10AM Hour: Contrarian Rate Call, Accenture CEO, Street Reaction to Micron Results 10/1/26

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0:54Good Thursday morning. Welcome to Squawk on the Street. I'm Sarah Eisen with Carl Cantania and Mike Santoli live from Post 9, as always, of the New York Stock Exchange. David Faber's off again. Wall Street kicking off the fourth quarter with big questions around higher bond yields and the Fed. We'll talk to Citigroup's Scott Kronert about why his firm says the next move may not be a hike. Plus, Accenture rocketing higher this morning as the consultant company posts strong results. CEO Julie Sweet joins us in just a moment with our first comments on earnings and to discuss a new AI safety partnership with Anthropic.

1:25Tech analyst Ben Reitzes with us to discuss Google's new AI model release as the stock gives up an early pop. But guys, I'm focused on some of the economic data today. We've been talking a lot about inflation. That's one part of the Fed's job. The other is jobs. And we'll get the big government jobs report on Friday. But we do have some new information and it points to a really strong, healthy job market. I'm talking about initial jobless claims. Yes, they come out every single week. But they have been such a good story. If you are worried about layoffs because of AI or because of high oil prices or because of the economy, it's not happening.

2:00I mean, the jobless claims numbers continue to come down week to week and less than expectations. This week, it was 197 ,000 for the week. That was down from the previous week. And now it's at the lowest level since July. And if you smooth it out and look at some of the averages, I mean, it is a low-firing economy, and that continues to be the case. Really strong numbers there. And I would just say, you know, the Challengers number was out as well. This is the monthly number. It comes from the private firm, Challenger Great Christmas. And people look at it. It's kind of been downbeat in terms of the layoffs.

2:34It gives you a sense of how many job cuts. But, again, this was a good number. We saw the fewest number of job cuts for any September since 2022, according to Challenger. Last month, we saw about 43 ,281, you're seeing it there, cuts. That was a 20 percent decrease from a year earlier. So, so far this year, planned staffing reductions are down almost 40 percent from the same nine months in 2025. It's good news, fewer firings. Let's see if it actually also coincides with job growth. We'll get the numbers, as I said, on Friday for the monthly jobs report, which the Fed watches. The expectation is around 84 ,000 jobs.

3:16Remember, we had a blockbuster month the month before. That was the previous month. But, you know, so far, signals around labor, softer job openings this week, but overall have been really strong. Yeah, I mean, yeah, Jolts, you mentioned ADP, of course, earlier in the week, higher since June. We did just get ISM manufacturing, might be responsible for this little air pocket we hit in the market. 54.5, we were looking for 55, but it's really the price is paid. Prior 71, looking for 73, we get 77.9, which is going to be the highest in maybe three or four months. Yeah, which means, and given the fact that there's nothing to worry about policy-wise on the job front, really, at this point, It is a single mandate fed at this point.

4:00So anything that seems like overheat or it's going to give an extra push to inflation or push back against the disinflationary trend, you do have this response. That's part of what's going on in the bond market. It's really not most of what's going on in the bond market in terms of inflation expectations. It really is pricing in kind of higher neutral rate, better structural growth, longer term, therefore fewer cuts to very low rates, all of that stuff. And it obviously has a momentum all of its own at this point. I feel like I want our little, like you were yesterday saying like inflation is less than expected.

4:29And I was saying, yeah, but the growth numbers are really good. I feel like I prevailed on that because bond yields turned around and they went high. No offense. But that's also the reason that the yields are up, right? Like the growth story. All I said was inflation. No, I think it's more relevant. I said inflation was cooler than forecast. And the market took no comfort in that. I think that's significant because the growth story. But then we also mentioned the methodology changes and portfolio management and all that. Yeah, I mean, that was a piece of it as well. But I do think that what's happening in the bond market is a little bit bigger than, oh, inflation is a little higher.

5:01The Fed's going to have to do a little more. It's sort of something a little bit more structural seeming to happen. By the way, the global economy has sort of withstood$100 oil. Brent is a few percent off the highs. WTI is down 15 bucks off the highs. And yields have not come in. And so something else is happening there. You know, you have to be on alert for the impact of parts of the market. It's been happening in a big way below the surface. and that by extension means maybe parts of the economy are going to feel the wear and tear of that. I just want to, you know, on the jobs front, there was also this, I don't want to downplay the impact of artificial intelligence, although people were worried we would see more layoffs by this point and we're just not seeing them.

5:40In the challenger numbers, they do break it down by industry. And if you look at the technology industry as a whole, that was the worst sector in terms of the cuts. 10 ,799 cuts in September. That was actually up 77 % from the August number. And the sector has actually had more job cuts in 2026 than any other sector, whether that's because some of these tech firms aren't doing as well right now, you know, if you're not front and center in the AI story, or maybe there is AI. And Challenger also gives you some color as to why the cuts are happening. AI was the fifth most cited reason, they said, in September, but it remains the leading reason year to date that employers are giving for the job cuts.

6:26And then Anthropic puts out this chart. I don't know how much to make of the Anthropic charts because they've been kind of doomers on the job front. But this is their robotics index, basically, and it shows the work that's exposed to what AI-powered robots can do. And I think what's notable is that we hear a lot about white-collar workers like lawyers and office jobs, but actually rising exposure for just physical jobs, postal service mail carriers, welders, cutters, solders and braziers, dishwashers, janitors and cleaners, except maids and house cleaners, that more exposed in the physical work, basically.

7:05And highly unionized. Correct. Well, that's true, too. But basically, physical labor displacement, I mean, they say will take decades. But as the robots get smarter and better, they're not necessarily cheaper. They're still more expensive. But as they get cheaper, just Anthropic is watching the sector of jobs, too. It's not just the white-collar. Yeah, it's interesting. We've been getting a smattering here. Workday, Disney this week, Campbell's, BMW. We're getting some breaking news out of the Fed. For that, we'll turn to Steve Leisman. Morning, Steve. Hey, Carl, good morning. A quick note on the ISM number.

7:39You guys correctly pointed out 54.5, a little bit of a miss, but strong on the new orders, 55.3. That was up a point and a half. And employment also doing well there, to Sarah's point about what's happening with jobs. And what you see is the 10-year on the move again. We're back again towards that 534 number that we hit overnight. Had come off of that again, but it could be the inflation number, as Mike suggests. It could be the growth number, as Sarah suggests, or it could be both, as I suggest. Well, three bank presidents speaking in just the past hour and all agreeing that inflation is too high and making clear the Fed has more work to do?

8:17I see more risks on the inflation side. And so with the labor market on relatively solid footing, monetary policy can focus on ensuring that we restore in a timely way sustainable, durable 2 percent inflation. That's Boston Fed President Susan Collins. She was speaking alongside Barkin from Richmond, Schmidt from Kansas City. But they wouldn't tell the moderator Neil Irwin from Axios if they were on board with an October rate hike, saying they were awaiting economic data and the next Fed meeting. Now, Minneapolis Fed President Neil Kashkari, I spoke with him last night at the Council on Foreign Relations in New York.

8:53He said the Fed should not simply look through supply shocks and should be paying attention to these high bond yields that are out there. I don't want to blindly dismiss what markets are signaling, because markets right now are signaling that policy may have to go even tighter than we expect. I want to pay attention to it, but I don't want to blindly follow it either, because there are a lot of different factors can go into some of these market judgments. Markets have recently discounted the possibility of an October hike, even with the surge in long end yields. We're still at a 34 % probability, but trades with confidence of a chance of a rate hike in December at nearly 90%.

9:29Kashkari said he had only one additional hike penciled in for this year, but didn't say if it was in October or December. He has one built in for next year, But his comments about taking that signal from the market where the two year is over 100 basis points over the Fed funds rate suggests he could be open to doing even more, guys. Yeah, I was going to say, Steve, you don't have eyes on the October odds since the ISM, do you? Because I just kind of am curious. The market seems pretty suggestible with every incremental data point as to exactly how that might be in play. You know, when we don't actually have a real clear roadmap in terms of forward guidance from the Fed.

10:06No, I think that's right. These ISMs and PMIs, as you know, Mike, it's so funny to do this job for such a long time when things don't matter. I don't remember the bond market trading on the PMI, but recently these 945 reports that have been coming out about the S &P PMIs have been significant and the ISM is the most important of them all. And you can see the bond market reacting to it And it's a stronger growth story. Even if you missed by half a point, 54 and a half is a good number. It's a strong number. It suggests economic growth. It suggests some renaissance in the manufacturing sector after having had some problems earlier or last year.

10:47And then these new orders numbers, they also bode well. The prices numbers, got to pay attention to those. So I think both you and Sarah are right, but nobody asked me. Yes. Well, but here's why I'm right, because the two-year yield is going down and the 10-year yield is going up. So like if it was a direct, you know, Fed's going to have to hike more, you'd see that in the short end of the curve. If it's a growth story, you'd see it in the long end. I would just respond to that, Sarah, that the two year is already 486, already more than 100 points, 120 points. And I want to just real quick, Neil Kashkari last night laid on a new metric that he's watching, which is an average of the Fed's estimate of the Fed funds over two years or an estimate of what the two year would be based on the Fed funds rate.

11:32And he said the gap with that estimate and the actual two year is the highest it's ever been since they've been recording it, which means the gap between the market and the Fed is as big as it's ever been. The market thinks the Fed is going to be a whole lot more aggressive than the Fed thinks itself. Yeah, that's the way we heard that in his soundbite where he said it's basically exactly 100 basis points up. Right. So we're the Fed funds is three seventy five to four. But that's that's four hikes. So we'll see if we get there. Steve changes a lot. Thank you very much. Let's bring in City Research head of U.S.

12:02equity strategy, Scott Cronut. Scott, I guess the whole conversation here is the interplay of rates and stocks. It's been playing out certainly below the surface of the market. How is it going to proceed from here? Well, the way we've been talking about it all year long is that rates and the macro condition hasn't mattered as much as the underlying fundamentals, which has been the support for the equity markets up to this point. We've been referring to the Jackson Hole time frame as the Jackson Hole pivot. At that point, you lost the broadening trade and you went back to that MAG7 mega cap growth cohort as a leadership that's buoyed the index.

12:37What I would say, the way the rate backdrop and circumstance is setting up, certainly, certainly we're much more focused on macros probably than we have been for the better part of this year, if not the past two years. So I think what really becomes critical to the equity direction between now and year end is some alleviation of this perception on Fed hawkishness. And now Citi believes that maybe we will have a prolonged pause and maybe we don't have to do much more on the hiking side? Yes. So Citi economists are of the view that we've got the September hike and they're probably in pause mode to middle of next year.

13:11And the view here is that inflation continues to trend a little bit lower. pressure on the labor force does begin to emerge and that becomes an issue. From my perch, we've been saying this for a few weeks now, I can take one, probably two. I can take another Fed rate hike and probably spend that as a positive in terms of we've priced in a lot of what we need to in terms of a stable Fed in response to the inflation dynamic. From that point, you begin to set up, in my view anyway, for a year-end rally opportunity in U.S. That was the thinking when we got one hike, that it would relieve pressure at the long end.

13:42I wanted to. Yeah, everyone wanted to. I thought one was not enough. One doesn't really do much for you in terms of really establishing that Fed narrative in terms of, hey, we're really on this inflation dynamic. So we'll allow for one more. Well, you don't know what it would have been if they didn't go. That's a very, very fair point. It's been straight up. Yeah. Maybe it would have been straight up more. I guess, Scott, did the earnings revisions, earnings outlook was already so strong. But with these growth numbers that we're all talking about, do they go higher from here? So I think we're going to be okay with Q3 earnings.

14:15Consensus is up to 365, which was the estimate we leaped to on the heels of Q2. I think Q3 will be okay, but I think the commentary, Sarah, is going to be much more cautionary. I think it's going to have to be, and it's going to put ongoing burden on this AI trade, the CapEx dynamic at work. So what I would suggest here is that what we've been doing thus far is we've not changed our 27 estimate of 400. consensus is through us up closer to 415, 416. So we're allowing that there's probably going to be a little bit more of a softening dynamic away from that AI cohort that's going to come into play here.

14:52It wasn't that long ago we were talking about MAG7 being a tired framework. It got some new life here, did it not? It's gotten some new life. And what a difference, you know, evaluation some time will take here. So what more recently, you recall, we went more cautionary on tech going into Q3. We downgraded to neutral. We've gone back to an overweight on semis. I think the setup here, the valuation contraction over the past quarter kind of sets up, I think, a renewed run on the basis that we still have pretty good visibility into 27, if not 28 fundamentals there. Yeah, everyone's saying 28 is what matters now for the semis.

15:30And we'll talk about Micron in a little while. Scott, good to talk to you. Thank you. Thank you very much. Get a look at our roadmap for the rest of the hour this morning. Still ahead, Alphabet unveiling this new AI model, obviously stiff competition in that horse race. We'll talk about where they stand relative to names like OpenAI and Meta. Plus, Nike is the worst performing Dow stock this year. But we'll talk with one analyst who has a rare buy rating on that stock ahead of tonight's earnings. And coming up next, Accenture CEO Julie Sweet joins us exclusively as that stock paces for It's best day ever on the back of earnings.

16:02Squawk on the street. We'll be right back after a quick break. With the Discover Cashback card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to Discover. Terms apply. See discovery.com slash five for details.

16:56market update podcast or find schwab market update wherever you get your podcasts it's the holiday season at house of burl which means that it's the perfect moment to review some key rules rule number five more style means more celebration number four buy gifts but remember to treat yourself too number three there is no dress code but always leave them talking number two show off different outfits. No party remains unattended. And rule number one, have it all without spending it all. Happy holidays from House of Burl, Burlington.

17:32Welcome back to Squawk on the Street. Check out shares of Accenture. They're surging double digits up almost 23 percent, pacing for their best day ever. After the company reported a beat on the top and bottom lines and an upbeat guide for 2027, shares are still well off the all-time highs, shedding over 45 percent since December 2021. Joining us now in a CNBC exclusive is Accenture CEO Julie Sweet. You know, first of all, you come on the good days and the bad days for the stock, Julie. So thank you for that. And you've been telling us that AI has been a tailwind for your business and a growth enhancer, and the market hasn't believed it.

18:09And today, I think you showed otherwise. What's the big driver here? Well, thanks, Sarah. You know, look, We're firing on all cylinders because we have stayed focused on what our clients need. And you see that our extraordinary teams around the world just delivered 7 % growth in Americas, EMEA and APAC. And every industry is positive. And we've just finished the year with$85 billion of new business going into next year. And that is driven by our growth strategy to focus on big transformational deals and making sure we're the winner in AI and data. So do you think that's an answer to these fears that the market has had about your business, the cannibalization, the pressure on productivity tasks and all sorts of services, companies like you, because AI can can do a lot of that work?

19:04Absolutely, because AI is a phenomenal technology, but it's a technology. And you actually have to change the way you operate in order to get value. And we're that bridge between AI and outcomes. And you see that in the work, for example, that we're doing with BP, a leading global energy company that is working with us around marketing, bringing together safely their data, AI and marketing expertise. and that's helping support measurable business results because they're changing the way they work and using AI, data, and technology. So it's a really exciting time when you have such amazing change from technology, that's when clients turn to us.

19:49So as AI grows, Accenture will grow and it's important to remember, we're still in the very early days. AI is not yet scaling. So we have a lot of confidence in our long-term growth. Can it be an organic revenue driver for you? I mean, is that is that what you is that what you're telling investors and how and can you just break that apart a little bit? Absolutely. We've already saw in this quarter we had strong organic growth and we're also investing in the business. And so think about all the new areas that AI has opened up, like data centers, like the safety business, like capital infrastructure.

20:27So we're investing now to not only be the partner for companies who are going to scale across the enterprise, but also to be relevant to all the parts of things that have to enable the use of AI. Cyber security is another one. So we're very confident in our long term growth trajectory, including our organic growth. Julie, can you characterize client priorities at this point? And is everybody sort of setting everything aside besides figuring out how to integrate AI and how to do it safely and how to protect data? Are things otherwise getting sort of neglected or left behind as these companies essentially say this is the only project?

21:09Well, first of all, our companies, all the clients we serve are in industries that are undergoing a lot of change from the macro environment. And so a lot of our work is on helping them grow in tough macro and build more resilience. AI is a part of how they're doing that because we all have seen that AI is going to enable them to do more than they previously thought possible. But our big focus is always around business outcomes. And AI is a way to get better business outcomes. And that is what clients are focused on. It's not about AI in and of itself. It's about how do you grow? How do you cut costs?

21:48How do you thrive no matter what the environment is? Is there a macro story here as well, Julie? We've just been reporting some of the better economic data. The consulting practice looks like it's showing strength, and I know that one seems to be more cyclical. What are you seeing? We haven't seen any change, meaningful change in terms of spending. But what you are seeing is that our clients do want to change more. Right. So they have to change their business processes, their model. And that's where we are so different in the market because we have the deep technical expertise. But our consulting practice is all about industry functions, whether it's finance or marketing or helping with the grid.

22:31And that is what's helping drive our consulting business. What about the anthropic safety announcement? You sort of alluded to these kinds of partnerships. What does that entail and how does it help Accenture? So you put the safety partnership in the context of our growth strategy is to both help companies use AI, but also to participate in all the things that are needed in accessible AI. And safety, of course, is top of the list. And I'm talking to the frontier labs and technology companies, all who are very focused on safety. And then you also have safety at all the companies. Right. So when you actually implement it.

23:14And this is one of the reasons we bought faculty last year, because they're one of the leaders in safety across the board. And so we see this as an important part of playing in the the A.I. enablement space. But so you're the third party evaluator, basically, that will be what embedded in Anthropic with their models to see if things have gone too far. How does that work? So Anthropic has selected us to help them. We're going to be an embedded evaluator. They'll work with others just like we'll work with other labs. And so it's early days in terms of moving into this new safety space. And they selected us because we have a lot of AI expertise, right?

23:56Safety begins with understanding how AI is actually used, as well as our cyber and our AI safety space. And we expect that this is going to continue to be a major focus really by the tech companies, but also by all of our clients who are using AI. What sort of safety issues are you on the lookout for? Is it cyber? Is it, you know, the self-recursive improvement of these models? Like what is it, you know, danger that AI could wipe out civilization? We've heard all of this stuff in the last few weeks. Look, safety covers kind of all of the above, right? Sort of how it's being trained, how it's being used, what its capabilities are.

24:40And you see that it's not only about the labs. We're joining NVIDIA's OpenAI safety platform that they just announced. We're working with many of our other tech companies for safety when you actually use it. And we've been doing this really from day one. When generative AI first started, a big focus of ours was how do you build the guardrails around AI? And again, this is why not only do we talk about our safety, like working with the labs and directly on AI, but you also have to have safety in cybersecurity, which is one of the businesses that is just really booming. And of course, we just expanded that into OT security because AI is a bigger threat to the things that actually run the world, right?

25:23the factories, the grids. And so this is a big area that is very important. And when you think about long-term growth, AI cannot be adopted at scale unless companies are focused on all aspects of how you use AI safely and how you defend against AI attacks, for example, in cybersecurity. And finally, Julia, I always like to ask you about your own workforce because I think you have more than, what, 750 ,000 people working at Accenture and a good barometer of the IT services business. We were just talking about the job threat, whether that's materializing or not. What are your plans for hiring? What does that look like for you right now?

26:06You know, next year we will hire more in all of our markets around the world. It won't be at the same pace as this year, in part because of AI. But one of the things that's really important is that But how workforce develops is very much about your strategy. We hired more entry-level workers this past year than we did the prior year, and we're going to do the same. That's because we have deliberately looked at what are the opportunities that AI has created to reshape that workforce and continue to create opportunities. And so when people talk about the future, I think one of the most important things is, do you have a strategy around how to evolve your workforce so that you've got the right workforce to actually capture growth?

26:48We now have 110 ,000 AI and data professionals because that is where we see the growth. Our original goal was 80 ,000 by the end of this year. So we are hiring and upskilling to go after growth. And that is what we help our clients do is think about their workforces and how to educate them to be prepared for growth. So when you think about AI, do you think about it more as a efficiency slash cost cutter or a new market, new revenue, new business generator? Carl, you have to think about it both, right? If it's only about efficiency, that's when you get all the doomsday about what is AI going to do.

27:29But our clients are definitely focused on it's about growth and efficiency. And that's exactly what our communities need as well. Julie, we appreciate you joining us on Earnings Day, as always. Thank you so much. Stocks up 22.5%. Julie Sweet, CEO of Accenture. Coming up this morning, Alphabet giving up an early gain as the company released its latest AI model. We'll get to the streets' reaction next. Micron pulling back as well, despite those solid results now sitting near session lows. We'll talk to Ben Reitz and some Milius about that move and why former Fed Vice Chair Blinder expects more hikes in the months ahead and why he says rising oil prices actually have little to do with it.

28:10Stay with us. With the Discovered Cashback Card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to discover. Terms apply. See discover.com slash 5 for details. 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.

28:51and 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. It's the holiday season at House of Burl, which means that it's the perfect moment to review some key rules. Rule number five, more style means more celebration. Number four, buy gifts, but remember to treat yourself too. Number three, there is no dress code, but always leave them talking. Number two, show off different outfits. No party remains unattended.

29:30And rule number one, have it all without spending it all. Happy holidays from House of Burl, Burlington. Time for a CNBC News update. Brandon Gomez has that for us. Hi, Brandon. Hey, good morning, Mike. Israel's prime minister claims the co-pilot of a fly Dubai jet who stabbed the captain yesterday in an apparent attempt to crash the plane had undergone radical Islamist indoctrination. Benjamin Netanyahu made the allegation in an interview today with Fox News. Israeli officials have identified the man as an Omani national. Omani authorities have not commented. Tennessee Governor Bill Lee halted the state's final planned execution this year after attempts to put another prisoner to death failed yesterday.

30:11Officials say Krista Pike was still alive after receiving two doses of a lethal drug. She was taken to a hospital in an ambulance. Governor Lee said he ordered a third-party review to determine what went wrong. And New York City's Click to Cancel portal opened today. It allows residents to report businesses that make it difficult to cancel unwanted subscriptions. The city's Department of Consumer and Worker Protection will enforce the rule with penalties starting at$525. It comes after a federal appeals court last year struck down a similar nationwide rule on procedural grounds. Sarah, that's your news this hour.

30:44Something's back to you. OK, thank you, Brandon. After this, Micron dipping on results near session lows right now after a 275 percent rally this year. Not bad. Much more on the AI memory chip poster child when we come right back. Not only do we have more customers and customers wanting to do long term supply agreements with us, but customers are also even the customers where we have already strategic customer agreements in place. They are bringing upsides to us for demand. In fact, we cannot fulfill the demand of our customers. Customers are extending these agreements. Even now, into 2031 timeframe, we did extensions as well as we did new agreements going into the 2031 timeframe.

31:28This gives us tremendous visibility, certainty of demand, and that helps us plan our investments in manufacturing capacity with confidence. Mike Ryan, Sanjay Marotra talking to us last hour on customer demand. The tech giant did report a blowout for Q. The stock lowered this morning despite that strong showing. Let's bring in Ben Reitz, head of tech research at Melius, has a buy with a$2 ,200 target. There have been a lot of raises on the street today, but somewhere to$1 ,250,$1 ,200. I assume you're the street high? No, it's a moving target. But, you know, we do think the stock doubles and over a reasonable time frame.

32:08We have two year targets, but wouldn't be shocked if it was even sooner. We liked what we saw from from Micron. We're used to some knee jerk reactions to the downside, probably just a reaction to the gross margin being guided down sequentially or a little below the street. And then I think the stock firms up as we go throughout the quarter. What incremental did you hear yesterday, if anything? I thought the incremental tone around 2028 was very good. They hadn't previously talked about 28. And there's a view that the ring in the bell just but the the there's a view that 2028 was going to have all these capacity additions that made the story kind of roll over.

32:48And then they basically are saying to you, yes, we know about all the capacity and we're not rolling over. And it's even tighter than 2026. And they even gave margin commentary all throughout next year without margins imploding whatsoever. In fact, going up after one queue. And that's probably continuing into 28. So it's all going to result in a buyback of epic proportions. Epic proportions. The buyback that those guys in Sandus can do in 27, 28 is something Jensen can't even do. On a percentage of the market cap? It's a percentage of the market cap. It's over 10 % a year. It might be 15 % a year.

33:28Easy. Yeah. I mean, what's been remarkable over the last three months or so is, you know, since you saw that real huge crescendo of buying in the semis as a group, Morgan Stanley has this work that the companies within semis that have the best upward earnings revisions have actually underperformed. underperformed. So the market just has this persistent unwillingness to give these companies credit for anything beyond the next few quarters. I wonder how that changes. Well, look, I mean, there are some hyperscalers and others seeing upside of their cloud revenues right now. Some of the AI stuff has, you know, we've been on AI eating software, but it hasn't eaten cyber and a few names have been able to.

34:06So the market's sorting that all out. I mean, we're making a long-term bet on semis. They can't go up every day. I thought they could in the first half, but apparently in the third quarter, I learned they don't. But I do think that if you look at a micron chart and you see the absolute massive step function when everybody recognized how important memory was going to be, how the demand was going to be structurally different, isn't it at least conceivable that we could have some other kind of shock about how this whole build out is going to go and maybe we overestimated the need for memory? I know you don't think that's likely but I just think inherently when the market gets so destabilized by this company that we thought was one thing is a radically different thing well there's a war going on there's people that have memory of memory of old where it was a commodity and whatnot and then there's guys like me who go wait let's try to take a fresh look at this if memory was invented in 2023 it's basically an AI chip on every tier and the more memory you use the better AI gets and more power efficient it is.

35:10And Sanjay said, or Manish, the COO last night in the callback where I asked a question, said when Sanjay was with the president, a lot of, like, all the execs acknowledged we need to have more memory in our devices so that we can fight cyber. We can fight bad AI. And that was, like, I didn't see anybody pick that up. And so, look, it's down today. Can't go up every day. But the thing, Mike, that's going to change is nobody's ever had buybacks like this. Like, people don't know what to do. Like, I'm supposed to sell it when it looks like it's at four or five times earnings. But we've never seen a buyback like this.

35:48It's new territory and the duration of the cycle. And I think we'll be OK. Is the stock expensive? I mean, it depends if you, I mean, what you think. I think it's trading at five times earnings. and then they're going to buy back massive amounts at this pace. And I think the cycle is going to get extended and we absorb a lot of the capacity of rate fears. I think it's cheap. I think it's cheap. And I think, look, the stock doesn't remember where it is. The stock just has to, we just have to try to figure out where it's going. You know, it doesn't remember where it was in the 80s, 90s and 2000s and that kind of thing.

36:29And things have changed. So I'm pretty upbeat, but realize that people got to digest it. Clients remember where it was. And a year ago, it was 60 bucks. So what do you tell people who are like, Ben, I'm sitting on this huge... What's wrong with ringing the register? No, it's OK. I mean, look, it's OK. You might want to get into something else. Also, look, it's at over a trillion in market cap. So it's not as easy to buy as it used to be. So the buyback is going to play a much bigger role for these larger companies that are over a trillion. That's why a lot of the hyperskillers in the MyX7, even though some things get better, the stocks kind of died out because they don't buy back stock anymore.

37:04You need that help when you get that big. And these guys are going to actually have the soldiers marching in on December 9th with a massive buyback. Not to nitpick, but I think you mentioned margins as a positive. There is a little there's some in the notes this morning that are saying that that was actually some of the pushback on the print, the gross margin being down quarter over quarters. I guess that was compensation related. Yeah, I mean, look, it wasn't compensation related that you have a company that's being generous to the employees investing in communities. Not a reason to knock it.

37:36Listen, that's a pretty good reason. Yeah. Also, like, what do people, this is the thing, is like the traditional semis investing is gross margins don't go up, stock goes down, done. But we've, like I said, never had AI before, never had a cycle like this before, never had buybacks that we're going to see before. and that's our bet. But memory, memory is, every tier is in short supply and we haven't even had robotics yet. So how high do margins get in what, 27? I think like, Sarah, so the stock trades as if margins are going to tank back into the 60s. So there's the HBM, which is a trade, you know, a trade versus DRAM, how many wafers you put here versus there.

38:25HBM margins are actually going up a lot. So margins might be able to stay in the mid to high 80s much longer than people think. That should be enough for the stock when the buyback gets going. Yeah, we tried to get him on the buyback. He said, stay tuned. I think is how we put it. Yeah. I mean, look, that's a lot of stock he's going to be buying for those last 21 days of this month. I mean, it's not as many trading days as 21. Ben, really fascinating story. Wow. Thanks for coming in, as always. Thanks for having me. Appreciate it. When we come back, Nike betting big on Caitlin Clark with the launch of a signature shoe later today.

39:00Will it be enough to turn around the stock? Plus, details on what's moving oil prices higher this morning when Squawk on the Street comes right back. Some big defense stocks have been slumping lately, including one that hit a new 52-week low yesterday. But could the sell-off be setting up a major comeback? One expert has his eye on three names he says could have at least 30 percent upside going forward. Tune in to our Market Navigator segment today on Power Lunch at 2 p.m. Eastern. Welcome back. The WNBA setting a new ratings record in game one of the series between Caitlin Clark, Indiana Fever and the Las Vegas Aces.

39:33It's ahead of a big shoe launch for Clark and Nike today and ahead of Nike earnings after the bell. Alex Sherman joins us here at Post 9. I don't talk a lot about women's basketball shoes, but there have been some good successes in this field, like Sabrina Ionescu. Yeah, and I mean, I would think this might be the biggest one of all. This has been in the works for several years now, with at least the conceptual idea of a Caitlin Clark signature shoe. Now we know it's with Nike, and it's coming out on October 1st, which is today. And that coincides with potentially the highest-rated WNBA game of all time, which is tonight, airing on CNBC, by the way.

40:14Look at that. Between the Indiana Fever and the Las Vegas Aces. This is game three. This is an elimination game, round one playoff series. As you mentioned in the intro there, game one was one of the highest rated games of all time in the WNBA. We don't know the ratings quite yet for game two, but one can imagine that this may be the highest rated WNBA game of all time on the same day that these Caitlin Clark Ones are coming out. There hasn't really been a big rollout for Nike around this. I don't know if that's a marketing mistake or if that's just kind of the way Nike does these things, where they kind of expect word of mouth to generate sales here.

40:51But look, you're dealing with a generational basketball star, and that is as bread and butter as Nike can get when it comes to selling shoes. By the way, it's more than just shoes. There's a whole apparel line that's rolling out here for Caitlin Clark with Nike. How has the WNBA been doing? because it was on a roll in part because of Kaitlin Clark, but then there's drama about how they were handling Kaitlin Clark. Is there still a lot of momentum here? Yeah, I think the drama, if anything, has fueled the ratings. I mean, ratings for the regular season were up 17 % this year. There were 51 games during the season that had an audience of a million or higher.

41:26That's up from 29 a year ago. And it's not just Kaitlin Clark. You're starting to see real stars emerge beyond her. Certainly, Kaitlin Clark is still the driving force. If you take a look at the highest-rated games for the regular season, it's Indiana Fever, Indiana Fever, Indiana Fever. It's over and over again. So there's no doubt that she's the most compelling star in the league in terms of viewership. But there's also no doubt that if you look at some of the non-Fever games, those ratings are up, too. Does she have the sort of deal with Nike that's like its own franchise, the sort of Jordan LeBron type of thing?

42:02in other words long term she's going to participate in this brand forever that's the idea certainly um i mean she could have gone anywhere and she chose nike and i think the reason that she chose nike is that she wants a long-term relationship to develop here uh i think you know we'll see in terms of the sales results if this actually comes together look there's no way that nike could have predicted that the day of the rollout of these shoes would also be the day that you would conceivably have the highest rated wmba possible featuring caitlin clark But these things have come together in a very nice way.

42:34And I'm sure Nike is silently rooting for Caitlin Clark to advance here so that they can push the merchandise line. You know, they always start their earnings calls with like a long list of some of the releases and some of the sports highlights for some of their athletes. It feels like something they'll include in that in that tonight. Right. But ultimately, I think people are still wondering, like, why Nike let go of Kylian Mbappe and questions about the strategy on how they're going to get back to growth and have cool shoes that people line up for again. Yeah, right. So that's that's the other coinciding event today, as you said in the intro, that Nike has earnings today.

43:09So that also fits into this interesting amalgamation of events. Yeah. Well, we'll listen for for all the color on the call. Alex, thank you. Thank you. And watch the game on CNBC. Are you your courtside, I assume? No, I mean, you need to fly me out there quickly. You went to Australia. Why not? Well, right, exactly. It's a lot shorter trip than that. All right. Alex, thanks again. Up next, some big volume in the options market when it comes to the software trade today. We'll tell you what direction traders are betting the sector is headed when we come back. Welcome back. Options traders making some big bets on software today.

43:41Let's get to Oliver Rennick at CBO in Chicago, who has more. Morning, Oliver. Good morning, Carl. Lots of unusual options activity in the software sector as the IGV ETF jumps 1.5%. Stocks like ServiceNow and Intuit are rallying alongside some sizable call buying. First in IGV, there was a string of put selling out of the gate with about three-quarters of a million dollars worth of put premiums sold. Namely, in the 102 strike put expiring in mid-December, a bet the group will hold or rally. Then in ServiceNow, someone bet more than$300 ,000 buying in-the-money 131 strike calls expiring tomorrow, kicking off a wave of bullish call buying that's up to about$5 million in premium in total in ServiceNow.

44:29But the most notable action is in Intuit. It's a stock that's been under immense pressure the past year, down more than 60 % from highs. options volumes more than two and a half times the 30-day average there with more than three times as many calls bought as puts and twice as many calls bought versus sold. The biggest money there was someone buying 265 and 270 strike in the money calls expiring October 16th. Expensive contracts that are going to need a move towards 290 in Intuit to be profitable by expert guys. Oliver, appreciate that. It is a busy day. That's Oliver Renick at SIBO. Mike, before you go, I do want to get you on this soft market to start the quarter.

45:10Also, the VIX above 17 for the first time in almost two weeks. VIX is noticing things. It's been sort of following fixed income volatility to some degree. And it's a real familiar story. New highs in yields, really lousy breath underneath the market. And the question is, are we just getting to some kind of a break point where the underlying S &P 500 can't withstand that anymore? We don't know if there is that break point. But I think that's in some folks' heads at this point. The other thing you have to ask with 5.3 % on tens, that was an upside target. Technical folks were looking at for weeks right now.

45:41So maybe if we don't see buyers come in there, does it mean that there's a little more stress in the market? We're also not seeing Micron be like a bellwether for the entire tech trade because information technology in the market is up. Yeah. Microsoft. I mean, Micron, I'm saying. I know, but Microsoft is leading. Mike, thanks. 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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