11AM Hour: AI Safety Concerns in Focus, Oil Prices on the Rise & Apple and OpenAI Head to Court 9/14/26

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1:05Good Monday morning again. Welcome to Squawk on the Street. I'm Sarah Eisen with Carl Quintanilla live from Post 9 of the New York Stock Exchange. Today, AI leaders calling for a timeout with the CEOs of Anthropic, OpenAI, and XAI warning the technology is moving too fast. We're joined by one top analyst who says coming government regulation may be the industry's best chance at long-term success. We'll talk to one former Meta and Google executive about the new calls to tap the AI brakes and why he thinks the real reason might actually be to rein in spending. And as oil prices jump to near four-month highs, we are joined by an energy and geopolitical expert who says it's clear the market isn't satisfied with U.S.

1:43efforts to increase volumes through the Strait of Hormuz. Meantime, markets back to session lows are awfully close here. S &P is back below 7 ,600. There's the 10-year, which did hit five for the first time since 2023. Strengths today in some communication services, energy, healthcare, and staples. But we're going to begin on the AI developments. Our Kate Rooney joins us with what we heard over the weekend from Anthropics CEO and how others have responded. Leslie Picker has a look at how these safety concerns are impacting the AI IPO pipeline. But we'll start with you, Kate. Good morning. Hey, Carl, good morning.

2:17So Anthropics CEO Dario Amadei shocked the tech world with this essay on Saturday. The CEO proposed a three-step plan aimed at really tempering how fast the most powerful AI models are going to be improving. It does include a situation where you'd have third-party evaluators. He talks about safety standards and then international coordination as part of this. Amadei has argued for safety in the past, but all of this is taking on a new urgency. He talks about that urgency given some of the recent panic around the risk of this technology. It all snowballed last week. We talked a lot about this after anthropic researchers tweeted about the existential risk and then talked about AI labs, quote, gambling with our lives.

2:58The two new concerns that Amadei flags, he talks about AI developing a lot faster than expected. And then examples and one example in particular of open AI agents hacking into the startup Hugging Face. He called those AI agents a fanatically devoted collective. Major AI leaders, this was maybe the most shocking part. They agreed with Amadei. You don't see that every day. Elon Musk chiming in saying, Dario is right. Sam Altman, CEO of Anthropics' biggest rival, OpenAI, tweeting his support as well. I did speak to dozens of people over the weekend who argued that the safety push could actually help Anthropics' IPO at the end of the day, positioning the company as a more responsible player and then reducing some of the regulatory and potential liability risk.

3:42Multiple investors told me the growth rate for Anthropic is still off the charts as they described it. They do expect this IPO to go forward, also confirmed with two sources that Anthropic has seen back-to-back quarters now of adjusted profitability. A new wrinkle, though, guys, in all of this. President Trump just slamming Daria Amadei saying that the only guardrails that AI needs is a strong and smart president. In part, he also says there is a sick conspiracy going on against AI and data centers. The only one that is happy about that, he says, is China. Yeah, that's complicated. Thank you, Kate.

4:17Stay with us. Let's get to Leslie Picker with the impact to IPOs, Leslie, as we hear about different paths now for Anthropic and OpenAI. Yeah, you're right, Sarah. Anthropic announcing its confidential IPO filing three and a half months ago. And so far, sources say, as Kate mentioned as well, that it still plans to proceed despite this fever pitch concern over safety. Now, that's because nothing we've heard in recent weeks, especially from CEO Dario Mode, is demonstrably different than what he or his peers have said before about the risks of uncontrollable AI and the need for industry-wide coordination.

4:54However, slowing down the pace of model development while simultaneously contending with unprecedented regulatory, political, and security risks, all while pitching investors what is likely to be a lofty price tag, is not an easy balance. Amode's rival, Sam Altman of OpenAI, said it would be ill-advised to go public now, citing concerns about safety. However, even though OpenAI is also confidentially filed, its timeline has long been stretched due to the complexity of its own business and desire to scale the enterprise side before a debut. The big question is how well the market itself holds up and whether it remains conducive to these listings.

5:34All the commentary over the weekend is putting a bit of pressure on the AI infrastructure space this morning, but not a major sell-off yet. And Anthropik seems to continue checking boxes toward its own listing, including selecting the NASDAQ as its venue, sources tell us, plus reportedly speaking with potential anchor investors, including NVIDIA. Now, a near-term IPO question is, what do Modi's weekend communications mean for the typical quiet period before an S-1 is made public? In normal times, such a move could require a pause so the lawyers have the chance to pour over the disclosures. But these are anything but normal times, guys.

6:10I guess you could argue that it's policy and not necessarily has to do, Leslie, with the IPO. Although I think a lot of investors will wonder, do I really want to be investing in a company that says that they need regulation and that they need some sort of constraint on the technology that they're building that's making them so much money? Yeah, no, between the interviews and the blog post itself, the 4 ,000-word post, there was plenty of material information about how they run their business. And again, this isn't a huge hindrance to the IPO. It just requires a process of making sure that all of the disclosures that they have kind of in place, obviously they haven't disclosed their S-1 yet, but they need to make sure that everything is in line so that it's in accordance with the law and rules around disclosures and making sure that everything is on the same page.

7:01page. And it's not requiring investors to go back and watch the video and everything before an actual IPO takes place. I was going to say, Kate, we make the point that Amelday's warnings aren't necessarily new. It doesn't appear to have had a real impact on the cadence or the size of their raises to date. Right. And that's something interesting. I mean, based on what Leslie is saying, too, some of the early investors, this company has gone through multiple rounds of fundraising in Silicon Valley. And I talked to a lot of these investors who say exactly that, that the safety part of this and their stance on all of it has been front and center when they do these massive capital rounds.

7:39The other thing I would point out that makes this IPO different in addition to what Leslie mentioned is the fact that it's a public benefit corporation. So that means it's got this dual mandate. It has a fiduciary duty and they have this duty to shareholders to return profits and make money. But they also have a mission statement and they say that basically they have to serve both. And in that sense, they are sort of under that umbrella and under that cover in some ways in terms of legal liability, because they can point to this slowdown, for example, and say, wait a minute, you know, this is this is OK, because it serves our mission.

8:14That is so unique. There are just a handful of publicly traded public benefit corporations. And something to keep in mind is this company goes public and added to the list of what makes this listing unique. I mean, it's so, it's such a, it's like unprecedented, right? That we would have these kind of technology companies racing toward an IPO at a time where there's serious concerns about the safety of their products and what they're building and how fast it's moving. Kate, have you, I mean. Yeah, oh yeah. I mean, unprecedented, I feel like is the word of this year, whether it's the valuations, you know, we're getting companies going public at historic numbers.

8:51We had SpaceX. A lot of folks you talked to based on the revenue run rate. We last reported it was $65 billion. That's up sevenfold. So the focus on this growth, the law of large numbers does not appear to apply to Anthropoc, at least. They have grown off such a large base. That growth and appetite is expected to continue. It's something Brad Gerstner talked about over the weekend and said, regardless of all of the safety discussions, even a potential slowdown, there is so much appetite to buy into this new asset class, but that will be tested in an IPO. He may say that he's obviously an investor.

9:22A lot of current investors feel that way, but this is a huge test. Also questions about retail involvement. With the unpopularity of AI, the pushback against data centers, what does that mean if they reserve an allocation for retail? Are people going to want to buy AI at a time when there is existential risk? And that is the biggest topic that we're really discussing over the past couple of weeks. We'll see. Big test here. Yeah. Ridiculous hyperbole, as Gerstner put it. last week. That was prior to the M.O. Day blog. Yes. Kate, Leslie, thanks so much, guys. Appreciate it. Let's bring in our senior markets commentator, Mike Santoli, with a look at the impact of the market.

9:57We did bounce off five on the 10 this week. And that's a pattern we've seen a couple times before, near or at five. You know, if you actually look at like the five-year chart of the 10-year treasury yield, these previous runs toward 5 % have been very vertical, as this one has become. Before this last little stretch, it was kind of a grind. And you see those little spikes higher got really overbought in technical terms. So we'll see if that means there are buyers. The bond math works at 5 % entry price as a buffer for an equity portfolio. There's almost no getting around that, even if they go, yields go higher from here.

10:33What I feel is interesting about the market response more brawly to all the stuff that's in the mix today is the market's doing what it always wants to do, which is to take in new information and try to localize it. what's really most affected here and what can I buy if I'm selling something that's under pressure. That's what's pretty much happening. 6 % drop in the Philadelphia Semiconductor Index today. It's no joke. I mean, that's actually real damage. It's real reassessments of the longer-term earnings path that makes it much harder to say next year's earnings numbers are too low. Because right now, to be bullish, you kind of have to start saying things like that, that next year's numbers are too low.

11:08Another 6 % down from here and you're at the July low. So that's one area of the market that remains kind of has a lot to prove. The rest of it, though, Mag7, of course, NVIDIA is in the Mag7, which is under pressure. But more broadly, the hyperscalers are like, fine, we're going to be more measured. We're going to slow down. We're going to enjoy our profitable core businesses a little more. We have to raise a little bit less debt. Maybe they can be some shelter here. And in fact, they have been an offset to other parts of the market for a few months. Right now, the eco-weighted S &P was the champion for a while.

11:42Everyone loved the broadening trade. Well, guess what? We're narrowing out again, as you can see right there with MAG7. So I think it's all still the market trying to get off easy and say we can we can have these offsets inside the index and not take on, you know, maximum pain as we get through a likely Fed rate hike and start to figure out if that's just, you know, adjustments around the edges or if it's really going to change the macro story more. I mean, there are a few standouts on this news, specifically the cybersecurity names, the Palo Altos and the CrowdStrikes. The crypto names are also higher, rising odds of the Clarity Act moving through Congress potentially as soon as this week.

12:22So that's been helpful. And just overall, Mike, I mean, obviously energy is higher. We talked about this before. Staples, health care, communication services, the market. But given a 5 % headwind on rates and a pacing of AI, which has been the source of optimism in the market, earnings, it's not all that bad. It works till it doesn't. And it has worked for quite a while, for several months where the market looks to say, but what if things get less bad? And that's what's happening right now. I don't think 5 % is a magic number in terms of changing economic activity or putting a break on the stock market or equity valuations.

12:57But it's a notch in that direction. I mean, every kind of turn of the screw, it gets you closer to some point where people decide that it changes the overall equation. I realize we were at five and a half percent. I've said it a million times when we had the 1999 tech bubble. But we got there from a different direction. Rates were falling to that level over prior years. Now they're up from one percent to five on a bigger debt base. So I think that's what the market has to digest. But it's not an emergency. It's just, you know, an atmospheric factor at this point. Yeah. I mean, in late February, 10-year was below 4.

13:30Now it's at 5, and S &P's up 1 ,000 points. Yes. From that point to point, yes. Although you have to say, the S &P 500 has made very little progress since May. Yeah. Okay. So you kind of had that little bit of a move higher. Obviously, April was the big win. Yeah. And after that, it's been kind of like churning around. I feel like the market wavers between, like, is inflation going to be temporary supply shock or is it going to be lasting and sticking around and permeating the economy? And every day it feels like it's kind of undecided on that. Yeah. All right, Mike, thank you. Much more on AI coming up.

14:07Milius, head of tech research, Ben Reitzis, joins us. Swaiknese says the obvious concern here is whether Dario and his compatriots have killed the AI trade. We'll talk to Rapidan. Their CEO will share his expectations for the oil market as prices are on the rise today. Saudi Arabia did shut that key east-west pipeline that was damaged, and AP Today says it might be closed for several weeks. We're back in a minute. 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.

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15:21It's a holiday moment of joy, at least for the time it takes to snap a picture. Shop a plethora of prints this year in jammies for everyone. Adults, kids, toddlers, babies, and even pets. Grab matching sets and classic plaids, whimsical designs, and even Disney-themed prints. Plus, they have coordinating graphic tees, sweatshirts, cozy socks, pet sweaters, and fleece blankets. Get more merry for your money at Old Navy this holiday season. This episode is brought to you by Schwab Market Update. an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S.

16:00and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast or find Schwab Market Update wherever you get your podcasts. Welcome back. Anthropic CEO Dario Amode leading a new push to slow down frontier AI research, unveiling a three-step plan and a new essay over the weekend as AI researchers share their fears for humanity's safety. Sam Altman and Elon Musk quickly agreeing with the need to slow down. For more on the impact on the tech trade, let's bring in. Ben Wright says, head of tech research at Amelia is already having an impact, Ben, with some of these chip stocks selling off.

16:45Is it a game changer for you in any way on the thesis?

16:57Oh, he's muted. Sorry. Sorry, somehow got muted there. Yeah, yeah. Dario's model muting me there. So I think there were a couple of good things hidden in here that RSI, recursive self-improvement, that train has left the station. And I think that's pretty good. I think that those two companies are ahead and that's going to use a lot of compute. And I also think cyber is going to go through the roof and a lot of tokens are going to be used for cyber. And you're going to need models to actually protect us from the models. But obviously, no one's going to care about that today. What is going to happen today is that the AI losers will actually go up, the ones that might be disrupted from AI and those that potentially benefit from having less of a CapEx.

17:41But I actually think these guys will probably get together pretty soon, talk about the guardrails and hopefully move forward. But they really need to get together and communicate to the street. and hopefully like someone like Jensen can herd them together and have them communicate to the street on how they're going to deal with this. What meaning what? Meaning that Trump just tweeted that he doesn't want to regulate this sector to death. And apparently it's going to have to come a lot from these leaders. And, you know, it is very I mean, look, you could be very cynical about this whole thing. I mean, look, they're running a 100-yard dash, and OpenAI and Anthropic are sitting on the 70-yard line, and no one else is even close.

18:29They are at RSI. No one else has it, not even Google. And that is putting them way ahead of everyone else. So now they're in position to implement the guardrails, implement the regulations that help their companies and help them IPO. And frankly, they're super well-resourced, too. So this is and they could be morally correct and say they got to regulate all this stuff and talk their book at the same time. In short, I think what they should do, but they need to step back like they may be really good at models, but they're not good at talking stocks. And what they're doing is freaking the market.

19:14Wait, mute it again. But I guess the point is that the message to the street doesn't necessarily match up to the message to the world when it comes to safety. And that's, you know, obviously a concern of investors. I just everybody's weighing in on this. All the corporate leaders, Nikesh Arora, the CEO of Palo Alto, whose stock is up a lot today. These cybersecurity names really gaining on some of these safety fears around AI. And I thought this was a notable nugget from Nikesh's post that he just put up. He basically, it was skeptical about it. He said, why do we do this? I do believe deep down this is a commercial strategy, a ninja strategy.

19:50The liability associated with the model gone rogue has the potential of wiping out the economic opportunity of any frontier company. How do you best show the duty of care? You show that you care. How do you make sure you don't lose out to your competitors? You get them to do the same. If that becomes the industry standard for duty of care, you have a collective first line of defense. Who do you get to govern this? Yourself. That is what I think will become the Achilles heel. Basically, that it's a master plan of Anthropic and others to try to help defend themselves against potential disliability as the risks continue to pile up around things like cyber and what this self-recursive technology can do.

20:31basically self-improving AI models that Anthropic has reached. Yeah. George Kurtz, similar tone. The frontier will move at whatever speed it moves. Pacing, what comes next, doesn't secure what's already here. And I mean, we had a gentleman on the set of women to go see the genies out of the bottle. That's almost exactly what guys like Kurtz are saying. Well, it's certainly helping their own stocks. CrowdStrike up 15 percent, top of the market Palo Alto as well, having a good day. We'll try to get Ben Reitzes on for you soon. And we kind of lost him technically. Oil prices heading higher today after Saudi Arabia did shut that key pipeline that bypasses Hormuz.

21:07We'll speak to a top strategist about where he sees that market going from here. Plus, a former product executive at Google and Meta will join us. He says the risks of rogue AI killing everyone are hyperbolic. We'll be right back. Building a portfolio with Fidelity Basket portfolios is kind of like making a sandwich. It's as simple as picking your stocks and ETFs. sort of like your meats and other topics, and managing it as one big juicy investment. Mmm, now that's pretty good. Learn more at fidelity.com slash baskets. Investing involves risk, including risk of loss. Fidelity Brokers Services, LLC.

21:47Member NYSC SIPC. What happens when you combine a cozy night in with the whole family in matching Old Navy Jingle Jammies? It's a holiday moment of joy. at least for the time it takes to snap a picture. Shop a plethora of prints this year in jammies for everyone. Adults, kids, toddlers, babies, and even pets. Grab matching sets and classic plaids, whimsical designs, and even Disney-themed prints. Plus, they have coordinating graphic tees, sweatshirts, cozy socks, pet sweaters, and fleece blankets. Get more merry for your money at Old Navy this holiday season. You know, Kevin, sometimes I feel like computers are the only thing around here that are getting smarter.

22:26Yeah, my model hasn't had an update in a while. But that changes now. We think that we can smarten these listeners up about all things related to this crazy new future. Welcome to Machine Gods, a new NPR podcast that will be your guide to the AI future. Twice a week, we're going to help you get smarter about AI so you know what's real, what's hype, and what you should probably install on your phone. Listen to Machine Gods from NPR on the NPR app or wherever you get your podcasts.

22:56Energy prices are rising again this morning after Saudi Arabia shut down a critical pipeline that bypasses the Strait of Hormuz. Drone strikes launched from Iraq on Thursday severely damaged a pumping station along the east-west pipeline. WTI and Brent futures now up nearly 20 percent so far this month. Let's bring in Scott Modell, CEO of RapidN Energy Group. I know you guys have been warning about higher oil prices and rising risks. Just first, Scott, give us a sense of what supply looks like with East-West Pipeline shut down. Hi, sir. Thanks for having me on. Good morning. With the East-West Pipeline shut down and with estimates ranging from two to four weeks to two to four months for it to come back online, you're talking about a real reduction in the amount of offsets.

23:43The XHORMU's offsets that we've had, thanks to barrels that have been able to move to Yanbu through the East-West pipeline, are going to continue to be reduced. Estimates range from 8 to 10 or 15 million barrels of storage. So I think they can still continue to take out of storage and ship out of Yanbu for the next couple of weeks. But if they don't fix that soon, you're going to see a sharp drop in XHORMU's exports coming out of Yanbu. And the situation, Sarah, seems to be pretty serious when they look at the damage to the pipeline. How vulnerable is the pipeline? What would prevent the Houthis from striking it again?

24:20You know, Carl, it's a good question. I think it's very vulnerable. I think people have asked us over and over. They said, how on earth did this happen? How on earth did Saudi Arabia, the United States, whoever else is there in an allied fashion trying to prevent these things? How is this not stopped? I think these things are very difficult to stop. I think the Iranians and their proxies have been able to show they can hit just about anything they want at will. And I think this is kind of a depressing reality that we're looking at. This was done by the Iraqi militias. The Iraqi militias have been quiet for the better part of the last year or so.

24:56All of a sudden, they're coming back out at what couldn't be the worst time. And again, I would say, Carl, what's even more worrisome is what's unfolding in Yemen. What's unfolding in Yemen? With the Houthis, you mean, striking? Yeah, yeah, Sarah, I mean, we're on the verge, so we're now in a kind of a state of war. It's full-on war between the Saudis and the groups that they back versus the Houthis. And the Houthis are making gains all along the southern coast of the Red Sea, and it makes it easier for them to attack things. And I think I wouldn't, I don't think it's an overstatement to say that this officially recognized Saudi government in the south is on the verge of collapse.

25:37So don't be surprised in the next 24 to 48 hours if you see big announcements about even more destruction and setbacks of the officially recognized government, which means, you know, the Houthis building on their gains, getting more control over critical infrastructure. And again, that's bad in a number of ways because it presents more risk to Saudi Arabia itself, to the Red Sea, ships and commercial ships and stuff going through the Babamandip Strait. Can the U.S. do this? I mean, they clearly can do something about this. Why don't they shut the Houthis down? We. It's a good question. I think if you remember Operation Rough Rider, President Trump said, hey, we are going to do something about the Houthis.

26:20And for 52 days, we bombed them 2000 times or so. You destroyed a lot of things in Sana 'a. You destroyed, you killed a lot of leaders. and they were still standing. And even President Trump had to step back and say, wow, these guys were a lot tougher and stronger and more resilient than we thought. I think part of it is he has his hands full in Hormuz. He's just trying to get things normalized and back to a better place that's close to pre-status quo, sort of pre-conflict flow levels. And to commit to something now in Yemen, I think what he's saying is, I can't do that. But I think, Sarah, he's also being told the president, that is.

26:58He's also being told, just sit back and the Iranians are going to collapse. This economic blockade is going to work. But part of it is I don't think he wants to take on two conflicts at the same time. Meantime, he just posted about diesel, which he was asked about over the weekend while in Ireland. He seems to be convinced that the trouble in diesel is about Ukraine, Russia and Ukraine's aggression and trying to fight back against Putin. What is that? Is it maybe 9 % of exports? Well, I think he's, you know, I think, you know, as the second largest exporter of diesel in the world since they shut in exports, it's a big deal.

27:40And I think it's$6 now that they've hit record levels. He's looking around and he's saying a big problem is that Russian diesel is off the market. They're going to have to do something about that. So what we're seeing is Zelensky and the Ukrainians will probably oblige him to some degree by reducing strikes on Russian refineries, I think. But heading into the winter, it's just going to be too tempting for them to go back to those targets of opportunity. So even if you see a slight reduction in the near term on Russian refineries by Ukraine, expect that into the winter to go up. And I only say that because Trump doesn't have total control over the Ukrainians and the war shows no signs of ending in Ukraine.

28:19So where do you guys see oil prices heading. It sounds higher by any measure. You know, Sarah, we had a, you know, a couple of weeks ago, we had a 4Q26 average of around $100 per barrel. But if you ask me right now, gun to my head, based on everything we're seeing, Chinese stockpiling going up, inventory draws continuing, the Houthis escalating, the Iranians. The Iranians are saying, look, we're going to escalate into the midterms. We're not satisfied with$108 or$110 breadth. We want to see$120,$130, because that's the only thing that President Trump listens to. So when you look at all of those factors, if we're at$108 today, I say the next$10 is up.

29:03So I think that$100 forecast that we had for the fourth quarter this year, there's upside risk to it on average. Okay. Thank you for joining us. Appreciate the perspective as always. You're welcome. Dow down about 218. Let's get a news update with Contessa Brewer. Hi, Contessa. Hi there, Carl. The Trump administration is expected to announce it's repealing some rules that limit greenhouse gas emissions from power plants fueled by coal and natural gas. That announcement could come as soon as today, according to the Associated Press. EPA Administrator Lee Zeldin has said that change will save billions of dollars in costs for the industry.

29:40Amazon is suspending its partnership with cargo carrier 21 Air following a deadly plane crash last week. It killed five people. That plane overran a runway at Miami International and slammed into a van that was carrying workers of a plane cleaning company. Amazon says it will use other carriers to transport shipments that would have gone through 21 Air. And Oprah Winfrey is bringing a new immersive experience to the Las Vegas sphere. You know, it's a massive state-of-the-art venue known for these surrounding LED screens. It's pretty incredible, those wraparound screens. The production, called Oprah Winfrey's Aha, will combine music and poetry and much more.

30:20Over one weekend in April, Winfrey says she was inspired to create that show after seeing you two perform at the venue. It's not that she, Sarah, has asked for my advice, but I would say she should bring in Lady Gaga for a collab. Mm, that's my favorite. Yeah, I would love to see Taylor at the, at the. There we go. It is amazing. Thank you, Contessa, Contessa Brewer. Still ahead, we'll speak to a former product executive at Google and Meta, why he says the calls to slow down AI are more about getting spending under control. Apple and OpenAI set to face off in court next hour over their trade secrets case.

30:56We're going to talk about what to expect on that conflict when we're back in just a minute.

31:03Back to Squawk on the Street. The president out with another post on Truth Social a few moments ago saying that growing calls for an AI slowdown are only because the U.S. is leading, saying don't kill the golden goose. Our next guest says the push to slow down AI progress is more about getting AI spending under control as AI CapEx among the hyperscalers has soared this year. Joining us today is former product executive at both Google and Meta, now co-founder and CEO of InfoHawk, and that's Rob Levern. Rob, welcome back. It's good to have you again. Yeah, thanks. Thanks for having me. It sounds like you think the AI is going to kill us all by itself is a bit hyperbolic.

31:40I think it is a bit hyperbolic. I think the safety and security concerns are definitely real. Many of them are real. I think runaway AI is certainly, though, less likely to occur than a lot of isolated incidents that we'll probably have to deal with over time. That said, I think two things can be true. we can also have those real security and safety concerns while also recognizing that there's some, you know, real politic going on here in these statements. We've been waiting to hear from Google, at least maybe responding directly to Amadeus' post. What do you think they're going to say, if they say anything at all?

32:20uh i'm not exactly sure what they're going to say although you know i think that some of these calls for a slowdown definitely help all of these companies because uh they've really been locked in a battle and escalating battle with each other to ship more features the teams working on these uh products are working very hard uh in some cases maybe they're trying to go through the safety checks uh more quickly than they would otherwise that's it they are they are doing a lot more on the safety side than perhaps we have seen in previous technology rollouts. But I think there's this recognition that they need to do more.

32:59They don't want to be stuck trying to outspend each other necessarily. And while they still have a, presumably have a gap to the, you know, Chinese open source models, they have a little bit of room to try to rein in spending perhaps. I mean, do they? If China doesn't pace themselves, then how can we pace ourselves? Well, I think there's definitely, you know, some asterisks in these statements saying that if situations change, you know, we may have to go back to what we were doing before. But I do think the anthropic statement was interesting because when you unilaterally disarm, you want to make sure you have something that is going to be a real cost to you.

33:42Having outside folks come into the company and have access to all of the models and tools that the internal teams do is definitely something that causes disruption and is a real give by the company. It also probably is along the lines of some of the proposed regulations that we will probably see. But if they can get ahead of it and do it a little bit more on their terms, it probably benefits them as well as their competitors. And what does that look like, actually pacing development of frontier models? And does it involve cutting back on spending? It may. It could also mean just shifting more of the spending to safety mechanisms, shoring some of those up.

34:22I mean, there were obviously these recent elements in the news where they had agents breaking out of sandboxes or other kinds of containment mechanisms. Certainly, those containment mechanisms could be shored up more. So, I think there's a number of things that they could do. I think the spending on new features and so on, often those things come as a tradeoff against spending on safety mechanisms, deploying team members and outside folks as well to those more safety-oriented features instead of just testing the latest and greatest new features that people are going to want to use. That could be quite helpful.

35:00A lot of discussions today about theoretical government ownership in some of these companies or even nationalization. You don't think there's a zero percent chance of that happening? I think there's a non-zero percentage chance of that happening. You know, certainly because of the strategic elements and if there isn't really the ability necessarily to rein in foreign actors. Also, if we see a lot of deployment of these technologies by nation state and other threat actors, I think you could certainly see some kind of partial, at the very least, nationalization in the coming year. So I don't think it's out of the question.

35:39I think it would certainly be difficult to do, but certainly I wouldn't rule it out. I mean, what sort of ethical conversations are had inside these companies, given you've been inside of Google and Meta, about building runaway AI? I get the sense from some of the conversations that it feels like something that would sneak up on you. I think we're also, as human beings, we're very hard at estimating what exponential growth looks like and what the impacts of that might be. So this is one of those ones where it's not quite like if you look at nuclear armaments and you are counting silos and you're counting missile launchers, this is something where you're thinking about capabilities, which is inherently much more difficult to do.

36:25So as you think about what the capabilities are and how they could evolve, there's a lot of projection that has to happen in terms of those discussions. And so I think a lot of it is also getting the right people in the room internally. That's always an important thing at any of these big companies, getting the right folks in the room, but also bringing in outside experts. and under the right, whether it's governmental or other auspices, being able to have detailed technical conversations with perhaps competitors that doesn't lead to antitrust concerns is also quite important. Yeah. Yeah, we've raised that point as well this morning.

36:59It's a difficult moment for the street trying to price instruments today about all kinds of tail scenarios. Rob, please come back soon. Appreciate the help today. Thanks. Good to see you. Rob Leathern. When we come back, the 10-year backing off a bit after hitting its highest level since 2023, 5 % critical threshold for the economy and the markets. We'll discuss the opportunities and the risks with the top portfolio manager at J.P. Morgan when Squawk on the Street comes right back. Markets off the lows as the 10-year does retreat from 5. It did touch its highest level in three years earlier this morning.

37:32Joining us to discuss is J.P. Morgan Asset Management Equity Portfolio Manager, Jack Haffrey joins us here at Post9. Good to have you back, Jack. Thank you. thoughts about this sort of wild ride we're on today, at least? You know, in the short term, I think that we're being much more reactive, I think, than you would like to think in terms of looking at what remains still a very robust earning story, and I think looking to a robust earning story. But we do have to continue to contend with not quite random bits of news, but ongoing news about interest rates leaking their way into potentially equity markets in terms of pressure on valuation and maybe the funding question that is so important that we didn't quite get to that.

38:12JPM now looking for a hike this week? I think that's the most likely outcome. I go back to my fixed income colleagues who continue to tell me the Fed refuses to surprise the bond market. We'll have to see if that will hold to be true. But when you look at what futures are indicating, I think there's certain, highly confident in terms of seeing a hike right now. So then does it change the way you look at stocks? Like, do you have to go back to your playbook of what happens to stocks at the beginning of a hiking cycle? Or is this time going to be different? I think that we haven't really ended the hiking cycle that kicked off several years ago.

38:46I think we went on pause, effectively. We had cuts. All right. So we can restart the clock. But I do think in the aggregate, it's not necessarily a truly beginning of a new hiking cycle. I just think it's getting back to more of a normalization of interest rates. after a near decade and a half of unusually low interest rates that allowed people to be a little lazy long. So it doesn't change your view of, doesn't increase bumpiness for stocks. I think ultimately that we will probably see an environment of greater volatility going forward. We operate now in a market where momentum is the dominant theme.

39:25No one really complains about upside momentum. But given that there is no one on the other side, look at the floor, not having a large set of specialists trying to be maintained fair and orderly markets, you know, we don't have that designation anymore. And so there's no one really to buy once the quants decide to begin selling. You do think about, I think you call it the gas tax. Yes. The impact of energy prices on What, consumer? Is that? I think the consumer feels it most abruptly in terms of Saturday you go fill up your pickup, your SUV, and you realize this hurts. And I think that certainly translates into the weaker consumer sentiment numbers.

40:06But ultimately, there's two parts to consumer sentiment. There's what you feel and what you do. What they feel is pretty miserable. What they do is continue to spend money, albeit not necessarily at the high multiple high growth sectors that the market might prefer. When you think about refiners trade at eight or seven times earnings versus, you know, consumer stocks trading at 17, 20, 22 times. Then you have to deal with diesel, which really makes the economy go round. And diesel is at, you know, six dollars a gallon. Hard to get your packages delivered if people are driving a little bit slower on those delivery trucks, either to get them to the stores or get them to your house.

40:41And then we have jet fuel, which continues also to be an issue. And, you know, do we have enough of it for us to go on vacation? So, I mean, back to the AI question, you know, as a portfolio manager, how do you think about just how much AI risk you want to take on right now? Well, the beauty of the portfolio I work with is I have a partner who deals more with growth stocks and I'm more on the value side. So not to say I have outsourced my AI risk to my growth portfolio manager. But to some extent, my exposures are more essentials that feed their way into what AI will need, energy being probably the most important part of that right now, or water, which is probably the second major scarcity item after power that no one really wants to think about how much water it takes to cool some of these data centers down or to build that.

41:26Yeah, there's been some coverage of the Colorado River and Arizona's attempt to manufacture a lot of goods in the tech space. You know, it seems like putting semiconductor fads in the middle of a high desert might not have been geographically or geologically the most thoughtful decision, certainly at the bottom of the river and the water course. So those are two good best ideas. What else? Where else do you see value? I mean, ultimately, I think the financials remain increasingly interesting here. And if I had to go there, you know, the fact that we've gone from this fantastic earning story to them actually turning cash flow negative on a free cash basis means ultimately, to some extent, AI is gated by access to capital.

42:06I think that makes some of the investment banks effectively the toll booth under which you will continue to underwrite AI growth on an intermediate to longer term basis. You know, do you have access to when you see fundraising rounds in the private markets of 50 to 100 billion dollars in a clip and people not panicking about that? One winds up thinking about, you know, to some extent that people who actually are making a profit right now on the rollout are actually investment banks. Yeah, indeed. Well, best performing, second best performing sector over the last few months. Jack, thanks for coming in.

42:38Thank you. Good to have you. Jack Haffrey. All right. Still ahead. Apple and OpenAI are set to face off in court next hour over their trade secret battle. Remember that one? We're going to discuss what to expect here after the break. Welcome back. Apple and OpenAI are set to face off in a courtroom in the next hour over their trade secret battle. Mackenzie Sagalos joins us with what to expect. Mackenzie. So good morning, Sarah. This is the first time Apple and OpenAI are actually appearing together in federal court in this increasingly ugly trade secret fight. And today could tell us a lot about how much latitude Judge Edward Davila is willing to give Apple as it builds its case.

43:15One veteran litigator who's argued both sides of suits like these tells me that the biggest thing to watch is discovery, how broadly the judge allows the two sides to seek documents and testimony, and whether Judge Davila speeds up that process ahead of the October 1st injunction hearing because right now, one of Apple's largest challenges is proving not just that a former employee took confidential information over to OpenAI, but that the startup actually used or benefited from it. Apple's going to want evidence showing where that material went once it reached OpenAI, who had access to it, what systems it touched, and whether any of it made its way into OpenAI's new hardware.

43:53So when this hearing gets underway at noon, I'll be listening for whether the judge gives Apple faster access to things like internal OpenAI comms, devices and accounts, and whether he allows Apple to question key OpenAI employees earlier in the case. And of course, all of this comes in a very difficult time for OpenAI. They're already under pressure over the pace and cost of AI development, a massive compute crunch, and its push into the CapEx-heavy business of both custom chips and consumer hardware while simultaneously fighting a growing number of lawsuits. Apple, meanwhile, is a far more seasoned operator with deep pockets and decades of experience waging exactly these kinds of high stakes legal fights.

44:35Guys? Yeah, I was just making a list of other challenges. You mean all the executive departures they've had on their own, the wider Q2 operating loss, in addition to what Altman said over the weekend about the timing of an IPO. Exactly. This is the last legal battle they need to wage. And it's not as though consumer hardware is a high margin business. You know, they've got their custom AI chip, jalapeno, which also costs a lot of money to develop something like that. And then consumer hardware, we've seen some reporting around what this device might look like, potentially an audio focused hockey puck sized device.

45:08And I mean, I have had certain conversations about whether Apple was almost looking to front run a product like this from OpenAI with this new audio intelligence feature that pairs with the new Apple Watch that's coming out this fall. But you zoom out, and this is just one of so many different legal cases that OpenAI is taking on at a time where it doesn't have the finances to really compete on that front. That's part of why you're looking at when you're trying to triage which legal fights to take on. If you are running through money that you've raised in private markets, you're pushing off your IPO until next year, this seems like a low-stakes battle to fight.

45:43Meanwhile, you've got Apple waging this war, and they also have a status hearing coming up on Wednesday in their fight against the DOJ, where they are also aggressively going after the government for discovery there. It's a lot to keep track of. Thank you, Mackenzie. I will check back in with you as that proceeding goes on. And it's also coming at a time where the debate is pacing this frontier model. It's so striking that these companies are out saying, regulate us. And President Trump is responding, don't kill the golden. I mean, it's just that we are in strange times. Really strange times. Meanwhile, the 10-year has backed off of a 5, 4, 9, 5 this morning.

46:19Oil's lower, too, so that accounts for this equity bounce. Mike Santoli's in for the judge. Let's get to Post 9. 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. 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.

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