11AM Hour: JLL CEO, Generac CEO & Big Tech Earnings on Deck 10/28/26

0:28A minute, a minute, a minute, a minute. Introducing Fidelity Trader Plus, the next generation of advanced trading from Fidelity. Customize your tools and charts and access them seamlessly across desktop, web, and mobile. For faster trades, anywhere you go. Try the all-new Fidelity Trader Plus. Learn more about our most powerful trading platform yet at fidelity.com slash trader plus. Investing involves risk, including risk of loss. Fidelity Brokerage Services, LLC. Member NYSE SIPC. Good Wednesday morning again. Welcome to Squawk on the Street. I'm Sarah Eisen with Carl Quintanilla, live from Post 9 of the New York Stock Exchange.

1:05Today, a new AI cybersecurity warning from Sam Altman. Hear what has the OpenAI CEO, quote, shocked. Plus how AI data center projects are giving a boost to real estate from JLL. Shares are jumping after delivering a Q3 beat, raising its guide. Christian Ulbrich will join us to discuss. Also, the CEO of Generac is with us following quarterly results. How he says Big Tech's CapEx buildout is reshaping his business. Fed meeting looming here this afternoon for the time being. Pretty tight range here. Dow's up about 75. S &P back to 77. 28 or so. Tenure has been maybe a little elevated on the north side of five, which has been really pinned to last few days.

1:45But we'll learn a lot more at 2 and 2.30. I mean, we might, right? Because this is a Fed chairman that doesn't want to give forward guidance. So we got a lot of it from some of the other members of the Fed. The question is, will he hint at December? What does a hint even look like from this Fed chair? if they do not raise interest rates today, which the market doesn't expect at all. About 9 % odds of a hike this afternoon. Then there's the memory story. We'll start with SK Hynix jumping today after reporting record profit, those results lifting the broader chip sector. Arcema Modi joins us to talk about this incredible jump in revenue, the shareholder returns, the delayed IPOs, and a lot more, it seems.

2:21It's a fascinating earnings report, Carl. SK Hynix really reinforcing the AI growth story with his DRAM and high bandwidth memory effectively sold out through 2029, and that the shortage, they say, could last for another four years, adding that the structural supply, demand, and balance in the memory market, where demand outplaces supply, that continues for the time being. So management confirming it's also previous plans to take its subsidiary Soladyne public is officially off the table for now. The catalyst, they say, is the big drop that we've been seeing in semiconductor stocks as of late.

2:53Bank of America analysts saying the Soledigm staying unlisted does remove a potential overhang because there were concerns around existing shareholders being diluted. That, coupled with a huge buyback, increased dividend, SK Hynix plans to return about$75 billion to shareholders. Now, that's lifting confidence. You'll see the stock is up today. Even some of the other memory players are higher as we await SanDisk earnings. And we even point to the debt side of things, guys. Bank of America adding that hyperscaler credit spreads have eased the biggest two-day period of spread tightening in about four months, guys.

3:31So is the memory trade back on? Feels like it's really hot and cold lately. I think the big concern was, I think the conversation we were having around pricing, whether this was as good as it gets. I think SK Hynex, the story that they're conveying to investors is that the demand story remains intact and that they still have some room for pricing to increase because the shortage is very much going to stay the same for the next four years, Sarah. Meantime, Seema, you've been all over the Oracle story at AI World yesterday where Altman made those comments about cyber vulnerabilities. What struck you about that?

4:06Yeah, that's right. Now, Sam Altman made making a surprise appearance during Oracle's AI World keynote and sat down to answer some questions from Oracle CEO Clay Mugurik. The discussion began with the news of the day, that new agreement between Oracle and OpenAI to provide more access to tools like ChatGPT and Codex directly on Oracle's platforms. Then the conversation shifting to security and the role of AI to help companies find new vulnerabilities. Altman was candid about the task that lays ahead. If I could recommend like only one thing to a company right now to do with AI in the very short term, even more than like become super productive with codex, it would be to really understand the security threat landscape from from AI and mitigate against that.

4:57Altman went on to say that he doesn't think the industry will be able to patch all the bugs one by one. Instead, he thinks the industry needs to rely on new types of security services that are constantly monitoring traffic and looking for attacks, raising new questions, of course, about what kind of opportunity this creates for these cyber giants like Palo Alto, CrowdStrike, Fortinet, especially after that massive global PHP breach that we saw last week. Altman adding that it's ironic to hear him, the CEO of OpenAI, talk about security saying, quote, you're creating the problem now. You're telling us we have to spend more on work and security.

5:33But that was a point that he really made. That's something that investors and corporate America needs to wake up to. Do they have are they working in concert with some of these security companies, the CrowdStrikes and the Palo Altos, to make sure that their own technology keeps up with the with what the frontier presents as far as cyber risk? Since cybersecurity has become more front and center, you've seen the conversation increase between the cybersecurity incumbents and the frontier labs. I would say there's one specific product out there that CrowdStrike is working in tandem with OpenAI. But we know that there is now just more transfer of information between the two subsectors because the risk is so robust.

6:14But that is something that we're going to watch closely for, Sarah. OK, Seema, thank you. For more on the broader market, let's bring in our next guest who recently downgraded his rating on the tech sector from overweight to neutral. With us here at Post 9 is Deutsche Bank chief U.S. equity and global strategist Binky Chata. Welcome back. Thank you. Why the move now? So if you look at the performance of mega cap growth in tech relative to the rest of the S &P 500, it's a very, very clear trend channel in place for more than 10 years now. And so the downgrade was just because it was getting a little too far and we were very close basically to the top.

6:50So the risk reward looked poor. We got the underperformance. We're getting a little bit of a bounce. We're, you know, in the lower half of the range now. We're not really quite at the bottom yet. And what I would emphasize is that this is a purely tactical call. We've seen five of these rotations and I'm calling in and out one rotation. So otherwise you would call them 10. And they've pretty much taken place like clockwork once we get to the top. And they've been, unfortunately for investors, as we call it, you know, V-turns rather than gradual U-turns, which is without warning. How long do these channel cycles last generally?

7:33So the big one was from October last year and that went on for five months. I'd say the average is closer to three months, some indication that they're getting more frequent, which makes it more difficult and choppy markets. So it's possible you could revisit in a matter of weeks. I mean, I was wondering, did you not even want to wait for the bulk of hyperscale earnings? It's been moving very fast. And so if you're on a publishing schedule, it's kind of hard to do. It's faster to trade than to write a piece. They have been getting very fast. So you don't worry fundamentally about peaks, peak earnings growth, peak CapEx spending on the AI build out, any of those kind of lingering concerns?

8:14So, you know, I think the really interesting thing about earnings growth is whether you're talking about tech or you're talking about the S &P 500 as a whole. If you look at the bottom up consensus, it has, you know, relatively sharp deceleration for this quarter from our numbers of 34 percent last quarter to 27 percent. And, you know, it does look like another inverted V. But what I would point out is that it's been the case for years now. The bottom-up consensus has, you know, definitely has a big impact on people's perceptions. They've been looking for basically a sizable deceleration. But the timing seems to continuously get pushed out.

8:56So we're talking about 32%, 34 % growth for this quarter. If you look at the bottom-up consensus for the fourth quarter, that's already at 30%. And remember that earnings typically beat the bottom-up consensus. Not only is it already at 30%, it continues to get upgraded. So not a concern at this point? Not at this point. I mean, the deceleration is inevitable at some point. But right now, I'd say, you know, the three big drivers in terms of AI demand, in terms of cyclical growth, in terms of oil and commodity prices, they're all, you know, kicking in a synchronized manner. And that is why we're getting these very, very high growth numbers.

9:46You think the biggest upside catalyst to multiples would be an end to the conflict or something else? It could be multiple things. We continue to believe that it is earnings that are very important. And so this evening and tomorrow evening are absolutely key. In terms of the conflict, I mean, it's been going on for quite a while. And I would argue, sure, you know, it has short-term temporary impacts. But unless and until that starts to really slow growth and that shows up in earnings and is clear sort of evidence, I think it's just sort of temporary pullbacks and rallies until it starts to impact the growth.

10:28So we do also have the midterm elections. So we have plenty of catalysts. So on the tactical tech downgrade, do you put that money to work somewhere else? Do you park it in something else in the meantime? Sure, you just raise our cyclical exposure is the way that I would put it. But again, to emphasize, we were very positive on tech and the fundamentals. It's really a tactical call that has to do really with relative performance and positioning, which is the biggest driver. Do you think the midterms are a market catalyst? I think they can be. I think, you know, if you look, and I think I've said this here before, a midterm election Q4s have been generally very positive.

11:1321 out of the last 23 saw, you know, the market rally. Average rally is 7 percent. So something to think about. On split governments? Yes. I mean, I've always sort of viewed it as a check and a balance. We've had over the last couple of years plenty of policy uncertainty. So in the sense that, you know, there is a check and balance and reduces the potential volatility of policies, various policies. that should be very positive because the state of corporates is, you know, as good as it's ever been, I would say. There's been this theory floated that the S &P 493 are not getting the margin expansion that you would expect at this stage from AI.

12:00You got a problem with that? No, I have no problem with that. First off, I would say that if you look at, you know, tech, I mean, if you look at S &P 500 margins, we're at 15%. Historical highs used to be 10%. A lot of that is basically coming from tech, no doubt about it. But if you look at, you know, the rest of the S &P 500, so excluding tech, margins are up. Now, some of that's due to energy, but they're also up elsewhere. But I don't think it's AI that's raising those margins. It is simply, you know, growth is picked up and it's volumes and operating leverage. And, of course, commodity prices.

12:41I think it would be a bit early to expect that you would start to see that in the margins. But do you think maybe a 27 phenomenon? Definitely a maybe. I would say that we are likely to see, you know, volume growth pick up first. And then it shows up in margins. Yeah. And then we wonder if layoffs come as well. I think the reverse, actually. So, what I would say is, you know, I talked about the second engine of what's going on in terms of earnings, which is a pickup in cyclical growth. And by that, I really mean, and I'm pointing to the ISM Manufacturing Index, which went vertical in February and has continued basically to go up.

13:23It's true the U.S., also true globally. And if you look, if you take the U.S. labor market, you break it up into two. There's a part that trends, as everybody knows, which is education and health care. So there is not too much information. And looking at the monthly change, it's a very, very clear trend line. But if you look at the rest of private employment, which I'm going to call cyclical employment, it tends to be very, very correlated with the ISM manufacturing. And it has actually picked up. And, you know, if hiring is picking up, you look at real wages and real incomes, they've been essentially stagnant since Liberation Day.

14:05So for quite a while, very, very unusual. They generally follow productivity growth. Today, there's a gap of about four percentage points. So I would argue if companies are hiring, you know, real wages will start to rise. And that would be the next leg of the broadening. very positive always we can always count on you for the positive spin Vinky thank you very much it's a pleasure good to see you a couple of big earnings interviews coming up today we're going to talk to the CEO of JLL as the company reports a record quarter where they're seeing strength in commercial real estate right now plus the CEO of Generac joins us on the heels of a revenue miss we'll also discuss their recent deal with Amazon back in a moment legacy credit scores only look at a brief snapshot in time and that limited view often leaves millions of qualified credit seekers out of the picture.

14:56VantageScore is changing that by modernizing credit scoring. VantageScore uses 400 % more credit and alternative data to create a fuller picture of financial behavior, including trended credit data, rental payments, and timely utility payments. VantageScore safely broadens access to the credit economy and brings 5 million mortgage-ready borrowers into the market. That's why top lenders like Rocket Mortgage, as well as nine of the top 10 banks, rely on VantageScore 4.0. With higher predictability and greater access to credit, everybody wins. Get started at VantageScore.com. Weren't agents supposed to take things off your plate?

15:34Building another to handle the others is a bit much. Don't make more work out of work. Gemini is the one agent that knows all parts of your business and actually gets stuff done. You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S.

16:12and 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 to Squawk on the Street. JLL pacing for its best day in nearly four years today after the commercial real estate firm posted a record third quarter on the top and the bottom line. Company also raising its target for earnings for the full year. Joining us this morning in a CNBC exclusive is JLL CEO Christian Ulbricht. Christian, we were just talking about this is a move for the stock at a time where we're thinking about rates.

16:52We're thinking about societal pushback at data center. Can you explain what's going on? Well, I would say the movement in our stock over the last couple of weeks has been just too negative. And so we are just regaining some of the ground which we have lost over the last couple of weeks. Our business continues to perform really well. And also from an outlook, we have very little hesitancy going into 2027. Is it about office or data center or all of the above? All the best performing asset class is clearly industrial. That is true around the world. And it's very much true in the U.S. and it will continue in the U.S.

17:30We also see very strong performance in the retail asset class. Office is doing reasonably well, but it's more in the low single-digit gross rates. And then on the multifamily side, the picture is a little bit mixed in the U.S., but overall, as you can see, the market environment allows you to show strong performance for your clients, which then translates into good financial performance for your company. I think you just said, Christian, you expect the data center demand to continue. I was just wondering if you're seeing any kind of cooling demand on the investment side with the rate move, because there have been fears of that in the market.

18:11Well, I was talking about the industrial space, and we should just be aware that the biggest part of the industrial space is still logistic, and that is driving very, very strong. With regards to the data center, that business is obviously an important driver of the overall development, because it's so material for our daily lives that we get those data centers up. And as you know, the biggest constraints is still access to power. And then we have in some parts of the U.S., but also in other parts of the world, more and more resistance against new data centers which are coming up. But I think that will play out in a better way if the communication around why do we really need those data centers is becoming more active.

19:05But have you seen any evidence that the investment is cooling around data centers? Not at all. I mean, the demand for those data centers is so high that there is more demand than data centers can come to market over the foreseeable next couple of years. And so nobody is pulling back. It is the lack of access to power, which is the biggest constraint. and everybody is working very hard to find access to power. And people have to become creative how we can deliver enough data center capacity for the massive demand from various industries. And this is also very much driven by consumer behavior, for their health care, for everything they do.

19:47We need those data centers. On office, I'm very curious. You point out that companies have picked up more office space than they've let go in the past five quarters. five quarters in a row, although you also add that finding prime office space getting maybe a little harder to find. Yeah, that is true. We have a very strong demand. We are at a new peak level post-COVID in office demand. And yes, you're right. New development is a bit slower than we would hope for. There would be more demand for high quality office space in the right locations. But there's very little new development coming to market.

20:31So that drives rents up for the best buildings. And it will also help kind of the next quality buildings that they will be upgraded so that they meet the expectations of potential tenants. So how has the rate move, Christian, impacted the major asset classes? There's a difference in between them, isn't there? Yeah, absolutely. I mean, the increase in interest rates, you know, we have to remind ourselves the absolute level of interest rates over a 30-year horizon is still at the lower end, not at the higher end. And therefore, markets can easily digest interest rates at that current level. What markets don't like is if the move is too random and if the future is unpredictable.

21:19We need in an asset class like real estate, predictability is very important. But we have to remind ourselves interest rates are just one component of the cost of capital. And then a very important component on top of that is what is the outlook for the rental income of a property. And so there you see the biggest differences amongst the asset classes. For example, industrial, the outlook for the rental levels is still very, very positive. So that asset class has been almost unimpacted by the rate increases. For offices, it depends a little bit around the quality and the location that has been impacted.

21:58The biggest impact of the rate increases was around multifamily because we have areas in the U.S., especially in the southern belt, where there was a bit of too much development going on. And so there is not enough rental increase possible to offset those rate increases. And that's why this asset class has been the slowest in the third quarter. Although we've had some discussions here about multifamily and how that supply, which you point out was large, is beginning to get soaked up. There's worries that maybe people who couldn't move into homes are renting and you will see rents improve or I guess get worse in multifamily.

22:38Well, you know, everything at the end of the day comes back to what is the economic development. them. At least the numbers I have seen most recently is that the global economic development will be in 2027 slightly better than in 2026. And hopefully that is also true for the U.S. And at the end of the day, if people have great jobs and when the income goes up, they will be able to afford those rental increases, which will then help to absorb those developments which have been developed over the last couple of quarters. Finally, it sounds like you're getting a little more aggressive on buybacks, am I mistaken?

23:16Well, I mean, we have a very high cash flow and we expect that to continue into 2027. We witnessed, obviously, what happened to our shares over the last six, eight weeks. And therefore, we always have to reflect what is the best use of our capital going forward. And looking at our share price, looking at our outlook, we think this is a great story for our shareholders if we increase our buybacks. And that's what we did. Really quickly, Christian, how do you use AI in your own business? I mean, I don't think of real estate, you know, as the most tech friendly, but I'm curious what you're seeing and productivity savings, what you employ, what, more than 100 ,000 people worldwide.

24:00How is it working? Well, first and foremost, I always say real estate services is a data business because we are collecting an enormous amount of data on behalf of our clients and try to turn that into valuable advice to them. And whenever you have a lot of data, and in our case, a lot of proprietary data, there's a huge opportunity using AI to really deliver higher quality services to your clients, be more efficient. And that is what we are doing. So AI is for us a very, very important factor. and it's part of the performance you have seen now over several quarters playing out that we are able to increase the revenue per hat and to increase the value to our clients by using AI.

24:47Christian, shares definitely responding to the quarter, as you point out, and obviously a lot of buckets where your business is active are key to the overall markets. It's always good to have you. Thank you. Christian Ulbricht over at JLL. Still ahead, shares of Stellantis are rallying this morning. We're going to break down what's driving that move higher. Some big tech names reporting this week, especially tonight, those first two. We'll talk to a top analyst about why he does prefer Microsoft going into those results. We're back in a minute. This message comes from Wise Business, the only account your business needs to scale globally.

25:22You're building a business with global ambitions, but hidden fees are eating into your margins. With Wise Business, you can pay overseas suppliers without exchange rate markups. Have customers worldwide get payment details in 22 currencies so you get more of each hard-earned payment without hidden conversion fees. Be smart. Get wise business. Download the app. T's and C's apply. Weren't agents supposed to take things off your plate? Building another to handle the others is a bit much. Don't make more work out of work. Gemini is the one agent that knows all parts of your business and actually gets stuff done.

25:59You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading.

26:34Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts. Welcome back. Stellantis shares are rallying after earnings. That's as we await results from Ford this afternoon. Phil Abou joins us with more. Phil. Sarah, quite a day for Stellantis. The company reporting results early this morning in Europe. And while it's still a loss for the quarter, as you take a look at shares of Stellantis, keep in mind that it's a 95 percent improvement compared to the same quarter a year ago. So still a loss, but an improvement.

27:11And one reason why the stock is rallying is not just that the results were an improvement sequentially and year over year, but it's the guidance. They reiterated it for 2026 in terms of the targets that they put out there a couple of months ago. More importantly, they still expect positive free cash flow in 2027. And they are expecting higher deliveries in Q4 relative to Q3. The cost cuts, they also say, are ahead of schedule. More than$6.7 billion or euros worth of cost cuts have been announced. And they say, look, we're going to exceed that. So the turnaround has momentum. That's why Stellantis is having its best day since April of 25.

27:49After the bell, we get Ford results. And I get this question all the time. What do I focus on when Ford reports its results? Commodity cost pressures. We saw this with General Motors. What is Ford seeing, especially in the last couple of months? Demand and pricing always in focus with Ford when it's reporting its results. And then finally, what progress is the company making when it comes to its next generation EV? Remember, that comes out. We'll see a prototype in the first quarter, production and then deliveries later in 2027. In terms of numbers to look for, earnings per share estimate is 40 cents a share.

28:23And finally, take a look at shares of Mercedes-Benz. Why are we looking at Mercedes-Benz? Company announcing today that it is going to be offering voluntary buyouts as it tries to continue to deal with cost pressures, especially given what's happening with competition in China. China used to be the growth engine for the German automakers. No more. The cost competition has been immense in China. And as a result, you see Mercedes-Benz saying, we're going to be doing voluntary buyouts as they try to further streamline the business. By the way, guys, their Q3 revenue down 4.5 percent. Yeah, between Microsoft and Mercedes, starting to watch that buyout offer story.

29:07Pretty interesting going into year end here. Phil, thanks. Thanks, Phil LeBeau. Let's get a news update with Frank Holland this morning. Hey, Frank. Hey, good morning to you, Carl. The price tag for the Orion War so far reportedly totals at least $47 billion. That's according to Pentagon data obtained by Reuters and would represent a 25 % increase since a July estimate. According to that data, more than$29 billion would go to replace munitions, while more than$6 billion would be needed from Congress to replace so-called platform losses, which include aircrafts and drones. A grand jury in Washington reportedly declined to indict former White House aide Cassidy Hutchinson.

29:39That's according to multiple reports. The exact nature of the charges brought by the Department of Justice were not clear, but Republican lawmakers had accused her of lying under oath during her testimony to the January 6th committee. And left-wing streamer Hassan Piker is suing right-wing commentator Scott Jennings for defamation, alleging Jennings invented a quote and played a doctored video of Piker to falsely accuse him of calling for black Americans to be lynched. Piker is asking for more than$72 million in damages. Jennings has yet to comment. Sarah, back over to you. Okay, thank you, Frank.

30:11Still ahead, the CEO of Generac will join us. Talk, having a volatile morning after a revenue miss. And don't miss the Treasury Secretary joining Brian Sullivan today, 4 p.m. Eastern time. Squawk on the streets, back in just a minute. Welcome back. Take a look at shares of Generac lower this morning after reporting a revenue miss in Q3 with earnings coming in above consensus, delivering nearly 30 % growth in commercial and industrial net sales year over year, driven by surging power demand from data centers. Joining us now in a CNBC exclusive is Generac CEO Aaron Youngfeld. It's great to have you back here.

30:42And so isn't the story here that you're seeing a ton of growth because of the data center business? Why haven't investors caught on to that? Yeah, we are seeing a ton of growth. We had a record quarter in the third quarter. So, you know, when you look at the set here for in particular 2027, as we were, and, you know, we're just trying to deliver our products now. Next year, we're basically seeing a path where we're going to double the size of our commercial and industrial business on the back of that data center market. Do you think that investors just see this as a short term as the build out is in full effect, which eventually will peak?

31:19And now there are concerns about that, given some of the financing conditions. Well, I'll tell you what, if it's short-term at all, we're not hearing that from any of our customers. I mean, our customers are pretty clear on the fact that this is something that, you know, is, for them, you know, they view it as a five - to seven-year cycle at minimum in terms of the build-out that's required. So I think it's just one of those situations where, you know, I think the market is maybe waiting for us as a little bit of a show-me story, make sure that, you know, we're going to be able to deliver on the ramp that we've got for next year.

31:47What's happening with pricing on power as the build-out intensifies? Yeah, pricing continues to increase. We've seen market pricing for these types of systems grow over the last three or four years. That's because demand is exceeding supply, and it remains, right? I mean, there's a tremendous lack of supply around the products, and it's why we've had success so quickly. So right now, we think we're more capable, but there could be additional opportunities there depending on how fast the market continues to grow. Having a little trouble with your audio, but we'll stick with it for now because I want to ask you about residential as well.

32:29Net sales increasing 9 percent. So what's the split of the business right now? And what are you seeing in terms of trends there for people's homes? You know, the residential business continues to be expanding their scale.

32:53I don't think we can hear. Aaron, I'm so sorry. We have to cut you off. It's a bad, fuzzy connection. Our bad. Thank you. We'll try to get you back on, though. We appreciate you joining us on the big surge in the 28 % numbers, really, the story here, Carl, commercial and industrial net sales. But again, stock is lower, and it's kind of flat over the last year. A lot of interesting sort of dynamics regarding, as you said, data center, hurricane season, household creation, all very much pertinent to the color of their quarters. Yes. When we come back, Brazilian Senator Bolsonaro arriving in the U.S.

33:26today after facing that defeat in their presidential election. We'll get you some details when we come right back. Generac's Aaron Yagfeld joins us this morning having fixed his audio issues. Aaron, I did want to get you on some supply stuff, especially if we're going to ramp up capacity for data center generators. A lot of the engine supply is sort of China based, is it not? It is. Yeah, our current supplier has factories in Asia, primary factories in Asia, but also in Europe. So opportunities to get supply from those countries as well. You know, the footprint for data centers like our projects are worldwide.

34:00So actually having the engine capability, we've done projects in Australia, having the ability to package those machines in our factories in Asia and get the supply from Asia has been very helpful in that instance. But we continue to look and work with that supplier. You know, there might be additional opportunities to add supply here in the U.S. That's an interesting point. Yeah, we always think we have sort of this, you know, sort of a bias that data centers are only U.S. based. There's a ton of them all around the world. We also want to talk to you about storm activity. Normally it's a big driver, at least the narrative around the stock.

34:33It's been a little suppressed this year. Are there any suggestions that would change going into next season, perhaps? Yeah, I think, you know, we try to stay away from playing meteorologist here because we're not very good at it. But when you think about just kind of longer trends, right? And yes, this season didn't really materialize in the Atlantic. Actually, last season didn't either. So it's kind of back-to-back years without, you know, a lot of activity there. But that was kind of offset by pretty active weather patterns in the Midwest and the Northeast. So we saw customers in those markets where, you know, years past that we haven't seen as much activity.

35:10It's been more concentrated along the Gulf Coast. Here we saw great activity in the Midwest and the Northeast. There is, you know, there's kind of a prevailing thought that with a strong El Nino year, maybe the winter weather. We've already had, what, one, maybe two nor 'easters come up the coast on the East Coast. And so there is a thought that perhaps the winter weather could be stronger in the Midwest and the Northeast and on the coast. So I think people kind of have to pick their own viewpoints on that. But as I said before, the resiliency of the residential market is amazing. Almost 7 % of U.S.

35:41households now have this product category. But that said, 93 % don't. And power outages are crippling. I mean, they're not only dangerous for people in their own homes, they cause property damage, but people are working in their homes more, you know, so they lose their livelihood, the ability to do, you know, do work. And it's just it's an unbelievable beyond inconvenience. And that's why that category is worth it. Is it worth it? How many people that buy a generator actually end up having to use it? Oh, it's I don't know if it's 100 percent, Sarah, but it's close. I mean, as Americans, we experience more power outages than any other industrialized nation.

36:18The average number of hours per year is over eight hours per year per homeowner that, you know, the power's out. And while that doesn't sound like a lot, that's the average, right? So you've got homeowners who are going days without power. If you were in Gary, Indiana over the summer and you didn't have a generator, life got very primitive very quickly. So I would tell you, is it worth it? It's worth it if you have one of these products and the power's out. I mean, it's amazing to have this product to protect your home and your family. Was there a moment finally, Aaron, when we were getting sort of that new generation of EVs that you could ostensibly use to power your home or your fridge for three hours?

36:52Did you sense that as a threat at the time? Yeah, you know, I think we continue to watch that, right? Like the whole storage market in general, but the electric vehicle market in particular, obviously adoption has slowed down there. But if you think about it, you know, if you're going to use your EV as your backup strategy in your home, you're effectively trading mobility for resiliency, right? So if the power's out and your vehicle is the only way you're backing up your home and you need to leave because it's unsafe or you need to go get something, you can't do that. So we think that a standalone product for resiliency, be it battery, be it generator, we think that's the right approach.

37:27Yeah. Well, certainly, I would argue maybe a third, maybe half of the conversations at this desk revolve around power in general. So you're definitely in that space. Aaron, apologies for the audio issues. Glad we cleared them up. Talk soon. Thank you. Thank you, guys. It wasn't a power issue. Just an audio, a little fuzziness. All right. Brazilian Senator Bolsonaro is arriving in the U.S. today after losing the presidential election in Brazil this week. Megan Casella joins us with the latest. Megan. Guys, good morning. So as of this morning, Flavio Bolsonaro has landed in Miami. You can see photos here of Bolsonaro and his family getting off the plane at the Miami airport a couple of hours ago.

38:05And his arrival caps off what has been a tumultuous few days. He lost the presidential election on Sunday to the leftist incumbent President Lula. He then refused to concede, threatened to annul the result, was ordered to hand over his passport amid investigations over money laundering and tax evasion, and then fled the country. Now, State Department officials have confirmed they would issue visas to the Bolsonaro family. That's according to multiple reports. And President Trump also said late last night that he would approve of Bolsonaro coming to the United States. He called the family fine people.

38:35He also called the election terrible, said it had gotten bad reviews, and pointed to the negative reaction in Brazil's stock market. President Trump had also, earlier this week, called Brazil's election rigged without citing any evidence. Now, Bolsonaro's loss was a fairly big surprise. You can see the market reaction there. That's what President Trump was reacting to. And this loss does a few things. It hands President Lula an unprecedented fourth term in Brazil. It bucks a recent trend of right-wing leaders being elected across South America, Peru, El Salvador, Colombia, Argentina, all on that list.

39:05And it marks something of a loss for the Trump administration. They had wanted to see Bolsonaro take the presidency in order to have a close ally of the White House leading Brazil. That said, President Trump has said that he likes and gets along with President Lula as well. Guys. Yeah, I was just going to ask what the trade situation there was between Trump and Lula, U.S. and Brazil. It's obviously a huge trading partner, major agricultural exporter to the U.S. And I think that part of the market's expectation is that a friendlier relationship with Bolsonaro would have been more beneficial for the trade.

39:42That's absolutely right. And there's sort of a backwards way that Lula's win could also help the agricultural ties. Think about things like orange juice, coffee, beef, all of those coming from Brazil. And remember, the Trump administration had put steep tariffs on Brazil last year explicitly because of the treatment of Flavio Bolsonaro's father, the former president Jair Bolsonaro, who was banned from office after attempting a coup. That was the reason that President Trump initially said explicitly that he was putting 50 percent tariffs on Brazil. There were also some strict sanctions put on as well.

40:11Some of those have since been softened. But now that this election is over, maybe we'll see some of those tariffs and some of those sanctions come off because there has been a lot of reporting from Reuters and others that a lot of the reasoning from the Trump administration behind all that was to try to get Flavio Bolsonaro elected. Now that hasn't happened. Now he's in the U.S. Maybe we'll start to see a shift in policy as this administration says, well, we've got to find a way to work with Lula. Yeah, I mean, Trump definitely had a warm relationship with his father. That's for sure. Thank you, Megan.

40:38Megan Casella. When we come back, Alphabet and Microsoft earnings on deck this afternoon. We'll talk about what to expect with a top analyst right after a quick break. Welcome back to Squawk on the Street. Microsoft and Alphabet gearing up to report after the bell. Our next guest says the two stocks are trading at their most attractive valuations ever and are insulated from some of the changes in the AI trade. DA Davidson Managing Director Gil LaRoya joins us this morning. Gil, welcome back. Good to have you. Thank you. Is Microsoft your favorite of the two tonight? It is, but the preference for Microsoft over Amazon and Google this quarter is a slight preference.

41:14Earlier in the year when Microsoft was beating down and the stock was trading at a big discount to Google, we were very heavily favoring at Microsoft. Right now, it's a slight favor. The reason is the multiples have converged. All three of these companies are now trading between 21 and 23 times next year's earnings, which are probably numbers that are going up. So they're very attractively valued on accelerating revenue with stable to improving margins, which is to say good returns on their investments in AI. The slight preference to Microsoft is that as it happens in Q3, OpenAI gains share from Anthropic, as we learned from the numbers over the last couple of weeks.

41:56And remember, Microsoft has more exposure to OpenAI. Google and Amazon have more exposure to Anthropic. Yeah, well, it's easy to forget, but last quarter's print was largely about that positive surprise on Azure, right? That's right, and we're going to get another one. The growth in Azure will likely be in the mid to high 40s, up from 43%. And again, that's on a very large business, and it's drawing a lot of other business from Microsoft. What's important to note is that not only is it already a good business to rent out AI compute from Microsoft, because they get the premium price. It also draws a lot of enterprise software with it.

42:38Infrastructure software, application software, they're raising prices, they're bumping people up to higher price subscriptions. So it's drawing a lot of the rest of the business from Microsoft as well. I mean, isn't the whole thing what the CapEx numbers look like? Or is that well telegraphed at this point? Because that's been a driver of the stock performance, either upside or downside when the market gets a little jittery about how much spending is going into all this. That's right. These companies have to thread the needle. They do need to increase capex and they've already communicated that they're going to do that, but not too much because they don't want to communicate that the spending is out of control.

43:20And in Microsoft's case, they are still free cash flow positive. Unlike Google, Amazon and Meta that are now free cash flow negative, going to the capital markets, raising equity and debt, Microsoft is still free cash flow positive. If they can maintain that and guide that that will continue, that's less pressure on the stock because there's less capital needs. They probably don't need to borrow or issue stock like those other three. But then is it as well positioned competitively on compute? Oh, they're again growing Azure in the mid to high 40s. They'll still invest more than 200 billion next year.

43:58They'll have plenty of capacity. Microsoft is also playing this game of offloading capacity to NeoClouds. They're not building their entire data center infrastructure that they need to meet demand. They're actually offloading a lot of that to those NeoClouds for temporary supply until they ramp up their own data center. That de-risks them. It reduces the cash needs, and yet they can still meet demand. So they're playing it slightly differently than Google and Amazon. Speaking of neoclouds, Gil, some of your comments made the rounds the other day on a podcast regarding CoreWeave. I wonder what you make of it having bounced at 51, if that's sort of the low for now.

44:40Well, I think the AI trade came back this week as we had a very positive read of the Anthropic S1, and that's benefiting everybody. It's a rising tide situation, but We still maintain that Corweave is a poorly constructed business that is really a negative carry trade. They generate poor returns and have very high borrowing costs. That's great right now when the price for compute is super high and they can sell it in the spot market for very, very high prices. As supply even just starts to catch up to demand, that goes away. Not to mention the fact that the capital markets may seize up for this entire class of companies.

45:18We're already starting to hear Meta say, look, we're going to raise capital before it runs out. If capital runs out for Meta, it will not be available for any of the neoclouds. The game of musical chairs will stop and Corwee will likely not have a seat to sit down. So you think the Musk guppy line, you think that's relevant to that whole industry? Guppy deaths. Very much so. I mean, there's dozens of neoclouds, maybe hundreds of neoclouds at this point. There's very little differentiation there. And again, it's an arbitrage business. They're capitalizing on the fact that prices are really high.

45:53Just like those very same companies, when Bitcoin was doubling every couple of months, were making a lot of money mining Bitcoin, and then those businesses went away. It's a similar situation here. There's very little differentiation. They're not really creating value. Right now, the results will be spectacular. But as supply catches up to demand, as Microsoft, Amazon, and Google build enough data centers that they can meet all of their customers' needs. There's going to be very little need for these neoclouds. Gil, thanks. We'll see what we get tonight out of Alphabet and Microsoft. Appreciate it very much.

46:25We'll get PCE tomorrow, right? Yeah, but all these stories come together today because we'll get the Fed meeting, maybe some sort of read on where rates go. I don't know, he's tricky, that Kevin Warsh, but also the Alphabet and Microsoft earnings. 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.

46:58Such opinions are based upon information Squawk on the Street participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. To view the full Squawk on the Street disclaimer, please visit cnbc.com forward slash Squawk on the Street disclaimer.

47:25Fidelity Trader Plus