10AM Hour: Tech Stocks Plunge, Chip Stocks Have Worst Day Since March 2020, Arm CEO on Impact of Midterms and Data Center Pushback

0:00Traders don't need a prettier app. They need a better angle. Schwab's think-or-swim trading platforms were built for real traders like you. They have an insane amount of chart studies. I'm talking over 300 studies for virtually any strategy. They also have integrated risk management technology and nearly unlimited customization so you can shape the platform to fit the way you trade. And when you do that, you can analyze trades from angles you won't find anywhere else. Go see what that looks like at schwab.com slash trading. Brooks Brothers, quality tailoring that lasts a lifetime. The 1818 Collection, Italian-crafted suiting for your important occasions.

0:37Explorer Suit Separates, crafted from lightweight wool built for travel and ease. Brooks Brothers, tailored for the moments that matter.

0:53Good Thursday morning. Welcome to Squawk on the Street. I'm Sarah Eisen with Carl Quintanilla and David Faber. We are live, as always, from Post 9 at the New York Stock Exchange. Stocks under some big pressure in early trading following the Dow's best day since April of 2025 as tech gets hit hard and investors game out how changes in Washington will impact this market. We've got two great guests to help sort it out. Mohamed El-Erian from Allianz will join us in just a moment. And Apollo's Torsten Slock will break down the big picture impact on the economy. Also ahead, we'll be joined by the CEOs of three names making big moves in a very busy day of earnings, including the head of fintech company Chime Financial, CEO of Rockwell Automation, the CEO of Coach Parent Tapestry.

1:33And we'll get into these major moves in AI-related names as well, including the chips, as Qualcomm and Armholding see some early declines. But guys, we've got a lot of good economic data today, particularly around jobs and the economy. I'm going to start with the best news, which was the productivity number. This was a wow number. And this helps with all sorts of things like growth and potentially inflation. This measures basically how businesses are doing, how productive they are per hour. And look at the gain we saw, 3.6 percent in Q3. It was a big surprise. The estimate was below 3 percent.

2:09The prior number was 1.4 percent. So a real spurt of productivity in this quarter. As a result, we saw unit labor costs come down. Look, this is the unlock. It's too early to say whether this is all AI related. We know there's a ton of spending on AI. And on the other side of it, we want to see growth and productivity. Hopefully, that's what we're seeing here, that this capital spending boom is actually translating into greater efficiency at a time where input costs have surged. because, you know, companies, they pay for labor. That's their highest cost. If they invest in new technology and allow their workers to become more efficient, then hopefully that can limit inflation.

2:50That can limit the price hikes that they have to pass on to the consumers. Just saying, this is a really good number. Let's hope we continue to get numbers like this on our economy. By the way, it comes amid more evidence that we're not seeing layoffs across the corporate sector. I mean, we got the jobless claims number declining to 189 ,000 last week. We are talking about the lowest numbers of jobless claims since 1969, the four-week moving average ticking down to the lowest number since 1969. So let's see what the hiring data looks like tomorrow. We'll get the big jobs report. But not a lot of concern there when it comes to layoffs.

3:29It's the stair step down, and it's been really, really strong. So I wanted to point out those two, I think, big, very good numbers on the economy today. None of that's having anything to do with the Nasdaq being down 3.3 percent. I knew you wouldn't be impressed. Yeah, no, it's not. Clearly, there are other concerns about AI infrastructure, right, and how many data centers are going to be allowed to be built. And that's part of it, right? The political headwinds running into what could be early signs that this is all working for our economy. Just more evidence. No, and I don't mean to, by the way, your point's an important one because it does go to the key point of a lot of this in terms of the spending, creating the efficiencies around productivity for the future, conceivably that will be brought to bear by building more data centers and more compute.

4:18It's kind of ironic that we're starting to see the gains at a time where the politicians might crack down. We do have a significant reversal today in the NASDAQ after, obviously, what was a strong day yesterday. Yeah, I mean, the people have spoken, right? This has been unpopular to build data centers and, you know, have this overbuild in people's areas. And so we have all these ballot propositions that passed suggesting either bans or temporary bans or more regulation or higher costs or less tax incentives. And all of that, you know, could mean ultimately fewer data centers. We're also starting to get, you know, or a slower pace of build or slower pace.

4:51Yes. Or maybe more in Canada. I don't know. Or maybe more built in places that are Saudi Arabia was suggested yesterday, right, where they're welcoming that kind of investment. Rene Haas, the CEO of Arm, who just joined us, made that reference as well, that there are plenty of places in the rest of the world that conceivably would be. We shall see. Do we want that? I mean, for national security, don't we want that here? You know, well, of course, he brought up the race as well with China. It's just not clear to me how much that really resonates with the American voter at this point. No, clearly not.

5:16I think quite the opposite. We're also starting to get, I was just going to say, David, evidence from companies about how AI is helping their business, making them more productive, how they're finding new use cases. I thought it was really interesting to hear DuPont, for instance, chemical company. We've been implementing some AI tools on the visual management side. So taking what used to be a visual inspection process done by an operator and moving that to a digital tool so that we can reduce our labor costs. I mean, there's the productivity story right there. We got other conference calls here.

5:45Eaton, the team is making pioneering use of drone technology to string the high voltage power lines in a fraction of the time. A combination of these innovations significantly reduces the risk of injury, the number of workers, and the time required for construction. In addition, these innovations are helping mitigate much of the material and labor cost pressure. I mean, that's really the holy grail, right? If it can hold back inflation. It absolutely is. And of course, contrast that with the fact that Eaton stock is down 25 % in the last three months because it is seen as potentially being debilitated by, right, or not as quick a build-out or any other things.

6:19By the way, that started prior to the midterms, that decline in the stock. Henry Schein. ETN we're talking about. How about the dental equipment distributor, right? Wouldn't think it was the most AI-friendly business. But guess what? As we embed AI-enabled capabilities, these capabilities help dental practices by identifying revenue opportunities, automating administrative work, and improving clinical and operational workflows. This is particularly valuable as practices manage labor constraints. I pick all of these out. We pick them out because they're showing the promise of AI in the economy at scale.

6:53You know, look, the stock market is ahead of all this, right? Because the stock market already boomed on this notion that earnings are going to be better and companies are going to be more productive. But it is starting to show. The question is, is it as fast as the market expectations were? And now is there going to be a rethink because of the politics? Certainly, the market's trying to price something in with the NDX down 4 % this morning. Bloom Energy down 15%. We watched Cummins and Caterpillar. AMD's down 12.5%. This after, obviously, was a very strong number for the quarter. We talked to Lisa Sue yesterday, Carl, and you can just see a significant turnaround.

7:33If you are selling into the racks that go into the data center right now in any way or providing the optical or forget just the chips. I mean, so many of the other things are the racks. So you are seeing your stock get hit today. Let's talk some more about the market action as the Nasdaq does get hit hard today in early trade. Chips and memory leading those declines. Joining us here at Post 9 is Mohamed El-Erian, Allianz Chief Economic Advisor. It's great to have you back, Em.

7:57Mohamed El-Erian: Thank you, Paul. Do you think price is telling us something about fundamentals in tech? So I think we're getting a warning, a timely warning not to repeat the mistake of globalization. You know, the let it rip policy leaves lots of people behind. And this is a reminder that we have to do this in a more thoughtful manner. I am completely bullish on the tech sector, on what AI will do to the economy. But I do think that we needed to course correct a little bit how it was being pursued. And it's coming a good time. What I'm less sure about is can the rest of the economy prosper if AI gets a real hit?

8:35Mohamed El-Erian: We are really levied on AI right now. So this notion, the 1 minus X rotate happily elsewhere while you wait for tech to correct, assumes that there'll be no spillover from the market to the economy. That I'm less sure. Pantheon did a chart earlier in the week saying asset prices better stabilize or we'll be talking about labor. And they looked at stocks six months ahead of jobs. Do you think that's, are we starting to have that conversation? We are starting to have this conversation. And we should have this conversation because we tend to ignore the spillover from the market to the economy. The wealth effect has been really important.

9:17Mohamed El-Erian: The AI spending has been really important. And all that has helped the real economy. I mean, the numbers from the real economy, as Sarah said, are really encouraging. Productivity growing much more than expected. The labor market incredibly resilient. These are good numbers. And let's hope that we can continue. But understand, these are good numbers because tech has acted as a shield to deflect all sorts of other things. So, I mean, I know you say we need sensible legislation here. Bernie Sanders, senator, said that he feels vindicated. 43 out of 44 communities voted for a data center moratorium, national data center moratorium now.

9:56What would that mean for the economy if they actually could do something like that?

9:59Mohamed El-Erian: So, Sarah, you shouldn't be surprised. OK, I'm surprised so many people are surprised. I don't know who you talk to. I'm not surprised. I talked to lots of young people, and they were really concerned. And the reason why is because we failed. It's like a company that doesn't explain to middle management and below what massive transformation you're going through. So middle management gets taken out of the comfort zone, and they resist. We don't like being taken out of the comfort zone. We needed to explain this much better. We didn't, and we got the backlash. I'm not surprised. The market seems surprised, and the market seems to be extrapolating this is going to be worse for AI data center investment than we thought.

10:38Everyone knew it was unpopular.

10:40Mohamed El-Erian: So I think the market is overdoing it. It will continue to overdo it for a while. I think fundamentally we're going to get smarter adoption of AI rather than no adoption of AI. And I think that's good because I keep on saying we don't want to repeat the globalization mistake. The globalization theme was a good one, but we didn't pay attention to the distribution effects. and we've got a massive backlash that has derailed globalization. We do not want to derail AI for economic reasons and for national security reasons. Yeah, it's still unclear to me exactly who's going to articulate to the broader population the benefits of AI in an effective way, since it hasn't really seemed to resonate at this point.

11:18President is trying to. Again, it's not clear to me how it's going to be effectively articulated to the general. You referenced the capital markets a little bit, or I feel like you did, because there has been an enormous amount of financing, much of it by some of the most profitable companies in the world. Nonetheless, there's circular financing. There's just, I mean, we talk about it every day. The capital markets are extremely reliant on a lot of the debt that has already been put out there. How worried are you? At what point would you become more concerned?

11:44Mohamed El-Erian: So if we see a real unraveling, I would become concerned. We call it circular financing. I like calling it interdependent financing. That can unwind in a serious manner. You know, if that's not one, it hits the real economy. So, you know, we overdid it. I'm here to say we overdid it because of this let it rip. Everything's going to be fine. And I think it's a timely correction. A few weeks ago, I was on and I said, I really like the differentiation that's starting to happen within tech. That's a good thing, too. Not everybody's going to win in tech. And this is a very important moment in our history.

12:21Mohamed El-Erian: Getting this right is really important for our kids and our grandkids. and we have a timely warning that we were on an unsustainable path. And I think that is actually a good time to have it. So then do Treasury yields come down here if the growth outlook changes on that? I don't think you're going to see any major change in the investment side and therefore the capital market demand. And if we're running 6 % deficits on the government side, we're refinancing that at a higher rate. I suspect we'll stay at around 5 % unless we go into a recession. And it's a great thing that we have capital markets willing to fund this great innovation.

12:57Yeah, we're down to 4.8 right now.

12:59Mohamed El-Erian: We are. This is a safe haven bit going on, and it's understandable. Let me ask you the question. Would you have expected us to go down even more? I was very surprised last week when there was a major correction in the Nasdaq, and we ended up at 491, 492. Do you think it's not quite the same kind of flight to safety trade? We're getting evidence and data now showing that the reliable buyers of U.S. treasuries are less reliable. We saw this. China, Korea, Norway, the Gulf countries, Japan, they are buying less. Why? Because they're IAGA? Some of it, geopolitics, China. Some of it, the domestic needs for funding, the Gulf countries.

13:42Mohamed El-Erian: Some of it is concern about the U.S., Norway. And some of it, as you see in Japan, is the fact that they need to sell securities to intervene in that capital market. So there are all sorts of reasons. But the net is at a time where we're issuing a lot of bonds. There was fewer reliable buyers of our bonds. Yeah. Meantime, Brent's off 20 bucks and the 10 years come off, what, five? Correct. Eight bips. If I had sat here a month and a half ago to tell you oil is going to collapse, we're going to have a major scare in tech, where do you see the 10-year? I doubt you'd see it's still around$490. I doubt you would have said that.

14:20Mohamed El-Erian: I wouldn't have said that. I would have said it slower. Do you think Warsh stops hiking because of all this? I think we get at least one hike. I don't think we get the three hikes that are priced in. I thought the Bank of England today was interesting because the hike was expected. But what wasn't expected was it would be an 8-to-1 vote with one asking for 50 basis. It's supposed to be 6-to-3 with three saying no. And then secondly, the inflation forecast, 4.9 by the second quarter. That is a big number. And thanks for coming in. There's a lot happening this morning. Good to have you, as always.

14:54Thanks for having me. Mohamed El-Erian. All right, here's our roadmap for you for the rest of the hour. Still ahead, Apollo's Torsten Slok will join us with his first take on the midterm results and what he makes of this sharp turn lower, particularly for tech. Plus, financials are holding up fairly well in this sell-off. We're going to talk to the CEO of mobile banking and fintech company Chime. That stock has been moving higher on its results. And we'll talk about some of these major moves for the chips, including what Arms Chief just told us about potential data center headwinds from Washington.

15:22As the 10-year is at 485, and we're keeping an eye on the major indices, Nasdaq down almost 4%.

15:34Legacy credit scores only look at a brief snapshot in time, and that limited view often leaves millions of qualified credit seekers out of the picture.

15:43Mohamed El-Erian: VantageScore is changing that by modernizing credit scoring. VantageScore uses 400 % more credit and alternative data to create a fuller picture of financial behavior, including trended credit data, rental payments, and timely utility payments. Vantage Score safely broadens access to the credit economy and brings 5 million mortgage-ready borrowers into the market. That's why top lenders like Rocket Mortgage, as well as nine of the top 10 banks, rely on Vantage Score 4.0. With higher predictability and greater access to credit, everybody wins. Get started at VantageScore.com. Traders don't need a prettier app.

16:19They need a better angle. Schwab's think-or-swim trading platforms were built for real traders like you. They have an insane amount of chart studies. I'm talking over 300 studies for virtually any strategy. They also have integrated risk management technology and nearly unlimited customization so you can shape the platform to fit the way you trade. And when you do that, you can analyze trades from angles you won't find anywhere else. Go see what that looks like at schwab.com slash trading. Every house has a beginning. Ours starts with a rebellion. This is not just fashion. This is freedom worn out loud.

16:55A place where individuality isn't a look, it's a law. Perfect is boring. The algorithm doesn't know you, you do. A look is never just a look, it's a declaration. It's time to step out and into somewhere new. Step into the house of Burl and find a Burlington near you.

17:18Welcome back. Major averages selling off sharply. Got the Nasdaq down some 3.5%, the S &P down 2%. But not the stock you're looking at right there. That's Chime moving higher this after the company reported a beat last night for its earnings. It did raise its full year guidance as well. Management touting higher income growth in its membership platform, Chime Prime, said Chime is poised to win from Agentic AI. Joining us now on a first on CNBC is the company's co-founder and CEO, Chris Brett. Chris, always good to check in. How are you poised to win in AI? Thanks for having me, David. You know, there's lots of opportunities to win.

17:55We see it as a huge accelerant for the business. But maybe just quickly, you know, I want to congratulate my team for just another great quarter. You know, when I was on with you in September, we talked about buying a bank, about raising guidance. We beat that guide. We added 20 % growth in our active member base. We grew revenue by 32 % and showed great operating discipline, getting our adjusted EBITDA up to 19%. So we feel really good about that. And AI is not only lowering cost of how we operate our business, but we see great opportunities to, you know, leverage AI in multiple ways. At the product layer, AI is going to open up the opportunity for more people to discover Chime and switch to Chime.

18:39You think about how many people have banks at the incumbents just because of inertia, even though they don't really love the product. I think that's a great opportunity for a company like ours to, you know, with a great brand, lowest low cross products with high yields. We think it's a great opportunity to expose more people to the opportunity with Chime. And then, of course, integrating with AI agents is also an opportunity. Right. All right. I want to talk about that in a bit. You did call this a structural improvement. What can't be reversed, though, if the economy were to reverse? Well, we are primarily a payments business.

19:13And our new payments product that we launched earlier this year, Chime Prime, which is our more premium tier, has really been an accelerant to our growth algorithm. We're seeing more people than ever signing up for Chime, doing recurring direct deposit into their account of greater than$3 ,000 a month, which unlocks the benefits of 5 % cash back in a category of your choice, as well as high yield savings. So we are largely a payments business. It's largely non-discretionary spend. So regardless of where we are in the economic cycle, we're a company that can be quite resilient. OK, you know, you mentioned agents, of course.

19:54There is this belief out there, Chris, that potentially with the proliferation of agents, it's going to enable consumers to move things around very quickly. I like Chime today. My agent doesn't like it tomorrow and it's making a move for me based on a better deal that I'm able to get somewhere else. What is the counter argument there? Well, I think you're right. At the end of the day, as I talked about, at the product level, the best product will win. And we have the lowest cost structure and the best set of products for a huge segment of America. So we think that's a real advantage to us. Now, as it relates to having connectivity with AI agents, we think that's an opportunity as well.

20:31We want to do it in a way that is safe and secure. This is financial services, right? So I think, you know, we don't believe that there's just going to be sort of one agent to rule all parts of your life. They're incredibly powerful, but we think there will also be some specialized agents in certain categories like health care and financial services. And with our Jade AI platform, which is a personal assistant to Chime members today, we think there's an important role that we'll be able to play to help guide our members and take actions on their behalf. Chris, just a general economy one for me.

21:02What are you seeing in terms of spending trends from your users? And I understand you're sort of moving up the income spectrum a little bit when it comes to attracting new ones. Well, when you talk to consumers, there's no question that they have concerns about the economy. I think the election yesterday in large part was a referendum on affordability. But, you know, when you look at the actual behavior of consumers, it's still incredibly resilient. And I sound like a broken record, but we continue to see increases in average balances in our accounts, average spend that is actually outpacing inflation.

21:40And look, at the end of the day, we've got a pretty healthy economy that's growing at over three percent. The country's essentially at full employment. So we see a very healthy consumer that's spending in a wide range of categories. And generally, you know, the observed behavior is quite strong. Finally, Chris, you know, I've sensed a rising anxiety in the amongst of a lot of financial executives about the possibility of cyber cyber hacks of any number of things that can happen as a result of the new AI tools that are out there. How defended are you? How concerned are you as well? Well, of course, safety is something that we've been focused on since since day one.

22:21And so it's sort of a never-ending effort to making sure that you're hardening your platform and reducing exposure. We've continued to take more and more of our technology in-house, make sure that we're examining any third parties that we have relationships with. We also are leveraging AI. Anytime we launch new products or new platforms, we leverage AI to examine and interrogate before we launch. We have access to the most modern, cutting-edge models. And I think that's an important way to make sure that we're taking care of our members. But 100 percent, at the end of the day, in our category, it is all about trust.

22:59And we need to make sure that we're doing everything to take care of our members and not to have them exposed. All right. Well, Chris, we're going to leave it there today. Obviously, we've got a big market day here, but your stock is bucking the overall trend and obviously has done so all year, up some 60 percent over the last year. Chris Britt, CEO of Chime. Thank you. Thanks. David's not kidding. A lot of action here in the chips. We'll get more on the sell-off. We'll hear what the CEO of Arm told us about the midterms and the data center build out. Talk about what the options market is signaling about some pullbacks in Palantir, CoreWeave, Nasdaq session lows, NVIDIA red for the year.

23:35This would be the second worst day for the Qs going back to April of 25. We're back in a couple of minutes.

23:44This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and And subscribe at schwab.com slash market update podcast. Or find Schwab Market Update wherever you get your podcasts.

24:14Mohamed El-Erian: I've given my blood, my sweat, my tears to this island. What happened here? We came here seeking a great treasure. We've been out here for 14 years. After centuries of mystery. You have to hold the proof in your hands. The lifelong quest. Time to go get it. Whoa, what the heck? Has finally paid off. You found that in the money pit. This is what we've spent our entire lives searching for. The Curse of Oak Island. New season, Tuesday at 9. Only on History. Every house has a beginning. Ours starts with a rebellion. This is not just fashion. This is freedom worn out loud. A place where individuality isn't a look, it's a law.

24:57Perfect is boring. The algorithm doesn't know you. You do. A look is never just a look. It's a declaration. It's time to step out and into somewhere new. Step into the house of Burl and find a Burlington near you.

25:16Welcome back. Declines accelerating this hour across the major averages. Getting pretty ugly out there. Here are three big movers we're watching. First up, Zillow plunging after EPS and revenue both missed estimates. The company reporting declining traffic across its apps and website amid a challenging housing market. Stock down almost eight and a half percent. Qualcomm also under pressure. Weakness in its smartphone segment weighing on shares. Revenue in that unit falling 26 percent year over year. Qualcomm facing several headwinds, including Apple moving away from its chips and higher memory costs pressuring margins.

25:47Qualcomm's CEO will join halftime today at 1220. Arm holdings also falling despite bottom and top line beats. Royalty revenue, which measures how much a customer pays arm holdings per chip, was slightly lower than expected. The CEO, Renee Haas, joined the show last hour addressing the potential midterm impact on the data center buildup? Listen. The shift in terms of some of the politics going on could have some short-term impact in terms of how data centers get built out across the U.S. I think in some states where it gets harder, other states may pick it up to make it easier. But I do believe strongly that if the U.S.

26:25hesitates in any way, shape, or form in terms in terms of data center build out, the rest of the world is ready and willing. There is just huge demand for this capacity. And I think globally, the U.S. really wants to be able to compete against China. China's not slowing down at all. So I think the West is definitely going to continue to invest. Whether that happens at the rate inside the U.S. that it was going to happen a week or so ago, we'll find out. But I'm not really worried about that in the long term. All right. There, Rene Haas. I mean, he's still bullish on the demand side. The question is where it's going to be all built.

27:04And the question also is over what period of time. I think that's a key here. It's not necessarily that it won't get built, but if it takes two or three years longer, I don't know, whatever it may be, you know, and we've got so much, Carl, in terms of financing that is already out there, so much more to come in terms of what is planned to be built and what What will it mean for the labs and everything else that's relying on all that compute conceivably to be there when they expected it? We didn't really mention Sembalist of J.P. Morgan. Nice report today on off balance sheet commitments among the hyperscalers, some four trillion.

27:37NVIDIA is in a bear market now below. It would have been below 194. It's now in the 180s. Core Weave 42. This DRAM ETF, which we talked about a lot during the summer, has now officially been cut in half from the highs. I think the question is, what can they do? I mean, could we get something at the national, like from Congress around, I don't know, some of the newly elected, empowered Democrats are talking about bans on superintelligence? That certainly doesn't sound like something the president's going to sign off on. No, it doesn't. It doesn't. Don't forget, you've got that task force underway led by Jay Clayton that is supposed to make recommendations.

28:09I don't know where we are. It was 120 days when it started. We may be 20 or so days in. I'm not sure. That conceivably is going to have some reporting. That said, the policy under this administration, as you guys well know, has been full steam ahead. And it will be interesting to see, because now that we have heard from the election that the electorate perhaps doesn't agree with that, I'm not sure exactly how that course correction is going to take place, Sarah. There's also jobs at stake here. I mean, it has been a source of job creation when it comes to construction and manufacturing, not to mention GDP growth from investment, but local communities, I'm saying, when it comes to cracking down on data center builds, there's a cost to that as well.

28:48I do come back to this larger issue of whether you view a data center as a physical manifestation of AI. And it may not be as much of around. I'm sure it is around concerns about electricity rates and water. But the industry can solve for that. You can solve for that on a local level. I think you can. And Meta has done that certainly in Louisiana. And they've touted the fact that teachers there are being paid so much more, which is great. Yes. But how you solve, Carl, for the larger societal anxiety around the coming of this technology that is truly going to change almost everything, I'm just not sure.

29:20I mean, and we're already getting a little taste of hiring plans for next year. And whether that gets blamed on AI will compound the worries that you're pointing to and that voters expressed. It's not just unpopular in Asia, like in Korea and in China. I mean, in those places, they're using AI. They're interacting with AI, and it's more positive. They're also not as focused on pushing the frontiers of superintelligence as we are. We are still about AGI, at least at our two leading labs, Anthropic and OpenAI, certainly. It's still about always, you know, pushing that to that frontier. Chinese sort of seem to use it, happy to use it at maybe a bit lower level, but much more ubiquitously.

30:00And useful, usefully. And they're not warning about extinction of humanity while they're doing it. Maybe that hasn't been helpful. Right. So 7 ,500 here would take you back to the first week of August. Let's get a news update with Sima Modi. Hey, Sima. Carl, here's what we're watching this morning. Multiple flights in Europe were forced to make emergency landings today because of bomb threats. The threats targeted more than two dozen flights from a number of cities, including Copenhagen, Dublin, Madrid, Milan. Most of the flights were diverted to other airports. So far, authorities have not found hazardous or suspicious materials.

30:31It comes after similar bomb threats led to diversions earlier this week, which turned out to be a hoax. A jury found British comedian Russell Brand guilty today on one count of rape and three counts of sexual assault. He was acquitted on two other rape counts and one count of attempted assault. The judge ordered Brand to be kept in custody until his sentencing hearing on Monday and said he will be given a significant prison sentence. Soccer superstar Cristiano Ronaldo announcing his retirement from international play today. The 41-year-old played for Portugal's national team for 23 years, scoring 146 goals in 234 appearances.

31:06He led Portugal to its first major title in 2016 at the European Championship. He has not announced plans to retire from club pay. Sarah, send it back to you. OK, thank you, Seema. When we come back, Apollos Torsten Slott will join us with his first reaction to the midterm results and his take on what's behind this major pressure on the tech trade right now. Stocks really selling off hard. We're at the lows of the session. Speaking of tech, tomorrow I'll be joining everybody live from Pebble Beach for Citigroup's annual TMT Summit. Some of the biggest names in the industry. We'll be joined by the CEO of Citigroup, Jane Frazier, PayPal's new CEO, Enrique Loras, OpenAI CFO, Sarah Fryer.

31:41Couldn't be a better time to talk to all of these leaders. Also, as we had to break, check out Sandisk shares on pace for their worst day now in a year, down more than 15 percent. This is the memory trade unwind that we're seeing. It's affecting Micron and a lot of other chip makers. We'll be right back.

32:01Welcome back. Stocks getting crushed in early trading following yesterday's rally. The biggest decliners today centering around the AI trade and the data center build out. Names like NVIDIA, Caterpillar, Amazon all dragging on the Dow. Let's bring in Torsten Slock, Apollo Global Management chief economist. What do you think is going on here today, Torsten? Well, I think after the election yesterday, there are a lot of economic forecasters. They went back to their spreadsheet and they began to pencil in a forecast for CAPEX spending that potentially has some more downside than what it had just a week ago.

32:32And the reason for that, of course, is that GDP growth is still expected in aggregate to be around 2 percent. But the growth rates that had been expected, at least from the consensus for the next 18 months when it comes to CAPEX and the data center spending, had been more in the range of 4 to 5 percent. So now the big question becomes how much should that downward revision be and how significant is that going to have an impact on overall GDP? So the answer to your question is that I do think that most people are now expecting in the economics world that GDP growth when it comes to capex spending is just going to be more modest than what we thought just a few days ago.

33:08And that explains the strength in consumer staples and other defensive groups like we're seeing today. It explains the strength in treasuries with yields coming down. I guess one of the issues, though, that investors were having with some of these big tech stocks, especially the hyperscalers lately, is that they were spending too much. That CapEx was too high. That negative free cash flow was a little worrisome. That the debt was getting too large. So is this not necessarily ultimately going to be a positive? Well, in the sense that it's going to create higher pricing because now there's simply less compute available.

33:42And that, of course, will result in computing prices going up. But the net result still is, exactly as you're highlighting, looking forward, it still is this debate around, well, when we do the parallels with what happened with the fiber optic build-out in the 2000s, and even with the housing bubble in 2006, 2007, and 2008, well, the speed with which the data centers are being built and were supposed to be built was much, much faster and much, much bigger than what we saw during the fiber optic build-out and also what we saw during the housing build-out. So for that reason, think of this as overall growth in some real part of the economy, the physical part of the economy.

34:21And that growth rate has just been much faster than what we've seen before. And that is what's raising the question about the financial assets that are linked to this physical buildout, whether those financial assets were too optimistically priced. The rate high odds are dipping with this tech sell-off today. We're down to like 75 % from 85 % yesterday for December. So if the sell-off continues, then do they hold? Well, you're right, because now this begins to raise a number of important questions for the Fed, namely that inflation is still not coming down very quickly. The consensus is forecasting that inflation over the next 12 months will be still closer to between two and a half and three, both for core and headline PCE.

34:59So that's why, as you're saying, now the Fed is stuck with a very unusual stagflation scenario where on the one hand, inflation is going to stay elevated. And on the other hand, we are probably now penciling in more slower growth when it comes to cap expending. And that's, of course, when the Fed needs to decide, are they now looking instead at growth, which is slowing, or are they looking at inflation, which is still high? And you're right. We should now begin to be more prepared for a scenario where the Fed might not be hiking in December because now growth is at risk of potentially showing more weakness as we look ahead.

35:29Torsten, there's some screens floating around. Bespoke has a good one. Looking at the periods in history where semiconductor indexes fell 17 percent in five days. and they're not good periods. I guess I'm wondering, I mean, are you opening playbooks that look at past crashes? Well, what I think is different this time around is that, of course, when we think about intelligence, AI or super intelligence is something that will be needed. But what we're discussing really here is in what form will that be delivered? So what's clear is that energy will be needed and we also need chips and GPU financings because chips are, of course, needed to do all the intelligence that is going to be delivered to consumers and to companies.

36:12So what the debate really is all around, not so much whether we need intelligence and whether we need energy, because we need that. And that's where the margins, by the way, are the highest. But the question becomes, well, is that going to be delivered in-house? Is that going to be purchased from an open source model, a closed source model? And that discussion is exactly where the debate is, namely when it comes to models and applications and also computer and cloud. Well, what is the form with which intelligence will be delivered? but because we know that intelligence will be needed from energy and also from chips.

36:41You think it's compounded by the notion that an end to the war would also remove an incremental buyer of power and chips and industrial capacity? Well, because, Carla, as you, of course, have been talking about now for a long time, that oil prices, they have in the background been an issue for a while. Then they were not an issue. And now, of course, the issue is coming back. Now oil prices are down. That's, of course, helpful. but if there is more conflict coming in the Middle East then of course oil prices would be at risk of going up and at the same time we also have rates higher for longer in the background so the financing costs for of course hyperscalers in level terms the all-in yield continues to be quite elevated both because the yield level has gone up, rates have gone up but also because of spreads for hyperscalers have been going up so that's why this debate around well the future does need more compute and there probably is unlimited demand for compute but the way and the form in which compute is delivered But let's just agree that we need energy and we need chips because those are the things that ultimately will be creating the artificial intelligence that is exactly what is being used by consumers and by corporates.

37:44It's kind of a bummer that this is coming now on a day where, as I highlighted, 3.6 percent productivity growth for the quarter. That's the best we've seen in more than a year was a blowout number. And at a time where layoffs, jobless claims are at the lowest since 1969. I mean, this is part of the promise of AI that hopefully it would lead to this big productivity and growth boom without taking everybody's jobs. Absolutely. And I firmly believe that AI is a miracle drug. It will both create more productivity, which is exactly what we saw this morning. And it will also create more jobs because the labor displacement effect in the form of people losing their jobs is probably going to be relatively limited compared to the other effect, namely that AI is creating tons of new businesses.

38:27As we speak, we have never in U.S. history seen as many new businesses open every single week in the U.S. Never in U.S. history are so many new businesses being created. And if just a fraction of these businesses also come with more employment, we should see that that effect on the scale will be dominating, meaning creating more jobs relative to the displacement effect. So I do absolutely believe, Sarah, to your question here, that we both will see higher productivity growth, which is what we're seeing. And at the same time, jobless claims going down is exactly indicating that we still have a very strong labor market.

38:58But, T, didn't you write in just the past few days that the S &P 493 had gotten zero payback for some of these productivity spends? So this depends exactly on how we measure this. When you look at that micro level, there is a lot of anecdotes about AI giving a payoff. But when you do look at profit margins for the S &P 493, we're not yet seeing any upward move in profit margins for companies outside the tech sector. And when you do look also at revenue per employee for the S &P 493, we're not yet seeing any increase in profit margins or in revenue per employee. And this is the discussion, namely, what is the speed with which those cash flows will arrive?

39:34Will the speed arrive very quickly that these cash flows will come in the next several quarters? well then of course stocks should be going up but if that speed comes slower and therefore of course the cash flows arrive later because all stock prices are the net present value of future cash flows it becomes extremely important whether markets and especially consensus expectations are right on these very bullish expectations about how quickly earnings will go up for the s &p 493 all right torsson thank you for talking us through it uh it just gets uglier by the minute down four almost and a half percent on the nasdaq torsson's lock from apollo thank you Thank you.

40:09Coming up, I'm sure you're wondering this as well, is the tech pullback overdone. We're going to look at what the options market signaling about names such as CoreWeave on so many others that are down. Next hour, don't miss Box's CEO Aaron Levy just announcing a new partnership with NVIDIA. We're going to get his read on the impact of the midterms on the overall trading and technology stocks. Stay with us.

40:34Dow is now down 1 ,000 points. NASDAQ down nearly 5%. It's the worst day of the year for the S &P, down 240 points. Let's get to Oliver Rennick at SIBO in Chicago, see what options are saying. Hey, Oliver. Hey, Carl. It's been a very busy morning down here. A lot has changed just within the last 20 minutes or so. We opened up with a fairly calm response. There was actually a bit of composure and options out of the gate. VIX was still below the levels from the last two Fridays, but with now an almost 3 % sell-off in the S &Ps, we're down 240 points. The VIX, arguably at 25, still looks kind of low.

41:12You'd really be looking at a VIX above 30 now, so we're kind of inching our way up there. There was some early dip buying and some of the names that you would think people would panic on, and in the last half hour, it has turned to a little bit more panic. One of the things that stood out yesterday, I think, is really important perspective here, And that was that for the first time ever in the history of the market, we had the semiconductor group down 3%, but VIX was also actually down. It was down four points yesterday. So we are doing this huge now U-turn that is taking a very clear stance that tech remains the most important thing.

41:46All 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. Such opinions are based upon information Squawk on the Street participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such.

42:18To view the full Squawk on the Street disclaimer, please visit cnbc.com forward slash Squawk on the Street disclaimer. Hey Fidelity, how can I remember to invest every month? With the Fidelity app, you can choose a schedule and set up recurring investments in stocks and ETFs. Oh, that sounds easier than I thought. You got this. Yeah, I do. Now, where did I put my keys? You will find them where you left them. Investing involves risk, including risk of loss. Fidelity Brokerage Services, LLC, member NYSE SIPC. you