11AM Hour: Anthropic Investor on S-1 Filing, Former Fed Vice Chair Richard Clarida & Early Read on iPhone Duo Demand 10/26/26

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0:44David, good morning, morning, everybody. Welcome to Squawk in the Street. I'm Carl Quintanilla with Sarah Eisen, live at Post 9 of the New York Stock Exchange. Today, Anthropic officially filing for its public debut, filing the S-1 prospectus, which details its growth ambitions, as well as the massive risks ahead. We're joined today by Anthropic Investor and Head of Late Stage Investing at Wellington, Matt Whithiler. We'll tell you what he says is the most important detail in today's filing. Plus, the Federal Reserve's latest rate policy decision is on deck this week. We'll discuss expectations with former Fed Vice Chair Richard Clarida.

1:17And a warning for the ever-booming AI trade from S &P, making the case that hidden AI debt, maybe greater than we think, posing more risk for the top hyperscalers. We're joined by the analysts behind that call, and we'll talk about that. As for the markets, not a bad start to the week. Dow's up 240. NASDAQ has gains of better than 1%. There's a lot on deck, of course. PCE, Fed decision, hyperscaler earnings. We'll get durables in some new homes tomorrow. A lot of central bank decisions from around the world. Canada goes on the same day as the Fed, Bank of Japan with potential questions about whether hinting that they'll increase rates.

1:55So the global story is important for the rate story, which, as you can see, the 10-year is a little bit. There's some pressure alleviated now. It's below 5 percent, and perhaps that's helping the overall market rally. But let's hear what we get from the central banks around the world. Yeah, got some relief in French yields, for example. You're up to about this. We'll begin with the Anthropic S1, which did come out this morning. Our Kay Rooney and Leslie Picker helped us open the document at 9 a.m., and it's been a pretty active couple of hours since. Leslie, let's get to you first on some of the financing.

2:23Hey, Carl. Yeah, just to put things into perspective, Anthropic could be the largest IPO of all time, surpassing current record holder SpaceX, which, of course, went public in just June of this year. The company says it plans to use proceeds from the offering for CapEx, including investments in compute and infrastructure, as well as hiring and retaining personnel. Additionally, Anthropix says it may use a portion of its net proceeds to acquire or invest in business products, services or technologies, although notes that it doesn't have agreements for any material acquisitions at this time. The S-1 only includes financials for the first half of the year, but I'm told that will soon be amended to include Q3 as well.

3:04But perhaps not surprisingly, compute and infrastructure expenses amounted to more than half of the revenue haul of$16.3 billion. Again, for the first six months of the year, the operating loss was$693 million in the first half and narrowed significantly from the same time period in 2025. Total net losses for the first half were$81 billion, but the vast majority of that was due to accounting marks. The company says the trailing 12-month revenue per employee, guys, was more than$6.6 million as of September 30th. And its personnel expense grew by nearly 500 percent. As a percent of revenue, though, it comprises just 19 percent.

3:47The lockup here is quite unique as well, even relative to what we saw with SpaceX. Anthropic is also planning for about two dozen different dates that could unlock shares available for sale. Two dozen. There are still blanks in terms of kind of how many shares unlock across that timeline. But after the IPO, the first date will be 27 days post-listing all the way through about one year after the IPO. Anthropic does plan to list on the NASDAQ under the symbol ANT, guys. OK, Leslie, stay with us, if you would, because we want to get to Kate Rooney for more on the governance question, Kate. Sarah, so as Leslie mentioned, possibly the largest IPO.

4:29But from what we're seeing, also one of the more unique corporate structures here. It's described in the top of the S1 as a novel capital and governance structure. The founders are set to keep a majority voting power through a single special share. It's going to be this entity owned by the seven co-founders. So the share will carry 50.1 percent of the vote. The majority there, it allows the founders as a group, as a collective here, to outvote the other shareholders. and potential shareholders, and any of the key issues. It also talks about control in a separate trust. So it's described as a long-term benefit trust.

5:03That decides also who is on the board. The company, we should mention, is also a public benefit corporation. So they talk here about this dual mandate that the company has. They talk about balancing the interest of stockholders and then the best interest of those who are, quote, materially affected by our conduct. Anthropic does have five different voting classes. The class F, which is for the founders that I mentioned. There is a class T, which they talk about being the board of directors. And that's sort of the public benefit trust there. And then overall, guys, very limited, say, in terms of public shareholders and having any influence on how this company is actually run.

5:41There is a risk of dilution in all this. They call that out here. Anthropic is reserving about 5 percent of its shares for the benefit of the public. They're going to hold that in a separate Trust. Then talk about this 50 percent rise in valuation. Every time that happens, they can allocate more shares. So that is one risk that's being called out here. Then almost 100 pages of explicit risk factors in the S-1 politics, a big one we're hearing about, the political environment they say could add to heightened scrutiny and political backlash. There is the risk of the models themselves. They describe self-preserving behavior and existential risk here.

6:15They say Models have exhibited and may in the future exhibit unexpected strategic or self-preserving behaviors and attempts to resist, shut down, conceal or manipulate information or generate outputs that could be interpreted as coercive, deceptive or manipulative, including behavior resembling blackmail. Access to compute is listed. If they don't secure enough compute, they say they may be unable to train models that remain competitive. Customer concentration as well. Just two customers accounted for nearly a quarter of revenue for Anthropic last year and about half of sales in the first half of this year came through those cloud marketplaces.

6:51Some of those marketplaces are also investors. So you have Amazon, you have Google, Microsoft as well. Debt, a risk here if they fail to raise additional capital, I should say, on acceptable terms or experience any adverse developments affecting liquidity. They may be unable to satisfy these obligations. And finally, guys, direct competitors. They only mention OpenAI and Alphabet directly, but they do talk about open weight and open source models. Maybe being able to capture a portion of the marketplace for certain use cases. They say that could put pricing pressure on their offerings or lead to certain customers adopting more of those alternatives, which could put pressure on margins and the entire business, guys.

7:33Yeah, that's why everyone thinks token prices are going down. Kate, just to combine, so the governance questions with the safety risks, like who is in charge of making the decision of whether to throttle or slow down model releases if that's in direct conflict with the commercial success of the company? The benefit trust here. So they have this long term benefit trust, which is basically to make those big decisions. So whether that's who to elect to a board, but also what to do about safety. You'd imagine also that the co-founders here, the seven of them, have the ability to say, you know, we should slow down if it's not in the best interest of humanity.

8:10And again, that dual mandate. You have to, on one hand, obviously, you have your fiduciary duty and you have shareholders, especially now when this company is public. It used to be a small group, you know, folks like Matt Murphy, folks like Bessemer, who, you know, were the shareholders. Now you're going to have a much broader shareholder base. You have that on one side, but then you have this also very vague sort of nuanced public benefit issue, which they're trying to they basically can call the shots on it is an easy way to say it. I mean, they they have this duty, but there's really no way.

8:44And there's nothing in here explicitly that says, you know, when they would throttle a model or shut something down. It's completely up to the discretion of the founders and this board. Leslie, would it have been reasonable to expect more numbers on the current quarter, or is that just too recent for this kind of filing? I think it's pretty recent. We should be getting those hopefully before they launch a roadshow, which this S1 has to be public for 15 days before they start officially marketing the deal. So before you start seeing a price range, you can kind of back out some sort of valuation range from that, and offering size, we should get a sense of those Q3 financials, which, of course, were shared with a group of investors privately in those testing the waters meetings before the S1 was disclosed.

9:33And in those, we learned that the top line, this is based on people who's familiar with the matter, was about$16.8 billion for Q3. That's more than the entire first half of the year. Although, as Kate has been reporting, that could insinuate slower growth for the top line, which may be read through as a bit of a red flag, although the growth numbers on an absolute basis are still very, very strong and impressive for a company of this size. So is the cash number, Leslie. Approximately$131.7 billion in cash, cash equivalents in short-term investments. Why does this company have to go public right now?

10:09I thought the same thing, Sarah,$131 billion in cash. I was like, am I missing a comma here? No, it is$131 billion in cash. But they have to go public in what they say in the prospectus, in terms of use of proceeds and so forth is just because of that insatiable demand for CapEx, demand for their building out of their infrastructure, buying more compute and so forth. So$131 billion sounds like a lot to the two of us. But, you know, as we've seen in this AI world, you can go through that pretty quickly over time. You know, the other reason to go public in this environment as well is once you have a public currency, it gives you much more flexibility to raise other types of capital, usually on a cheaper cost of capital basis.

10:54So if you wanted to go out, as Kate was talking about, and raise additional debt capital, if you have a public stock and you have all these disclosures around it, it can usually be a little bit easier than if you're a private company. The key question is going to be what type of credit rating they're going to get as a result of all of this. I know that they had been pushing for investment grade, as we saw with SpaceX. but there have been some credit rating agencies who came out and said that they would not be that. Leslie, Kate, thanks, guys. It's been fun going through this. I'm sure we'll do more during the course of the day.

11:27Kate Rooney, Leslie Picker. For more on the S1, joining us here at Post 9 this morning with us is Wellington Management, Head of Late Stage Growth and Investor in Anthropic, Matt Whithiler. Matt, welcome back. It's good to have you. Thank you so much. I guess the general read is nothing's too shocking. It's good that it's out. We've talked about some of the wrinkles in the actual filing. What's important to know? in your view, for viewers? I mean, I think a lot of what is in the S1 was kind of broadly known, but I think for me, at least, the biggest takeaway is the fact that now we can all see that this question of, is this profitless prosperity?

12:02Can Anthropoc keep growing, but just losing unbelievable amounts of money is probably not true. I mean, if you look at the S1, the first half revenue grew 1 ,400-ish percent year over year, and CompuCross grew 300 percent year over year. So all of that means that actually this revenue growth is being supported with real profit, with real dollars at the end of the day. Do you think that are the risk factors expansive enough for you to consider all scenarios? There's like 200 pages of risk factors out of the 500 page prospectus. I think the risk factors are incredibly comprehensive. And I think that they went above and beyond in kind of disclosing what Anthropic believes to be some of the biggest risks in the business.

12:43So is this a good investment for people? I mean, I think it totally depends on what it prices at, what Q3 looks like. But I think broadly speaking, it is our belief, kind of both the private and public side of Wellington, the full picture is that AI really is a differentiator in a real new technology transformation. Do you guys own it? We do own Anthropic, yeah, on the private side, out of investments we made in the past. I guess my biggest question here is, and hinted at is, what is the anthropic moat? If you're going up against all these open-weight models, which are continuing to gain traction and much cheaper, and then open AI and meta and Alphabet, as all the models get better and more on par with each other, why does anthropic stand out?

13:28I think what you'll see in the prospectus and what you'll hear the company talk about is that the frontier is the place you have to be to accrue the most value. And I think, as you heard in the last segment, when you're talking to Matt at Menlo, 80 % of the revenue comes from models that are six months old or newer. And that's because the disproportionate amount of revenue that these companies are generating are not the legacy models. They're not the open source models, the open weight models. They are the frontier models, the ones that can be the highest performant. And so I think that Anthropics mode is if their argument in the S1 is that they have the best team, the best culture, the best technology to actually deliver at the frontier for an extended period of time.

14:12The other interesting, I think, evolution in the narrative is that it's really an enterprise. That shift to enterprise was really important, wouldn't you argue? I think absolutely. And they take effort in the S1 to call out the fact that$100 ,000 plus customers, 12 ,000 of them,$1 ,000 ,000 plus customers, 1 ,300 of them. $10 million plus customers, 250 of them. And so just the scale at which they've been able to capitalize on the enterprise opportunity is really something that's been impressive. And when I first sat down with Dario back in 2023 and had breakfast with them, that was the singular mission.

14:53The singular mission was let's focus on the enterprise. That is how we are going to win in this AI space. Other people can have other parts of the pie, but the enterprise piece is the part that we're focused on. Did the market over-index attention on Claude, on consumer Claude? I mean, I think the market used consumer Claude as a proxy for the enterprise adoption. And I think if you read the S1, there is comparatively much less reference to the consumer product than there is on the enterprise side. Because I think what Darion team are trying to build is really the next generation of great enterprise company, starting with coding as kind of the first S-curve, now migrating into biology.

15:30There's a lot of talk in the S1 around the bio opportunity. And then even hinting at the physical AI, the robotics opportunity that Anthropic is chasing. The other thing we haven't really talked about, but they did confirm in this release, is the committed shares, 5 % or of its fully diluted equity, that it's going to be giving basically to public benefit fund, philanthropy almost. How as an investor should you think about this? Is this like a good model for capitalism or is it just going to be diluted? I mean, I think at the end of the day, we'll see how it actually pans out because this is pretty unique.

16:05But I do think that there is one aspect of this that is absolutely dilutive, right? You're taking 5 % of your company and you're giving it to... It's perpetual dilution for a social cause, right? That is right. And I think the question is, is that in the benefit? And I think Anthropic argues in their S1 that it's in the benefit of the company and the public to set aside this dilution. but you can definitely take a different point of view, which is to say this is perpetual dilution, in the same way that dilution by option grants to your employees is perpetually diluted. But you don't have a problem with it as a public, you won't have a problem with it as a public investor?

16:42I mean, I think generally speaking, it's going to factor into how the company trades, how it performs, because it ultimately impacts what the share price will be. So it'll get factored in. What about the control of the company? There's an enormous amount of power from both the founders and this independent board. Do you have a problem with that? I mean, if you look at almost every other tech company on the planet, they also have the same dynamic. The only difference in this situation is you have this long-term benefit company that is also part of that decision-making process. But the fact that the founding team, the seven of them, have voting control is no different than what Facebook looks like or any of the other AI names that we talk about.

17:20There is a real interesting element of social responsibility in the model, which is starting to get written on paper. That's a big part of the filing. Matt, thank you. Great to have you. Please come back in the next 15 days. Thank you so much. I definitely will be back. All right, coming up on the show, former Federal Reserve Vice Chair Rich Clareda joins us. We'll discuss his expectations for this week's meeting. Anthropic does warn about the ability to raise money as a risk in the S-1. We're joined by S &P Global's head of digital infrastructure. why he says many of the hyperscalers likely have more AI-related debt than is known.

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19:08This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash market update podcast, or find Schwab Market Update wherever you get your podcasts. Welcome back. The market is widely expecting the Federal Reserve to keep rates steady on Wednesday, pricing in around a 90 percent chance that they hold.

19:47But a December hike remains firmly on the table. Joining us now with more on what to expect is PIMCO Global Economic Advisor and former Federal Reserve Vice Chair Rich Clarida. Welcome back. It's good to have you. Glad to be on set. So is there anything that you think the market is mispricing about what the Fed does or where it goes? No, I think this is the correct assessment. You know, we had a lot of Fed speak since the last meeting, not so much from Chairman Walsh, but we heard from President Williams. We heard from Waller. We heard from Jefferson. And I think pretty clearly their messaging was that they can afford to be patient.

20:19That means that they'll probably skip this meeting. All eyes will be on the chairman's press conference. But we do expect at least one more hike at the December meeting. But why would they hike last time if what we've seen since then is just inflation getting a little more problematic and not hike this time? Is it really about the midterms? It's a very good question, Sarah, and I would expect that we'll get a question like that at the press conference. Because if anything, the inflation data has been disappointing since the last meeting. It's been coming in on the hot side. We'll get GDP growth this week.

20:55week. It's going to probably be gangbusters, maybe three plus percent. So a very logical question for Chairman Warren says, why skip this meeting? You removed a dose of accommodation in September. I'm sure I'll have a crisp answer, but it's a good question. Do you think shelter is less of a tailwind than it's getting? The supply is getting soaked up. Yeah. So what happened, Carl, was that we had a big burst in shelter inflation in 21 and 22. It then came down very gradually. But it's been to pick up. It's been rents have been picking up in the last six months or so. And that's a big part of the basket.

21:32And so that's one of the many parts of the economy the Fed's looking at now. Shelter inflation, also goods inflation has picked up since two years ago. So you think December's a go? Very, very, very likely. Yes. And from there? Well, we do think to sound very boring, we do think it will be data dependent. We do think that right now the markets, depending on the day you look, have priced in either one or two hikes after December. And we think probably a third hike could happen. That would in some ways take back the rate cuts that we got in the fall of 2025. We'll be data dependent, but certainly we don't see this as the beginning of a very prolonged or extended rate cycle.

22:15As someone who has been there as a central banker, what do you make of the new Warsh communication doctrine and the fact that he's not comfortable himself giving forward guidance or clues about what comes next? Well, he certainly telegraphed that in the years before he became Fed chairman. He was never really a fan of forward guidance. He thought the Fed talked too much. Is it working, though? Well, what he has done, and I think it's important, is he's taken forward guidance out of the FOMC statement. And so we may not have formal committee guidance during the years of the Walsh Fed. But, of course, Fed officials, presidents, governors get on CNBC.

22:52They give interviews. They give speeches. And they can and do share their views about rate paths. We heard it from Williams, Jefferson. We've heard it from Logan, Hammock, Kashkari. And so the Fed, because it is a committee and because Congress said rate hikes require a committee vote, will be getting information from FedSpeak, even if it's not formally in the FOMC statement. So you think the market is able to then still price? Well, so far. Yeah. Obviously, you know, the dots have their critics. And in my time as vice chair, I had, I think, a love-hate relationship with the dots. But if the dots don't exist and they may be eliminated as part of these task forces, so long as Fed officials give their individual views about the outlook, we'll be able to piece together, I think, a sense of where the committee may be going.

23:38Where do you think inflation is going? How problematic are the readings that we're seeing that would lead the Fed to have to keep responding? Well, the story coming into this year was really tariffs in the rearview mirror. And I think the evidence is tariffs are fading out of the inflation picture. Then we got hostilities in the Middle East, higher oil prices. And so I think the Fed was willing to look through tariffs in the rearview mirror and the oil shock. I think the new development really since the spring is we're all getting up to speed on how massive the CapEx buildout is among hyperscalers.

24:14I mean, it will probably contribute north of a point to GDP growth this year, potentially more next year. So this is occurring in an economy that was already operating at full employment and potential output. And because we really haven't had an investment boom of this scale in maybe 100 years or ever, it's hard to calibrate how persistent this will be. You know, eventually, and we believe at PIMCO, productivity gains from this investment will pay off. And it could be disinflationary down the road. But right now, as the chairman indicates, we're seeing it as inflationary. There's been some debate about that lately, about whether or not margins for the non-tech S &Pers are showing any indication that productivity is on the way.

24:53But you think it's coming. Well, we've had a good improvement in productivity really even before the large language models, if you look at the data. It's a wild card. I think we're in the camp that thinks it will begin to show up in the data. The big question, though, is how is that divided between profit margins, between wages, between earnings? And again, a lot of uncertainty about how that split happens, even if you get the productivity boom. There is a good note out of Goldman today. We're starting to see clearer signs that the AI impact is spreading beyond tech. The share of firms that have adopted AI in regular business functions now show statistically significant negative correlation with employment growth.

25:33That's getting spicy. Well, I saw that piece, and we've done some good work on that as well. Again, it's early days, and I don't think anyone really can pretend to have a lot of precision or conviction about the magnitude of this. The direction of travel is pretty clear. More productivity. a bigger pie. The question is, how is it split among workers, firms, and margins? How ugly do you think it gets in the credit markets around some of this with borrowing costs up for these neoclouds and everyone else? Yeah. Thank you, Sarah. One of the themes we highlighted in our secular essay called Rupture and Resilience that we published in June was we did say in that essay in June that we think we have seen the beginning of the turning of the credit cycle, especially in pockets of the private credit markets that have expanded rapidly.

26:23And now you're also seeing it in the public markets in terms of wider spreads. Again, spreads ultimately are going to rise and fall with the cycle. And we don't think a recession is imminent. So we don't see this as the beginning of a massive widening of spreads. But certainly the credit markets are beginning to do a good job at distinguishing among companies. You know, not all tech companies or all companies face higher spreads. And it is reflecting the borrowing to some extent. But it doesn't get worse as the Fed continues to raise? That's not our base case overall, but certainly individual companies and sectors may have wider spreads as we work through this.

27:00I think PIMCO did suggest maybe a 10-year at six was a possibility going forward, yes? Well, that was a hypothetical answer to a hypothetical question. We also have said and believe that we've had a generational reset in bond yields. And so for a fixed income investor, you've got high starting yields, you have a good global opportunity set. And perhaps not surprisingly, we think this is a good opportunity in fixed income. Of course, rates have traced and retraced a lot of that upward move. I haven't looked at it in the last 10 minutes, but we're below 5 % today. And with that starting yield, a high quality fixed income portfolio can have a coupon of close to 7%, which historically is a good return.

27:44Well, Rich, thank you for coming in. Yeah, thanks for having me. Appreciate you talking to the Fed and everything else. Richard Clarida, who's now PIMCO, former Federal Reserve Vice Chair. When we come back, we'll get a closer look at why shares of Brazilian stocks are definitely plunging today. There's a look at just a few. Plus, we'll get an early read on demand for the new iPhone Duo, which hit the stores over the weekend. We're back in just a moment.

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29:29Fidelity Brokers Services, LLC. Member NYSC SIPC. Welcome back. Let's get some stocks to watch this morning. Shares of Brazilian companies, including Petrobras and New Holdings sinking this morning after President Lula's surprise victory, winning an unprecedented fourth term, overturning a first-round loss to beat Senator Bolsonaro. Chip stocks are up, picking up steam in the last hour. Names like Arm, NXP, Intel, all near the top of the NDX. And the neoclouds, like Corweave, have turned sharply higher. Shares of Lockheed Martin getting a boost as well. Morgan Stanley upgrades to overweight, says a new framework agreement on F-35 sales provides a significant de-risking event, and a lot of the defense names have been on a tear last few weeks.

30:12Yeah, another three and a half percent almost for Lockheed. Time now for a news update. Frank Holland has it for us. Frank. Hey, good morning, Sarah. A federal judge has ruled the Trump administration unlawfully fired career prosecutor Maureen Comey. Comey's the daughter of the former FBI director James Comey. She was dismissed from the Manhattan U.S. Attorney's Office last year without a stated cause beyond presidential authority. She argued the firing was political retaliation. Today's ruling also states that Comey is owed retroactive reinstatement and back pay from the time between her firing and when she was hired as a partner at the law firm Patterson Belknap.

30:45Election Day could bring an unprecedented wave of poll monitors. Democrats and voting rights groups plan to deploy tens of thousands of observers while the Department of Justice and Republican aligned organizations organize their own efforts. The buildup comes amid growing concern over election interference, voter challenges and disputes at polling places. And Dictionary.com is maxing out its word of the year. The site picked maxing for 2026, slang for optimizing something as much as possible. Editors say its popularity reflects an increasingly online culture obsessed with doing more, even when that phrase is used as a joke.

31:18Carl, back over to you. All right, Frank, thanks very much. Coming up, do the hyperscalers have more AI debt than we currently realize? We'll discuss with S &P Global's digital infrastructure lead after these new capital raises from Meta and SpaceX. And later we'll speak to UBS's Ali McCartney about which sector she's bullish on right now. We're back in just a moment. Welcome back. Some of the biggest names in tech announcing massive capital raises to finance their AI buildouts. First, there's Meta planning a$95 billion stock offering to fund infrastructure and superintelligence. And then there's SpaceX this weekend.

31:51Elon Musk saying the company closed a$40 billion debt deal to buy AI chips. Joining us now is Mark Habib. He's digital infrastructure sector lead at S &P Global Ratings, who recently warned that hyperscalers likely have more AI debt than we currently realize. Mark, thank you for joining us. What do you mean? What kind of numbers are you looking at? Well, thanks for having me on, Sarah. And what we mean by that is there's the reported debt that the hyperscalers have on their balance sheet. But in addition to that, there are commitments that they are entering into, for example, into data center leases or purchase commitments on chips.

32:27that aren't necessarily treated as debt, at least not until the time that they come on stream. So what we're trying to do as a rating agency to try to provide more visibility to the market is to capture those commitments and bring them onto the balance sheet as liabilities to give a fuller picture of what kinds of obligations they're actually entering into. But the whole reason they're doing that is to be off balance sheet so it doesn't mess with their credit ratings, right? Well, in part. Part of it is also so that they can manage their cash flow. If they have somebody else that is making these investments rather than them directly, then they're able to, instead of raising debt, enter into a lease arrangement or a purchase order.

33:12But what we're trying to do is, indeed, kind of what you're getting at, capture those liabilities so that investors have a better picture of what kinds of risks are involved and so that we can also bake that into our ratings. So do ratings, does this move the needle on ratings then, Mark? Well, we published on this just last month to show with all of the adjustments, just how much debt, adjusted debt, the hyperscalers have on their balance sheet and how close they're getting to their ratings triggers. In the case of Oracle, it went past the threshold and we lowered them to triple B minus, which is just one notch above speculative grade in our rating system.

33:52And for the other hyperscalers, we've tried to show graphically how much headroom they still have left. So far, they're all within the limits for their existing ratings. But they are indeed getting close to the downgrade thresholds and have reduced headroom compared to where they sat one, two years ago. Do you guys have a view as to whether or not CDS, which we put up those all the time on a five-year, for example, you mentioned Oracle. Are those a reasonable gauge of credit risk? Well, they're an important indicator, and it's something that we do look at. However, it's important to kind of emphasize that our ratings really reflect the fundamental analysis and take a longer-term forward view of credit risk.

34:36The types of indicators you're mentioning, whether it's credit spread, CDS, or just current pricing on debt, they tend to be much more volatile. They can move with news up and down. And our ratings are meant to be a bit more long-term, a bit more stable. So we definitely look at those indicators and consider whether or not they're telling us something new, something that we need to add to our analysis. But ultimately, our ratings are not based upon them. They're really based upon a fundamental analysis. How would you think about an anthropic, for instance? Can you get a company with hundreds of billions of dollars in AI spending commitments for compute, even with extraordinary revenue growth?

35:13Can that be an investment-grade company? Well, it does depend on how much debt they're ultimately going to look to raise. But I think what you're pointing out raises certain challenges, right? I mean, the amount of commitments that they've made, and they just released their S1 earlier today, it's still quite new, haven't gotten all the way through it. But we know from a prior kind of leaked S1 that they had something above$500 billion in commitments that they were pointing to. And that does raise the question, well, is the monetization opportunity enough to justify that level of outlay of investment.

35:48So that's something that we would definitely be looking at in our credit analysis. And I think the big question is we've seen a huge ramp in terms of revenues, but how sustained will it be? How much visibility and certainty we have that those revenues will arrive and justify the investment levels is the fundamental question. All right, well, keep us posted on that one. There's a lot of interest. Mark Habib, thank you from S &P Global. Still to come this morning, we'll talk to UBS's Ali McCartney about why she sees the S &P going to about 8 ,100 by the end of the year. Plus, Apple reportedly asking suppliers to increase production to help meet demand for that first foldable phone.

36:26We've got the first look at some of the early numbers on the duo. We come right back. We've got a news alert for you now on Microsoft. Kate Rooney with the story. Kate. Hey, Sarah. So Microsoft is offering voluntary buyouts. This is to about 60 ,000 workers. It comes as this company has been looking to cut costs and really try to reshape its workforce around AI. They're calling this a voluntary exit offer in a blog post right now. 60 ,000 is the number of people that are eligible for the offer, so not necessarily the amount of people that will leave or are expected to leave. They say in this blog post the program is covering teams in the U.S., Canada, India, and the U.K.

37:04There is a quote here from Amy Coleman, the chief people officer on Monday. She said workers will receive benefits that are similar to a standard severance package and that the offer gives eligible employees who may be considering a future outside the company a new choice to make that transition with support. It does follow, guys, a buyout offer to retirement age employees that we saw back in July from Microsoft. At the time, more than 30 percent of those employees that were eligible did accept. But it is another example of this entire AI build out. Companies like Microsoft are spending more on CapEx, more on infrastructure.

37:40It is really reshaping the tech workforce. And this is the latest example with Microsoft. Yeah, a lot's been said about how their revenues have exploded and headcounts basically stayed flat. Yeah, yeah. This is a great example of that. And they are trying to encourage employees before they have to go and do proper layoffs. This is usually a precursor to that and a way for companies to get ahead of that without needing to do mass layoffs, sort of giving people the option. But it does tend to be sort of the canary and coal mine ahead of layoffs. OK, thank you for that. Kay Rooney, West watching Microsoft.

38:15Tech is leading the major indices higher on the back of that anthropic IPO filing momentum. Our next guest thinks will continue as we do push deeper into earnings season. Joining us at Post 9 this morning, UBS Alignment Partners private wealth advisor Ali McCartney. Ali, great to have you in. Good morning. I wonder, where are we in sentiment right now? We do have a few things in front of us, whether that's the midterms or the Fed or actually earnings to a large degree. We're in a position right now where there's a lot of binary reactions in the market, right? You have great consumer spending. That's keeping up.

38:47Sentiment's getting weaker. You have a weak hiring market with a lot less immigration. We just heard what Microsoft is doing. You have some narratives that you have a really low unemployment number and you have some narratives that people are hiring more to keep up with increased productivity of AI. So we have a little of everything, but I think ultimately what you're going to see in the next couple of weeks, post midterms and then into 2027, is there going to be two narratives that are going to drive markets and one narrative that's going to hold it back. Those two narratives that are going to drive it are going to be AI revenue, not AI spend, not the cost of credit to build AI, not the circularity, but AI revenue and productivity growth.

39:31The second is going to be the path of the Fed. You know, if we get some good, relatively hawkish news today, a series this week from the Fed, if we start to hear that the path of maybe what's priced in of 70 to 85 more basis points of cuts, so we stay under a percent of cuts in this cycle, I think that's actually going to prove to be a tailwind. I think the big overhang we have is Iran and oil. So ultimately it's net bullish, Because the AI revenue question is still kind of out there. Like, will it be enough and how fast does it come to justify all the spending? And then the Fed one, too. It's not clear what the market is OK with in terms of interest rate increases.

40:14Yeah. So, look, if you just look back at history and you look at hiking cycles where you stayed from the peak in the 10-year, you stayed under 100 basis points of total tightening. Markets have outperformed. When I say markets, I'm talking about the S &P for all intents and purposes here. The S &P has outperformed its historical average over the next six months and then over the next 12 months with an average of about 15 percent return. I think if you have a supportive macro backdrop, you have the micro, the fundamentals of earning and you continue to have AI tailwinds, then you're going to see that.

40:48You know, we had a sort of an AI fright cycle earlier this year, which was a lot about deleveraging. I think this cycle is a little different. It's less about deleveraging and more about sort of a general re-rating and a concern about that profitability. I know I saw some pieces this weekend that were sort of pro and con. Will they or won't they? Is it or isn't it? In terms of AI profitability accruing to anybody but the hyperscalers. You know, so I think that's a question that's out there, too. When you have an average company that's coming in with about 14 percent earnings growth and the AI story needs to at some point, whether it's in currently in one inning, in one year, it really needs to permeate the entire S &P sort of sector allocation.

41:34It needs to permeate. And I hear anecdotally from clients in the public and private market that are management at these companies, that whether they're in health care, whether they're sort of in old world manufacturing, oil services, that they really are seeing meaningful upgrades in their ability to get things done and what forward margins would look like. But obviously, there's a drag on input costs in oil right now. So on the way to 8 ,100 year end, does that require some kind of gut check to the 200-day in the meantime or low 7 ,000, somewhere in there? Yeah. So I think what we have to focus on is the ultimate long-term path.

42:11And I think what we are seeing in markets, whether it's through AI, whether it's through same-day options, whether it's sort of the movement and algorithm and AI trading, I think what you're seeing is a real focus and a swing towards short-term trading. And so I know I've been on this a lot where I've said, like, I have to look at the macro and the fundamentals, and then you have to sort of marry the technicals with it. And the fundamentals, again, look really good. It's hard to imagine a Fed that is going to derail this, given where we are with housing, given where we are in terms of the national debt.

42:50And it's hard to imagine that AI is not going to continue to create opportunities for meaningful growth. It's just it has changed the composition of what a defensive company looks like and what a growth company looks like. And so I know this morning the conversations that you've had on this show have been, one, anthropic and AI, and two, the Fed and the path. So that's what we're going to see these the next few weeks. Who's defensive now? Who is defensive? Yeah, in this environment, because you said it changes the definition of what's defensive. Well, look, I think a lot. Oh, so, you know, a hyperscaler used to be a complete growth company.

43:30Then it all of a sudden had a ton of cash on the balance sheet. And now it's a growth company again because it's investing that cash in the future. So in a sense, there were a lot of whether individual or institutional investors that were using those not as growth companies. and, you know, but really just as plain beta. And, you know, they are increasingly a part of beta just in terms of their market cap. But what has become sort of a growth at a reasonable price births a defensive company. You know, that's changing. And I think what you're seeing and part of why you saw the sell-off last week is a lot of active managers are having a lot of trouble keeping up with this market.

44:10Yeah. And that does remind us why this week's prints out of Google, Microsoft, Amazon, we're going to learn a lot. Allie, thanks. Good to see you. Allie McCarty. Squawk on the street. We'll be right back. As we've been covering the iPhone Duo hitting store shelves last Friday, Mackenzie Sigalos joins us with an early read, Mackenzie, on how demand looks for the new phone. So we now have the first sell side availability and channel checks on Duo's opening weekend. Walk-in inventory is essentially gone across the markets that analysts are tracking. And delivery waits are still nearly three months.

44:39IDC is holding its estimate at 7 million Duo shipments this quarter because of supply bottlenecks. JP Morgan calling that constrained availability a positive signal and says that the broader iPhone lineup is also proving resilient despite the price hikes with 18 Pro and Pro Max lead times now right in line with last year's 17 super cycle. The less encouraging signals are in the secondary market. You've got resale premiums in China falling to as low as 10 percent versus 50 percent expected, potentially a key tell because that's been the largest market for foldables there in China. And some owners are reporting bright lines, dead pixels and inner screen failures around the hinge after very limited use.

45:19No words yet from Apple on that. The durability question is especially important because Duo is just one part of a broader product blitz under Apple's new hardware minded CEO. This morning, Apple unveiling an eight and a half inch OLED iPad mini, surprisingly close in size to Duo's inner screen. But starting at just shy of$700 versus$19.99 for the Duo. And Wednesday, Apple is expected to unveil its first touchscreen MacBook Pro. One week from today, we're going to get the official read on whether these demand signals are translating into revenue when John Ternus has his first earnings call as CEO.

45:54Quite the hardware push. Thanks, Mac. Mackenzie Sagalos on Apple. Let's get to the judge. 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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