10AM Hour: Banks Kick-Off Earnings Season, Apple Hits Fresh High, New Anthropic IPO Details 10/13/26

0:29Weren't agents supposed to take things off your plate? 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 marketupdatepodcast. Or find Schwab Market Update wherever you get your podcasts. Good Tuesday morning. Welcome to Squab on the Street. I'm Sarah Eisen with Carl Kintany and David Faber. We are live, as always, at Post 9 of the New York Stock Exchange.

1:05Mixed picture year for the major averages this morning, as earnings season picks up steam with a number of big bank results, including Citigroup, Bowman Sachs, J.P. Morgan, and Wells Fargo. We'll bring you the key takeaways in a first-on CNBC interview with Wells Fargo CFO Mike Santamassimo. Plus, breaking details on Anthropics Financials as the company gets ready to hold a pre-IPO investor day tomorrow. And don't miss an exclusive interview with Dell chairman and CEO Michael Dell live here at the New York Stock Exchange. That stock up a mere 350 percent year to date. But guys, we did get some new information today from the big banks on how the economy is doing, how the consumer is doing, how consumers are spending.

1:44And that's been the story. I was going into the report wondering if there'd be any slowdown because of the high oil prices and the high rates. Doesn't look like it. Here's just a look at credit card spending from a lot of these big credit card issuers up 9%, 12 % at Citigroup, 12 % as Wells Fargo. It shows pretty robust consumer spending. And then the commentary that we got from these executives really matches it. JPMorgan CFO to CNBC says, underlying spending trains remain sort of robust, and that's keeping with the overall consumer credit picture, which remains quite resilient. We continue to always look for pockets of weakness and to be prepared to see early warning signs.

2:25But so far, we really just don't see that. So there's this consumer story that's helping the economy overall. And then there's the AI story. And that's the other big one, which is propelling our economy. And we've got a lot of commentary on that front as well. Goldman Sachs CEO David Solomon on the call just said an ongoing theme that has been the growth in AI infrastructure investment. Recent studies estimate that the U.S. data center buildup could require north of$10 trillion, he puts on that investment, through 2032, averaging roughly 3.6 percent of U.S. GDP annually. Our conversations with clients, demand for compute significantly exceeds supply at the moment, creating opportunities to help develop financing structures to meet that capacity shortfall.

3:10David, he went on to say that the underlying economy has remained solid. Strong earnings, strong GDP, resilient labor market. He also talked about the demands for capital, which is, of course, continues to be a key theme overall. This idea, you know, is there going to be enough money? Do we need a bigger boat, for example? No one knows how the demands for capital and compute will evolve, he said, as the broader AI ecosystem matures. That will only become clear as technology and markets continue to develop. So not a lot of clarity there around it. I think suggesting the role for Goldman Sachs. But I think the overall upshot for the economy is as long as there's more demand than supply and investment continues to be strong, it's a huge help for the economy.

3:54Actually, the IMF had their new economic forecast out today, and they upgraded 2027. They kept 2026. And a big part of the reason was because of AI. The IMF says the investment boom triggered by AI has provided impetus to global activity and supported economic and supported international trade. So that's that's helping global economy. And then I just thought, you know, that on the consumer here in the U.S., the Charlie Sharpe quote from Wells Fargo. I mean, it's amazing how resilient the consumer is in the face of some of these headwinds. But he says higher interest rates, higher oil prices and persistent inflation create risk to the economy.

4:34the strong positive forces, such as investment in AI infrastructure, as we were just talking about, high employment levels and consistent wage growth continue to outweigh the risks. So again, like if you look at the credit picture, the spending picture, even the deposit picture, things remain healthy. The note here is that, you know, these banks don't necessarily represent the very stretched consumer. You know, they run the gamut in terms of income groups, but it's not like the most distressed part of the market in terms of consumer. But overall, across the board, it's a pretty healthy reach. Yeah, that was sort of the line out of Hammock yesterday saying that when you do talk to low-income Americans, in her conversations, it was initially about trading down.

5:22Now it's about juggling which bills to pay. And she did see the danger of an entrenched mindset of inflation, maybe some early warning signs on inflation expectations. So that's been interesting to watch. Yeah. On the surveys, you see that the expectations, but not necessarily in the market based expectations. She, keep in mind, came into this year as one of the more hawkish members of the committee who's been trying to put, you know, who has pushed the inflation story as being more dangerous and more worrisome and the Fed needing to raise interest rates. So clearly she still feels that way and that there's work to do.

5:58As far as the NFIB, I'll just mention that one as well, because that's small business sentiment. Minor dip in the overall headline as far as optimism. But in the report, it says consumer spending and the AI boom. There we go. There's the two pillars will help keep the economy growing at a healthy pace for the rest of the year. And then I thought it was notable, David, that, you know, they list the concerns for small businesses and inflation was number two. It wasn't number one. Number one was availability of labor. So that still continues to sort of trump the issues for these small businesses.

6:30Yeah, labor important, obviously, given especially what we've seen in terms of immigration policy in the country. Let's get back to the banks, of course. Worth noting, by the way, they're all now in negative territory after we got that slew of earnings from many of the biggest banks. For more on those results, let's bring in UBS's large-cap banks analyst, Erica Najarian. Erica, all right, Goldman just went into the green by one cent, but give me a quick take here. sort of on who we heard from this morning and what stood out to you. What really stood out to me is even Jamie was quite bullish on the pipeline of activity ahead.

7:05You know, Jamie Morgan only bought back a billion of its stock. Usually it buys back seven billion a quarter. And by saying, look, there's a lot of places where we can deploy that capital. And that bullishness, as you know, is rare from Jamie. But I think what's happening to the stocks is, you know, at the end of the day, I think investors are still reacting to where 10-year levels are on an absolute basis. And while the results are good and the optimism on the pipeline of activity is good, I think there's skepticism that, you know, we can continue on with these activity levels. And, you know, perhaps the concern is that, you know, the sector is a little bit toppy on, you know, heightened activity expectations from both Wall Street and Main Street.

7:49Yeah, although, to be fair, the stocks have pulled back dramatically into this earnings period after for much of the year outperforming the S &P. Many of them are barely up at all. I'm just curious, you don't feel as though the current valuations reflect many of those concerns? Look, I think so as an equity analyst. If you look at the Excel, if you look at, you know, historical market multiples, yes, this pullback should reflect, you know, some of the concerns. But the reality is bank stocks typically can't have nice things for that long of a time, right? And if you look at market multiples, you know, the market multiples have an inverse relationship with the 10-year when it's above 5%.

8:31So I think there needs to be a little bit of help in the bond market in terms of recovering some of those multiples, even though what we learned today is actually that earnings revisions for the most part should still be, you know, up to the right. Is it your expectation that the banks are going to continue to buy back a lot more stock? So not really because of two reasons. Number one, again, you have the dynamic of higher interest rates and the potential impact of bond mark to market to capital, and they're going to be protective of capital. But more importantly, the fourth quarter is expected to be a very, very active quarter in terms of capital markets activity.

9:12You have seasonality in terms of commercial lending demand. And obviously the consumer is going to spend for holiday season. So I think that growth and balance sheet allocation to the economy is going to be the priority over buyback. And you've actually seen it in terms of the slower buyback relative to consensus expectations at J.P. Wells and Citigroup this morning. Who's got the best growth story right now of the big banks? For a while, it was, you know, Wells Fargo because they finally had the AFSAC cap lifted and there were and there are some high hopes about what they can do in terms of Rose City was a kind of turnaround story.

9:48What who do you think has that? Who do you think has that narrative now? Morgan Stanley, because I think that, you know, while Goldman is clearly very tethered to this AI super cycle, Morgan Stanley also gets it on the wealth management front. And as you know, it's very powerful to be the workplace equity administrator for 9 out of 10 largest private unicorns and 70 % of the top 100 private companies. And so as we see sponsor activity pick up, we see these IPOs come through the pipeline, large and small. Morgan Stanley kind of gets a double leverage benefit in both the institutional securities business and the wealth business.

10:31and they have a ton, a ton of capital in store to deploy relative to peers. And finally, you know, Wells Fargo has been the underperformer. It's down again today after its earnings. Sarah mentioned the lifting of the asset cap, but ultimately the stock has not performed perhaps as many thought it would. Where do you think things stand there as I watch a market cap now at Wells that is below that of Goldman Sachs and Morgan Stanley? Look, I think that the growth story at Wells over the medium and long term is still pretty good. I think what you're seeing in the stock is sort of the transition from being like a fix-it remediation story to a growth story.

11:12And we saw that years ago at Bank of America, and we're seeing it a little bit at Citi. The transition is never smooth in terms of the market expecting, you know, epic capital return and expense cuts versus the transition to growth. Right. And that's sort of just really what's happening to the stock right now. And I think, you know, beyond today, as I think about the, you know, the prospect for Wells Fargo and growth and ROE improvement, I think it could be still a very good stock over the long term. Erica, we're going to leave it there for now. Always appreciate it. Thank you. Thank you. We've got much more on bank results ahead.

11:50We're going to be joined by Wells Fargo's CFO, Mike Santamassimo. After that firm turned in a mixed quarter, stock is down more than 3%. Plus, going to have an exclusive with Michael Dell. Of course, I like to call him the OG. He's been at it since 1984 when he started Dell Computer in his dorm room at the University of Texas. By the way, stock, it's only been up to 350 % so far this year. And Apple just unveiling a new hardware lineup focused around Siri AI. Got some details on this first big test for John Ternus. By the way, 346 is going to be an all-time high on Apple. We're back in a minute.

12:27Legacy 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. Vantage Score safely broadens access to the credit economy and brings 5 million mortgage-ready borrowers into the market. That's why top lenders like Rocket Mortgage, as well as nine of the top 10 banks, rely on Vantage Score 4.0.

13:04With higher predictability and greater access to credit, everybody wins. Get started at VantageScore.com. Weren'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.

13:38This 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 marketupdatepodcast or find Schwab Market Update wherever you get your podcasts. 2027 is going to be really, really challenging for the stock market. And I say that because if I just look at the flows, and that's probably what we look at the most, what I look at the most, you've probably got the most negative flow picture for the U.S.

14:31stock market that we've had, say, since 2002. And by that, I mean, we sum up all the buybacks, M &A, all the positive things that has powered this market so much for the past, say, since 2009. If I sum up all those and then I subtract from that the IPOs, secondaries, unlocks, et cetera, then you've got certainly the most negative flow picture since 2009. Legendary hedge fund manager Paul Tudor Jones this morning issuing a warning that investors could see a really challenging year in 27, as he said. Let's get the outlook with Vinu Krishna this morning, Barclays head of U.S. equity strategy and global equity linked strategies.

15:15Vinu, it's good to have you back. Thank you. What do you make of this notion that 27 is challenging, if not from positioning, then certainly from a fiscal, a fading fiscal or consumer stimulus standpoint? Sure. There's some truth to it, but I think we are optimistic. And because the gentleman before were pointing to flows, that's one aspect of it. I think that the bigger question is, we are coming from four years of extraordinary earnings growth and extraordinary returns for the equity markets. It's beginning to moderate that hectic piece. But if I step back and look at what has happened to the earnings picture, it will decelerate, but will still remain significantly higher than the long-term trends.

15:56And more recently, at least this year, multiples have gone the other way. They've come down initially because of macro risks and AI narrative taking a little bit of a breather. And more recently, it's interest rates, which has pushed them down. So, you know, we remain optimistic. I think we are in one of the early stages of a super spending cycle across AI, energy and defense, for example. So I think there are risks for certainly more than what we've had in the last few years. But it doesn't mean that we're in a tight spot. Right. Goldman's on the tape. this morning saying, Solomon saying that a 5 % 10-year doesn't scare me in terms of the operating environment.

16:36Is that reassuring? Is it curious? I mean, is it just a function of growth? Well, the reason why rates have gone up in good part is explained by a reassessment of short-term interest rates, which is again reflecting the resilience of the U.S. economy and to some extent even consumption in America. At the same time, term premium, the premium investors are wanting with duration risk has also gone up, right? But not very high compared to the pre-GFC kind of levels. So I think the risks are to the upside. But to say that, you know, about five years, it doesn't matter. I do think it matters. If you look at how strong the negative correlation has been between the move in the 10-year rates and equity markets S &P the last month, literally every day.

17:22Today, rates are down, equities are up. Does that correlation continue with the 10-year above five and a quarter? I've seen some work that suggests that the correlation breaks down when the yield gets higher than that. I'm not too sure. I think that will be a restraining sort of feature, especially on the multiples you pay for earnings. I think the story is to the extent that earnings growth is robust, then we're in good spot. So what you look for is the rate of earnings growth is meaningfully higher than the rate at which your multiple is compressing. You'll have a good return. This is a great example.

17:55S &P multiples are down 10 percent. Earnings is high in 20s. We have a 12-ish percent return. That's the combination which will get you across the ledge. Does it also make you rethink which sectors you like if we see this sustained move? I mean, in the last few months, it's been the utilities and staples and real estate that are all down, the higher-yielding competitors. So I'll address it two ways. First, from a sector standpoint, we like the overall tech, including big tech, which is 45 percent of the market. And we like industrials, which are beneficiaries of the AI capex spend. And we are highly cautious on consumer exposure, both discretionary and staples.

18:33But, Sarah, the main point is that if you take a step back, we are in an environment of historic lows in terms of correlations within S &P, between sectors, within sectors, which means very high return dispersion. It means this is not an environment in which you take a sector view and approach it. You have to pick individual stocks or mini themes and be very nimble around in and out of that. For example, six months ago, everybody was selling even software and buying semis. Then that trade has reversed. So you have to be very nimble. You have to end of the day be a stock picker. And it is very difficult to make a blanket call on individual sectors other than, I would say, tech, because that's at the forefront of leading this transformation.

19:15It's kind of like not sectors, instead like groups of places that could be disrupted by AI. Yeah, the winners and the losers, for example. Do you have a favorite disrupted sector? Yeah. I mean, I think software is one sector which has been the most disrupted because productivity enhancements because of AI are, you know, 40, 50 percent. And the market has sold it off for the last year or so. And that's one area we feel that you have to look for it. For example, vertical SaaS, security. These are a lot more stable and not going away anywhere compared to what the market expects. The other thing is we look for resilience factors.

19:51So based on some quantitative work we have done, if you look at what kind of fundamental metrics capture resilience and you apply that to software and you buy a basket, then you're not making individual bets. But as a basket, you're relying on history of how you separate winners and losers from disruption. And you try and apply that in areas which are getting disrupted, for example, software. Yeah. I mean, we should put up a chart of software versus semis, which I think is basically testing the August highs. And I wonder if that's because, as you say, they're not going to be put out of business, or maybe it says more about where we are in the cycle on the hardware side.

20:28Yeah, and make no mistake, there is a lot of disruption. So those who are unable to adapt, even if you have the right financial metrics, are the ones which will fall off the cliff. And you'll have new AI-native businesses which will disrupt, just like you saw during the Internet phase. I mean, the Internet unleashed a whole new businesses and business models, right? So I think we're in the early stages of that. We think we have two to five years left of that whole disruption cycle. So year-end, 79-50? That's right. Not too far from where we are. Yeah. So I think we will kind of be treading water, at least especially around the midterm elections.

21:04But the midterm elections should serve as a clearing sort of event. And typically, if you look at the history of midterm elections, the year following that is positive for equities. Again, one more small data point. We think post-elections, especially in a divided government, which we expect, political uncertainty actually declines, which is good for equities, especially good for technology. Yes. I think also when a bull market turns four, year five is generally positive, too. Vanu, good to see you, as always. Thanks. Thank you. Vanu Krishna Barclays. Thank you. Up next, a blowout quarter for UnitedHealth.

21:38What's giving the company confidence to raise its guidance right now? Plus, we've got new details on Anthropics financials ahead, Anthropics financials ahead of tomorrow's investor meetings. We've got those breaking headlines for you. And then do not miss CFO of Wells Fargo, his first reaction to earnings following a mixed quarter. Net interest, income, and revenue come up short of expectations. Stock down 2.5%. We'll be right back. Weren'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.

22:14You 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. 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.

22:49Download the latest episode and subscribe at schwab.com slash marketupdatepodcast or find Schwab Market Update wherever you get your podcasts. The wrongs we must right. The fights we must win. The future we must secure together for our nation. This is what's in front of us. This determines what's next for all of us. We are Marines. We were made for this.

23:30Welcome back. We're about 30 minutes here into the hour. Here are some big movers we're watching. First up, UnitedHealth raising its annual profit outlook after earnings blew past estimates. The company saying it's managing high medical costs and it's seeing investments in value-based care and AI both pay off. Next up, J &J lower despite better than expected quarter and upbeat guidance. Weakness in medical devices over there overshadowing strong pharma growth. And then Visa gets approval to bring its local bank card clearing business to China. This follows similar approvals for MasterCard and Amex in the past several years.

24:05Visa CEO became the chair of the U.S.-China Business Council back in June. I guess this is a preliminary point that they had to pass, a green light from the Chinese regulators, and could open up a new business, a new revenue stream in China beyond just the cross-border transactions. Yeah, Visa's been crushing Amex. I don't know if you noticed the last few months. Interesting action. We're well off the opening highs. Let's get a news update with Dom Chu. Hey, Dom. Good morning, Carl. New White House Press Secretary Katie Zachariah announced from the podium this morning that U.S. Ambassador to Greece Kimberly Guilfoyle has been asked to resign.

24:41It comes after multiple reports from The Wall Street Journal alleging she engaged in improper and possibly illegal conduct before enduring her tenure in Athens, including offering to use her influence in return for the payment of a large credit card bill. The FTC in seven states are accusing Martin Shkreli of quote-unquote flagrantly and repeatedly violating a 2022 court order banning him for life from the pharmaceutical industry. The FTC and the states say Shkreli, who is widely known by the nickname Pharma Bro, publicly traded in pharma stocks and broadcast his opinions about the business and management of companies in that industry.

25:20They are asking a judge to hold him in contempt. And Pope Leo arrived at a hospital in Rome today ahead of a surgery to remove a small nodule in one of his lungs. He says it was found during a recent checkup, was well contained and had been spotted early. The Vatican says his recovery will take roughly one week. I'll send things back Over to you, David. Tom, thank you. Up next, a new startup that is looking to use parking lots and solar panels to ease the pressure on data center demand. Former Defense Secretary Mark Esper just joining the board as well, and he's going to join us next with that startup CEO.

25:56Plus, next hour, don't miss it, Michael Dell will get his read on enterprise demand, where we are in the AI buildout. Oh, and so much more. Don't go anywhere. Anthropics slated to hold investor meetings tomorrow. This, of course, ahead of what is a highly anticipated IPO. Let's bring in Kate Rooney. You know, Kate, I think you've been reporting on this. I've been doing some reporting on it. What are you hearing in terms of what they may share during this meeting tomorrow? Yeah, David, and shout out to Leslie Picker, who's also been reporting on it, given everything else going on with bank earnings, too.

26:31It has been the topic of the week. So Investor Day, from what I'm hearing, for Anthropic is going to be tomorrow in San Francisco. It's going to be mostly with institutional investors. And the big part of this that we've been reporting this morning is that they're going to be sharing Q3 numbers. So quarter ended a couple weeks ago. They have not put those numbers out. We're expecting to hear about things like revenue growth. I would also say the most important part of that, given what we saw with OpenAI last week and how any sort of reports and breadcrumbs around their revenue, Anything that appears to be lower than expected does make waves.

27:06And it also just speaks to how central some of these private, almost trillion-dollar AI giants have become to the tech trade, let alone the entire market. So it's interesting, given their IPO, which could be the largest in history. Also, extra interesting as we get revenue numbers, just given how important these two companies, OpenAI and Anthropic, are for the broader market. I would say that is the thing worth paying attention to, sort of what these revenue numbers end up meaning for overall demand and sort of the takeaways from other investors, not just those that have private stakes in Anthropic or may be looking to get into the IPO.

27:41Yeah, they're very important. You know, I've made this point, you know, well, a lot of public market investors are actually more interested in these two companies, that being OpenAI and Anthropic and their private numbers, so to speak, to try to make decisions. And there has been this view, I think, lately that OpenAI, as a result of its access to compute, its new models, was able to sort of regain some momentum on the annual revenue run rate front. I guess reporting now has them potentially ending the year at$70 billion, which can give voice to a$1.4 trillion value that they're raising the$30 billion at.

28:18What about Anthropic? I don't want you to get ahead of yourself, Kate. I don't want you to necessarily guess. But, you know, they've already done these test the waters meetings. So I am curious as to exactly what they're going to share tomorrow. To your point, third quarter numbers and Leslie's reporting as well. It can be very interesting to see what those numbers look like. So the number that's been out there, David, and sort of the whisper number, if you think about public markets, the equivalent of what the expectation is, is 100 billion dollars in terms of the revenue run rate by the end of this year.

28:50So that's been out there. I've heard that from sources as well. The big question, again, going back to OpenAI as we talk about these two companies in tandem, is Anthropik including cloud revenue from partners? So that's the big thing that got attention for OpenAI the other week. They sort of adjusted and changed the accounting for their revenue. Is Anthropik going to do the same so that we get more of an apples-to-apples comparison here? I think that will be one of the biggest questions is what goes into that revenue. Yes, that is a massive number and is sort of what's underlying what a lot of people have said could be a$2 trillion valuation.

29:22That's when we say it could be the biggest IPO in history. That's what folks are talking about. It's all based on the revenue ramp. But if you're able to peel back the onion at all and look at, hey, how much of that revenue is coming from Microsoft? How much of that is Amazon? That will be a really interesting distinction and something that when we get the S1, if we get the S1, will be something to pay attention to. All right. Well, yeah, quick on that front. I mean, I'm hearing perhaps the next 10 days, but we can't stand by that as a fact. But it does appear I've heard nobody back off the idea they're coming public this year.

29:53Yes, one way may get it as soon as 10 days. You have seen kind of meetings like this that took place for SpaceX prior to the release of their S1. What are you hearing? I think the biggest thing right now, David, I've heard the same thing for what it's worth that we're hearing sort of November is is largely before Thanksgiving have been the recent reporting. And we'll keep you updated as we try to get timing. I mean, but the biggest thing and the biggest change right now is the market appetite and what's going on with rates. I mean, we heard the commentary from Hocktan. We saw some of the sell-off overnight with the chips name.

30:25That's something bankers I end up talking to, a lot of the venture investors out here, are paying attention to. Just what is the appetite for growth as we get higher rates, as the cost of capital goes up? What does it all mean for Anthropic? And I think that is the biggest change that we've seen in the past few weeks and something to pay attention to. You know, the window may be open for a company the size of Anthropic, but rates, the cost of capital, the amount that they're now relying on debt and that others are relying on debt. I mean, 10 percent interest rates for a company like this. It's not good.

30:53So that is the big thing that could maybe slow them down from what I'm hearing. But I think you're right that the ambition, what I've heard, Dario Amadei, wants to go out this year. And I think a delay into 2027 is not what they're looking for, given the demand for capital on their end. Right. All right. Well, we'll be watching closely, listening, of course, for any of those numbers that come up tomorrow as well. Kate, thank you. Kate Rooney. There's also growing political backlash, and we'll stick with that subject on AI. Public opposition to data centers in particular is growing. One startup, though, is proposing a compromise, LT350.

31:25It's working on a smaller data center project that would be installed in solar-powered canopies above parking lots. These canopies, in theory, address concerns over data centers taking up large areas of land and straining the power grid. Let's bring in Jeff Trayman, founder and CEO of LT350 and former Defense Secretary Mark Esper, who just joined the company's board for a first on CNBC interview. It's good to have you both. Mark, I mean, Secretary Esper, you probably get asked to join all sorts of companies and especially around AI. Why did you choose this one? Hey, sir. Good to be with you again.

32:02Look, first of all, Jeff is a successful entrepreneur. It's a very clever technology. And importantly, this technology addresses a number of concerns I have about strategic competition with China, national economic resiliency, and then third, the ability of the United States military to project power abroad. It'll help address those three areas. Why did this in particular help address those kind of national security concerns? Well, in each of those cases, of course, we know we have to stay ahead of China in the competition for AI, and that demands building data centers. It's obvious in this period right now we have a lot of community resistance justified about concerns about water usage, energy usage, space usage.

32:42And this is a clever way to tackle this problem. It's not going to replace large data centers, but it's a good way to build it out alongside it. Secondly, I talked about economic resiliency. I've always said that the first shots of the next major war will be cyber shots. And if you think if you think have concerns about energy production, we should have concerns about aggregated data centers being vulnerable targets. This approach that Jeff has pioneered disaggregates, distributes data center compute among a number of different areas. And really importantly, addresses community concerns so that we don't get mired in the bog of local problems while China tries to race ahead.

33:20So, Jeff, talk us through the idea. I talked about the canopies. Explain what this actually looks like and why it's a solution. Yeah. So, you know, one of the problems we have right now is the whole AI space is moving from that of training the models to using the models. And as you get closer to the people for getting the compute closer to them, these big data centers are causing some major issues. So instead of doing a big 300 megawatt facility in an urban area, spread that around to 301 megawatt facilities. So the question is, where can you do that? And our answer is you can do that in the parking lots.

34:02So what we do is we come in and deploy a canopy structure, very similar to a solar canopy structure. But what our patents are issued around are integrating prefabricated cartridges that can hold the GPUs. They can hold battery storage, and they go up into the ceiling of those canopies and essentially turn the airspace into a data center with very little footprint to the community. We support the grid with the batteries, use no water with these prefabricated cartridges, and provide a really good solution that minimizes the community resistance. I was going to say, is it solar powered? There are solar panels on the roof, but really what we're doing is we're, that's a component of it.

34:46But when you look at the power that these GPUs draw, the battery storage is key. So for every two GPU cartridges we put up, we put up a 200 kilowatt battery storage cartridge so we can go off grid during the peak hours. So that's really what we're doing. We're playing against the arbitrage on the grid between the peak and trough of what that infrastructure is built to on every grid circuit. Jeff, have you gotten hard evidence that resistance to data centers does back off when they look at the smaller footprint? We don't have hard evidence yet. We're going to be deploying our first canopy at a hospital in Texas next year.

35:23So we'll see what kind of response we get from that area. But from a standpoint of what are the issues that people are facing, we eliminate every single one of them. Have you signed any deals, Jeff, with any of the big hyperscalers yet? Have you pitched the idea? We are in the process of doing that. Right now we are aggregating partners really that have a reproducible real estate space. So we're talking to convenience store gas station groups, quick service restaurants, malls, big box retail, people that when we put in a canopy, we can then deploy it in multiple locations after that to scale very rapidly after we prove out what we're able to do.

36:11Secretary Esper, you mentioned China as one of the main reasons we need to go full speed ahead here. And, you know, big news this week is that China's top memory chip maker came out and reported some pretty strong advances that I think caught especially some of these Korean, South Korean memory chip makers off guard. We saw that in the market with Samsung and SK Hynix falling. What is your estimation of where China is when it comes to competing with us here? Yeah, look, most experts would say we're six months ahead or so, but China is pacing pretty quickly. They're developing, of course, data centers and their own line of chips.

36:48So right now we have the lead on GPUs. But they also have the lead on adoption, more so across their population than ours. So you have a lot greater usage. So when you take, I think they probably have an advantage in data. We have an advantage in the technical side of it. And then the question is, how do we build this out and adapt it and use it more quickly than we do? Jeff talked about community resistance. You raised it, Sarah. China doesn't face that problem with community resistance. They just plow forward. And by the way, to some degree, they are also building distributed power, distributed data centers, much like what Jeff is proposing, alongside large big data centers.

37:27So, again, this is an idea that's catching on, and it's another reason why we have to compete directly with China and, again, stay ahead of them in the AI race. Mr. Secretary, while we have you, I hope you'll entertain just a conversation briefly about the energy markets. You got physical Brent, all-time high, European benchmark gas, all-time high. It seems like we talk less and less about Hormuz and more and more about the airport in Riyadh. Are we evolving into more of a regional war? And does that mean that any kind of diplomatic solution with Iran does not solve the conundrum for energy markets?

38:03Yeah, look, we haven't even talked about the nuclear agreement that ostensibly began this conflict. You and I have had this conversation a few times, Carl. I don't see an end to the conflict any time in the foreseeable future. It is certainly escalating horizontally with the Houthis now taking the lead, attacking Saudi directly. Attacking, you know, the Iranians and the Houthis know where our economic pressure points are, clearly with gas to pump and with diesel on the farms and truckers. And with the Saudis, they're attacking, first of all, the pipelines, their ability to export crude. But secondly, the image of Saudi Arabia as a place for investment, as a place where businessmen come and do deals, as a place for tourism.

38:44And that's hurting the Saudis. And that's going to put pressure on the other Gulf Arab states and on us. I mean, we now know that MBS is asking President Trump, he has several times, to get involved in the conflict against the Houthis. And it's something President Trump is certainly not going to want to do three weeks before an election. Well, could you ever see a scenario where there's an alliance between the U.S., UAE, Saudi and Israel to to get rid of this this Houthi problem? We could reach that point at some time, Sarah. We're not there yet. Again, I see this dragging on for the foreseeable future.

39:21But Iranians are being very strategic in terms of what they're doing and attacking economic infrastructure, energy infrastructure. We were just talking about LT-350 and distributed data. We know that the Iranians have struck data centers in both Bahrain and UAE. So they're going after everything in order to create economic pressure. And at the same time, they reportedly are rebuilding their arms capability, ballistic missiles, drone manufacturing, and so on. So they're preparing for the long haul. All right. Well, we'll continue to have you on to talk about that. But thank you for joining us to talk data centers.

39:55We really appreciate it. Mark Esper and Jeff Trayman, LT350, founder and CEO. Good to see you both. Thank you. When we come back, Apple record high today as it unveils this new lineup of home hardware products trying to take on Google and Amazon. We'll look at the company's push into physical AI. Next hour, don't miss the CFO of Wells Fargo. His first reaction to earnings after that mixed quarter, saying on the call that higher rates are not yet impacting where customers are putting their money. Dow's down eight. Stay with us. Big banks and chip stocks continue to drive the overarching market story at the moment, but there's a health care stock that's getting a lot more attention these days as it seeks to capitalize on turning wellness into a subscription-like product.

40:38Tune into our Market Navigator segment later on today on Power Lunch for more on that story, 2 p.m. Eastern time. Welcome back. Shares of Apple hitting an all-time high this morning, and the company is now looking to take on Amazon and Google. It's got the debut of some new home devices, and that is the focus of today's Tech Check with Mackenzie Cigalos. Mackenzie. Hey, good morning, David. So Apple today unveiling a new push into the smart home. At the center of it is the$299 HomeView, a 7-inch smart display that puts Siri AI at the core of the experience. It can recognize up to six people by face and then automatically switch into their personal profiles, pulling in messages, FaceTime, calendar, and reminders.

41:19It can sit on a countertop or mount to a wall with pre-orders starting today ahead of a November 13th launch. Now, this is Apple's first new device built from the ground up around Siri AI. On HomeView, the Assistant is effectively the operating system, not just another bolted-on feature. That makes it a much more direct test of whether Apple's rebuilt Siri is finally ready to anchor a new product category. Apple also launching a revamped HomePod Mini and a new Apple TV 4K, giving Siri more entry points throughout the house. Now, HomeView gets Siri AI at launch, while the HomePod Mini will get the new assistant later through a software update.

41:56But the larger strategic shift may actually be outside of Apple's own hardware. Apple worked directly with LG and Schneider Electric on cameras, doorbells, smart lock, thermostats and sensors, effectively giving customers a much more complete smart home ecosystem from day one. Privacy, of course, is a key part of that pitch. Everything runs through Apple Home with the data end-to-end encrypted so that LG, Schneider, and even Apple can't read it. But ultimately, this whole home push, it comes back to Siri AI, whether Apple can make it the connective tissue in the house and then use that tighter integration across devices to keep users locked inside of its ecosystem.

42:35Guys?

42:39you know i just it's we were talking about the apple vision pro earlier i don't mean to to give them a hard time but what has been the history of sort of some of these new devices when they've introduced them i mean the vision pro to your point it hasn't been a commercial success whatsoever and you know people have complained about some of the design elements there meta came out with a actually more competitive vr product but but this is the question, right? This is the first big test for Ternus. It is an entirely new product category for them. The iPhone Duo, of course, the first foldable is still within that iPhone segment.

43:13So we'll see how it does. It is competitively priced, but home, you know, you've got Amazon and Google leading there, but this isn't historically a big seller, a big category for them. It also puts a lot of pressure on Siri AI, which has had a mixed reception in terms of people who are using it in the context of the iPhone. And this experience in the home is entirely driven by how good Siri AI is, especially with that HomePod mini, entirely conversationally driven. So it doesn't even have the screen to potentially help. So we'll really see, it'll lay bare how capable the Siri AI tech is. And what I will also say is that it's battling optics of home devices in general, having this privacy question.

43:54But that is potentially a place where Apple can win, the fact that they have this end-to-end encryption in a way that rivals like Amazon don't. I'm always skeptical of putting those things in the home because it's like you have to update them every, I don't know, year or two because the software changes and then it's, you know, it gets more costly as time goes on. And my colleague Arjun Karpal in London just putting out a report today about the fact that Anthropic is putting out research saying that Gemma, which is Google's open source model, can be used to replicate across home devices. Now, They were looking at Android TVs, but it is a concern, Sarah.

44:31Yeah. All right. Thank you, Mackenzie. Mackenzie Sagalus on Apple's new project. After the break, Korea's market got wrecked today as the chip trade pulls off. We're going to look at what the options market is signaling about that move next. The Korean stock market sold off pretty hard today as a number of key chip names got slammed. Let's get over to Oliver Rennick at the SIBO in Chicago with a look at what the options market is signaling. Oliver. Hey, Sarah, this may be a tech warning sign in the South Korean ETF, EWY, which of course went on a huge run in the first half of the year as a more concentrated version of our already very concentrated AI trade.

45:07EWY is down 10 percent this month as SK Hynix and Samsung pull back. Options volume in SK and EWY was twice the average this morning and leaning bearish still. In EWY, 38 ,000 of the 48 ,000 early trades were in puts with the two most actively bought contracts, the 130 strike put expiring Friday and the 145 strike put expiring at the end of the month. These are both extremely bearish trades looking for 20 % plus declines in EWY. But we did see those balanced out by a big seller of 150 strike puts expiring in November. But in terms of total volume, twice as many puts were bought versus calls on the ETF this morning.

45:48Now, if we look at the SMH, the action is not dissimilar. Put buying accounts for more than$50 million of trading this morning compared to less than$20 million tied to likely call buying. and then one final wrinkle in all of it. While the South Korea trade is largely a memory trade, options trading around our memory star, Micron, is more optimistic this morning with some notable call buying in the 940 strike that we slipped under this morning. So possibly a message here about fading concentration, but keeping hope in Micron, guys. Nice discussion with Kramer this morning on what happens when the chips are down literally six days in a row.

46:28We'll see what we get in the coming days, Oliver. Thanks, Oliver Rennick.

46:59or accuracy, and it should not be relied upon as such. To view the full Squawk on the Street disclaimer, please visit cnbc.com forward slash Squawk on the Street disclaimer. 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.