11AM Hour: Impactive Capital's Lauren Taylor Wolfe, Former TikTok CEO Kevin Mayer & GM Tumbles After Earnings 10/20/26

0:00Kevin Mayer: Some of the most important design choices are the ones that go unnoticed. The details that together make an experience feel intuitive, comfortable, and above all, exhilarating. At Acura, that means looking closely at how every detail can make your experience behind the wheel more rewarding. Every lesson learned and every idea refined becomes part of what comes next, and it lives inside every MDX, ADX, and Integra. That's precision-crafted performance. That's Acura. With the Discover Cashback card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases.

0:37Kevin Mayer: That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to Discover. Terms apply. See discover.com slash 5 for details. Good Tuesday morning. Welcome to Squawk on the Street. I'm Carl Quintanilla with Leslie Picker in for Sarah Eisen here at Post 9 of the New York Stock Exchange. Today, Impact of Capital's Lauren Taylor-Wolf warned a year ago that we were, quote, absolutely in an AI bubble as global AI risk fears return. She'll join Faber live from 13D Monitor Active Passive Summit today with her latest outlook.

1:12Lauren Taylor Wolfe: Plus, amid continued supply constraints, Apple making a push to expand domestic production of components for its new iPhone models. We'll explain.

1:20Kevin Mayer: Netflix looking to stem its stock slide down 25 percent this year, set to report tonight with questions swirling over its content strategy. We'll discuss the streaming landscape with former Disney and TikTok executive Kevin Mayer.

1:33Lauren Taylor Wolfe: Right now, though, markets receiving a bit of an intraday bounce. You can see the Dow up 1.3 percent, the Russell up 2 percent, and the Nasdaq now in the green up about half a percent alongside the S &P 500, which is up about 0.7 percent right now. Taking a look, Carl, at the banks as well, the biggest Dow contributor today is Goldman Sachs, which is receiving a bit of a bounce probably alongside some of these AI-related companies. Goldman and Morgan Stanley specifically and J.P. Morgan as well are pretty sensitive to the capital markets. And the capital markets has largely been driven by AI. So recently there's been this fear that they won't get as much financing business.

2:16Lauren Taylor Wolfe: They won't get as much underwriting business for the equity capital market side of things. And there could be a potential slowdown as it pertains to M &A related to what we've seen in interest rates. And so all of that has been, you know, created a pressure dynamic on those names in particular. And then I'd also draw your attention to some regionals this morning, which are also receiving a bit of a bounce. Key Corp released earnings. That's up nearly more than three and a half percent right now, fifth third. So the regional earnings have come in stronger than expected, by and large, and that's helping boost the KRE and some specific idiosyncratic regional names as well, as it appears that so far on a kind of loan-making basis, we're not seeing any dramatic impacts of higher interest rates.

3:00Lauren Taylor Wolfe: It's actually been a net positive for the loan-making profitability as opposed to as much of a net negative as some may have feared as it pertains to margins.

3:08Kevin Mayer: Yeah, we should point out that the banks are on pace for the seventh consecutive week lower. And we haven't had that kind of a weekly loss since the financial crisis. So you would expect a bounce would be welcome here.

3:20Lauren Taylor Wolfe: Yeah, I mean, earnings was such a mixed bag. And any kind of little thing that you could pick apart, the market tended to do that. And it was negative sentiment going into earnings as well. And so you'd kind of seen tech and the banks benefiting together. And then you saw the reverse take place in the weeks leading up to earnings as well. And so the numbers themselves, at least with the big banks, weren't enough to assuage some of those concerns. But as you see some kind of new life breathed into the AI trade this morning or at least intraday, that's also seeming to help some of the banking system as well.

3:54All right.

3:55Lauren Taylor Wolfe: Let's get to more on today's market action with HSBC chief multi-asset strategist Max Kettner. Max, I want to get your thoughts on the moves we've seen today. The market opened one way and then we saw oil reverse. We saw the Nasdaq reverse into the green for that move higher. What do you make of today's market activity?

4:18Kevin Mayer: Yeah, we've probably become a little bit too stretched in terms of positioning, in terms of sentiment. I don't really think fundamentally anything's changed in the last two weeks. What we're doing and what we have been doing really, frankly, throughout the last almost now two years is we've got pretty wild price action. And then come the close of the day, we're sort of trying to fit fundamental narratives of something that is actually pretty technical. So I do think the drawdown that we had in the semis and the tech sector in the last sort of week and a half, two weeks has really been fear driven.

4:47Kevin Mayer: It's been driven by, you know, a de-crossing, really de-leveraging across the hedge fund community in particular as well. you know and in terms of when we look at some of the technical signals in the semis things like you know within u.s semis within the socks for example stocks above 50 day above tuna day moving averages that now in part looks worse than it's looked in july so i do think a balance here is probably also just technically driven because again the fundamentals in the last two weeks what's been what's what's gpu pricing what's rental pricing they're doing none of that has changed in the last two weeks.

5:23Lauren Taylor Wolfe: Right. But to your point, sentiment has and the narrative has really taken hold. What do you think would really spark a rebound then in the AI trade? Because I think a lot of investors are trying to assess, OK, if it is positioning and we have seen this big unwind, is now the right entry point to really get in if the fundamental story really holds? Or if some of those concerns do kind of have some basis in fundamentals, should investors be sitting this one out?

5:52Kevin Mayer: Yeah, look, Leslie, you said it in the earlier segment that actually when you looked at Friday, Friday already has been really signs of panic and panic in terms of the index level, not just certain sectors and a rotation within the index, but really on an index level. I think those are usually the sort of catalysts, those sort of flushing out moments where really once you've got that flush out where positioning is so clean and the market's so clean that you say, right, from here on, it's not like we need a positive catalyst. We just need things not to get materially worse and already sentiment can get a bit of a lift, right?

6:25Kevin Mayer: And that's basically where we are. So it's not really like we need a positive catalyst. I think it's already, look at today, it's already enough to say, look, things are not getting worse. Happy days, great, let's move on. Max, though, you must be paying some attention to what credit is trying to tell equities, whether those are CDS spreads or, I mean, high yield. I was looking at triple C last night. I mean, we're talking well into double digit yields on some poorly rated junk. I just wonder, is that a message that equity should absorb? Yeah, I know. Carl, you're trying to make me bearish now, but I would get right.

7:03Kevin Mayer: I think on the on the triple C's, I totally agree with you. Right. That's the fact. The fact is that, you know, seven months ago in at the end of February, beginning of March, triple C's were trading at 500 basis points. Now we're almost at 1100. Look at the spread terms. We're basically almost back at the peak where we were at 2022 with that historic tightening cycle from the Fed. Now, fundamentally, are we really back to that sort of level? Are we going to see such an aggressive tightening cycle? Are we really going to see within CCC's such an aggressive default cycle? Again, very questionable.

7:36Kevin Mayer: Actually, what I would say is when you say what's the signal that credit is sending, I'm much more comfortable with spreads having widened now rather than doing the opposite I would say I would sit here and say look triple c's they've gone maybe from 500 to 600 in the wake of such a repricing of both the front end and the long end of the treasury curve and actually EM credit hasn't done anything these are still you know a year ago they were at 23 now we're at 22 and a half and they're not doing anything if that was the case then I would sit here I would be like, guys, honestly, the market is a bit complacent.

8:07Kevin Mayer: We haven't really seen any pass through from higher rates into valuations, into risk premium. Now we can't say that. We've seen EM credit. We've seen the big, big consensus positions. We've seen them unwind. We've seen triple C's unwind. We've seen a PE, a multiple compression of more than 20 % over the last year. If you look year to date within the NASDAQ, 40 % of the NASDAQ names have seen a multiple compression of more than 20%. So you have seen higher rates really pass through, not only into multiples, but really into risk premium across the board. So what it's sending us, the signal that it's sending us is actually, yeah, higher rates.

8:45Kevin Mayer: It's been now reflected into prices. Now, going forward, the question is, do we think the 10-year has to go to 6 % or probably lower? In our view, it's lower, and that actually should really allow some of the risk premium to free up again. Right. Finally, Max, I wonder, I'd love to get you just on a few things regarding Europe. One is MERS yesterday saying that people are underestimating Putin's resolve in disrupting NATO and Europe. The notion of a trilateral without Ukraine, the notion of Europe going into a winter, energy constrained. I just wonder, what do you think that's doing to sentiment and valuation there?

9:22Kevin Mayer: Yeah, I think in Europe, we are less bullish on Europe. We're really leaning into the likes of Japan, into the likes of U.S. equities, right? A bit of broadening in the U.S., less so in Europe. I think Europe also on the government bond side is going to remain challenged because it's not only the gas story, it's not only the Ukraine story. It's also obviously the story in France. And I fear that the story in France probably has to get worse before it gets better. And the problem also in France is the election is not a month away where we say, yeah, look, there is a fini time, right? in a month's time, we're going to move past that event.

9:55Kevin Mayer: It's another half year. So for me, I think particularly on the France side of thing, on the fiscal side of thing, I fear that this will have to get a lot worse before really the ECB will step in and before we get some sort of backstop. Right now, you know, the market isn't really under stress. Sure, OAT spreads, they're widening against booms, but it's not like we're seeing any sort of stress in terms of financing, in terms of the bank lending side, in terms of primary markets and credit, for example. None of that is applicable right now. So again, on France, I think that's the bigger one to worry about.

10:29Kevin Mayer: It's less so on the gas side and on that. It's probably a dent on sentiment, but fundamentally, France is really the issue right now.

10:36Lauren Taylor Wolfe: That's a good perspective and good context there, Max. Thank you so much.

10:42Kevin Mayer: Meantime, let's get to this AI IPO that's plunging in its debut overseas today. Our Seema Modi has more on Ellis. Morning, Seema.

10:49Lauren Taylor Wolfe: Hey Carl, this is the South Korean data center company pricing at the top end of its range, raising about$150 million in its IPO amid strong retail demand. But yes, plunging on its first day of trade, a sign of just how market anxiety tied to AI has not only gone overseas, but is really plaguing South Korea's once hot market, the Cosby, which is now down roughly 40 percent from June. Memory names like SK Hynix, Samsung have led the underperformance on these concerns around new competitors from China, but also this idea that pricing power may be limited going from here. Ellis's brutal first day, though, follows a series of delayed AI listings.

11:28Lauren Taylor Wolfe: Think about N-Scale, Firmus, SB Energy, which is backed by SoftBank, that Japanese investment firm, recently raising about$11 billion in the junk bond market to cover a bridge loan. And we're told by a source that Masayoshi Sun has spent time in the Middle East recently to raise additional capital due in part to OpenAI's delayed IPO, in which SoftBank is an investor in. Cori did start the day higher and now is up about 3 percent. It has a similar business model to Ellis in that it buys GPUs and then rents them out. We're hearing from credit folks that we won't see a lot of activity in the high yield debt market, guys, before the midterms.

12:04Lauren Taylor Wolfe: Question is just how quickly after the elections we could see activity resume. We will get some guidance from Oracle at its AI World Conference next week, which I'll be attending. And then there's the Investor Day, where JP Morgan does expect the company to raise its fiscal year 2030 targets, contrary to concerns around execution. But what was really interesting is that these broader concerns around AI financing, that has kept Oracle's credit default swaps elevated here, as you can see on the screen, guys. Yeah, Seema, I'm curious because it's fascinating to me. This is a sub-billion-dollar valuation IPO of a company in Korea that when we all woke up this morning saw it had broader ramifications after it plunged on its debut.

12:49Lauren Taylor Wolfe: There were reports saying that it was 500 times oversubscribed from retail investors and that there was demand out there. Do we know why they weren't the marginal buyer in the aftermarket and also kind of the broader ramifications for the U.S. IPO market as well. Yeah, you know, Leslie, I think the timing, I think you would agree, just not the best for Ellis in terms of going public at this moment in which it has a very similar business model to CoreWeave in that it is essentially a neocloud. It buys a number of GPUs and then rents them out to a number of Asian customers. People have been questioning that business model as it pertains to CoreWeave following that 25 % drop it saw in its stock last week about the additional financing measures that company can entertain in the coming months to support its business.

13:40Lauren Taylor Wolfe: And then you have a company with, again, a similar business model in South Korea going public that now faces those very similar concerns. If you look at its financials, it's been seeing revenue trend higher and accelerate in recent months. They have a sound business model and they've got that Asian footprint. and yet the market anxiety, I think, really plaguing its first day performance. We'll see if that changes and how I think it just shows you how interconnected this AI story really has gotten.

14:11Kevin Mayer: Seema, really interesting. Yeah, companies, as Kramer said, that you've never heard of moving whole markets here around the world. Seema Modi watching Ellis today. Still to come this morning, Impacted Capital Managing Partner Lauren Taylor-Wolf is going to join us, discuss the activist investing world, how she's looking at AI right now.

14:28Lauren Taylor Wolfe: Plus, former TikTok CEO Kevin Mayer will join us. We'll break down his expectations for Netflix earnings after the bell today. Squawk on the Street will be right back.

14:39Kevin Mayer: The world is transforming faster than ever, and standing still isn't an option. At Oppenheimer, we're working at the forefront of the innovation economy to invest where progress begins, finding opportunities that build and protect wealth for individuals and institutions that want a seat at the edge of tomorrow. Put the power of Oppenheimer thinking to work for you. Wealth Management, Capital Markets, Investment Banking. Some of the most important design choices are the ones that go unnoticed. The details that together make an experience feel intuitive, comfortable, and above all, exhilarating.

15:16Kevin Mayer: At Acura, that means looking closely at how every detail can make your experience behind the wheel more rewarding. Every lesson learned and every idea refined becomes part of what comes next, and it lives inside every MDX, ADX, and Integra. That's precision crafted performance. That's Acura. With the Discover Cashback Card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to Discover.

15:53Kevin Mayer: Terms apply. See discovery.com slash five for details.

16:24Kevin Mayer: that we're in an AI bubble. I know you've been asked to follow up on this since by some of my colleagues because you were on earlier this year, but let's do it. Where do you think things stand given a year ago? Again, you said we're absolutely, you used the words absolutely in an AI bubble.

16:41Lauren Taylor Wolfe: You're going to come for me with that one. So listen, I think you have to take a step back and think about AI from a consumer perspective, business perspective, and investor returns perspective. From a consumer's perspective, AI is absolutely an incredible tool. It has enhanced productivity. Users love it. But the bigger question is, does it have an effective business model and will it generate investor returns? And when you look at it today, I think there's a big question out there about, will we generate returns on the incremental dollar going in today? You have hyperscalers spending trillions of dollars.

17:18Lauren Taylor Wolfe: I think Goldman estimated between 2026 and 2028,$3 trillion of CapEx on AI. And it remains to be seen in order to generate a return as good as or return on incremental invested capital better than what they've had in the past. You need to expect$5 to$10 trillion of revenues. If anyone's going to do it, the hyperscalers do it. But the neoclouds is a completely, you know, that's a different story.

17:43Kevin Mayer: Obviously seeing a lot of concern there in terms of their cost of capital and ability to raise it. But back to the bubble.

17:49Lauren Taylor Wolfe: Yeah.

17:49Kevin Mayer: The idea that this money is not going to generate return would seem to be something you indicate by saying that it's a bubble.

17:55Lauren Taylor Wolfe: But we haven't seen it yet. So, you know, it's very hard to understand when a bubble might pop. But what we do know is that there seems to be a CapEx race. Hyperscalers and neoclouds are increasingly borrowing, especially with the neoclouds, they're borrowing the cost of their dead. You saw with CoreWeave is going up 15%. The real question is you have an inflating cost of compute and you have a deflating price that customers are willing to spend on tokens. In fact, we've spoken to all the CEOs in our portfolio companies and speak to CEOs just in general in corporate America, even at the banks.

18:32Lauren Taylor Wolfe: And whereas 2025 and 2026 were really experimentation years, Right now, the CFO office is putting a lot of scrutiny on budgets and how much return they're getting on their spend, right? So corporates are going to be held accountable to driving margins and profit increases. If AI and token use is not generating more revenues or reducing costs, I think a lot of that is going to come into question. So with the neoclods, they're borrowing, their cost of capital is going up. There's an inflating cost of compute. The real questions are, will they be able to generate an adequate return for investors at this point?

19:08Kevin Mayer: And you don't know the answer or you think the answer is no?

19:11Lauren Taylor Wolfe: I don't know the answer. And I think the jury's out. And I just think given the quantum of capital, it's increasingly with the rising costs, it's increasingly less likely. There's very little margin of error, particularly for the neoclads. For the hyperscalers, they generate a ton of free cash flow. Well, they used to generate a lot of free cash flow.

19:29Kevin Mayer: But to your point, they're under levered to the extent that they can be, even though they are borrowing.

19:34Lauren Taylor Wolfe: Right. If they're starting to borrow, it was the first year, I think, that we saw Google without free cash flow. So I think there should be a, you know, a microscope and a magnifying glass.

19:44Kevin Mayer: But I think there is. I mean, the capital markets do seem to be examining this. We start every darn show on my nine o 'clock talking about Corwee the last four or five days. So because it is sort of that.

19:54Lauren Taylor Wolfe: Yes.

19:55Kevin Mayer: Poster child, so to speak, for what you're talking about.

19:57Lauren Taylor Wolfe: What it does create is a lot of opportunity for an investment strategy like the one that we pursue.

20:02Kevin Mayer: Well, that's where I was going to go. So thank you for taking me there. Yeah, why?

20:06Lauren Taylor Wolfe: Because we don't look, you know, we're having a great year. We have really no significant exposure to AI.

20:12Kevin Mayer: You're having a great year?

20:14Lauren Taylor Wolfe: We're having a great year, which is nice in small and mid-cap land. But we're looking, listen, we look at three things. We look for good businesses that generate attractive free cash flows where we can engage and come to the table with ideas as to how to unlock value. And most importantly, we're looking to buy those companies and businesses at a significant discount to what we think they're worth. Right. We'll help to close that gap. And so you see a lot of opportunity in small and mid-cap land of high free cash flowing companies that have a lot of different levers to pull and unlock value where we can engage and be contributed.

20:47Lauren Taylor Wolfe: All right.

20:47Kevin Mayer: I mean, you've said small cap. This was, I think, previously when we talked small cap forward PEs worth their widest discount to large cap since the 70s. Is that still the case or are things things sort of narrowed a bit?

20:58Lauren Taylor Wolfe: They narrowed, but ever so slightly. When you look at small and mid cap companies, they're still trading at they haven't had much multiple expansion. They've underperformed on the S &P over the past couple of years. And so we're looking at companies in our portfolio, many companies trading at less than 10 times earnings that are growing their earnings. healthy, high single-digit, double-digit rate. And so the goal there is the market will price it when the market will price it. We don't want to wait for the market.

21:23Kevin Mayer: But also they can often be a victim to rising rates, which we've seen as well. Correct. Typically that does hit small caps a lot harder.

21:29Lauren Taylor Wolfe: Correct. And when you look at the companies in our portfolio, not only have we married high quality businesses, strong management teams, but we're looking at high quality balance sheets. So we're looking at companies that don't have substantial amount of leverage, that can deploy the free cash flows in significantly more creative M &A, Share repurchases, just given how depressed the multiples have been across our portfolio. Yeah. But is there I mean, there seems to be a lack of interest.

21:54Kevin Mayer: You know, I know there are obviously indexes that follow the Russell, but how many investors actually are there helping us determine what the appropriate price is?

22:02Lauren Taylor Wolfe: There there seems to be a lack of interest. But once the tide turns, right, the incremental, if there's a reset in the asset allocation in the market, because of how the quantum of capital there, there should be a significant uptick in small and mid-cap companies. Small and mid-cap companies.

22:21Kevin Mayer: Although if you're right, Lauren, and the bubble bursts in AI, if it is a bubble at all, nobody's going to benefit from that for a period of time. That's going to be really bad for a lot of things, it would seem.

22:30Lauren Taylor Wolfe: Well, there are certain things like where, you know, we've invested in a company called Merriplications where, you know, customers that's had a great year this year. We've worked alongside a great CEO and number two. And they're working on some, you know, some very specific to their business, fixing some of the operations that hadn't been working in the past and really getting their value proposition out to customers. So they're seeing like really great traction there. with companies like WMS, which is, you know, what they do is recycled plastic stormwater and wastewater protection. They have a very strong balance sheet.

23:06Lauren Taylor Wolfe: They've deployed capital very accretively into M &A, but also share repurchases. And they're just a share taker. So even they grew 9 % organically in a market where non-resi, resi and overall housing has been depressed. They have some infrastructure investments, so they have a tiny amount exposed to data centers. But they're taking share because they are 20 percent cheaper than their than their alternatives.

23:27Kevin Mayer: So the name I think you talked about last year.

23:29Lauren Taylor Wolfe: Correct.

23:29Kevin Mayer: Hasn't been a great year for the stock. It is still down.

23:32Lauren Taylor Wolfe: Had a great year last year. This year, as mortgage rates and the housing market has come under pressure on top of that oil prices, which affects their resin prices. It's you know, the expectation is that they're going to have some gross margin pressure. What's what's very interesting about advanced drainage is that they recycle. They're the largest recycle of plastics in North America that people don't fully appreciate. So they recycle half their input. So what happens with this company is they can take share as they're doing now because they are lower price relative to concrete and steel while taking their price up because they have the pressure from oil.

24:07Lauren Taylor Wolfe: And they don't, you know, they keep that margin. So what you've seen with Adantrainage is over cycles, over the past three cycles, they've expanded their EBITDA margin 500 to 800 basis points of each cycle. and we would expect nothing different. While at the same time, they've done these accretive acquisitions, which really diversifies their distribution and their end market. So we think advanced drainage in particular is set up extremely well.

24:31Kevin Mayer: Okay, so you still like it. A year ago, you did. You still do as well. Let me come back as we sort of conclude here in the bigger picture, though. If you're right, if it is an AI bubble, I can make an argument that says if it were to pop, we'd have a recession and it wouldn't be good for anything or anybody's or anything you do in your portfolio to sort of hedge and or make sure that you get some fulfillment out of the potential for that being true?

24:52Lauren Taylor Wolfe: Yeah. In our portfolio, the best thing we can do, because we run a concentrated portfolio where we sometimes take board seats, is to help companies think about in this scenario where we're in recession, what levers do we have to pull to unlock value and protect shareholder value? And I think in this market, that active engagement is really the way to differentiate your returns and to be in control of your own destiny in terms of returns. So if it means that multiples can press even lower, we can deploy cash flow to buy back stock, and that'll set companies up for success in terms of earnings growth in subsequent futures.

25:23Kevin Mayer: Right. And finally, this key question that so many have been trying to answer for years, namely the use of AI, particularly in the enterprise, to create these efficiencies we've talked about. I mean, what are your expectations from your portfolio companies into 2027, which could be a key year in terms of trying to understand the return on invested capital.

25:42Lauren Taylor Wolfe: So our companies are using AI in a way where we're hoping to evaluate, is it accelerating top-line profit, right? Is it accelerating top-line revenues or is it reducing our costs? We have a number of use cases where, for instance, we're using AI or hiring new engineers at a fraction. We can eliminate a number of engineers and hire new engineers to deliver products and services at a fraction of the cost that it would in the past. And so we're looking to really put out the proof cases of those scenarios. But what is, again, very interesting is with a lot of the open source models and lower cost tokens, there's a lot of scrutiny that is now being placed on corporate budgets in terms of what are we using, where are we deploying AI, where is it generating the returns.

26:31Lauren Taylor Wolfe: And so that will affect the demand function to some extent. And that remains to be seen. We haven't seen sort of the second derivative of growth at a lot of these large language models and private companies to figure out how are corporates getting a return on that A &I. But I think every company across the portfolio is thinking about how am I using AI in my organization, affecting my products and services.

26:53Kevin Mayer: Are you using it impactive as well?

26:54Lauren Taylor Wolfe: We use it a lot. Help you identify targets? It helps us to research portfolio companies. It helps us to sort of check our prior work. It helps us to source new ideas. It can look at our memos of things that we've loved in the past and help us to screen for the types of new opportunities we might not be seeing. So, yeah, we're using it pretty. But I will say we started with four different tools and now we only use one tool.

27:18Kevin Mayer: Interesting.

27:18Lauren Taylor Wolfe: Yeah. OK.

27:19Kevin Mayer: Lauren, to be continued. To be continued. Yes. I look forward to that as well. But thank you for today.

27:24Lauren Taylor Wolfe: Thanks for having me.

27:24Kevin Mayer: You're welcome. Lauren Taylor-Wolf. Leslie, back to you.

27:27Lauren Taylor Wolfe: Great interview, David. Always nice to hear from Lauren there. Some excellent points about active management in the age of AI. Appreciate it. Still ahead, GM and GE both heading lower this morning after earnings. We'll take a closer look at those quarters and what's driving the stock moves next.

27:43Kevin Mayer: Apple's expanding its domestic production, adding a new supplier today. Got a downgrade over at Loop. We'll get some details on that when we're back in just a minute. Some of the most important design choices are the ones that go unnoticed. The details that together make an experience feel intuitive, comfortable, and above all, exhilarating. At Acura, that means looking closely at how every detail can make your experience behind the wheel more rewarding. Every lesson learned and every idea refined becomes part of what comes next, and it lives inside every MDX, ADX, and Integra. That's precision-crafted performance.

28:16Kevin Mayer: That's Acura. With the Discover Cashback Card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to discover. Terms apply. See discover.com slash 5 for details. This holiday, all plans, even unlimited, are just$15 a month. A holiday deal this good obviously deserves an enormously expensive holiday song, like all I want. Right. Okay, we can afford that. You know what? Forget the music budget.

28:56Kevin Mayer: We're going to stick with whatever's in the public domain. Give it a try at mintmobile.com slash switch.

29:01Lauren Taylor Wolfe: Upfront payment of$45 for three months,$90 for six months, or$180 for a 12-month plan required. $15 per month equivalent. Taxes and fees extra. New customer offer for initial plan term only.

29:10Kevin Mayer: Greater than 50 gigabytes may slow when network is busy. See terms. Welcome back.

29:16Lauren Taylor Wolfe: GM and GE are both sending out the rally on the back of earnings, although each off the session lows. Phil LeBeau joins us with more. Hey, Phil.

29:25Kevin Mayer: Hey, Leslie, two separate stories. Let's start first off with General Motors, where the story here is concerns about costs and cost headwinds as we move into 2027. Let's take a look at shares of General Motors. We should point out that they did beat on both the top and the bottom line, and they have narrowed their guidance for 2026 earnings per share. However, what they said about costs and cost rising, this was pointed out by J.P. Morgan this morning saying, we believe investors are likely to question conviction for now, given increasing commodity and logistic costs, as well as uncertainty on price mix amidst rising capacity.

30:01Kevin Mayer: Here's the CFO of General Motors talking with us this morning on Squawk Box about what they're noticing in terms of increased costs. We're also calling out a little bit of incremental inflation really over the last two months. We've seen about$400 million of pressure that's creeping in this year, primarily from higher steel, aluminum, logistics costs, etc. That's relatively new. By the way, it's a$2 billion headwind in terms of additional costs this year. That's up from $1.5 billion. That's one of the reasons that spooked shares or investors on shares of General Motors. We should also point out they announced buying back another$20 billion of GM stock.

30:43Kevin Mayer: As for GE, this is a case where concerns about higher jet fuel costs and concerns about perhaps the aviation industry globally might start to slow down even more in 2027. That is why this stock is under pressure, even though it beat on both the top and the bottom line. And look at the numbers within the numbers from General Electric, the GE Aerospace. Orders up 49 percent year over year. Commercial engine profit up 21 percent. Defense and propulsion division profit up 8 percent. and they are raising their guidance for all of 2026. In fact, they raised guidance on a number of areas. That's not enough, though, guys.

31:21Kevin Mayer: As you look at, really, the defense and the aerospace names, they're all under pressure today. It continues to be this concern about jet fuel costs and the possibility that we start to see a real slowdown within global aviation, commercial aviation, over the next 12 months. Guys, back to you. Yeah, definitely got some hawkish comments out of O 'Leary over at Ryanair today about what airfares may need to do, at least in Europe, Phil. Interesting session. Thank you, Phil LeBeau. Let's get a news update this morning with Dom Chu. Hi, Dom. Good morning, Carl. President Trump announced$8 billion in relief for American farmers.

31:57Kevin Mayer: The Harvest Fuel Relief Program will offer one-time payments to farmers hurt by higher diesel prices and other rising production costs. It's the second time in two years the president has offered a lifeline to farmers who are struggling. The Agriculture Department says payment rates for major crops will be announced later on in November. A Google Cloud outage disrupted online banking services across Britain and parts of Europe today. Lloyds, Halifax, HSBC, and Revolut all reported problems with the disruption centered on Google's London infrastructure. Revolut says customer money and data remain safe.

32:31Kevin Mayer: Google says services are beginning to recover, while Lloyds reports its app is operating again and expects a full restoration sometime soon. And Amazon is hiring more than 300 ,000 workers nationwide for the holidays. That's an increase over the past three years when Amazon added roughly 250 ,000 for the season. Seasonal employees earn an average of$20 per hour and starting next year could also be eligible for health care coverage if they work at least 30 hours, Leslie, per week. I'll send things back over to you.

33:01Lauren Taylor Wolfe: It's that time of year, Dom. Thank you. Coming up, former TikTok CEO and Disney executive Kevin Mayer will join us. We'll discuss his expectations for Netflix earning in the streaming space at large.

33:12Kevin Mayer: Plus, tomorrow, do not miss an interview with the CEO of Kroger today, affirming some guidance, setting some long-range targets on comp store sales. That happens at 11 a.m. Eastern right here on Squawk on the Street. We're back in a minute. Welcome back to Squawk on the Street. Netflix announcing yesterday that film chair Dan Lin would exit the streaming giant. That follows the departure, of course, of the company's chief content officer last week, who was replaced by Disney executive Peter Rice. Netflix set to answer some questions around their strategy when they report results tonight after the bell, following a fairly bleak stock performance.

33:46Kevin Mayer: Joining us this morning is Kevin Mayer, Candle Media co-CEO, former chief strategy officer at Disney and former TikTok CEO. Always great for media guidance, Kevin. Great to see you again. Great to be here. Thanks for having me. I was talking to some creatives over the weekend for whom the Bahari exit was a surprise. surprise and I know Netflix has always been kind of a unique in their HR vibe with rapid reassignments but was this really a surprise? Was it an emergency? Well look if you look at the numbers, the engagement numbers, the subscriber growth, it looks like Netflix has hit a bit of a wall, a bit of a ceiling as it were.

34:26Kevin Mayer: I don't know if we can blame it all on Bella. I think she's a very effective executive. She did some great programming there for a long time. But, you know, at some point, if things aren't looking good, changes have to be made. And I think that's what you're saying here. And it's unfortunate that Dan and Bella lost their jobs, but I'm a huge fan of Peter Rice, and I think they made a really good choice there. Right. To the degree there are remedies to be made in content, what would you do? You know, I think they need some more fresh hits, obviously. It's easy to say, hey, make hits. That's obviously the job of the content team at Netflix.

35:05Kevin Mayer: But I think you have to be pretty attuned to where the culture's headed. And I think you need to be just on top of things like that. I think that Peter Rice has always had excellent taste. He does have a finger on the pulse of where culture is at any given moment. He's proven that time again. At Fox, he was very effective, both in the film division and television division. At Disney, he did a great job. I worked very closely with them. I think Netflix has a good shot there, but I also think that Netflix has to be looking to the creator economy, to YouTube, and to the other platforms that are getting so much attention from young people.

35:38Kevin Mayer: They're doing that. They have a program to try to take creators away from YouTube and bring them onto Netflix. I think a little more care and thought and strategy there would be very useful, and I think Peter will lean into that pretty hard.

35:52Lauren Taylor Wolfe: And in terms of live programming as it pertains to potentially sports, I mean, is there much of a read through in Rice's hiring for more of that?

36:05Kevin Mayer: Look, Netflix said for years they'd never be in sports, never be in advertising. And I thought that they were serious about that. Sports are very unique in terms of unique programs. They're able to aggregate massive audiences. They're timed so they're kind of linear, if you will, versus purely on demand. So it does work to keep subscribers engaged, to reduce that monthly churn rate, which is the lifeblood of any of these streaming services, reducing churn and increasing lifetime value. I don't know if we're going to see Netflix go wholesale into big season-long rights acquisitions. It's expensive.

36:40Kevin Mayer: It would, even if the$20 billion content budget, you know, the billions of dollars it takes to get season-long rights of the biggest sports in the U.S., it's a lot of money. I think a pinprick approach that they've been doing, finding the right events at the right time to reduce that churn and to attract new subscribers is what we'll continue to see. But I know Peter Rice is a big sports fan. He leaned into that hard at Fox and at Disney and at Hulu, and we were both on the board of Hulu together. So I think you'll probably see some expansion into sports. I just don't know that you'll see them competing for a whole season of the NFL, for instance.

37:14Kevin Mayer: That'll be an interesting thing to observe. Meantime, we didn't mention, you know, they're doing some layoffs and some restructuring, but they're not alone in that camp. I know Disney's been doing a series of surgical restructurings and closing some divisions. Do you think that's about efficiency that sort of stems from the use of technology? I think it's a response to a very difficult environment that traditional entertainment is now operating in. I put Netflix in the traditional entertainment bucket, frankly. There's headwinds all the way around. It's a very difficult environment. Time and attention is being, again, stolen by TikTok, YouTube, and new media platforms and games.

37:58Kevin Mayer: So if you look at that time and attention being diverted from traditional Hollywood storytelling, film and TV length storytelling, telling, it does create economic pressures. And in response to those pressures, efficiencies have to be garnered. It's not limited to Disney, which I feel for. They're in a tough spot. They have to make these layoffs, and they're doing a number of them. I think Josh is making the tough calls, and Dana, that have to be made. I think you see it at Netflix, but you also see it in the whole combination between Skydance, Paramount and Warner Brothers. That's all about efficiencies.

38:29Kevin Mayer: And that$6 billion synergy number that they talk about a lot, I think they'll hit it. A lot of that is going to be through efficiencies gained through labor force reductions. There's no question about it. It's in response to a very, very difficult top-line environment in entertainment.

38:45Lauren Taylor Wolfe: Netflix's stock has really lagged ever since its failed bid to acquire Warner Brothers, Discoveries, film and TV studios, as well as HBO Max. Is there a case to be made that Netflix should try and buy content again elsewhere? where I know there's a big scarcity component to media acquisitions these days.

39:06Kevin Mayer: Yeah, there's fewer and fewer things to buy as these consolidations keep taking place. You know, was Netflix's bid for Warner Brothers a smart move? Look, Warner Brothers comes along with a massive number of franchises, a very high quality television production and movie production and a big library. There's many, many reasons Netflix would be interested in having something like Warner Brothers. And now there's NBCUniversal, which seems to be will be separated and will be available. Will Netflix try again? I wouldn't be surprised. Again, that combination between their massive distribution engine and the algorithm that they have to get great programming in front of the right eyeballs really does kind of provide lift to a traditional entertainment operation like NBCUniversal.

39:46Kevin Mayer: I'm not predicting that they're going to buy it. The bid from Warner Brothers didn't go so well. And obviously, that precipitated to some degree their falling stock price. But I do think there's a lot of industrial logic behind it. So I wasn't surprised they bid for Warner Brothers. I wouldn't be surprised if they do try to bring in another studio. It's important for them. I just don't know which one or whether this experience of the Warner Brothers acquisition will scare them off from doing it. It's hard to predict. I think the logic is there, though. Yeah. So many shifting sands right now in media, whether that's with portfolios changing or tastes changing.

40:24Kevin Mayer: I mean, we're talking about documentaries today more than we have in an awfully long time. Kevin, please hurry back. Always great to have you. Always great to be here. Thank you so much. Appreciate it. Kevin Mayer, Campbell.

40:36Lauren Taylor Wolfe: Still ahead, are loan defaults and private credit worse than originally thought? We'll break down some new data and discuss which sectors are getting hit the hardest. We're back in a moment. Welcome back. While the headline private credit jitters have largely subdued, defaults and bad loans may be worse than they appear. Robert Frank joins us with more. Robert, that could explain also why we're seeing some weakness in some of the publicly traded BDCs, business development companies as well.

41:00Kevin Mayer: They thought sort of, OK, coast is clear. Now with these rising rates, could be troubles again. And that's because a new report from Moody's Ratings suggests that default rates in private credit may be higher than reported. Moody's looked at over 600 credit borrowers with a reported default rate of 4%. But when they included payments in kind, maturity extensions and all kinds of other delay strategies, They found an effective default rate, not of 4%, but of 5.8%. So that's a big difference. Moody's saying, quote, credit stress is more widespread than reported default data would indicate. The sectors with the largest share of defaults, well, they included business services.

41:39Kevin Mayer: So that's management, consulting, legal and engineering. Also, not surprisingly, included software firms as well as consumer services. Now, rising interest rates also likely to put pressure on private credit borrowers, since most of them are small to mid-cap firms that rely on short-term floating rate debt. And those are the loans that rise first with higher interest rates. Now, for more on the warning signs in private credit and other alts, you can sign up for the Inside Alts newsletter at cnpc.com slash inside alts. It does kind of remind me of Diamond's comments the other day. A little too much pick, I think is how he put it.

42:16Lauren Taylor Wolfe: Yep. Not indicating picker, but P-I-K. Yes. And that was exactly what I was thinking, too, was this idea that there was a lot of pick and borrowers were kind of kicking the can down the road, so to speak. Does it feel like that's kind of come to fruition now?

42:33Kevin Mayer: Well, it's not showing up. I mean, part of the issue that this is highlighting is the lack of transparency. And so they have all these ways now of hiding what would otherwise be a default. And so when you look at the numbers and you dig down, you see, OK, default rate of 4 percent. That's not bad. It takes the Moody's and all their researchers and compute power to dig into the 600 and say, actually, it's 5.8 percent. So the problem, Leslie, is we just don't know because there are all these mechanisms to really hide the real default rate. and who has the ability to really go through every loan and figure out, okay, here's a payment in kind, here's a maturity extension.

43:14Kevin Mayer: This guy really stopped paying, but they didn't report it. And so that's where the lack of transparency and private credit is really going to start to show up. Because wait a minute, you told us it was 4%. You told us this company was non-default. And well, it is in default.

43:26Lauren Taylor Wolfe: Well, it should be the private credit managers communicating that to their LPs, but obviously there's embedded opacity.

43:33Kevin Mayer: Exactly. Yeah.

43:34Lauren Taylor Wolfe: In the system. Really interesting.

43:35Kevin Mayer: Thanks, Robert. Thank you, guys. Robert Frank. When we come back, Apple adding a new supplier today as the company expands its domestic manufacturing. We'll get some details on that after the break. Welcome back. Apple adding a new supplier today as it expands U.S. manufacturing. Our Mackenzie Sagalos has some details. Morning, Mac.

43:53Lauren Taylor Wolfe: Hey, good morning, Carl. So Apple is doubling down on its U.S. supply chain for its two latest iPhones just days before the duo goes on sale in stores. Apple telling me that it will commit up to$100 million over three years to Pennsylvania-based Perryman, which will supply titanium for its first foldable. Apple is also tapping Delaware-based CUNITY to make a key component behind one of the iPhone 18 Pro's new camera features. All of it falling under the company's broader American manufacturing program, with Apple planning$600 billion in U.S. spending even as final assembly remains overseas. But this doesn't do much for the duo's near-term supply crunch.

44:32Lauren Taylor Wolfe: The real bottlenecks are still the hinge and display, with Wall Street now expecting around 8 to 9 million shipments this year, which is fewer than the 10 million-plus initially forecast. Still, it gives the White House an easy win to point to. More of Apple's supply chain moving to the U.S. just as the duo hit stores on Friday. Apple shares, though, under pressure after a rare double downgrade this morning. Loop Capital cutting Apple to hold and lowering its target to$330, saying that slashed iPhone shipments aren't likely to rebound next year. Loop also flagging higher memory costs as a margin headwind.

45:08Lauren Taylor Wolfe: And Moffitt-Nathanson cutting its target to 283, nearly 20 percent below current levels, warning that AI agents could eventually weaken Apple's services revenue, adding pressure to its highest margin business. Next up is Apple's October 28th event, where the headliner is expected to be a touchscreen MacBook Pro. It is a notable reversal after 15 years of resisting touchscreens on the Mac, in part over concerns about potentially cannibalizing the iPad. Guys?

45:38Kevin Mayer: Yeah, really interesting. It seems like every day, Mac, there's been news on Apple, which does remain one of the best Mag 7 names of the year. But the home push, the touchable, the touchscreen on the laptop will get next week. Really interesting, not to mention the supply chain logistics. Mackenzie Stagall is watching Apple. As we've been hanging on to some gains here, there's been some intraday sort of tape disputes on whether or not there would be diplomatic breakthrough regarding Iran. That did have us up with the Dow at least 700 points at one point.

46:07Lauren Taylor Wolfe: Yeah, it feels like you've got technicals in focus today. You've got positioning in focus today, the potential for a bounce in sentiment. I mean, just the fact that the Korean IPO of an AI infrastructure company that no one had ever heard of, at least stateside until today, had such a big impact at the open. And I think people are starting to kind of wake up a bit more. They've had their coffee and really tuning into some of the more fundamental drivers.

46:32Kevin Mayer: Yeah, that plus the mix of industrial earnings. And then we'll work our way into some mag seven names with Netflix and Meta throughout the course, SpaceX tonight, of course. Thanks, LP.

46:42Lauren Taylor Wolfe: 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.

47:13Lauren Taylor Wolfe: To view the full Squawk on the Street disclaimer, please visit cnbc.com forward slash Squawk on the Street disclaimer.

47:43Kevin Mayer: Thank you.