11AM: Alphabet Plunges After Earnings, Shell CEO on Q3 Results & Thrive Holdings Partner on ADT Deal 10/29/26

0:00Every property boundary tells a story and accuracy matters. Build specialized knowledge in land boundaries, mapping, and surveying with the University of Wyoming's online cadastral and land surveying certificate. Whether you're expanding your professional skills or exploring land-related work, learn the principles that support confident decisions in the field. See where this certificate could take you. Traders 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.

0:35They 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.

0:57Good Thursday morning again. Welcome to Squawk on the Street. I'm Sarah Eisen with Mike Santoli live from Post 9 of the New York Stock Exchange. Carl Quintanilla is off today. Volatility returning to the AI trade with Alphabet shares tumbling after delivering lackluster earnings. But it's not the only AI-linked stock weighing on the market. We'll discuss today's moves with Schwab's Lizanne Saunders and Citigroup's top tech strategist, Heath Terry. Plus, Shell nearly doubling its quarterly profit year on year as refining margins soar to record highs. Shell's CEO joins us exclusively to discuss the quarter and his outlook.

1:28And shares of home security company ADT surging after agreeing to be acquired by Josh Kushner's Thrive Capital for nearly$7.6 billion. We'll discuss in a rare and exclusive interview with Thrive partner, Kareem Zaki, who led the deal and has been at the firm since the very beginning. We're going to start here on big tech earnings. Mackenzie Sagalos is with us covering the huge move in Alphabet, pacing for its worst day ever. And then Kate Rooney also with us previewing what to expect when Amazon reports later today. Mackenzie, let's get to you first with some ugly action in Alphabet. Yeah, Sarah.

2:01So Alphabet shares plunging at the open, down as much as 13 percent after missing on the top and bottom lines and across several key segments. But the greatest concern here is search. It's Alphabet's profit engine and the cash machine that is funding its AI ambitions. Now, for years, investors have worried that AI would start cannibalizing that business, but until recently, it really hadn't shown up in the numbers. Now, search has come in light for a second straight quarter. Revenue still grew 12%, but that's down from 19 % in Q1. And Google acknowledged that AI mode is part of the reason. Overall, query growth is the strongest it's been in five years, but more searches are shifting into AI mode where monetization is lower.

2:41So people are using Google more, but Alphabet isn't monetizing that usage as efficiently yet. And that's why the debate over AI cannibalization of search is all over street notes this morning. Citizens downgraded the stock and several firms cut price targets. Now, the flip side, of course, is cloud, where revenue more than doubled to nearly$31 billion, backlog hit$561 billion, and TPU sales are already a meaningful contributor, all of it evidence of tremendous demand for Alphabet's AI infrastructure. But that growth comes at a cost. You've got free cash flow at negative$9.1 billion, much worse than the street was expecting.

3:20Alphabet's already raised$150 billion in debt and equity in just last year. It's spending as much as$205 billion on CapEx this year. And it says its spending will rise significantly again in 2027. 27. So this is really the AI trade that investors have feared. You've got massive spending, strong AI growth, but potential disruption to the core business that's actually funding all of this. What did the executives say about that? Because I just know anecdotally, you know, it's completely different. Whereas I used to Google to just prepare for the show, you know, now it's to Claude and ChatGPT and also Gemini as well.

3:58But I guess they're not figuring out how to monetize that as well. Yeah. So, I mean, part of what the immediate negative reaction to the earnings call had to do with was the fact that they were trying to, executives were really trying to chalk this up to FX issues. And Google also didn't give a timeline for when monetization in AI mode could actually reach traditional search levels. The management instead just described this transition that's already underway. You had ads in AI mode going from the testing phase a year ago to actually scaling now. They've talked about expanding to 10 more international markets.

4:30Google's also testing these multi-turn ads in the U.S. that can show up in follow-up questions, but it's not enough. And it's just not having the timeline and not having a better understanding of what the strategy is, not putting numbers to the kind of monetization they're expecting out of AI mode, out of AI overviews, was part of what was concerning. And of course, the biggest concern is that these agents might eventually disrupt the Google experience altogether, going to Google search. And that's another area where Google's really followed behind with its product Spark that just doesn't have the same kind of traction as Meta's Muse.

5:02Mackenzie, thank you. Mackenzie Sagalos with Alphabet shares down more than 12%. Now let's get to Kate Rooney on Amazon, which reports after the bell. Kate, what do you expect? Well, Sarah, part of the story here is actually Microsoft as well. Expectations for Amazon just got a lot higher. They report tonight after Microsoft's blowout quarter, we had positive free cash flow and strong cloud growth. Those were the two big themes helping Microsoft stock and justifying what has been hefty AI spending. Azure cloud growth was up about 48 percent. That was three percentage points above consensus. Free cash flow as well ahead of what the street was looking for.

5:36CFO Amy Hood said point blank on the earnings call. Microsoft will stay in the black for free cash flow for the year. And it does really put Microsoft as an outlier here. There's other competitors. You have Meta, you have Alphabet, as Mac was just talking about, possibly Amazon later today going negative on free cash flow. So that really does put the pressure on for Amazon tonight, especially for AWS. So it wasn't just Azure. You had Google Cloud growth doubling in the quarter. Streets expecting around 38 % growth for AWS. That is the number to watch. And then watch capacity as well. So investors want to see that Amazon can bring more computing power online and then turn all of the AI demand into real sales in the near term.

6:16UBS expecting new capacity to help power what they call accelerating AWS growth into next year. And then you got CapEx. That really shows you the cost of all this growth. So Amazon had forecasted$220 billion in capital spending. Watch for any sort of changes there, any commentary around that, and then what it all means for free cash flow. So Amazon, as I mentioned, is expected to go negative this year. Of course, it is a mag-7 tech company. We really talk about it as a tech name, but it is also an e-commerce giant. So Wall Street wants to see that the retail business is still humming. They're still improving profitability there.

6:48And then advertising has been another emerging profit engine for this company. The semiconductor business also emerging as a bright spot. Amazon has been beefing up its competing custom chips that compete with NVIDIA. Last earnings call, we really heard Andy Jassy, the CEO, highlighting this as a growth area. You also have Bank of America expecting to We see adoption of Amazon's Tranium chips, their agent tools within Bedrock, which is part of AWS, helping margins going forward. Analysts do point to some concerns over what Meta has come out with its AI agent, Muse. Other AI assistant tools is a potential threat to that retail business.

7:24So we'll see what that looks like. I think the earnings call especially is going to give us some color on that, guys. Yeah, for sure. I mean, you went through all that and yet not even that much talk about the massive e-commerce business. I think that's one of the complexities of Amazon right now. Now you've got to worry about Prime Day shifting and everything else. So we'll see how it goes. Kate, thank you very much. But the stock doesn't trade as much on that stock, does it? Well, it doesn't, but I also think it probably prevents investors from maybe fully giving credit to the AWS story and its position in there.

7:52Who knows? Down the road, maybe it'll matter. But it also has given Amazon great experience long-term in investing heavily in physical assets, you know, through logistics and everything else. And that may be an advantage as they build data centers. Yeah. Let's get a quick check on the markets. You see the S &P 500 down a little more than one-third of a percent. It's actually holding up relatively well against a 1.4 % decline in the NASDAQ. We're also 2 ,000 up 1%, the equal-weighted S &P also in the green as well. So the market's trying to broaden away from some of the hard-hit big tech names.

8:26For more on today's action, we have Charles Schwab, Chief Investment Strategist, Lizanne Saunders. Lizanne, it's good to see you. And I definitely want to seize on your idea that, you know, we're kind of contending with multiple instability inputs here. Obviously, all year for geopolitical and oil prices and interest rates, we're trying to get to learn a new Fed chair. And at the same time, you see something like one company can lose half a trillion dollars in market cap in a day on its earnings reaction. And the rest of the market somehow finds a way to actually absorb that and stay supported.

9:03So what do you do with all that? So I think all else equal, Mike, that backdrop is likely to continue. You and I have spent a lot of time in the last year or so talking about how rotational the market is. And a day like today, to your point about some of the big drawdowns we've seen in individual stocks, What you see is that there's still a lot of money that desires to stay in the market, just rotate into other areas. In some cases, still AI driven areas, but maybe more on the adoption side of things. I think that's one of the reasons why health care has recently gotten a lift, because they're bringing AI into the mix and improving what was the low hanging fruit of inefficiency and diagnostics and treatment.

9:49So I think there's still an AI story, but the lens is broadening out. And I think these rapid fire rotations are still the name of the game. Yeah. And in fact, you know, for as much as the AI theme has been the dominant one for four years, it has gone in different phases and waves as we've gone along. So it does seem to be transitioning yet again. And then on the macro front, I mean, we've been, you know, trying to, you know, look at the press conference yesterday after the Fed decision. It seems like the message is in the eye of the beholder. What did you draw out of it? Well, I'll tell you, I had two immediate questions upon the announcement, specifically with regard to the decision to go to seven and one next year and six and two the following year.

10:35With in the case of next year, one meeting will not be a policy driven meeting. It'll be on broader economic issues. But to me, the first question was, when is the decision around what meeting that is going to be? When will that be announced? And maybe even more importantly, will there be minutes released to those non-policy meetings? Because that would really give an idea of what these behind the scenes, under the hood conversations are. And neither of those questions were answered yesterday. So the takeaway wasn't a surprise on what they did. Maybe a little surprise that it was Lisa Cook who was one of the dissents because that was the first time she had ever descended but didn't surprise to see dissents to a non-move.

11:18But a lot of questions with each question that gets answered or change that Warsh makes, there's more questions that have yet to be answered. Right. I mean, and if you're looking for transparency, I'm not sure that's where that's the direction they're headed. I think he's he's he's deliberately trying to make it a little bit more opaque so that the market doesn't obsess over it as much. Which he said he wanted to do. He wanted to be less transparent and move the market away from that kind of guidance perspective. But I think you close one can of worms and arguably it opens another can of worms.

11:55Lizette, I know that you've kind of been arguing to stick toward quality within the equity markets for a bit now. It seems like the market is wanting to appreciate that. I wonder if that's more about it trying to find shelter from some of the credit-dependent parts of the market or just a maturing phase of a bull market or something else. And Mike, I think it's probably a combination of both. And quality is a very broad descriptor, and there's a lot of factors that fall generically under the quality umbrella. I think what's particularly important now is, especially as you go down the cap spectrum, that profitability angle.

12:37So you've got about a 20 percentage point spread now of outperformance by profitable Russell 2000 stocks versus non-profitable. It was the opposite last year, non-profitable handily outperformed. So there's a profitability angle. You're also seeing low debt to equity companies outperform high debt to equity companies, high interest coverage companies outperform low interest coverage. So you really have to think about what's plaguing the macro backdrop now and apply that in terms of what factors make sense to focus on. They do fall within that quality umbrella, but I think this is an environment where you really want to be specific about what quality factors you want to emphasize.

13:16And then apply that across all 11 sectors in the S &P 500. That's one way to think about factor-based investing is get rid of the monoliths at the cohort level, like a MAG-7 or at the sector level, and really focus on investing based on characteristics. Yeah, plenty of layers to peel down if you want to do the work. Lizanne, I appreciate you joining us from Schwab Impact. Thank you. Yeah. Much more coming up on this Big Tech Earnings Week when we talk to Citigroup's head of AI Research about the latest round of results and what it signals about the broader AI trade. Plus, the CEO of Shell joins us after the company nearly doubled its profit in the latest quarter.

13:56The stock near record highs as well. Squawk on the street. I'll be right back. Legacy credit scores only look at a brief snapshot in time, and that limited view often leaves millions of qualified credit seekers out of the picture. Vantage Score is changing that by modernizing credit scoring. Vantage Score uses 400 % more credit and alternative data to create a fuller picture of financial behavior, including trended credit data, rental payments, and timely utility payments. 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.

14:37With higher predictability and greater access to credit, everybody wins. Get started at VantageScore.com. Weren't agents supposed to take things off your plate? Building another to handle the others is a bit much. Don't make more work out of work. Gemini is the one agent that knows all parts of your business and actually gets stuff done. You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required.

15:12Traders don't need a prettier app. They need a better angle. Schwab's thinkorswim 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. Welcome back. Let's get to some more movers this morning. Shares of Sprouts are sinking this morning after the grocer reported disappointing results and declining comp store sales.

15:50The nationwide cyclospora outbreak had a big headwind, was a big headwind for the company during the quarter. Shares of Crocs hitting a 52-week high today. That's after the company beat estimates for the latest quarter, raised its full year outlook for the third time. And then Carvana shares top of the market surging after revenue tops expectations. The company is selling nearly 40 percent more vehicles than it did a year ago. Well, tech under pressure this morning following Alphabet's first top and bottom line miss in nearly four years. Mixed results from ServiceNow also sending that stock plunging as AI CapEx concerns spread across software, neoclouds and more.

16:26Joining us now with his thoughts, City Head of AI Research, Heath Terry. Good to see you, Heath. Yeah, thanks for having me, Mike. I mean, the alphabet reaction, definitely remarkable. Do you think this is going to be an enduring repricing of the core franchise? No, I think this is more an immediate reaction to, you know, a signal that the search business was weaker than expected. Now, how much of that is macro? How much of that is AI headwinds from competition on that front? that's going to determine the direction that we really go into on this. But just the suggestion that there is some sort of terminal value risk around that search side of things, like that's what we've been worried about for four years.

17:05And the idea that it fits into that narrative, I think is why you're getting the outsized reaction here. It's worth noting, you know, Google is now down roughly 10 % on the year, despite the fact that you go back to January 1 and revenue estimates are up for next year or up 25 % from where they were on January 1 and EPS estimates are up 12%. Yeah. I mean, obviously the valuation compression has been remarkable. I know it's bottomed around like 16 times forward a few times, including in 2022. It's not really that far from it now, but you get an interesting issue, which is it feels like there's been this at least subconscious concern among investors that all these companies spending so desperately to build what's next, at least on some level, betrayed a sense that their core businesses were maturing or vulnerable in some way.

17:49So some of them are, or maybe a little bit like Alphabet. Who knows what, you know, a meta story is. But on Microsoft's side, it feels as if, you know, some of those worries have been a little bit unfounded. Yeah, I think so. I mean, but, you know, it really does come back to you've got one half of the business, the Azure part of the business that is doing extremely well. We saw accelerating growth this quarter. They're guiding to accelerating growth next quarter. They're telling you they can't build infrastructure fast enough for how strong that is. And then there's the rest of the business, right?

18:19And the view that people have, and you see this to some degree in the ServiceNow results, the view that people have is that the success of one potentially comes at the expense of the other. And that maybe explains why the shares have backed off, right? Because all of software is now under scrutiny today. So do you recalibrate who winners and losers are in the AI race now? Well, I mean, we've said all along, the biggest winners right now, we are still very much, everybody wants to move on from the infrastructure trade. We are not moving on from the infrastructure trade. This is still about building as much infrastructure, data centers as possible to service the demand that's out there.

18:56So the chips? Yeah, chips, memory, connectivity, power, labor, everything. We are in this place where we have, and I've talked about this here before, we have this vertical wall of demand hitting a horizontal line of supply. And when you get into this sort of irresistible force and movable object kind of point, something has to break, and that's pricing. And so everything's getting more expensive. The chips, the labor, the power, the financing is all getting more expensive, and that's what's driving us. What's not getting more expensive is the token costs. Right. Those are coming down on the other end.

19:29So does that, I mean, is that a concern that there's, the build-out is still going up, the cost while the token prices are going down? Well, we need token prices to come down. Like, you know, this is a technology. Technology is supposed to get cheaper over time. And particularly if you're trying to drive enterprise adoption with this, you need token costs to get cheaper. They should be, right? We've got much more performant hardware. The current generation of chips are 35 to 50, depending on whose numbers you trust, X more performant than the prior generation on a per gigawatt basis. And so that increase in supply should drive overall token prices down.

20:05It's the consumption. It's how many more tokens we're all burning as companies that's really going to drive that. So you need the per unit cost to come down. But what you take some level of comfort in, and you see this in the Frontier Labs ARR numbers, you're getting an increase in volume from that. The whole Jevons Paradox thing, you're getting an increase in volume from that that more than app strips any of those price declines. If you play that out, the whole Jevons Paradise thing, people use more when the price comes down, et cetera. Does the pie of profits continue to grow fast enough for everybody to get their share?

20:39And I ask that because it happened in wireless data and fiber optic, you know, broadband and all the rest of it. And that infrastructure layer has not, on a long-term basis, been where a lot of the profit bonanza has settled. Yeah. And it comes down to this being a very different technology. And eventually we will get to that point in this cycle as well. We're just not there yet. Yeah, there's minimum three, probably more like five years more to go on the infrastructure side of this, where the infrastructure builders are able to get real premiums for the infrastructure they have just because demand is so far outside of supply.

21:16Eventually, we'll get to some level of moderation or equilibrium around that. You'll see margins. I mean, to be clear, Micron's not supposed to be a 90 percent margin company. Like, you know, you are supposed to see kind of more normal margins here. We'll get to that, but it's a ways out. Yeah, and arguably, you know, Micron's down 250 bucks from the high. The market is kind of, you know, realizing the annex travel. Heath, good to see you. Thank you. Thanks for having me. All right, still ahead on the show, Thrive Holdings to acquire ADT for more than$7 billion. Big news this morning. We'll talk to the partner who's leading that deal in just a moment.

21:50Plus, former Atlanta Fed President Raphael Bostic will join us. We'll get his reaction to the Fed's decision to fold rates. We'll be back in a moment. Ever notice how every new AI tool asks you to explain your business to it all over again? Google Workspace with Gemini skips that. You get Google's AI built right into the premium versions of Gmail, Docs, Sheets, and more. No new tools. No extra logins. Just one subscription that gives you personalized AI right inside your actual workflow. Make work less work. Try Google Workspace with Gemini at goo.gle slash workspace with Gemini. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab.

22:32Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts. If you remember when your VCR was your personal trainer, up and back and up and back. Feel that burn. Then remember this. RSV can be a serious respiratory virus. If you're over 50 with certain health conditions or over 75, it can make you really sick.

23:15You got this. There's no prescription treatment, but there is a vaccine that can help protect you. Find out more at PfizerForAll.com. Pfizer, out due yesterday. I want to have the freedom of speech, the freedom of expression, and the freedom to engage on matters that are not monetary policy matters. I think that my voice can help, my action can help in relation to principles that are dear to my heart. I don't think that I can remain neutral. I don't think that I can be comfortable in that neutrality at the present time. And I'm interested in the truth. That was European Central Bank President Christine Lagarde explaining her decision to step down in February, several months before her term officially expires next October.

24:11Lots of speculation about what she might do next. There's a French election next year in April. A lot of rumors and speculation around whether she'll take the head job of the World Economic Forum. That's been floating around for a while. No word on what next. But it does open up a succession race at the ECB. She said she's stepping down February 7th. Joining us now with reaction to all this, yesterday's Fed decision as well, and much more as former Atlanta Fed President Rafael Bostic. That's a tough job to figure out who's going to be the next ECB chief. The Eurozone now has 21 members. I think they need 16 to agree on a person.

24:44This is decided by the politicians, ultimately. How do you feel about the Lagarde decision to step down early and what it opens up? Well, first of all, good morning to you. Good morning. And it's really good to be with you today. You know, listening to Christine's message today, it kind of resonated with me. You know, I just stepped down not long ago, and there are lots of issues that I really care about that now I can talk about more freely and engaging. So what she said made sense. When I reflect back on her, I will say that she's going to go down as one of the best public servants we've seen in finance, as a trailblazer as a woman, and as really a steady, calming, and firm figure through some of the most difficult and turbulent times that we've had in my lifetime.

25:42She'll be very much missed. Yeah, no, I agree. And that's why I think a lot of people wonder if she's going to go into politics. Remember, she was the French finance minister. She made it clear that she has opinions, And France is going through a crisis right now, a budget crisis, economic and the fiscal markets. We've seen the protests on the streets. Is this time for the ECB to step in and calm things down? So I think the ECB really needs to stay close to its mandates and not roam around. So I don't know all the things that are written and how it's structured. But I will tell you, the Federal Reserve would not be doing that.

26:21given what its mandate is, I think the ECB probably will step back a bit as well. Okay, let's get to you. Now you're liberated, man, and you can talk about whatever you want and have opinions. So how do you feel about the setup right now for the economy and inflation and what the Fed's been doing? Well, you know, the economy is in a really strong position in terms of total output, and the labor markets are not showing a lot of crisis. What I think is we have an inflation problem and we really need to think about how that can get solved. I think the decision yesterday was one of patience, which I kind of expected from the committee, but we will really need to see how things evolve in the next couple of weeks or else I think there'll have to be some pretty strong actions taken to really address the high inflation that we have.

27:13And what are your thoughts on the change in the meeting format, you know, reducing the number of rate-setting policy meetings by one next year, by two in 2028? And what might the monetary policy implications of that be, if anything? Well, you know, it's a really interesting proposal. And there are some good sides and some bad sides. You know, when I was running the Atlanta Fed, what was really clear was that the thinking process and the way you want to talk about long-run strategy is different than the way you talk about basic operations. So creating some space for those conversations I think is quite important and useful.

27:52And also, as you know, there were some of those inter-meeting FOMC periods, there were only six weeks and that's not a lot of time, not a lot of changes. And so those meetings felt a little different. On the other hand, there will be large spaces potentially between some of these meetings. And if things happen in those interim periods, the question is, will the Fed wait or will that have a special meeting to jump in and try to respond and not be late. And that adds some extra uncertainty into how the economy and how policy will be seen and could also really change people's perceptions of the standing meetings because they could expect a special meeting at any time.

28:35And that's a really interesting and different dynamic. So we'll just have to see how it goes. Did you get a clear explanation for why they didn't raise rates yesterday? So, you know, when I think about it, I think about this as running different scenarios. And there are lots of reasons why you might think that inflation could resolve or start to ease in the next couple of weeks. Think about productivity from AI and other technologies that come in faster than people expect. You can see resolutions of some of the wars across the globe. You could see the rise of use of debt, meaning that monetary policy has more efficacy.

29:17Or you could also see weakening in terms of the consumer side. Now, I know we didn't see that today, but we do know that there are lots of families and an increasing number of families that are feeling a lot of stress and are really concerned about their ability to stay engaged in the economy. All right. Well, we hope you'll join us on many more topics to share what's on your mind. But for now, we'll leave it there. Thank you for joining us again. Thank you for having me. I'm happy to be back. Great. Well, coming up, Thrive Holdings to acquire ADT in a more than$7 billion deal. That's just the equity side.

29:53We'll speak to the partner who's leading that deal right after the break. Welcome back. ADT shares surging this morning after Thrive Holdings, which is backed by Joshua Kushner's Thrive Capital, announced a$7 billion take private of the home security firm ADT, including debt. It's about$15 billion enterprise value. Joining us now to discuss the deal in a CNBC exclusive is Thrive Holdings co-founder and partner, Kareem Zaki. Welcome, Kareem. It's great to have you on the show. Thanks for having me. So this was unusual. This one surprised me. I think of you guys that Thrive as venture capital, growth AI companies, not necessarily a mature, highly indebted subscription company like ADT.

30:36How does it fit? Well, at Thrive, we think about what does it look like to partner with the category-defining companies and really apply technology to deliver more value to customers. And so as we look at ADT, this is a business that has over 150 years of history. It represents trust and safety to so many consumers, delivers a really important value proposition. It's actually hard to imagine a more important value proposition than we're here to protect your home, that we're here to protect your family. And so the opportunity to acquire this business, to be able to advance it with technology is the thing that really attracted us to this opportunity.

31:15And to make a distinction, this is actually within Thrive Holdings. So Thrive Holdings is different than our venture capital funds. and Prime Holdings is a permanent capital vehicle that is a fancy way of basically saying that we can acquire businesses and operate them without any time horizon, whether that's a quarterly earnings or a fun life that needs to be sold. And so because of that, we can make the long-term investments needed. And that was the reason that this partnership made a lot of sense. This is also an interesting one because it has been owned by private equity before. Apollo owned ADT for nearly a decade and then exited.

31:49So what do you plan to do differently? Well, we are really focused on the go-forward pathway here, which is one, ADT has an amazing foundation. They're already trusted by 6 million subscribers. They're the leading brand in the home security space. And we view it as a chance to kind of build on top of this foundation with a lot of the new technologies that exist today. So how do we integrate this into the existing trusted experience? How do we reduce false alarms on behalf of our customer? How do we actually provide more data and analytics on behalf of our frontline workers so they have more context in the event of an incident?

32:24And so those are the things that we're really excited to kind of partner and build upon from the foundation that exists today. Just on the deal front, I did note that the financing, a big portion is coming from private credit, from Apollo. And it was notable to me because of the size of that. Why did you do that instead of traditional bank financing? Well, given our unique structure here as a permanent capital vehicle, we could be a little bit more creative about our capital structures, really just focused on optimizing over the long-term flexibility and chance to operate. And so because of that, we've picked the right capital structure that allows us to invest in the business and really lead to a stable growth and foundation over a long period of time.

33:02Are we going to see more deals like this for you, more sort of traditional buyouts, private equity deals? I think you'll see us continuing to lead and accelerate what we're doing at Holdings. So holding today, we actually operate in a few other industries, actually accounting and IT services. We've acquired over 75 businesses to date and have really taken those businesses and put them side by side by technologists to really help deliver and build new products for customers. And so we've been acquiring businesses today, not as large as the ADT, but we believe that this is a really important moment of time where traditional industries have the opportunity to embrace technology to deliver more value to customers.

33:39And we see it all the time in how we operate, which is the capabilities of technology exist, but the application isn't always there at the business level. Yeah, I wonder if there's an AI angle here, like eventually if ADT can get to a place where AI can help detect, I guess, people better than cameras can. Yeah, we see lots of opportunity here for technology to improve the customer experience, deliver a lot more value. Yeah, so I guess that's part of it. But while we have you, you know, we don't get to talk too much about, we don't get to talk to you guys that much in terms of Thrive and just how big and powerful you've become in the market.

34:14One I wanted to ask you about was OpenAI and just whether you're considering investing more money in the company before it ultimately goes public. I know you participated in a number of rounds going back several years. Definitely. We've been long-term supporters of the company. I've invested in every round along the way and excited to continue to support the business. Can it still deliver venture-type returns if we're talking about a valuation of over a trillion dollars? I'm very optimistic. We're all very optimistic about the future of open AI. We think we're still in the early innings of how AI is going to be applied across every industry.

34:47I think everyone, consumers, are starting to get a revelation of the power of the technology and how they're using it with chat GPT and other use cases. And we're excited for the creativity of AI as a tool and how humans are going to use it to access it and drive forward. Actually, one of the principles that we talk about at Thrive Holdings is the concept of being long humans. This is a blog post that we published a few months ago. And since we're talking about markets today, the concept of going long a stock means that you think it's going to become more valuable. That's the thing we actually view about humans, that we actually think they're going to be much more valuable in the AI age.

35:19That's the principles around holdings. And we see it today on the business that we operate. And so now the accountants we work with and the tools that we're able to build, they can spend a lot more time with their customers being front-putted, talking about the future. and less time behind computer screens, entering data and reconciliation. So we think we're still early in this age and the opportunity that this tool is going to give and put in lots of people's hands. So you're long, what, like service providers? How do you express that? Yeah, we're long practitioners in industries where trust is a really important part of the service delivery.

35:53So for accountants or IT service professionals through the industries we operate in today, you rely on your accountant to make sure that everything's right, that your things are submitted properly. Same thing with your IT service provider. You rely on them to make sure that your systems are up and operate. And so we partner with them to give them tools to access and actually spend more time with their customers delivering value. Because if we actually audit a lot of our time today, we spend time in front of computers, in front of systems, entering data. We can actually unlock some of those capabilities.

36:21People can actually spend a lot more time with their customers solving future problems, not always looking backwards. And so on the accounting side, we reduced tax prep time by 70%. And now a lot of our accountants for the first time are actually able to talk to all their customers ahead of a tax season, not just scrambling, you know, the minutes before a deadline. Yeah, I mean, there's the productivity unlock. I mean, finally, just Kareem on Thrive overall, you guys have been so active, whether it's in the holdings or in the venture, rate of$10 billion for new venture investments, the Lakers deal.

36:52I mean, there's so much going on right now. I don't see you doing a ton of marketing. How have you grown into such a big and important firm? And what's the sort of secret sauce? Yeah, we have a few principles that guide us. But fortunately, at the end of the day, it really comes down to partnering with brain founders, great companies, and markets that have long-term tailwinds. Our approach has been concentrated. And so we don't try to spread our bets across a lot of different companies. Try to partner closely, concentrate our capital, concentrate our time. and really focus on how do we deliver great value to our end customers and participate in markets that we think have long-term trends.

37:31And I think that that's surfaced well so far. And that's been our main focus. All right. Well, the ADT deal certainly is interesting. We appreciate you coming on to talk about that and the broader strategy. Of course. Thanks for having me. Farim Zaki from Thrive. Coming up, the CEO of Shell joins us after the company nearly doubled its profit in the latest quarter. Squawk on the street. Be right back. Welcome back to Squawk on the Street. Take a look at Shell. Record highs after posting its highest quarterly profit since 2022, nearly double last year's Q3 levels. The company also announcing a new$5 billion share buyback.

38:05Joining us now in a CNBC exclusive to talk about all of it is Shell CEO, Wael Sawan. Welcome back, Wael. It's good to have you. I mean, this is a good operating environment for you with the high oil prices, and I guess you guys are maximizing how you're capitalizing on it. Just describe a little bit what you're seeing out there. Yeah, thank you for having me, Sarah. I'll start off by saying the macro is one element of it, but what we have been doing over the last few years is really building the muscle to deliver quarter in, quarter out. The key has been, I think, the operational performance focus, and you see that coming through this quarter.

38:41Leveraging our trading and optimization capabilities, which is, of course, a key part of the overall value this quarter. Continuing to de-leverage, You know, our balance sheet now is sitting at sub 3%, excluding leases. And portfolio action that is allowing us to unlock some of that cash generation. So really proud of how the team has responded to the high bar that we have set. And indeed, the macro then helps deliver some of these outcomes. Yeah, I mean, the other big headline was, of course, the use of cash, which I mentioned, the increased buyback to$5 billion from three. What does that signal and how do you think about it overall in terms of the cash distribution?

39:23We've said we want to be in a range of 40 to 50 percent of our CFFO through the cycle, meaning through the commodity cycles for both oil and gas. We've been above the 50 percent at lower points in the cycle. And so at points like where we are right now, at the higher end of the cycle, we'd like to be at the lower end of that range, so closer to 40 percent. And so what you see us doing this quarter is taking the$3 billion that we have been buying back over the last couple of quarters and upping that, topping it up to$5 billion to be able to keep pace with that 40 % to 50 % range that we aspire to stay in.

40:01And that has been done while deleveraging and while continuing to invest in the business, which is where that strength of the cash flow generation is coming through. Yeah, I mean, last time I think you were on, we talked about the deal, the recent The Arc deal that you made. How is that integration going and what's your appetite for doing more? We've been very active on the portfolio side, both in terms of divestment of non-strategic assets and high grading the portfolio. You touched on the ARC deal. Indeed, we're sort of a couple of months into it right now. Really pleased with what we got there, the longevity of the resource.

40:36It's cost advantaged. It's carbon advantaged. And we think it is very synergistic, both with our positions nearby, as well as with LNG Canada Phase 2, which is the other big investment decision that we have taken in the last quarter. That and investments like in the U.S., we acquired TriStar or the share that we didn't own for close to a billion dollars. So lots of activity on that side. And that's allowing us to continue to build that momentum towards that sort of strategic destination we've set for ourselves. While as you look at what the world has had to contend with over the last eight months in terms of supply disruptions and all different countries and industries have had to adapt, do you think it's done anything longer term to the demand curve for petroleum products, whether substitution was accelerated in any way?

41:27And of course, working against that, we have all the reserve reductions, which will have to be rebuilt, I guess. Yeah, too early to cool. So what we see, if I look at our overall marketing business, our retail business, our fuel stations, we're seeing globally a drop of around 5%. The drop is more accentuated in Asia, where we see almost 10 % drop. And that is price-sensitive customers responding to that reality. In LNG, for example, we're not seeing much of a letdown. We continue to see demand levels holding. But that's a short, so-called medium-term perspective. So it's more about deferment or looking at alternative energy forms rather than demand destruction.

42:14We're keeping an eye on it because depending on how long the disruption lasts, that will, of course, have different impacts. What is very clear is that energy security is top of mind for everyone at the moment. And what we are trying to do is to leverage the integrated model, the uniqueness of what we have as Shell, is these diverse supply sources, this world-leading trading capability, a significantly large fleet of vessels at a time when shipping is in short supply, and multiple customers to be able to supply to. And it is in times of volatility where that gets even more accentuated, I think, for our customer base.

42:51And just how much supply is being disrupted by the war in the Middle East, by Iran? I guess I'm just wondering, if that ended tomorrow, what would happen to prices and to supply? Difficult to call. So what we see at the moment is that the Straits of Hormuz and the overall evacuation, call it, of the region is close to 80 to 85 percent of pre-war levels. In essence, we're not too far off balance because going into late February, the supply was exceeding what we saw as demand levels. The biggest issue at the moment is we are not yet being able to refill inventory, and we have drawn down significantly as a world on that inventory stock.

43:33So the challenge, I think, Sarah, is if the straits were to open, it's how quickly do we refill that inventory? And importantly, what additional measures will countries want to take to maybe add a bit more inventory in the future, given some of the considerations that they've had to confront? And so I'd say in the next few months, we should be able to have a better picture of that trajectory, depending on how the political situation evolves. Well, we hope we'll talk to you throughout. Well, we appreciate you joining us with the update on the quarter and what you're seeing out there. It's always good to have you.

44:09Thanks. Thank you for having me. Wael Sawan, the CEO of Shell. And a quick programming note, don't miss exclusive interviews with ExxonMobil CEO tomorrow at 810 Eastern and then Chevron CEO as well in the 9 a.m. hour. With that, stocks are under a little pressure, though. Things have improved. Most of the market is up if you look across sectors. Yeah, really only on the headline level for the Nasdaq and the S &P are you really seeing much weakness. In fact, even that kind of risk-off rally in Treasuries has eased a little bit. You see the 10-year back above 5 % as well. So it feels as if small caps are up.

44:43And this has been a little bit of the pattern, oil down, tech down means the rest of the market tries to rally. That has included things like banks and health care doing well so far today. Rates are down, which you've noted a few times. It has a little bit of a dovish takeaway from the Fed meeting, which is interesting because I'm not sure I got that or I don't know if that was the purpose or not. But that, I mean, that's usually when you see this kind of broader rally. It's not clear it was intended, but I do wonder if people say maybe they're buying for time and there'll be fewer total hikes down the road.

45:13If it's less hawkish than it could have potentially been. We'll interpret it for days. Thank you, Mike. That's it for us. Over to Scott and the Halftime Report. All opinions expressed by Squawk on the Street participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates, and may have been previously disseminated by them on television, radio, Internet, or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion.

45:41Such 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. To view the full Squawk on the Street disclaimer, please visit CNBC.com forward slash Squawk on the Street disclaimer. Traders don't need a prettier app. They need a better angle. Schwab's thinkorswim 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.

46:17And 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.