressure as it sees its fifth downgrade this month, where the options market thinks shares are headed next. Some pictures here from moments ago outside the White House. The president and the first lady greeting the president and first lady of the People's Republic of China. Two leaders later today will tour the National Archives, closing out this historic state visit after that arrival at Joint Base Andrews. Of course, the state dinner last night, which we've talked about first visit by a Chinese leader to the U.S.

44:37in over a decade. Pretty remarkable. Yeah. Two more meetings to come this year as well. Yeah. Well, more pressure for Nike shares today ahead of earnings next week as Bank of America becomes the latest firm to downgrade the retailer. Let's get to Oliver Radic at CBO in Chicago with a look at what the options market is showing. Oliver. Hey, good morning, guys. Few trends have been as unrelenting as the multi-year sell-off in Nike that includes a 50 % drop year-to-date and now an 80 % decline from highs five years ago. There's some hope in the options market, but it's slim. The ratio of puts-to-calls did reach a year-to-date low a week ago, but the closer we get to this report, the more skittish bulls look, with put volumes increasing the past week, And this morning, more call trading initiated by sellers than buyers on volume that's about twice the average.

45:31Right now, market makers are pricing a 7 % plus swing in Nike after earnings next Thursday, which is lower than the 8.5 % median move the past year. By the way, Nike has dropped after eight of its last 11 reports, so it's not a shocker that we're seeing traders come in and sell upside calls today, which is the most popular trade by volume. $6 million in options premium is traded so far, and half of it was tied to call selling alone, thanks to someone who sold about$90 ,000 worth of 35 strike calls expiring June next year. That's a bet that at best, Nike will stay stuck for another nine months, guys.

46:12Oliver, are you seeing the similar trends across the retail space? you know it's been pretty muted generally when you move outside the hot areas leslie right now we see a lot of volume concentrated in either bond sensitive trades or the big tech stuff that just generally catches fire when it breaks out like micron this morning when you look at discretionary when you look at retail it's kind of dead action for the most part when you come up on earnings like this you'll see volume start to pick up when there's a clear trend like in Nike, but for the most part, kind of a forgotten sector in terms of options trading.

46:49Yeah, Micron, as Mike mentioned, back above$1 ,000. $1 ,100, yeah. We'll be watching for that activity as we move into earnings next week. Oliver, thanks. Oliver Rennick. When we come back, Microsoft's head of Copilot on some big new announcements around the AI agent as Squawk on the Street continues on this Friday. All opinions expressed by Squawk on the Street participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet, or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion.

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