11AM Hour: Kroger CEO, NHL Commissioner & SpaceX Rallies on Earnings 10/21/26

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0:41That's right. I am always right. Investing involves risk, including risk of loss. Zero dollar commission does not apply to customers designated by Fidelity as a professional equity trader. A limited number of ETFs are subject to a service fee of$100. See details at Fidelity.com slash commissions. Fidelity Broker Services, LLC, member NYSE SIPC. Good Wednesday morning. Welcome to Squawk on the Street. I'm Carl Kington, EO with Sarah Eisen, live at Post 9 of the New York Stock Exchange. Today, SpaceX capitalizing on this AI boom with revenue surging in part by selling compute to meet the AI and data center demand.

1:10Companies relying on capital markets, though, to fund its build out. And we'll explore one of the lesser known risks to the tech boom. Just who is paying for all of this? Plus, with grocery inflation expected to accelerate into 2027, we'll discuss how retailers are preparing with the CEO of one of the largest U.S. supermarket chains in the country, Kroger, fresh off the company's investor day. And we're joined by the longest tenured commissioner in American sports, the NHL's Gary Bettman. We'll talk about media rights, sports gambling, prediction markets and potential succession planning. As for the markets, NASDAQ here with a nice gain of almost a full percent, about eight-tenths.

1:48Nice breadth today. You see the 10-year relatively stable at 5.11. But for the most part, NDX, for example, basically at the highs that we saw, I think, on Friday or Monday. Been in a pretty tight range the last few days. Well, the AI trade got a shot in the arm from SpaceX and Supermicro. We'll start there. SpaceX shares are surging this morning after the company posted blowout earnings and guidance. And as Elon Musk says, the board of SpaceX and the board of Tesla are exploring a potential merger. Joining us to break down the results is Oppenheimer senior digital infrastructure analyst Tim Horan.

2:23I mean, SpaceX is being re-rated. I guess the revenue expectations just way exceeded. Is that the story here? Yeah, they came in 25 percent more than we expected. And we were pretty high in the street. And your revenues were up 160 percent year over year. and for the guidance, if they come anywhere near hitting it, the streets estimates are way too low, as are ours. And that's because of what, the just insatiable demand for compute? Yes, I think AI applications and AI revenues have been much stronger than anyone expected going into this year and even right now. I mean, we've seen agentic AI coding go exponential and now the same thing with just agents.

3:03You're seeing even SpaceX's own agents with GrokBot, They have 800 ,000 paying subscribers that double sequentially. The utilization that people are getting out from AI, I think, is being massively underestimated. And then there's the merger, which we got a lot more clarity from Elon Musk on in terms of SpaceX and Tesla. How should investors think about that? And do you think they will be on board? He said he wants them all on board. I think it's pretty inevitable. They are looking to integrate a lot of things together. But clearly, this is the only vertically integrated AI company. They have the capital, and I think having Tesla would help out on getting more capital.

3:40They have the data, and both companies have really, really unique data. And then they have the engineering skills, which is just unsurpassed by anybody in the world at this point. And I think they're going to look to create very, very different communication networks. And I think there's a way to put phased array antennas or the fixed antennas onto Tesla cars and even use them as hotspots for mobile networks. I think they're going to do some very, very innovative things on an integrated basis. That sounds like something or at least leans in the direction of disruption to some legacy industries like telecom.

4:12Absolutely. I think telecom's in a lot of trouble now. They've been underestimating, I think, the broadband share they're going to lose to SpaceX. And now they're definitely underestimating mobile share they're going to lose. What about the cost of all of this? And what how do you what are you modeling free cash flow to look like? I mean, how long is it negative and how big are the capital needs here? I mean, we're pretty conservative. I think they need to raise about$500 billion in total capital. But if they get a six-month payback on the GPUs that they're putting out, then they're probably only burning another$100,$200 billion.

4:46It's really, really hard to tell. And we don't know how rapidly they're going to build up. But next year, they need at least$100 billion of incremental capital, maybe$200 billion. Yeah, because I'm just wondering, you know, on a day or last week, You know, there's such concerns about access to capital, higher funding costs, neocloud, just how reliable that's going to be. Just how vulnerable SpaceX is to all of this. I mean, the whole industry needs capital. We need almost a trillion dollars of capital. It's unprecedented, obviously. But SpaceX is probably the best deployer of capital out there.

5:19They are probably the lowest cost operator at this point. And I think they have a proven track record. And they can use it internally if they don't get it externally. But the next six months are really, really critical. If they can continue to rent out the compute at these price points, they should be able to get the capital. And the compute pricing on rentals, it's incredible what's happening. They're up like 20%, 30%. People thought it would be down like 20 % to 30%. So I think there's a lot of anomalies going on right now. But the fundamentals for AI infrastructure and AI compute have never been better.

5:50And I think the capital will come. It just might be a little more expensive. Right. Right. You know, some wrinkles that the Europeans want to establish a competitor to Starlink or even the Russians. I mean, how far behind are those guys? I mean, they'll never, ever, ever catch up. But you're definitely going to have niche providers out there. Clearly, other countries, China's doing a pretty good job, but Europe, Russia, like you said, there's going to be niche providers. We follow a few of them that we think can be really, really successful. But just for getting massive amounts of payloads into space.

6:23The only other hope is maybe Amazon would be probably the next best competitor. Everyone else is so far behind. Right. And then in terms of price targets, some of your peers are getting a little aggressive at above$300,$500. Is$280 enough on your part? We've got to work the model a little bit more and talk to the company. I would admit our estimates are conservative at this point and probably the price target. But there's so many moving parts, and we're so early in this. We were one of the highest on the street at first, but everyone's been catching up. What about AT &T? I noticed that's in your coverage list.

7:00The stock is down almost 6 % off the quarter. What's the story there? Is it related at all to SpaceX? Oh, yeah, it's completely related. I mean, SpaceX was very, very aggressive last night in getting these new V3 satellites and V2 satellites up in the air. We downgraded the communications sector back in May because we were very, very concerned about exactly what we're seeing. They're going to add 100 times more broadband capacity than SpaceX, that is. They have probably 5 million subscribers in the United States. So, you know, we think they can grow to 30, 40, 50 million subscribers in the next decade for broadband alone in the United States.

7:34And I think now the world is starting to wake up to that. We've had the cable companies under a lot of pressure. And AT &T out of the three wireless companies has the most exposure to broadband out there. So that's going to be the initial hit. And then, you know, no one has been expecting them to hit the mobile market. And we think they're going to be very, very innovative. and the technologies that they use. Unless there's some sort of crackdown. There's a journal report today that, I mean, they're quoting unnamed officials saying that it was Elon Musk that ordered the slowdown of the military-grade version of Starlink to Ukraine.

8:06Yeah, sorry, I didn't see that. Clearly, politics are a huge issue, but the FCC, this administration, they want new competition for communications. Our prices for communications are three times higher than the rest of the world, and we've not been very competitive. Yeah, no, we've heard that from the FCC chair himself as well. Tim, thank you for joining us with the take on Tesla. Appreciate it. Let's get to another big earnings mover today, and that is Netflix going lower after big losses over the last year. Our Julia Boorstin joins us with more. Julia with the stock basically at the lows of August of 24.

8:41Yeah, down about 5 percent this morning, Carl. This is the sixth straight quarter that Netflix shares have fallen after reporting earnings, with the stock now down over 50 percent in the six quarters of disappointing reports, which started in July of last year. Now, driving today's drop is a weaker than expected fourth quarter revenue outlook. And Netflix also lowered its ad revenue outlook for the year to 2.7 billion from prior guidance of 3 billion. Co-CEO Ted Sarandos addressed concerns about engagement in the face of YouTube's growing dominance and said they are making changes, such as bringing in Peter Rice as chief content officer to drive improvement in Netflix's core business.

9:20He said that's more important than competing with YouTube. The U.S. is also working. It's just not growing as fast as it could or as fast as we'd like. So we had some really solid doubles and triples this year, but the other territories count on some of those titles being home runs so that they'll travel around the world. So we really have got to be focusing on that execution. Analysts weighing in Needham's Laura Martin downgrading the stock to hold, writing, quote, Netflix's content problems seem clear and we think Peter Rice is an excellent TV executive, but we expect it to take him about two years to fix Netflix's$20 billion content slate with material content write-offs before then.

10:01Mahaney from Evercore with an outperformed rating, writing, quote, we believe most of these challenges are addressable and we view Netflix management is highly capable. By bringing in a new chief content officer, Netflix is at least acknowledging and acting on the challenge. Now, there is a lot of debate about how quickly Netflix can improve its content slate, while it focuses not on its experiments to draw YouTubers and its smaller investment in podcasts, but really focuses in on its traditional content, as well as live events and licensing. Sarah? Okay, thank you, Julia. Julia Borsten with shares of Netflix down.

10:36Coming up, Kroger CEO Greg Foran will be with us. That's as the company announces a new$5 billion investment plan, and it's Investor Day yesterday. And we'll talk with NHL Commissioner Gary Bettman. We'll talk about the future of the league's TV rights, player salaries, and sports betting, and a lot more in a few minutes. With the Discovered 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.

11:13It pays to discover. Terms apply. See discovery.com slash 5 for details. Hey, Fidelity. How can I remember to invest every month? With the Fidelity app, you can choose a schedule and set up recurring investments in stocks and ETFs. Oh, that sounds easier than I thought. You got this. Yeah, I do. Now, where did I put my keys? You will find them where you left them. Investing involves risk, including risk of loss. Fidelity Brokerage Services, LLC, member NYSE SIPC. within every beautifully busy day there's a brief moment between now and next a moment made just for you to recharge refuel and most importantly bring out the bob bring out the new bob evans protein mac and cheese bring out the rich velvety goodness now with 18 grams of protein packed perfection bring out the mmm before you ask what's next just take one more bite for a delicious protein power up.

12:16Bring out the Bob. Bob Evans, new protein macaroni and cheese. Welcome back to Squawk on the Street. Kroger hosting its Investor Day yesterday, unveiling a new strategy and a$5 billion investment plan to lower prices and improve the store experience overall. It's CEO Greg Foran's first major push since taking the helm back in January. He's going to join me now. First on CNBC to discuss. It's great to have you. Really pleased to be here with you, Sarah. Yeah. And you joined the company in February, came in as the CEO. What did you learn in the last few months that brought you to announce this plan yesterday?

12:54Well, it reinforced thoughts that I had, actually, before I joined, which was, you know, we've got a fantastic brand, 143 years old. We've got great scale, 2 ,700 stores. If we can really run great stores, if we can build our digital capability, if we can modernize parts of the business and then get really affordable, for customers, then I think we've got a fantastic business. I mean, your roots are in Walmart. I know you were at the New Zealand Air in between. But how much are you borrowing from the Walmart playbook when I see the investment in lower prices? Obviously, that's what I thought of.

13:31Yeah, not a lot, to be honest, Sarah. I've spent a lot of my career working outside of America. I began in New Zealand and Australia with a company called Woolworths. and you know so what I'm bringing to Kroger is I guess you know four decades plus of experience in many other retailers so you know that's what I'm focusing on. On the investment in price five billion dollars you know other companies like Walmart and Costco and others are competing aggressively right now on price are we looking at some sort of price war here for market share? We're actually all about giving our customers value, and that's what we're focusing on.

14:10So we've identified some areas where we can save some costs, we can buy better, we can look at doing some importing directly, we can save on some of the things that we don't sell in the store, we can modernize parts of the business, take those savings, invest them into lower prices overall for our customers, and we know that that in turn drives sales and volume. Does it say something about how the consumer is feeling right now? Yeah, I think it does. I would characterize it as, you know, the customer out there at the moment is resilient, but probably more intentional. And, you know, they're really focused on where every dollar goes.

14:49And I see that it's, you know, our responsibility at Kroger to make sure that dollar goes as far as we can make it go. Yeah, and there's a distinction between promotions, which Kroger had been doing a lot of, you know, the buy one, get one freeze. and just straight out lower prices. Is that the difference here that we should be looking at? Well, you know, Kroger has always had a good promotional sweep that goes with the offer. We'll maintain that. We'll take some of the complexity out and some of the very difficult multi-buys that we know at times customers would prefer that we did slightly less of, but we'll still have promotions.

15:31And the objective here is to give customers a fantastic shopping experience, which is affordable. What's happening with grocery prices right now? We're starting to see a little bit of inflation starting to kick through. And that's not surprising input thing, you know, characteristics around fertilizers and diesel. Those sort of things are making their way through. But actually, we're controlling that. And I'm reasonably happy with how we're managing our way through that. You don't see a big jump coming because of what's happening with oil prices, the prolonged war, diesel prices, those sorts of issues?

16:08You know, our job is to actually be the agent of the customer. And so we'll push back, unless it's appropriate, that we take the price increase. And we will endeavour to keep our prices as affordable as we can for our customers. And you're funding it with savings, right? cost savings, productivity savings, layoffs. What does that look like? Well, a number of savings in there, as you mentioned. We're looking at how we buy product, whether it's product that's on sale or not on sale. It could be how we construct new stores. We've got 110 of those coming soon. But, yes, we're also looking at modernising the business.

16:46So, you know, we don't make a decision around reducing headcount in the corporate headquarters lightly. And, you know, my concern is obviously for the families that have been impacted. But at the same time, I need to modernize the business. I need to make sure that the prices are affordable. And I've got to grow the business for the 400 ,000 of our frontline associates that are in stores and make sure they've got all the tools to do their job. They're not impacted with this. How aggressively are you investing in AI to do some of this work? Sensibly investing. You know, I would say to you that our focus is not really on pushing ahead with frontier models.

17:28We're much more interested in taking jobs that are generally very repetitive, rules-based, and seeing where we can sensibly introduce AI. And that's what we've been doing gradually in the business. What have you determined about the way Americans shop right now, e-commerce versus in-store? Remember when Amazon came in and bought Whole Foods and the whole world was going to go into e-com groceries and that was going to disrupt everyone? That hasn't exactly happened. No, it hasn't really, has it? You know, and so e-commerce will vary depending on what part of retail you're talking about. But in food, call it sort of circa 10 to 15 percent of the revenue is getting done through e-commerce.

18:10I would expect, Sarah, that's probably going to continue to grow. Maybe it gets to 25, 30 percent. I'm not sure exactly. But customers do appreciate the convenience of being able to shop online. But they also love going into our stores. I was going to say, but you're investing in the store experience. I think they like both. And, you know, my lesson out of doing this for many years now has been to do that. Be good at both. What about the competitive edge? You know, I mentioned it's such a competitive environment, especially with, you know, a Walmart out there. Where's Kroger's edge? we've got some terrific edges.

18:49Think about the freshness of our products. So we just don't want good Roma tomatoes. We want great Roma tomatoes. Think about what we can do in terms of online, where our stores are located to where you live, near where you live. Can we get an order to you in 30 minutes? These are the things that we're delving into. And then, of course, in our brand's portfolio, which, as we shared yesterday, you know, is pretty significant across all the brands that we actually, in many cases, manufacture ourselves. What are the big trends? What are the areas for growth that you're seeing beyond just in pricing, just the way we eat, what we eat, proteins, meals?

19:33What's happening there? You've hit on a couple of the big ones here. There is no doubt that GLP-1s are having an impact. call it 1 in 10 maybe that gets to you know another 50 percent increase on top of that so you're talking you know 15 out of 100 and what's different about them what's the impact those people are buying different products they're focused more on protein but i'll tell you another thing that i'm seeing which is reasonably significant and that is the increase in one person households and you know when i look at some of the data around that there's been a pretty significant shift over the last 40 years around how many households now only have one person in.

20:15And that has an impact on pack size. How many biscuits or cookies are you going to sell? Should you be selling a whole loaf of bread or half a loaf of bread? Yes. And that impacts the packaged food companies and the packaged food stocks. Very much so. So how big are the changes happening right now? Well, you know, in terms of what you're ordering. Yeah, sure. These things don't happen like overnight. They are a gradual move that occurs generally over decades. So if you go back 40, 50 years ago, you know, maybe there were 17 percent of the households in the U.S. had one person in it. That might be now at about 30 percent.

20:58But it happens over decades. So you progressively introduce these changes into your business. Do you see any indication that the consumer is hurt by the high gas prices and that's leading to different spending decisions and prioritizations on grocery? Yeah. You know, we serve 16 million people a week. And as I get around the stores and I do every single week, there is a group of people who are really impacted as the price of gas moves over$4. And they think about how often they're going to get in the car and make a trip. I would say that for the majority of people, it's not quite as significant as it is for this group.

21:40What about, I mean, I have to ask you about this trial that has begun. Albertsons wants more than$8 billion, making its course just on Monday for the failed merger,$24.6 billion merger. Kroger was going to buy Albertsons. It was before your time, of course, and I know you can't say much about it because the trial is going on, But what are your expectations here? And do you see that as an overhang on the stock? Yeah, you've really answered the question. I cannot comment on sort of ongoing litigation. And we'll leave that to our team in Delaware. And as you've mentioned, they're right in the middle of it at the moment.

22:15What kind of questions are you getting from investors as far as the risk? As I said, I'm not going to comment on ongoing litigation at the moment. Do you have a view on where Kroger will be? Kroger always said that it was going to be fine without buying Albertsons. Do you have a view on how Albertsons will be as an independent company? It's a great question for Albertsons. I can tell you I'm 100 % focused on Kroger and all the brands that we have across the country. I think we've got a fantastic business, and our job is to be America's favorite grocer. All right. Well, we'll let them then battle it out in the court.

22:52Greg, thank you very much for taking the time to speak with us for your first interview as CEO. Greg Foran of Kroger. Carl. All right, Sarah, thanks. Still ahead, we'll get a closer look at what's driving the surge in shipping rates this year. We'll break down some new data that reveals a key risk to the AI trade as well when Squawk on the Street comes right back. With the Discovered 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.

23:31It pays to discover. Terms apply. See discover.com slash 5 for details. Hey, Fidelity. How can I remember to invest every month? With the Fidelity app, you can choose a schedule and set up recurring investments in stocks and ETFs. Oh, that sounds easier than I thought. You got this. Yeah, I do. Now, where did I put my keys? You will find them where you left them. Investing involves risk, including risk of loss. Fidelity Brokerage Services, LLC, member NYSE SIPC. 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.

24:18Right. Okay, we can afford that. You know what? Forget the music budget. We're going to stick with whatever's in the public domain. Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three months,$90 for six months, or$180 for 12-month plan required,$15 per month equivalent, taxes and fees extra. New customer offer for initial plan term only. Greater than 50 gigabytes may slow when network is busy. See terms. Welcome back. Shipping rates to move oil around the world have been surging this year. What's behind that move? Our Pippa Steven joins us with more today. Pippa, some of these numbers, I don't know about you, I saw the Goldman figures.

24:51They're kind of hard to believe. That's right, Carl. So shipping rates to move oil have hit record levels this year, and that is keeping prices high for consumers at the pump. So costs for oil from the U.S. Gulf Coast to China topping$37 per barrel compared to$5 per barrel last year. And some routes are now as high as$45. That's according to Clarkson's research. And it started in the Middle East, but now freight rates are up globally, with Goldman saying the average is$20 per barrel, up from$3 last year, thanks to five key reasons. The first is the war risk premium, which is about one-third of the increase.

25:24The second is ship-to-ship transfers outside the Persian Gulf, which ties up tankers. Then you've got maritime fuel cost increases, inefficient tanker allocation, and higher demand for non-sanctioned tankers. Now, the price of oil we look at typically does not include transportation costs, which are usually paid by the refiner. So we could see some refiner demand dip, which is bearish for crude. But high shipping translates to still elevated prices at the pump. So likely, guys, no relief here for consumers, at least in the near term. Meantime, Pip, I was just looking at a chart today of refinery runs.

25:59I think this is probably the hardest they're running maybe ever, at least in a couple of decades for this time of year. That's right. So we just got the latest figures from the EIA, and I'm looking at it now. Refinery utilization was 93.4 percent. That is certainly the highest in decades because right now is typically the turnaround, the maintenance season. And so we had been running above 98 percent over the summer. And so clearly refiners are trying to get as much as they can right now, given that prices are so attractive for their margins. Of course, this does bring up the question of if they are deferring maintenance, what does that mean looking forward?

26:31But for the time being, if you are a refiner, if you have any spare capacity, you are running as hard as you can. Because with prices where they are, especially as crude and transportation and insurance prices rise, you need to have those high-end product prices in order to have those margins stay positive. And so if you have spare capacity right now, you are going to run. Yeah. Watching Valero actually down a touch today, marathon a little as well. But the year they've had, it's been amazing to watch. Pippa, thanks. Good stuff. Pippa Stevens this morning on energy. When we come back, we'll talk to a portfolio manager from UBS about why he sees the S &P going to 8 ,100 by year end.

27:10Plus tomorrow, don't miss an exclusive interview with Pershing Square Capital Management founder Bill Ackman talking about his investment strategy and why he's been putting money into Israeli companies right now. That is right here at 11 a.m. Eastern on Squawk on the Street. We'll be right back. It's getting a boost today on the back of those earnings from SpaceX. Our next guest sees even And more room to run with AI driving his bull case of 9 ,500 for the S &P by June of next year. Joining us this morning at Post 9 UBS Global Wealth Senior Portfolio Manager, Alan Rekschoffen is with us. Alan, welcome back.

27:41Good to have you. Great to be here, Carl. So the CapEx story does get a bit of a boost today, and we'll see what Meta says tonight, yes? Yeah, and to be fair, our base case is 8 ,400, but I believe 9 ,500 is certainly possible. Look, we're going through transformational technology, and the earnings that are coming out tonight are part of that story. But if you look at the earnings last year compared to this year, we're up 25 percent in earnings growth. We're looking for double digit earning growth next year. And we believe that that will continue based on three key technologies, one of which being super intelligence.

28:11And the other two? And the other longevity. Oh, yeah. Look at I mean, we're both wearing pink ties. Yes. Longevity and and the cure for for for diseases and energy. You know, we've seen the effects of disruptions in the Middle East on the energy prices. So we're looking for other opportunities in energy. Can the Fed spoil this party? You know, we think the Fed's going to pause in October and then probably have a raise in December and March. But after that, we could see interest rates go down. We're looking for four and a half to five percent on the 10 year. We're a little bit above that now. And we don't think that the inflation story is a long term consequence.

28:49It's just it's a painful time right now. And a lot of people are feeling that pain and you can't be immune to that. But the inflation thing, that is always a question, right? If you're so bullish on demand and earnings and the economy and the build-out of AI, that all is inflationary, isn't it? Yeah, it certainly is. But we are dealing with a period of productivity that we can't imagine. Look, this is not a Star Trek story anymore. We're seeing this effect. Is it happening, though? I mean, it's happening in places, but it doesn't feel like it's widespread enterprise level. Well, I mean, you're looking at hiring for the holidays.

29:23That's humongous. And we're seeing that the productivity in our own lives is an example of what's going on in companies. And the shift is slow because this is a period of transition which is uncomfortable. And we all feel a little bit of, you know, some people call it anxiety. I'd like to think of it as excitement ahead of this transformational opportunities. Do you tell clients that some of the yields here on government or maybe some IG debt is a nice place to park money? Yeah, you know, cash is comfortable, but, you know, cash has a cost and has risk to it. So we'd like to lock in between five and seven years, and we think that that would be a place to hold on.

30:01And higher interest rates are not a contraindication for a higher stock market. If you look at the last 16 cycles, after the Fed started to raise rates, you saw an increase of about 10.8 percent each 12-month period over the last 16 cycles. And, you know, PES performance is an indication of, is not an indication of future results, but it's a great track record. Right, right. In terms of sectors, we've seen some moderation in financials, health care is off to the races. Has your ladder of favorites changed in the last few months? No, we've been very focused on these transformational technologies, which we've seen in our performance, including superintelligence and longevity and energy.

30:43Those three pillars, we believe, can push the market much higher, notwithstanding the fact that there's dis-ease. Right, but I guess I'm saying, what do you overweight here? Those three sectors. Energy, longevity, health care, and tech. But, you know, we've discussed this many times. We don't believe that superintelligence or technology is a technology story exclusively. And we saw that when the technology stocks sold off and the Dow Jones rallied. You know, we're at double digits in the S &P and the NASDAQ and the Dow Jones is catching up. And that's the story that we've been telling is that this technology boom is going to affect across many industries.

31:21So you see it as a broadening story, which market, I mean, we haven't seen that necessarily in recent weeks with small caps, for instance. Right. And we see it as a broadening story. And you see the impact on the Dow Jones Industrial Average, which isn't particularly a tech-focused sector. And, you know, when we look at the discomfort that people have with this transition, 15 years ago, there was no such thing as a social media influencer. And now that's like one of the hottest jobs for kids graduating from high school. I have four daughters and I'm concerned about them, too. You know, I have real concerns about what's next.

31:54But I want to turn that concern into excitement because I don't think I've ever seen in my lifetime any opportunity like this. It's definitely times where they are changing. you. Thanks, as always. Good to see you. The best is yet to come. Yes. Alan McShuffin, UBS. Always count on him for positivity and optimism. Time now for a news update. Frank Holland has it for us. Morning, Frank. Good morning to you, Sarah. The Supreme Court today said the Trump administration cannot enforce its policy that restricts treatment for transgender inmates in federal prison. The justices left in force a lower court ruling that said the Bureau of Prisons did not adequately consider the effectiveness of treatment before it was banned.

32:30Conservative justices Samuel Alito and Clarence Thomas dissented. The Kremlin said today that Russian President Vladimir Putin has agreed to resume trilateral negotiations in November with the U.S. and Ukraine on ending the war. The Kremlin's statement coming after presidential envoy Steve Wyckoff met with Putin in Moscow today. And the NFL chose General Lanik to set up an investing platform for global sports investments. That's according to a Bloomberg report that says General Lanik will form a joint venture with the NFL's investment arm, 32 Equity. It will look to invest in businesses, including sports media, fan engagement, consumer products and technology.

33:06Sarah, back over to you. OK, thank you, Frank. Still ahead, new data shows the A.I. boom is driven by a small group of Silicon Valley spenders. We're going to break down the risk that poses for the entire A.I. trade at large when we come right back. Welcome back. New data showing the A.I. boom is driven by just a small group of Silicon Valley spenders, and that could pose a big risk to the A.I. trade. Kate Rooney joins us with more. Kate, what does the data show? Yeah, Sarah. So we are seeing a little more evidence that spending in AI, it is coming from a very small crop of similar companies out of Silicon Valley.

33:39And that could be an underrated risk in this entire AI demand story. So the spending has been extremely narrow. Some new data from Ramp highlights a group of kind of power users. So the top 1%, they say, accounts for 80 % of all spending. So it's extremely top heavy. That 1 % spends almost$10 ,000 per month on average. So they're really driving demand here. And then you have the top 10%. So still sort of power users, it's less than$1 ,000. And then the average spender, this is the median, below$20 a month. So revenue concentration there, a real risk. It's also showed up in leaked versions of S1s for Anthropic.

34:18They talk about revenue concentration. The other side of this, guys, is a lack of diversity in that very small group of power users I mentioned. So these big spenders are almost all private companies. They are funded by venture capitalists. The same report from Ramp notes that those big spenders, 80 percent of them, are venture backed. So if there is any sort of crack in Silicon Valley in this entire ecosystem, say rates, for example, really start to bite or the IPO window doesn't open, you could start to see more ripple effects. So one risk, You know, less venture funding would mean less money to spend on AI.

34:50The big picture, that could start to affect revenue at model makers. It could hit cloud providers and then eventually threaten chip companies supplying them. At the same time, others are flagging some signals and signs of cooling demand with lower spending growth overall. So Apollo, among those, pointing out the growth in spending has stalled. You can see in this chart here, could be a result of lower pricing and then price cuts overall at the top AI labs as part of this. And while it is a risk, we should note demand is still there right now. So SpaceX results did highlight a bullish demand picture.

35:21But it comes at a time when parts of the AI trade, of course, that you guys have been talking about, have proven to be fragile. Core weave and the debt picture, for example, one big example of that, I should say. We've also seen just more investor jitters around this entire trade, guys. Yeah, I mean, it's been really striking last couple of days, Kate. You mentioned the Apollo and Torsten's been pretty vocal on that downside scenario. but also the Gartner report on neoclouds. I mean, some in the industry look at that and say, that's just wrong. And yet that's the research that Gartner's given us.

35:52You do have these conflicting viewpoints. I would say there's never been a time when Silicon Valley private companies have been so important to the entire stock market. We see what happens with revenue reports for OpenAI or Anthropic and how critical that is to the demand picture, which then spills over into the tech trade and then spills over to the overall market. So these companies in Silicon Valley for a long time were sort of just their own unique ecosystem. They are so deeply connected to the rest of the entire market right now. I would also note as part of that, Carl, you heard Ken Griffin speaking at I think it was a Bloomberg event saying, yeah, we are absolutely in a bubble and saying that there are signals of that.

36:32So I think investors right now are sort of looking for where that is. There's a lot of acknowledgement that there's a bubble, but people are trying to find the cracks. I would say this example out of Silicon Valley is one potential crack that more people are talking about. When I pitched this yesterday, I said, you know, no one's talking about it. Chamath Paliapati also tweeted about it, noting this example. So it was new yesterday, but now it's becoming more mainstream. But the kind of argument, you know, is that it's not undisciplined spending. I mean, that's the kind of argument to the bubble, right?

37:04And what you're saying is that that maybe we have to wait until a more measurable return to see broader spending. So that kind of pushes back against the bubble idea. Well, I think the other, the bullish side of this, too, would be if demand, if the picture does start to widen. So if you have these power users that are the tip of the spear, that are using AI, that are seeing real results, the bull case would be if that starts to trickle down to the rest of the economy. and other companies and consumer companies and grocers that you talk about, Sarah, are starting to actually use AI and see the results, and it starts to widen, then that is a sigh of relief for a lot of investors.

37:41The demand is now a little bit more diverse. It's not just these Silicon Valley venture-backed companies. Others are using it. Others are seeing the impact and willing to spend for it. That, I think, would be the bullish case in all of this. The risk is that it's only these coders out in Silicon Valley that want to use AI. that would be a real problem in the long term. Yes, I think the universe, the envelope is a little bit wider than that. At least we hope. Okay, thanks. Okay, Rooney. Thanks, girl. When we come back, NHL Commissioner Bettman is with us on the future of the league's TV rights, player salaries, prediction markets, and just what he's seen in his very long tenure as commissioner.

38:19We'll be back in a minute. Welcome back. The 26-27 National Hockey League season well underway, the first under the league's newest collective bargaining agreement with the Players Union. The next big item for the league is new U.S. TV rights as the current deal with Disney and Warner Brothers, now Skydance, expires after next season. Joining us this morning live from the Paley International Council Summit in Manhattan is Gary Bettman, now in his 33rd full season as commissioner. He'll be speaking on the Paley Center's Beyond the Scoreboard panel later on today. And, Commissioner, we're always great.

38:50Glad to have you. Thanks for joining us. Thanks for having me. It's always great to be with you. I know you're on this panel with Eli Manning talking about evolving business models and distribution rights. And I was just thinking, I mean, 33 years, you've seen some things. Is your general message one of optimism when it comes to live sports, I imagine? No question. There's no more valuable content than live sports. And as we've seen technology evolve, and even with AI, what happens live, and particularly with sports, which is so compelling, we think we've got the best content. Our track record with ESPN and Turner, Warner Brothers Discovery, has been to increase ratings, increase reach.

39:40And I'm very optimistic about our future. You know, it's funny. We've been having a lot of conversations this morning about Netflix and sort of the toll that TikTok and user generated media is having on scripted content. You think that ever comes for sports? Well, I think Netflix to this point has been interested and from a sports standpoint, more in terms of big events. But one of the things that we've tried to do is evolve with technology, with the various new distribution models. And I think you'll see more and more streaming because that's where media is going. But again, it goes back to the point that there's nothing like live sports content.

40:23I've been dying to ask you about, we had a report the other day about the NBA and some of the guardrails that they're putting into player participation in prediction markets, for example. Is that something you see getting adopted across leagues? Well, we've been very focused on that. We were actually the first sports league to do deals with Kalshi and Polymarket, and our thinking was twofold. One, we wanted to make sure that to the extent that it was out there and it was going to be there, that there was going to be the use of our real data so that there'd be no confusion. Secondly, we've always had the ability to take down prediction contracts that we think are inappropriate.

41:04And that's something we monitor on a daily basis. So by engaging with them, we felt that it was the best way to deal with what was evolving. Gary, as we mentioned, the TV rights, it's become such a major source of revenue for the NFL, for instance, just a machine. How do you capture more of that market? How do you think about it as the U.S. media rights come up to get a bigger value? That's a great question. Our ratings have continued to increase. We were up dramatically into the double digits last year. And so we view ourselves in a position that we're coming into the marketplace in a very strong position.

41:47Having said that, the marketplace is extremely competitive and extremely fragmented. But I believe that with the fierce competition that's going on between traditional television and the newer media platforms, that there'll be a great opportunity for us to both expand our reach and get paid what we think is an appropriate reflection of our value. We have exclusive negotiating periods with both ESPN, Disney, and Skydance, Turner, starting on January 1st. first. And we've been having some discussions. Things got a little complicated with the merger, but we're very optimistic. And we love the job that ESPN and Turner have done for us over the last few years.

42:34I think they've treated the property very well and are partially responsible for the increase in our ratings. I mean, a related question, it's been ratings. You mentioned sponsorships. I think the last revenue figure you gave was around$8 billion for the 25-26 season. What's happening with franchise values along with that? Can you get up to NBA levels? Franchise values, well, I don't worry about the other leagues. I think we're undervalued. Our franchise values are up something like 150-some-odd percent over the last five years, which is somewhat comparable to the increase in valuation for NFL teams higher than NBA and baseball teams.

43:18But at the end of the day, we think our product is great, our teams are well run, and they continue to be valuable, even though the traditional metrics that you see, either from Sportico and OCNBC has some valuations coming out in the beginning of November. It's reflecting an increase in our value, which is great, but I still think we're undervalued. Yeah. You know, when you think hockey, you think Canada, And we talk about Canada all the time when it comes to tariffs and autos. Carney this week said probably no trade deal, certainly before the midterms. I just wonder, is that eroding, in a sense, on the fan base, the rhetoric between the U.S.

44:02and Canada? Well, I think the rhetoric is unfortunate. These are two great countries that have a marvelous history together. And it pains me to see what's going on as well. In terms of how our business functions, the Canadian economy has been holding its own, and so that's good for our teams. I think the only impact you're seeing in the short term is there may be a little less travel from Canada to the U.S. for obvious reasons. And that might have an impact for fans who might go see their teams play in the U.S. But things seem to be hovering okay. The Canadian dollar relative to the U.S. dollar seems to be holding its own.

44:46But it's something that we watch very, very closely because obviously the health of our seven Canadian teams is vitally important to us. What's your expectation of how big the NHL can get? I know there's a close examination, for instance, in expanding. 33 teams, right? You're looking at Houston and Austin. Is this just a matter of when? Well, it's a board of governors decision. It requires a super majority three-quarter vote. I think if the right opportunity presents itself with the right ownership, arena, market, and presents a case that makes the league stronger, that's something that I'm certain that the board of governors will give serious consideration to.

45:32Commissioner, it's always great fun getting hockey underway. Have a great time at the summit there. Thanks for the time, as always. Good to see you. Thank you for having me. Gary Bettman of NHL. As a pretty steady market here today, mid-7700s, we've been talking about SpaceX all day. Kind of a light macro week, right? Yeah, it's all about earnings this time. And I think the AI trade, you know, the market fluctuates so much on the moon around AI. But between the SpaceX revenue and revenue forecast and then what we heard from Supermicro, demand is strong. Yeah, and we'll see if that's ratified by Meta tonight.

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