10AM Hour: Stocks Sink as Oil Spikes, Risks for the AI Boom, Qualcomm Inks Data Center Deal with Amazon 9/8/26

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1:05Good Tuesday morning. Welcome to Squawk on the Street. I'm Sarah Eisen with Carl Quintanilla. We are live at Post 9 of the New York Stock Exchange. David Faber's on assignment. Stocks are under some pressure here to start the week. Holiday shortened trading week as oil prices jump. We'll talk to former Defense Secretary Mark Esper about the latest escalation in the Middle East. Plus, Rockefeller's Roushear Sharma has a warning about the one factor he says could derail the AI boom. He's going to join us to discuss. And we'll get to the news sending Qualcomm shares higher this morning, though well off its best levels.

1:35So the big week ahead, Carl, will be defined, I think, by inflation data when it comes to major event catalysts for the economy, the bond market, the stock market. We've got CPI report coming at the end of the week. And then the PPI report is before it. That's the wholesale inflation report. Why is it so important? Well, Fed's in blackout period. They're not going to be talking this week ahead of their September 16th meeting, which a lot of people think is still a toss up about whether they'll raise rates. Bond markets now pricing in about a 60 percent chance after that hawkish Jackson Hole speech by the Fed chairman that they will raise interest rates.

2:10But let's see what happens with consumer prices. We have some hints right in the surveys, the gas prices. The big headline over the weekend is that gas prices were$4.15 a gallon on Labor Day, busy travel day for America. And that is actually a record high for Labor Day. We have not actually seen gas prices go above$4 a gallon on a Labor Day before. So that's some sticker shock and a psychological impact there. However, you know, I was going through a lot of the charts this morning and some of the data and the research, And the theme of it has been market and economic resilience to higher oil prices, to geopolitical shocks.

2:54I mean, look, that's not new. But there are some interesting charts put out about that fact. Goldman Sachs, for instance, took a look at the inventories, the landed inventories. So that's inventories not just at sea, but inventories at land. And they actually say that it's not all that bad. In fact, you know, there's a lot here. But what you need to know ultimately is that we're well above the levels that would be a minimum operational storage level. That would be about 4.2 billion. Would they say we're a global landed oil stocks basically have come down from 9.1 billion before the war to 8.6 billion barrels now.

3:35So that's good. It's still above that minimum, basically, operational threshold. That's one good sign. And I'll just pair that, Carl, with what the Bank of America chart that showed. A lot of the oil is now being shipped from UAE. They've ramped it up from Saudi, which is why we're concerned about some of these reports around the Houthis attacking the Saudis. But basically, they look at some of the alternatives and show that, you know, as those exports have ramped out, 60 percent were at basically the rising hormone crude flows coupled with redirections covered up to 60 percent of pre-war crude flows in July.

4:10although these numbers have come down since and we'll see what they look at now. But it's not like, I mean, we have this partial shutdown, right, with Hormuz, where still not a lot of oil is flowing from there. But important to remember there's alternatives out there. And so maybe this all explains some of the resilience in the market. Yeah, I mean, Goldman, B of A, UBS all raised their Brent forecast for year-end today. And we know it's not about crude. It's about distillates. It's about diesel. We're probably going to hit$7. Actually, we have hit seven in some areas out west. Gas buddy today says we might get, I mean, if it continues at this pace, some of these pumps are not designed to give you the price that you might actually have to pay if this does not get better.

4:51Yeah, I mean, and then Brent, you know, marches toward 100. So, of course, you know, this is inflationary. And the question is, should the Fed respond to a supply, inflationary supply shock, especially at a time where the economy depends? I know it's psychological and it matters for things like surveys and elections. and consumer confidence, but where the economy is less dependent on oil prices right now, or, you know, as the administration has been saying, is it going to reverse really quickly once they make some deal? Right. Hard to know. Goldman, though, today says their view on core for Friday is 2-4, and they think the shelter disinflation is going to continue.

5:29That's going to give us some relief from maybe if airfares go up 4, for example. Yeah, I think there's mixed reads. You know, a lot of people were looking at ISM prices paid, which was a little firm. And people were looking at the NFIB, the small business report, also showing, you know, rising prices through. So we'll see. I think that the biggest question is the swing voters on the Fed. We already know there are three dissents in favor of Fed hikes. And I think Warsh, you know, with his hawkish commentary, nobody knows quite how to read that. But it does feel like a lot of the commentary from Fed members leading up into this week has been more accepting of a hike.

6:05And if it doesn't come in September, maybe it'll come in October, December. I mean, Waller, notwithstanding last week. Two more meetings, I guess, before the next one, until the end of the year. For more on the market, let's bring in Evercore ISI chief equity derivatives and quantitative strategist Julian Emanuel is here at Post9. He's been listening in politely. Good to have you, Julian. Welcome back. Always great to be here. When Sarah mentions resilience, you kind of nodded your head, yes? Unbelievable. Look, and this has been the tug of war. This bull market's going to be four years old in about a month.

6:37And it has been an earnings-driven bull market. And obviously, we saw this to an extent really unprecedented the last several quarters. But there have been these times where you've had macro headwinds. You know, go back to March. The market sold off because of the conflict with the round. You go back to April of 25, the tariff wars. You go back to actually late 2024, the yen carry trade unwind. So when we think about September right now, you actually have elements of all of those, plus the Fed uncertainty, plus the midterm uncertainty. But again, the bigger picture is that might disturb the force in the near term.

7:22but the earnings trajectory remains intact for the longer term. People keep saying, oh, best revisions trend since 22. And we know what happened in 22. Why won't that get repeated this time? Well, yeah, we do know what happened in 2022. And 2022 was also the last midterm year. And that was a very volatile cycle as well. I think the biggest thing there is even if the Fed does hike next week, And to be clear, our house call is that it's a coin flip, but they're not likely to hike next week. But even if they do, this is going to be a very reluctant cycle, unlike the hiking cycle of 2022, which was really an earnestly driven cycle, or the hiking cycle in 1999 that stopped the tech rally that people are drawing comparisons to, 175 basis points in six months.

8:19That's not what this is. So when you say a reluctant cycle, what do you mean? Like a hike and done? One and done is hopefully the market will not latch on to that mean because that is highly unlikely. OK, but reluctant meaning considered. Watch the data. The market will end up probably pricing between two and three more hikes over the next year. That seems reasonable. But again, making the point that you're at this sort of inflection where the data is actually starting to improve elements of it. If the macro calms down, obviously, close to$95 oil this morning on the screen is certainly a concern, which has been driving yields higher.

9:06But then there's the promise of AI productivity kicking in the handoff from what has been, you know, an earnings driven pandemic rationalization of profit margins in corporate America. And we think that's going to happen. It's just that this transition period is tricky. Sector favorites at this point right now? We're not getting off the AI trade. We are absolutely not getting off. So you're not doing like adopter theses? I mean, well, so so and again, look, you've seen it in places like industrials where multiples have expanded. You've certainly seen it in financials, which have had to be the strongest adopters that have had a very good run, certainly partly interest rate driven and capital markets driven.

9:55And we think the capital market story is going to be robust this fall. But for us, it comes down to when you look at these broad structural bull markets, particularly technology driven, that the sectors and the themes and the stocks that caused it to begin end up leading right till the very end. And for us, that's infotech primarily. Well, since we're since we're in September and we're back after Labor Day, we can start talking about the midterms. Is that is that a policy risk? Is that a market risk? It's definitely a policy and market risk. You know, first off, Sarah Bianchi and our D.C. team basically came out very ahead of the curve in being the first of the post and saying the Senate is a toss up.

10:40And that alone injects an element of volatility. And then, again, you go back, whether it's the 22 or the 2018 cycle. I mean, think about the 2018 cycle. You had Fed wars. You had trade wars. You had midterm uncertainty that resulted in a change of control. Uncertainty, yes. But what's the worst case scenario here for the market on the midterms? So the long term work actually disproves the notion that divided government outperforms unified government. And think about the last couple of years. That makes sense. It varies over the course. I thought gridlock was good. So if you think about it, right, when you have gridlock, you tend not to get things done.

11:30It's rare. And obviously, in this environment, that will be a bit tricky. In our mind, if the market has a knee-jerk reaction to Democratic control of the Congress, whether one or both parts of the Congress, that will likely be a buying opportunity. Because, again, does that impact the trajectory of earnings? We don't think it does. Well, Sarah's done also great work on data center moratoriums and what that might look like post midterm. Maybe we can talk about that next time. A lot there. Good to have you in. Thanks, as always, Juliana. Yeah, but I feel like it's a risk for the AI trade, you know, as it gains political momentum.

12:11All right, here's our roadmap for the rest of the hour. When we come back, former Defense Secretary Mark Esper with us to talk about the latest escalation in the war with Iran as Brent Crude trades near$100 a barrel. Qualcomm striking this deal to do data center infrastructure with Amazon. Shares are popping almost 11 % at the open. We've got details ahead. And rising bond yields could derail the AI boom, according to one market expert. We'll hear about the key level to watch on the 10-year. Squawk on the Street, we'll be right back after a quick break.

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14:28Welcome back. Canada's retaliatory tariffs going into effect today as the trade war heats up. Megan Casella has more on the impacted items. Megan. Sarah, that's right. Retaliatory tariffs against roughly$20 billion worth of U.S. exports are now in effect. The duties range from 15 to 50 percent. Here you can see a number of the goods being affected. Steel and aluminum tariffs doubling to 50 percent. Clothing, plywood, cosmetics all up there. Appliances, cheese and seafood all get the 25 percent tariffs. Air conditioners at 15 percent. Now, this is Canada's response to the recent trade negotiations falling apart last month, and it escalates the tit for tat going on between these two countries.

15:06The question now is how the Trump administration plans to respond. The president has already threatened to double tariffs on cars and car parts. From Canada to 50 percent, he says, effective January 1st. And then just yesterday, he issued a new round of threats against the Canadian aircraft maker Bombardier. He wrote on Truth Social, no more selling Bombardier in the United States. Their products aren't good enough. They live off American buyers, American companies, American airports and American service, all while Canada blocks our great American banks and companies. Now, that would be a big blow, guys, for Bombardier.

15:38The U.S. is by far its most important market. but it's not clear what authority the president has or would use to make it happen. He also might simply be asking Americans to boycott the company. The White House has not responded to my questions, though, to that effect. But what it does suggest is that the president is continuing to look for ways to punish Canadian companies and the Canadian economy. And with no formal trade talks planned, we can expect this sort of threat to just keep coming. Guys? So are there talks happening or plans of talks happening, or is this just at a total stalemate and both sides are talking smack?

16:13Both sides talking smack. We saw a lot of that over the weekend from the president on his true social account, posting a lot of memes, you know, putting the American flag over Canada, portraying him and Mark Carney in a hockey fight wearing hockey jerseys, it looked like. So a lot of that, we're seeing Canada respond in kind to some of that. And there really are no formal trade talks planned between these two sides. At one point, Canadian officials were saying they didn't expect any of those to happen until after the midterms. Really a holding pattern here. And we all expect the next step to be the U.S.

16:40going further. It's just not clear exactly when that will happen or what that retaliation will be. I just keep thinking of the Treasury Secretary Scott Besson saying can't be in a trade war when you're, I don't know, 12 times larger. So much bigger. Right. So much bigger. Thank you, Megan. Keep us posted, Megan Casella. Meantime, oil prices are rising after escalations in the Middle East, including a new wave of strikes on Saudi energy sites by the Houthis. On Saturday, the U.S. struck three Iranian oil tankers in response to Iran's attack on two Navy warships. Let's bring in Mark Esper, former Secretary of Defense and former Secretary of the Army.

17:16All this is happening, Secretary Esper, as the U.S. has put maximum economic pressure on Iran. So where do we stand, do you think, at this point? Well, good morning, Sarah. I think overall, look, we're in a strategic standoff. Neither side wants to escalate hostilities and neither side wants to yield. And so we are in this situation. I think the Trump administration has adopted the right approach, although a strategy of economic strangulation, as I said before, is really the least worst strategy. But nonetheless, it's having an impact. We know the real is down. We know that inflation is up. Unemployment is very high and the Iranians are feeling the pressure.

17:55So it's going to take a long time, a lot of patience, a lot of discipline to let this take effect. And I think our best hope is that we get them back to the negotiating table in a serious way. Yeah, I mean, does that happen? Obviously, the Iranian regime can take a lot of pain, especially if they don't care about their people. Yeah, no, that's right. That's why I call it the least worst strategy. There's no guarantee that it'll work, but it's better than putting troops on the ground. And it's better than surrendering the Strait of Hormuz to the Iranians. And they can also upset the strategy by, for example, shooting missiles at the Arab capitals to put pressure on Washington.

18:32But like I said, I think where we are right now, this is the least worst strategy going forward for the United States. What about this attack, Saudi Arabia, which has now confirmed the Houthi attack targeting multiple facilities, oil facilities? Where does that, how much potential disruption can the Houthis cause? We've seen this movie before, and that is a problem, especially I just showed a chart showing that Saudi and UAE have made up so much of the oil flows that have been blocked from Strait of Hormuz. Yeah, look, I think that's actually I think that's Iranian generated putting pressure on the on the Saudis.

19:08As I said, I've said in the past, they'll use their proxies in this way because there is oil getting out of the Gulf, either overland, actually through trucks in Syria, through Syria, through the pipelines. And so while that takes economic pressure and thus political pressure off the West, the fact that no Iranian exports have made it out, have made it to market, is putting increasing pressure on Iran. So they're going to have to find a way forward because the vice keeps tightening on them as the crude that they've already exported starts running dry and hits its markets. So it sounds like you think they really could reach a point of maximum pressure.

19:43What do you think they would do, act out or give in? Look, I think who has the upper hand? Right now we know that the IRGC, the Revolutionary Guard Corps, has the upper hand. I think they're more inclined to act out. The other side of the Iranian team in Tehran, President Pazeshkian, wants to see economic relief. So I think you'll increasingly see reports coming out from the press about these two parties discussing the way ahead. And it's hard to predict right now which one will move forward. Maybe both. Maybe they lash out and try to get back to the negotiating table at the same time. Meantime, we had Witkoff and Kushner in Moscow.

20:21And then hours later, bombs raining on Kiev. I just wonder the the conflagration of Ukraine and Hormuz. What do you think the total aggregate impact is on some of these, at least distillates? Well, look, from your perspective with the oil markets, it's problematic because we see less supply on the market, right? Because of Ukrainian long-range attacks against Russian refineries, Russian supply depots, et cetera, et cetera. And at the same time, of course, the United States continues to want to properly put pressure on our European allies as well to stop buying Russian oil. So I think from a market perspective, that still exists out there.

21:00I think politically, Putin is not yet prepared to give in, despite the fact that he's losing, what, maybe 20 ,000, 30 ,000 soldiers a month. His economy continues to slowly crater, and there's some political pressure building up. But I don't think we're at the point yet now where either side's going to, or at least the Russian side, is going to come to the table. Right. Do you make much of this German dispute with Russia about the airport and Leipzig? And do you think that complicates things very much? I think it's real. I think it paints a picture for all of us. We need to be concerned about increasing Russian hybrid warfare.

21:36But I don't think it fundamentally changes any dynamics right now. So finally, just bringing it back to Iran, Mark, very focused on this right now. When you say ultimately, you know, that the Trump administration is doing the right thing to bring them to the table to make a deal, what does a deal even look like at this point? And what are we talking, weeks, months? What's your best guess? Certainly months. I don't see any end here for the foreseeable future. I think this rolls into 2027. I think at one point, let's get back to the one word that we haven't uttered in months, and that is nuclear.

22:07At the end of the day, this all began because we wanted a really strong nuclear deal that was much better than the JCPOA under the Obama team. And we haven't had any discussion about that. So I go back to where I've said previously, we have to get back to the status quo ante with the Strait of Hormuz, which means a free and open lane of commerce. And secondly, I think the president needs to get a deal on the nuclear plan that is tougher than what Obama had. At this point in time, though, look, the way the Iranians are dug in, you could see the president just sitting tight on this strategy for two more years and handing it off to the next team in 2028, or I should say 2029.

22:43I mean, Brent's near$100 a barrel. True, and the price is up above$4 to pump, but the economy, American economy, is holding pretty strong and steady. And Americans, you know, aren't crying too loud. We'll see what happens in the midterms. And I guess the question will be is if Republicans learn a lesson from the midterms, if they get beat pretty badly, will they push the president to resolve this conflict before going into 2028? That'll be an issue. Then, of course, we have the other players on the market like China. You know, will they continue to suppress demand? Will they continue to put oil from their strategic stockpile into the Chinese economy?

23:17I mean, there are other factors like that that, of course, will affect prices at the pump. Yeah, I mean, China's not getting the oil from Iran, right? The U.S. is not letting that cross the strait? No, not as much as they used to. But again, they've been able to suppress demand. They have a really rich, deep strategic oil reserve that has proved central planning for them in a way that we maybe hadn't anticipated. And, of course, we still see leakage coming out of the Gulf through, as I said earlier, the Red Sea, Syria. We see the pipelines coming through UAE and Oman. So there's some leakage there as well that's kind of taking the heat off of Western economies.

23:56OK, Mark Esper, thank you for joining us. Fully appreciate having you, especially on a day like today. When we come back this morning, Qualcomm higher on a new data center collaboration with Amazon. We'll get some details after the break. Later on, Rockefeller's Rishir Sharma with a warning about a key level on the 10-year that he says could spell trouble for the AI trade. When we're back in a minute. Ever notice how every new AI tool asks you to explain your business to it all over again? Google Workspace with Gemini skips that. You get Google's AI built right into the premium versions of Gmail, Docs, Sheets, and more.

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25:48Welcome back. Qualcomm near the top of the market this morning after announcing a deal with Amazon. Christina Parts and Evelis has the details. Morning, Christina. Good morning, Sarah. Well, Qualcomm shares initially were up about 8%, coming down a little bit, but this morning up 5%. After the company signed Amazon as a customer for its data center chips, the two are going to work across multiple chip generations. This is according to the press release on custom silicone specifically for AWS built for AI inference, not necessarily trading, plus faster optical links that really just move data between all of those chips.

26:20Qualcomm is essentially selling efficiency, so more compute per watt, which counts for more every month as data centers run short on power. There's a financial element as well to this deal. Qualcomm is giving Amazon a warrant to buy up to 25 million Qualcomm shares. So that's a$4 billion investment. Vesting as Amazon buys, it's tied actually to as much as$60 billion in purchases over time. Time meaning who knows how many years. AMD ran the same playbook with OpenAI last fall and Marvell ran it with Google this summer. It really ties the customer's payoff to how much it buys. It also pushes Qualcomm into ground that Broadcom and Marvell have owned for quite some time.

27:00Those two designed most of the custom chips for the big clouds. Broadcom for Google and Meta, Marvell specifically for Amazon's own Tranium, although moving into Google territory. Now Amazon is actually buying from Qualcomm, too. It is Qualcomm's third big data center deal win in just months after a Meta CPU deal and then a 200 megawatt project with Humane in Saudi Arabia. Qualcomm does want more than$15 billion in data center revenue by 2029. They announced that at their last investor day, up from almost nothing today. A deal this size with AWS is what makes this target look reachable and why you saw the stock just jump almost 8 % earlier on.

27:39One note of caution, though, and this comes with almost every single tech deal lately. Nothing ships specifically to Amazon yet, and the revenue comes over years and multiple chip generations. still for a company that left this market back in 2018, specifically the CPU market landing. AWS is a huge point of validation, guys. Talking with Kramer this morning about sort of the horse race between Marvel, who's with Jim tonight, Qualcomm, Broadcom. They're changing places or first place positions faster than, you know, Chad, Gemini and Claude. I'm looking at Marvel versus Qualcomm year to date. I mean, it's not really a contest.

28:17Precisely, which just shows that as an investor, what do you go for when everybody is announcing these deals? The problem is a lot of these deals don't provide financial targets. They don't provide guidelines. It's just a lot of listing it out. Broadcom, I would point to Hawk 10, the fact that he's a little bit more conservative in his deals. You see the 8Ks, you see the actual SEC filings, which adds more, I guess, credence to their story. But overall, look at the difference just on your screen. You point to that 170 % for Marvell. And that's because the market didn't expect it. And for Qualcomm, it could be the same situation.

28:55The fact that they're announcing AWS, it's a huge win. They announced Meta. They have a big Chinese partner, which we could assume is ByteDance, too. So there is opportunity, too, for Qualcomm to really tap into this market once we actually see that chip shipped to said hyperscalers. Yeah. Yeah. I mean, it was it was considered what a smartphone mobile device chip maker until until June when they said, oh, we can do data centers, too. Right. Well, we see it right because the smartphone market and you saw that with Apple, you're seeing it with Huawei, too. You're seeing it just as Samsung in general has not everybody upgrades at the same cycle.

29:31People are spending more money now for businesses, data centers. The margins are higher, too. So for a company like Qualcomm, it's time to migrate to something with higher margins and maybe more longevity. And so that's exactly what they've been doing. Diversifying away is the key word that they used at their last investor day. Yeah, really fascinating horse race right now among some of those custom silicon guys. Thank you, KP, Christina Parts of Nevolos. Let's get a news update with Brandon Gomez. Morning, Brandon. Hey, good morning, Carl. Russia carried out new attacks in Kiev early this morning following a brief pause in hostilities as U.S.

30:04negotiators traveled in the region in an attempt to end the nearly five-year war. Ukrainian President Vladimir Zelensky said today U.S. Envoy Steve Witkoff and President Trump's son-in-law Jared Kushner presented several, quote, decent ideas during the weekend talks in Moscow and Kiev on how to end the war. New York Mayor Zoran Mamdani announced the creation this morning of a public portal containing thousands of documents about the city's response to the 9-11 terror attacks and toxic air around Ground Zero. He says the documents show what the city knew about the toxic air and how officials acted to limit liability.

30:38The 25th anniversary of the attacks is on Friday. And the blue sculpture removed from the Kennedy Center last week is getting a new home. According to The New York Times, the work of art was purchased by billionaire philanthropist David Rubenstein and will be relocated to the National Galleries of Arts Sculpture Gallery. Rubenstein was one of 18 Kennedy Center board members ousted by President Trump in 2025. Sarah, send things back to you. OK, Brandon, thank you. Still to come, it's one of the biggest tech and telecom events of the year. Goldman Sachs' Communicopia conference kicks off today. We're going to talk to one of the firm's top analysts about what to expect.

31:15And speaking of conferences, it's the season. Tomorrow, we'll be live from Wells Fargo's health care conference in Boston, where I'll be sitting down with the CEO of Wells Fargo, Charlie Sharpe, the CEO of Biogen, as well. That all begins tomorrow, 10 a.m. Eastern. Stay with us.

31:37Dow under some pressure here, down about 650 points right now, kicking off the week in the red. We have higher oil prices. We have higher Treasury yields. At least the two-year, the 10-year are sharply higher. Look, we'll get more inflation data later in the week with wholesale inflation on Thursday. Friday, the consumer price inflation report. And the focus remains on the tensions in Iran, which are only going in one direction, which is escalation right now. And word that the Houthis, an Iranian proxy terrorist group, is firing at Saudi energy infrastructure. None of that helps. And that's why you're seeing the pressure on stocks and rising oil prices.

32:15Look at what's green. Chevron, of course, benefits from higher oil prices. And then a few of the staples, like a Coca-Cola and a McDonald's, Carl. Meantime, Goldman Sachs Communicopia Conference kicks off today. Our David Faber has a number of guests joining him from the conference later on in the week, including Visa's chief, Ryan McInerney, and Airbnb's chief, Brian Jeske. Joining us to talk about what to expect from the conference is the business unit leader of the TMT Group at Goldman Sachs Research. Of course, that's Eric Sheridan. Eric, great to have you with us. Good morning. Morning, Carl.

32:46Thanks for having me on. We're excited to have people out here in San Francisco this week. We're going to have 3 ,000 attendees and over 260 companies, and it's exciting to bring everyone together to talk about the forefront of all these themes and technology. Yes. No, it's always a big deal. Talk about which themes, though. Is this about sort of spending trajectories, you think, mostly, or the balance between investments and margins, something else? I think there's a couple of key themes. AI is obviously going to be the dominant theme, and I think that will take a couple of different flavors.

33:18the rate of spend going forward into 27 and beyond, the return on that spend. That's something we've talked with you about before in terms of how that return on that capital expenditures evolve in the years ahead. And then the utility around AI, what drives broader adoption of AI across both consumer compute and enterprise compute. All of those we think are going to be the big AI themes of the week. But then away from that, we also think there's going to be pretty big discussions about the health of the consumer, as well as elements of how companies balance investments and growth against margin trajectory going forward.

33:52That's increasingly an important topic for investors who want to decide what sort of multiple to pay for some of these companies, especially as we roll forward valuations into 27 and 28. Right. And we do know that the house view at Goldman for a while has been that the build-out spending trajectory is sustainable. You've been pretty constructive about that. But as we layer on debt and that gets a little more structured, do you start to look for a second derivative on that stuff? We think the CapEx is fairly now well understood through 2027. We're just under$1.4 trillion, to your point, as a house view for capital expenditures among the larger names, broader the AI theme.

34:35We think how that gets funded continues to be a big debate, whether it's through the debt capital markets or the equity capital markets or how much circular nature there is to some of the financing around AI. We think that's going to be a big theme that people are going to talk about this week. But the real output of this is going to be utility. How do people use it on the consumer side? How much of this is subscription driven versus ads and commerce driven? And on the enterprise side, how do we think about token pricing evolving over the long term and what that means for market share, adoption of tokens, growth in tokens.

35:06These are all going to be pretty important themes out here. I mean, also, you have a swath of companies that are, I don't know, digital companies, Airbnb or telecom companies, not native AI companies. And I guess the investors are still trying to figure out who's winners and losers and how these companies are benefiting from AI and whether it's a real game changer. No, I think that's a great point, Sarah. And interesting you mentioned Airbnb because I I think Brian Chesky has put himself out there as someone who wants to make the company AI native. And I think investors have a lot of questions on what that means.

35:38Are we reducing friction? Are we improving conversion? Are we improving the overall shopping experience for customers? So what does AI native mean? Where are these companies going? And how much of this behavior is going to be an evolution of what you do today, opening an app of the brand of a company or starting and ending with an LLM agent? I think the evolution of that remains still an open-ended question. We mentioned Airbnb. David's going to have him, I think, from the conference, as we said, later in the week. I wonder if there are specific corporate examples where you think AI has sort of reached a critical mass in ways that re-rate the stock, for example, which I think we've been arguing has actually happened to Airbnb in the last couple of months.

36:21Yeah, I think there's a couple of things. is the back end and the efficiency piece of the equation. And not to pivot away from Airbnb, but I think you saw that with an announcement from Uber last week where they're letting go 10 % of their workforce. I'll have Dara here at the conference later in the week, and we'll talk through some of those operating efficiencies and how they flow through into growth investments behind areas like AVs. I think Airbnb is an example where they're putting AI at the forefront of the consumer experience. So when you go to the site and you go to the app, you're seeing a better recommendation, a less frictioned experience.

36:54You know, if you stayed in country A, maybe you want to go to country B on your next vacation. And this is areas where AI can improve the monetization side of some of these consumer marketplace businesses, in our view. We mentioned with Jim this morning this piece in The Times over the weekend about open source demand at corporates. They use AT &T as their example, which I think went from 20 % of their AI use in May to now 40 Do they think 60 % in the coming months? Do you think that's material when it comes to the profitability of some of these LLMs, these open AI labs, these labs that are ostensibly coming public soon?

37:32Well, Carl, I think you tapped into a really important theme here. We started 2026 talking about token maxing. And we think coming out of this conference this week, the theme is going to be token optimizing. So we think the world has moved from the fastest and best model for the sake of being the fastest and best model to what model is delivering a price to performance mix that's helping enterprise customers achieve their goals. We would argue that not all tokens are going to be created equal. There's going to be a high end of the ecosystem that's mostly aimed at engineering, talent and product development and pushing the edge of the frontier forward.

38:08And then there's going to be fairly commoditized token usage, things that look very similar to what we do today, like a Google search. And we think there's going to be a spectrum of use cases. There's going to be a wide array of pricing that's tied to the utility of those use cases. And the big open question is, what will the market share look like between open source, open weight and foundational models? That's where we think there's going to be a lot of discussion this week. But, you know, the market's telling you a little bit the opposite. I mean, it was looking like that for a while, Eric.

38:37And then OpenAI unveils this new model that it calls its best yet. And I don't know, have you seen SoftBank stocks since? Oracle StockSense, you know, the OpenAI proxies. Jensen today congratulates them for, you know, AGI. And we are seeing a market response. So it does feel like we're still in the battle of who has the best model. The market still is going to respond to benchmarking and model performance. But I think the most interesting thing about something like Astra is its price relative to other models is super compelling. Its functionality relative to other models is also super compelling.

39:12So stay very focused on what these models can do and how they change computing trends. And if they can do it with an efficient price narrative alongside of it, that's where you could see some share taking in the broader ecosystem. Eric, really interesting. It's always a big deal, but we're glad to be on it this week. We look forward to news coming out of the conference all week long. Thanks so much. Thanks for having me on. Eric Sheridan over at Goldman. When we come back, Rockefeller's Roushir Sharma with a warning about a key level on the tenure yield. that could pop the AI bubble, he says. That's next.

39:50Welcome back. Our next guest is out with a new Financial Times op-ed titled Why America's Debt Binge is Starting to Matter. Warning, we could see the AI bubble pop if the 10-year yield decisively breaches 5%. Joining us now is Rockefeller Capital Chairman Rushir Sharma. It's kind of a downer, Rushir. What are you concerned about specifically? No, Sarah, I think that if you look at every single big boom or, you know, which morphs into a bubble over the last 300 years, there's only one factor which ends it. And that is when you end up getting higher interest rates. So I think that that's what I'm saying about the AI boom as well now, which is that this is the biggest boom of our times.

40:32It's an amazing technological breakthrough. But like every big technological breakthrough, this has also now become very boomy and possibly is a full scale financial market bubble. And every bubble burst when you get higher interest rates. This time, the difference is that normally in the modern era of central banking, it's been the central bank which has raised interest rates. And that's what's popped the bubble. That's happened with the housing bubble in 2006, 2007. It happened with the dotcom bubble before in 99, 2000. And the difference this time is that all the excesses have been piled up on the government's balance sheet.

41:07So if the government bond deals reaches 5 percent on the 10 year, that's what I think would be the threshold which breaks this bubble as well. You think that the current Treasury secretary would let that happen? I mean, he has he has shown a willingness to go where others have not before. Tomorrow actually begins those increased buybacks at the long end of the curve to try to calm the market. Yes, exactly. So I think that, you know, he has a very good market sense. He understands the significance of these levels, the technical significance as well, that if you break above 5%, that'll be the first time that the 10-year has traded above that yield in nearly 20 years.

41:47It's like an entirely new regime. And he understands, I think, what the debt servicing costs are, which is the fact that today now, the interest burden that we are paying on the debt we have, on the government debt we have is approaching a trillion dollars, which is more than 3 percent of GDP, the highest of any major country in the world. So he understands that. Now, the issue is that what can he do about it? And I think that's where the debate is raging currently, that he can try and tweak and try and delay that. But if the pressure continues, if the fiscal deficit keeps on piling on at more than 6 percent of GDP, you add some of the other off balance sheet items and what's happening at the state levels and you get to above seven percent of GDP.

42:33It's very hard for him to do much about that. So this is a much bigger problem than he can solve. But I think he recognizes the significance of the 10 year breaking out of its very long term trading range and what implications that has for the broader capital markets. Yeah. I mean, when we talk about bubbles popping, I'm trying to get a better sense as to how it would manifest itself. FT did do a nice chart on triple C spreads, arguing that some of these smaller companies are going to have to roll over debt somehow. And that's going to get more difficult. Would it would it first start happening at smaller sort of riskier borrowers?

43:11Yes, it always starts with the weaker links. So I think that that's how it would happen, that the weaker links are the ones which get caught up in this first. And then obviously it begins to get up the entire curve. But I think that what I'm concerned about is that once we break 5 % of the 10-year, it's really the government's balance sheet which will come more and more into focus because the excesses this time are not on the corporate's balance sheet as much as they're on the government's balance sheet. That's why this is very different from the past cycles, Carl. In the past cycles, it's the corporate sector where the entire leverage got built up.

43:46And then some problems would happen in the corporate sector as the Fed raised interest rates to try and curb inflation. And then the government had the ability to come in and step in and clean out the balance sheets once the troubles happened in the corporate sector. This time, it's entirely built up on the government's balance sheets. The households and corporates are not the big problem now, at least weren't until recently when the big borrowing bin started to fund the AI boom. So my fear is that this AI boom could be short-circuited because the government's borrowing needs this time are just so huge, which was not there in the past cycles.

44:24Well, let's see what the administration announces. A few weeks ago, he told us peak deficit and that they're going to announce some new fiscal measures. Roshir, thank you for joining us with the warning. Appreciate it. Always good to hear from you. Roshir Sharma, Rockefeller International's chairman. Coming up in the next hour, we'll get the latest on that cargo plane that overran the runway in Miami. and some policy implications there for the government, for Amazon, even Boeing. We'll look at SpaceX and what the options market is signaling about momentum in that name, although shares have reversed slightly a bit ahead of a major lockup expiration this week.

44:58Stay with us.

45:05Welcome back. Pivotal today, initiating SpaceX at a buy. Big lockup expiration is coming. The stock has been range-bound pretty much since early August. Let's get to Oliver Rennick at Cibo in Chicago. Look at what the options market is saying about it. Morning, Oliver. Hey, Carl. SpaceX has been stuck in a range for a month, but tension is building in the options trading around the stock. And that analyst this morning came out with a fresh bullish take that the shares will reach$220 as the company addresses a bottleneck in spaceships. SpaceX did trade as high as$225 in the days after its IPO, but the odds it gets back to that level anytime soon are quite low, judging by options pricing.

45:43Implied volatility in the stock has declined substantially as it's traded in this 10-point range, and market makers are currently assigning a roughly 17 % chance SpaceX will touch$2.20 between now and mid-December this year. Stretch that time frame to next December, and the odds get closer to a coin flip. What's interesting is that calls right now are generally notably more expensive than puts in SpaceX options across the board, Arguably a good sign for bulls as another insider lockup period expires this week without apparently much concern. By that same token, that also means if you think SpaceX is a pipe dream, it's about as cheap as it's been to bet against this company.

46:23The morning flows today are pretty evenly split, with bears buying the 139 strike put expiring on Friday and bulls buying the 150 strike call, which looks like the key level currently with the most open interest overall, guys. Watch to see how big the float gets and how much of a weighting it is on the NDX in the coming weeks. Oliver, thank you. Oliver Rennick. Coming up at the top of the hour, some new data on consumer inflation expectations from the New York Fed. We'll get that closely watched number in just a moment. 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.

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