11AM Hour: OpenAI CFO Sarah Friar, Citi's Head of AI Research Heath Terry & Former Minneapolis Fed President Gary Stern 11/6/26

0:00Sarah Friar: We're an agent 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. 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.

0:33Sarah Friar: Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts.

1:05Sarah Friar: Good Friday morning and welcome to Squawk on the Street. I'm Sarah Eisen, live from Citigroup's TMT Conference in Pebble Beach, California. Carl Quintanilla, live with me back at Post 9 of the New York Stock Exchange. Big show for you today. I'll be joined exclusively by OpenAI CFO Sarah Fryer. Her thoughts on concerns about a data center slowdown post Tuesday's Democratic midterm sweep, implications for OpenAI and Anthropics IPO plans, as well as lingering AI safety fears. Plus, tech looking to claw back some of yesterday's steep losses. Citigroup's head of AI research, Heath Terry, joins me right here.

1:37Sarah Friar: Why he says the sell-off was more about positioning than it was about fundamentals.

1:41Heath Terry: U.S. economy adds 165 ,000 jobs last month, a huge upside surprise. What might it mean for the Fed's rate policy path. We're joined by former Minneapolis Fed President Gary Stern. As the markets are demonstrating some stability here midday, holding 7 ,400, seen as sort of a key level. That's kind of where we tried to bounce yesterday. Dow's up 53. Sector-wise, relative strength here, especially in technology. Com services up one and a half. Basically, the defensive posture takes a pause with health care and staples in the red, Sarah.

2:16Sarah Friar: Yeah, interesting. The good jobs report sends treasury yields higher, but we're well off those highs near 5 % after the sell off this week. We're going to start with tech amid what's been a roller coaster week for the AI trade. Joining us here in Pebble Beach is Citigroup's head of AI research, Heath Terry. It's a great day to talk to you. Good to see you here. Heath, so what do you make of the carnage that we've seen this week? Does it fundamentally alter or anything about the AI trade?

2:41Gary Stern: Look, I think it's a part of the AI trade, right? There is going to be a lot of volatility in this. As we've said a lot before, this is not going to be the first technology cycle that we get in a straight line. So we have seen several of these kind of drawdowns over the past four years. This is another one of them. It's obviously bigger because the numbers are bigger. The run-up into this has been bigger. So of course the correction is going to be bigger. But this is all ultimately, when I say it's more about kind of structural things, It's a lot more about supply and demand. The market was asked to come up with 200 billion dollars, really more than that last week between meta raising money, Broadcom raising money, SpaceX raising money.

3:19Gary Stern: When you when you have to come up with that kind of capital, and of course, there's more that's expected to have to come up with some of the deals and such that are expected to be ahead. Something has to get sold on the other side of it. It's why you saw the reactions that you did on some of the earnings results. And I think it's why you've seen some of the structural issues around liquidity that drove yesterday.

3:40Sarah Friar: You don't think it's about the fact that Americans basically rejected data center buildouts?

3:45Gary Stern: That's not new. Americans have been rejecting data center buildouts for a while now. We had over 500 different moratoriums before Tuesday. Texas has had a data center moratorium in place since May when there was zero expectation for a change.

3:59Sarah Friar: But the surprise was that a Democrat won the governor race in Texas and that she was a little more harsh. Again, we're parsing her words. She's not she's not saying that the ones going through now can't go through. She's saying she wants more legislation for new permits.

4:13Gary Stern: Well, Texas already had two data center moratoriums in place back in May. So I don't know what's more harsh than than that. I mean, effectively, there was nothing nothing that was going to be allowed from either a environmental or interconnect perspective for for data centers. So there's not much more that she can do on that. And actually, she has provided a path forward on this by saying that she's in favor of a data center moratorium until the legislature actually comes up with the permitting tax structural reforms that they want to see. It does, but it was going to take time already. We none of this.

4:48Gary Stern: And she's also said that she wants to see everything that has been permitted already get built. So 26 is clear. 27 is clear. That's most of 28.

4:57Sarah Friar: Did you see a slowdown in the buildout here?

4:59Gary Stern: No, I mean, not that we were already seeing a slowdown, right? The slowdowns that were happening, some of it's regulatory, some of it is labor, power, electrical equipment, all of these shortages that we had there. Microsoft talked about missing some of their data center targets a week before the election. So this isn't the elections. There are plenty of things driving the slowdown. It's also just over expectations. Remember, this time last year, we had over 40 gigawatts worth of new capacity projects announced. We built 11 last year. There was never a scenario where we were going to see 40 built.

5:34Gary Stern: So this is just more reality. And it's reality that I think most people who follow this space were kind of expecting.

5:41Sarah Friar: So your whole thesis, your optimism thesis, is fully intact?

5:46Gary Stern: It is, because what we always come back to is end customer demand. is Citi, JP Morgan, Pfizer, Walmart, Unilever, all of these companies that are adopting AI, are any of them going to slow down their adoption of AI because of what happened on Tuesday? No.

6:02Sarah Friar: Doesn't sound like it. I mean, Jane Frazier didn't seem to think that. And she said that, you know, it's happening all over the world. Is there a chance that these data centers, though, could get built in places outside the U.S.?

6:12Gary Stern: Absolutely. And that was, you know, that was always going to be a big part of this. How they get built is going to change, where they get built is going to change, how quickly they get built may change. So that's all part of this. But none of these companies, Microsoft, Google, Amazon, they're not cutting their CapEx plans because of this. If anything, those companies are probably going to accelerate because they're going to want to take on more of this construction to make sure that it gets done the right way. Because to be clear, people don't have a problem with data centers getting built the right way.

6:43Gary Stern: They have a problem with open water systems. They have a problem with on-site methane generation. They have a problem with, you know, projects that are bulldozing 2 ,300 acres of farmland. Like, that's the issue. If you're building them the right way, the way a lot of these bigger hyperscale companies have been doing for a while, it's not an issue.

7:01Sarah Friar: No, but it definitely creates more friction, more regulatory risk, potential longer and more expensive.

7:08Gary Stern: The expensive part is easy. Like, if this is just a question of, like, it costing more, that's fine, because the construction piece of this, doing it the right way, is a really, really small part of the overall cost. Land, power, and shells, like$15 billion of a$60 billion bid, if that goes up by 10%, 20%, these companies will happily absorb that because this stuff's been getting more expensive already. I mean, memory prices have been going up, connectivity prices going up. This is just the cost of doing business for all of this. And the returns that these companies are getting from that is still, you know, we saw the cash return on cash invested for the hyperscalers already.

7:44Gary Stern: It was 30 percent in the most recent quarter.

7:47Sarah Friar: And that doesn't change. So do you think this delays or alters the anthropic IPO timing economics?

7:54Gary Stern: Yeah, I mean, nothing I can say on that front. I mean, I think generally when you're looking at IPOs like this, the broader market is an important component to it. So, yeah, nothing more I can say there.

8:08Sarah Friar: All right. Well, it's certainly good to have you here on a day like today. Thank you, Heath.

8:12Gary Stern: Thanks for having me.

8:12Sarah Friar: Heath Terry from Citigroup, Carl. Thesis intact.

8:16Heath Terry: Yes. Sarah, thanks. The tech sell-off raises the stakes for Anthropics' upcoming IPO. The calciades of Anthropics going public before December, dropping from about 80 % yesterday to roughly 60 % today. Our Kate Rooney joins us with more on that as we kind of eye some reports on October ARR, Kate.

8:35Sarah Friar: Yeah, Carl, well, big tech sell-off that you guys were talking about. It's not great news for Anthropics' upcoming IPO, especially for that price tag. I have been talking to investors who say the$1.5 trillion valuation that many had come to expect is now a stretch, given the discount right now on tech names with this unraveling of the AI trade. The price is going to matter here. So it's the math that people are looking at. It's the price to sales math. Some are now floating$1.25 trillion. The more bearish folks I've talked to do say that a trillion is a possibility, which would mean it would be below SpaceX's June listing price.

9:10Sarah Friar: Some are now reporting Anthropik's run rate for revenue is around$80 billion, which could be seen as a positive, a bullish sign, and then support a slightly higher valuation. But again, it does just come down to what's going on in broader markets. Some of these same investors I'm talking to, for context, expected Anthropik to go out at$2 trillion just a couple months ago. The big change, of course, is the market mood around AI, the Democratic sweep. keep both chambers of Congress. You have the risk of possible data center slowdowns. And then tech earnings also cause some jitters about the return on investment, when that's going to happen.

9:42Sarah Friar: And Anthropic, guys, will be the first pure play AI lab to go out. So it's going to be a major test of investor appetite for this. Anthropics Challenge is now going to be asking institutional investors who just got burned by the AI trade to now buy into this deal. Many of the people asked not to be named because they are close to the company. But I did talk to Gil Luria, DA Davidson. He can talk a little more freely about this. He agreed that public market investors expect the IPO to now be at least priced at the low end of expectations, says the market really needs this IPO to go well. And the best way to set Anthropic up for success is to price the deal well.

10:17Sarah Friar: The biggest thing on price is just getting above the last private valuation, which was just below$1 trillion. Leslie Picker and I were talking about this morning. If you start to hear talk of listing below$1 trillion, that is sort of the line when bankers and the company might decide to delay here. But to be clear, guys, overall indications are that the company roadshow will start next week. We expect to get this listing in November. Back to you. All right. Really, really good color. I tried with Heath, but City's an underwriter, so couldn't get very far with that one. Kate, thank you. Kate Rooney, much more on the tech sell-offs impact on private AI companies coming up.

10:52Sarah Friar: We're going to talk to OpenAI CFO Sarah Friar about how the Unwind could impact their plans to go public and, of course, what they've got in store for data centers. She joins me right here from Pebble Beach after a quick break.

11:06Unnamed Host: Who's ready for a bike ride? Peppa Pig is learning to ride her bike. First, pop on her helmet. Safety first. Then attach the push stick and give her bike a push. And watch Peppa pedal. Her legs go round and round as the wheels turn. with more than 75 sounds and phrases. Every ride is a big adventure. Peppa Pig Ready Paddle Go, available at all major retailers now.

11:35Sarah Friar: 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. 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.

12:03Gary Stern: Hey, Fidelity, can I get a second opinion on stocks in the Fidelity app?

12:07Sarah Friar: With Fidelity, it's easy to get an outside opinion from independent experts in a single score.

12:13Gary Stern: And then?

12:14Sarah Friar: When you're ready, trade U.S. stocks and ETFs with no commissions. That's right. I am always right.

12:21Gary Stern: 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.

12:36Sarah Friar: Welcome back to Squawk on the Street. Voters sent a clear message in this year's midterm elections in favor of a pause on data center construction. In states like Texas, Ohio, South Carolina, and Georgia, Democrats who campaigned on a data center pause not only won their races, but flipped seats held by Republicans. The nationwide rebuke causing investors to rethink financials behind the AI build out. And joining me here now in Pebble Beach for CNBC exclusive is OpenAI's CFO, Sarah Pryor. It's great to see you again. Sarah, always great to be with you. And boy, what timing. What did you make of the message from the midterms on AI and data centers?

13:12Unnamed Host: Yeah, I always take a step back first and say, look, the demand for AI is real. I heard Jane Fraser on here earlier with you say the same thing. What does that mean? At OpenAI, we're building a durable, strong business. My job is to manage through scenarios as they come up. We saw a breakout Q3. Our business grew 70 % quarter over quarter. Our enterprise business doubled. So what's that telling you? It's saying people are actually using AI and getting value from it. 1.2 billion people across the globe come to us every single week to get things done. 300 million for health and wellness, 200 million people for personal finance.

13:51Unnamed Host: And in business, it goes from small businesses who now have the best CMO in the world at their fingertips all the way up to large corporations like JPMorgan Chase, which was one of our customers who joined us in Q3, particularly focused in areas like cyber. So when I think about the midterms, I need to keep thinking about how do we keep investing to meet that customer demand. It It starts early with having built relationships with all of the hyperscalers, and it will continue to mean that we raise capital. We've done it at unprecedented levels, but it also means we're going to keep building out those relationships with communities so we can get the compute we need.

14:26Sarah Friar: I was going to say, all of this rests on building out critical infrastructure that now Americans hate. How do you do that?

14:33Unnamed Host: Well, first of all, you have to go meet communities where they are. You have to listen, learn, you have to set a plan and then be accountable. So when we go into communities, what do we hear? First of all, there's concerns about things like electricity. And we, OpenAI, have promised we will never raise your electricity bill. In fact, often working with utilities, we can help invest in that grid. Number two is water. When you look at a large data center footprint, it's usually about two Olympic swimming pool size worth of water, which we truck in. And then it's like a car radiator, right? It doesn't really get lost.

15:05Unnamed Host: In fact, most of the water is for the people working in those data centers, and those are good jobs. And then I think the third thing is worried about noise. I was just in Georgia two weeks ago talking to the community about how we would build a 300-foot-high berm around a data center to be able to control noise. But what else can we do in those communities? In Georgia, for example, we've invested in free school lunches. I actually went and ate school lunch. It was actually delicious. We're seeing 70 % lift in kids eating lunches and breakfasts. That's a great thing to do for a community. We're building a park.

15:40Unnamed Host: We're doing an AI summit for small businesses. So I think what we need to do.

15:45Sarah Friar: I feel like you should have said all this before the election.

15:47Unnamed Host: I mean, you came out with this new policy yesterday that feels very reactive when, you know, it feels like it's too late. I think we've been very consistent throughout on here's how we will show up and a newer policy. But you can go back a year or two years from now and see how open AI is showing up with communities. And I think when you go in at a grassroots level, you get a very different feedback loop than when you just listen to a more binary outcome right here on CNBC. Why do you think it's not working?

16:15Sarah Friar: Do you think that people are fundamentally against the data centers in their communities or against AI and worried that it's going to steal their jobs and potentially extinguish humanity?

16:25Unnamed Host: Well, I think the jobs topic is a good one because you saw the jobs report out this morning. So productivity is up. Unemployment rate is down. In fact, wages are up as well. And that's been very consistent with, again, what our economic research has shown. So if you look at a person's job on ChatGPT, their jobs are expanding. What does that mean? About 40 % of what they come to ChatGPT for goes far beyond the remit of what their job description might say, right? In my finance team, 90 % of the tasks they do are agentic in nature. They're coding. They just don't know it because they're building.

17:01Unnamed Host: They're doing marketing. I'm always happy when finance people are being thoughtful about how to market things. And then if I look at what does that mean for a company like Cisco, for Cisco, we deployed our technology. We're seeing their roadmap get put together 20 % faster, and they're literally saving thousands of hours per month on areas like coding. So AI is absolutely having an impact on people's lives, on their jobs, but in a very empowering, enabling way. I mean, you mentioned that enterprise is a big new source of growth. I was going to ask, how much of the business is it and where does that go?

17:36Unnamed Host: Yeah, so in Q3, as I said, our enterprise business doubled quarter over quarter. So we're now a very balanced business, 50 percent from consumer, 50 percent from enterprises. What's driving that? Number one, coding was an early home run, I think, for the whole AI ecosystem. But we're starting to see areas like cyber really heat up. We launched GPT-6 Cyber yesterday. Look, this is an area where I think every company in the world, no matter how large or small you are, needs to sit up and take notice. Chinese models today are getting very cyber capable. And so we want to make sure we're putting the best tools in the world into the hands of the defenders.

18:17Unnamed Host: What does that actually mean in real life? In August, we found two fairly major flaws in PHP, which is the underpinning to the world's internet. We worked with the defenders to fix those flaws. So by the time they were discovered or announced, we had fixed those vulnerabilities. That means 70 % of the internet is now safer and we didn't see the sort of outcomes that could have happened. So a lot going on in enterprises on the cyber side. And then finally, just ChatGPT work. That's our agentic tool. We rolled out dots at DevDay. Yes. Dots is a proactive virtual assistant for every single person in your organization.

18:55Unnamed Host: Uber started with a thousand employees. Today they're rolling it out to 30 ,000 employees. So I think corporations are walking the talk, not just talking the talk. I was going to ask,

19:05Sarah Friar: so that's more corporate focus because how it stacks up to things like Meta's Muse, which also had a really strong debut.

19:11Unnamed Host: Yeah. So when you look at something like the agentic proactive virtual assistant, we started in the enterprise for a couple of reasons. Number one, We think those are some of the hardest tasks where you can see most value created. And so it does allow for, honestly, a better business model for us to start. It also is, I call it training at altitude. If we get it right for enterprises where the security bar is high, that means we can take it to our 1.2 billion consumers. And I think the third thing is, look, we live in a more compute constrained world. So we have to start in the place where we can maximize the outcome for a durable, strong business.

19:47Unnamed Host: But of course, our mission is AGI for the benefit of humanity. So we ultimately want to bring it through our entire base so that everyone in the world gets to experience what it's like when an agent can wake you up in the morning, can tell you, here's what you should get going with today. It might be buying a birthday present for my husband next weekend or this weekend, actually. Or it might be helping me respond to a very intricate finance question that's come in from my compute team.

20:16Sarah Friar: But it also might create cyber risk. I know you mentioned that's a growing book of the business, but it's also a growing concern after the hugging face episode that we had and this idea that that AI is making the cyber world a lot more dangerous.

20:28Unnamed Host: Yeah. So security and alignment and safety has to start within open AI. And so let's look at what we've done there. Number one, we have paced the frontier when we've needed to. So we've actually held back models that we felt were at a point where we needed to get safety and alignment. Is that still happening? Yeah, so for example, the model that actually solved the Navi-Stokes, that Millennium math problem, which is a little nerdy, but could do things like help with artificial heart fluid dynamics. We are still holding that model. We've not yet released it. And that's an example where we needed to do more work internally to really make sure we feel confident and the folks, the regulators that we work with feel confident that that is a safe model.

21:10Unnamed Host: At the same time, we want to make sure we get other tools out into the world. GPT Cyber yesterday is a great example of that. So I think absolutely concerns are legitimate, and it comes back to listening to make sure we do the work internally, but then we're also getting these tools into people's hands.

21:27Sarah Friar: You mentioned fundraising. That was part of your remit and you're working on. Where are you on the fundraising efforts? Because reports indicate that you are currently fundraising, but at a lower valuation and raising less than originally expected. Is Is that true?

21:41Unnamed Host: No, we are in a current round right now. We always want to be serendipitous when we can. A good CFO always raises money when she can. We will raise at a$1.25 billion pre-money valuation. The round is ongoing, but we feel quite confident in it. But that was originally supposed to be$1.4 trillion last month. I think the original started with news from another outlet talking about$1.2. In the end, 1.25, remember, is almost a 50 % lift in valuation from the round we closed in March. So I genuinely think that that is a good indication of our Q3 momentum and in particular how that momentum carries into 2027.

22:22Sarah Friar: Yeah, I think Greg Brockman, the founder, said yesterday that it was a rough start to the year but an inflection in Q3. What are you hearing from investors right now, especially, you know, just in the last few, October was a rough month for the public AI trade. and certainly yesterday was pretty ugly. So what do you hear from investors?

22:39Unnamed Host: I think investors were really impressed with the Q3 that we put up, right? Not many companies grow their business 70 % quarter over quarter at the scale that we're talking about. The fact that our enterprise business doubled, I think that's really kind of shown what we've said all along is we're building one unified platform. When we get a breakthrough in a frontier research, it can help the consumer, it can help the small business, It can help the largest corporation in the world. It can help governments. That is what differentiates OpenAI. I think investors like where we're strong and different.

23:11Unnamed Host: Let's take our ad model, for example. So when you have a consumer business that's as big as ours, we're almost 20 % of the queries of Google right now. That's unlocking a whole new total addressable market for us. So we launched our first ads in the early part of 26. By August, we had a billion-dollar run rate business on our hands under 200 days, fastest ever. Yes, you said Meta and Google had a baby, and that's your ad business. Exactly. So we have this high consideration, right? You come to ChatGPT to get something done. And we have high personal context, so we can get something very particular for you.

23:48Unnamed Host: So advertisers are getting great outcomes. Consumers are getting great outcomes. And you see it showing up in our business. So next year, we'll have this tailwind of a brand new business in a very large addressable market with a very high gross margin. Does Anthropic going first, IPO, present a complication in terms of raising money right now for you? Look, I always say raise money when you can, but also run your own race. And so for OpenAI, we need to come back to what makes us different. So we are a much broader based platform. We serve consumers, 1.2 billion of them, and enterprises. We are broader in our frontier research.

24:23Unnamed Host: So we invest not just in LLMs, but we have the frontier model in images, in voice, right? The fact that AI is creating this whole new input mechanism. I talk much faster than I type, and I definitely code in English much faster than I code in any other language. I think the areas that we have excelled in. This is what you think your competitive advantage is. Yeah, absolutely. And we've also invested in compute early. I think we were prescient on that last year. We talked about it at that time. and it includes investing in things like our first-party chip program. We announced our chip in the summer.

24:57Unnamed Host: I think people were blown away by the performance. We think that's going to continue to let us serve our customers at a much lower cost. That's a competitive advantage, but importantly, it's how we'll achieve our mission. Did you look at the S1, the Anthropic S1? Of course I looked at the S1. Did anything surprise you? I think on a couple of fronts for our business, I mean, number one, it kind of re-underscored just the breadth of what we're doing. You know, when you start thinking about a consumer business alongside an enterprise business, that is uniquely powerful. And then I think the second thing is how we continue to work with partners.

25:33Unnamed Host: We just launched with AWS in the summer. We made the announcement about GCP as a partner just last week. And so, again, these should be quite incredible tailwinds for us as we move into 27, because we know that customers, we want to let them buy where they want to buy. If you want to come direct to us, we're here. If you want to work with a partner, we're here for you. We understand that that's how enterprises typically what their motion is. And so I'm excited to see us now show up that way. 85 % gross margins, 45 % compute margins. Are your numbers similar to that? We have not talked publicly about our margins.

26:09Unnamed Host: I know. But we do continue to invest in our business because, again, what we see is the ability to build these long-term embedded options in the business. So not just the business today, which we said doubled quarter over quarter, but also it allows us to put in place businesses that will grow over the long term. And to me, from my prior world as an equity analyst, when I think about being a CEO and a CFO previously, investors like to know that your business is strong today, which ours is. But they also want to know where the growth is going to come from tomorrow. And so when I look at something like ads, that was something we were building towards.

26:49Unnamed Host: Consumer hardware is something we can think about next year. And so there's a lot of reasons to think about OpenAI as a long-term, durable, strong business. How are you thinking about when to go public? Raise money when you can. That's what you're doing. What I do, for me, one of the underpinnings of going public beyond just raising capital, which we clearly have been able to do at scale in the private markets, It also comes back to our mission of AGI for the benefit of humanity. And I personally feel very driven to put that economic value creation that's happening into as many hands as we can.

27:25Unnamed Host: Like, why should it just be limited to institutions? And so I do get excited about public offering from that perspective. But that's in our future, and today's just about managing the business. I think last we said, we would continue to look in 27. Does the midterms alter anything about this plan? No, I think from a midterm perspective, look, we're paid as operators to manage scenarios. I don't think there was something that dramatically changed for us. Again, it comes back to what I said. If the midterm means more focus on data centers and communities, we're going to keep doing the work to get into those communities and to build trust with them.

28:01Sarah Friar: And you're raising money, but is the capital there? I mean, what's the biggest constraint? There was a report yesterday that, you know,$500 million in loans got pulled, basically, got sold, including a loan for the New Mexico build out of Stargate. So is it a capital constraint? Is it power constraint? What is the big headwind?

28:19Unnamed Host: I think capital will always be available for the strongest stories and the most exciting stories. And this is kind of where we started. The demand for AI is real. I don't think anyone's arguing with that. Or if they are, I think it's a losing argument. We see it every single day in the build of the way people are using our products. And to me, those are businesses that investors will always want to invest in. Okay.

28:42Sarah Friar: Well, Sarah Fryer, thank you. It was a pleasure going deep into everything we've learned this week and everything that's going on with you in the business. So thank you very much for taking the time. Thank you. Sarah Fryer, the CFO of OpenAI with some real answers, Carl, and new information, I think, on how the business is doing and how she's thinking about raising money and the path forward.

29:02Heath Terry: Definitely broke some new ground there, Sarah. Thanks. As you've been talking to her. We do have some news on Microsoft. And for that, we'll turn to Seema Moti. Seema.

29:09Sarah Friar: Carl, we have two sources on this that Microsoft is in the process of consolidating its neocloud relationships and is in holding active discussions with cloud executives to assess the best next steps. Our sources share that this process of thinning out its neocloud partners is still in the early stages. Worth noting, Iron did share on its earnings call last night that it handed over data center capacity to Microsoft in August, but Microsoft requested a networking equipment upgrade that will result in that infrastructure coming online a few weeks later than expected. But in general, this idea of consolidation, it certainly raises questions around the new clouds and their ability to raise future capital, especially using the investment grade rating of their customers like a Microsoft, Carl, that is AAA.

29:55Sarah Friar: We do not know which partners that remain on versus off. Again, the discussions, we're told, are still in early stages.

30:03Heath Terry: Can we guess that it's mostly an IRN story or no?

30:06Sarah Friar: I don't think we know at this point. Now, listen, we heard from IRN last night. Next week, we get earnings from both Nebius and CoreWeave, which will be an important gut check for, I think, the entire sector. And again, an important update on just what their customer profile looks like and where Microsoft is in the mix.

30:22Heath Terry: All right. It's a really important element in this whole puzzle. Seema, thank you. Seema Modi on Microsoft. When we come back, former Minneapolis Fed President Stern will be with us. We'll get his reaction to the jobs number, how it might impact Fed policy. And then later, some new data shows that Democrats are being advised to focus on corporate oversight following the midterms. We're going to break down some of the implications of that when we're back in a minute.

30:46Unnamed Host: Who's ready for a bike ride? Peppa Pig is learning to ride her bike. First, pop on her helmet. Safety first. Then attach the push stick and give her bike a push. And watch Peppa paddle. Her legs go round and round as the wheels turn. With more than 75 sounds and phrases, every ride is a big adventure. Peppa Pig Ready Paddle Go. Available at all major retailers now.

31:16Gary Stern: 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.

31:45Sarah Friar: Looking for your lucky side? You'll find it at Lucky Land Casino. It's your ultimate spot for fun. No app needed. Just jump right into your browser, spin for free gold coins, or collect free sweeps coins for a chance to win prizes. Plus, score daily login rewards every single day. Ready to meet your lucky side? Head to LuckyLandCasino.com right now. Your first surprise is waiting. Lucky Land Casino, where the magic happens. No purchase necessary. VGW group. Voidware prohibited by law. CT &C is 21+.

32:16Heath Terry: Pretty narrow range here as we try to bounce off of Thursday's lows. There's a look at the NDX. S &P up 75 points is getting you back basically a quarter of what was lost on Thursday. We'll keep that under watch. WTI has flipped positive in the last few minutes, although Brent's still on pace for the worst week since 2020. Let's get a news update with Pippa Stevens. Hey, Pippa.

32:39Sarah Friar: Hey, Carl. The Trump administration just canceled a meeting of a White House tech panel scheduled for next Friday. That's according to an Energy Department spokesperson. The president's Council of Advisors on Science and Technology includes such tech heavyweights as NVIDIA CEO Jensen Wong and Meta CEO Mark Zuckerberg. Word of the cancellation comes after yesterday's tech sell-off and increased scrutiny of the tech industry's relationship with the White House as Democrats get ready to take control of Congress. Meanwhile, the Wall Street Journal reports the White House Office of Public Liaison sent a memo to 3 ,000 conservative organizations laying out the president's accomplishments and pledging to prevent Democrats from reversing them.

33:18Sarah Friar: The memo also included a note that the White House is monitoring their public statements. The White House tells the journal that wasn't a threat, but part of the effort to mobilize supporters. And the CDC reported this morning that as of yesterday, there were 5 ,182 confirmed measles cases reported in the U.S. so far this year. That is the first time in 35 years that the number of cases has surpassed 5 ,000. Carl?

33:45Heath Terry: Pippa, thanks. Coming up this morning, former Minneapolis Fed President Gary Stern is going to join us. We'll get his reaction to the jobs number today. By the way, don't miss Goldman Sachs Chief David Solomon Monday, 11 a.m. Eastern, right here on Squawk on the Street. We'll get his take on the markets, the midterms, and the AI sell-off. Trying to bounce today. We're back in a minute. Welcome back. With nonfarm payroll in October, much higher than expected. Our next guest still sees a healthy labor market. Plenty of other challenges for the Fed to worry about, including the consequences of the AI build out, a key topic in the wake of the midterms.

34:16Heath Terry: Joining me here at Post 9 this morning is former Minneapolis Fed President Gary Stern. Always a treat for me and the viewers, Gary. Welcome back. Thank you. Good to be here. So pretty nice metrics across the board here, wouldn't you say? I would say that was a very nice labor market report. The surprise was on the upside. The previous data got revised up. And so it suggests that the economy is healthy. It's continued to expand. That's not a surprise to me, but for people who may have had concerns or doubts, those should be allayed at least to some extent now. Pair it with jolts earlier in the week.

34:52Heath Terry: Pair it with the quit rate earlier in the week. People are feeling a little more confident. You, Mish, today? Yeah, I think so. And the initial claims have stayed low. You know, there doesn't seem to be any reason to get concerned about the labor market right now. And I think that makes the Fed's job in terms of acting to bring down inflation a bit easier. Because the labor market, as might have been expected, has been sustained. Job growth continues and it looks quite healthy. Right. Although with earnings 3-1 a little bit hot, does it reinforce your case for more hikes? Well, I think the case for hikes is strong and straightforward.

35:34Heath Terry: The 3.1, you know, cost-push inflation was discredited a long time ago. It really does depend on the Fed and demand. And I personally don't get very concerned when I see a number a little bit north of three in terms of wages or compensation. I think the Fed needs to act in any event. So you would have voted, for instance, this last meeting to hike. Yes. And you think the market's pricing in the right number of hikes from here? Well, they may be a little underestimating what it's going to take to bring inflation back to target. But, of course, you know, in the real world, things evolve day by day.

36:17Heath Terry: And there's plenty of information incoming on the domestic economy, a variety of international issues and so forth. So I think it pays to be flexible and to analyze the information that becomes available. And the Fed is quite good at that. Any observations about the curve? We've had the refunding news this week. I mean, 30 years has been a little stubborn, has it not? Yeah, it has. But I think if you look at longer-term interest rates, they strike me as pretty reasonable at the moment. They're down a bit from where they were a week or two ago. I wouldn't be surprised if they went back to those levels.

36:57Heath Terry: But those are, you know, people got used to low interest rates following the financial crisis. Anybody with a longer historical perspective, going back to the 70s, 80s, 90s, realizes that the outlier was the post-financial crisis, not what we've been seeing lately. Yes. Well, with the 30-year fixed, 20 bibs from a six-handle, I wonder if you think hopes for housing, hopes for household creation, if those are misplaced at this point. Well, you know, housing has been sluggish, and housing is without question the most interest rate-sensitive sector of the economy. So, you know, I would be careful about getting all worked up about opportunity and housing, given the financial situation.

37:42Heath Terry: What may turn out to be more important is if state and localities make permitting and those kinds of things easier so that developers who heretofore have felt stymied by red tape find that the red tape has diminished and it's easier to get projects underway. Speaking of which, the AI part, lastly here, you do think the industry and these governors, these state houses can find a way to meet in the middle on data centers? Yeah, I expect a bunch of compromises. I think the industry may have been a little indifferent to some of the concerns we're seeing now. The election clearly sent a message, and I would be very surprised if we didn't see compromises over electricity prices and rates, water usage, maybe some other infrastructure issues having to do with transportation.

38:37Heath Terry: seems like there ought to be plenty of room for compromise, plenty of room to move forward. And certainly some states and localities are going to welcome the development. Well, that's definitely the tone we're hearing from some governors and from OpenAI a few moments ago on our air. That's what I would expect as well. Gary, thanks for coming in. It's always a treat. Thank you. Good to see you. Gary Stern. By the way, do not miss the San Francisco Fed President Daily. That's 1 p.m. Eastern today on The Exchange. Sarah.

39:04Sarah Friar: All right, coming up after the midterms, Democrats are being advised to focus on corporate oversight. According to new data, we're going to break down the implications of that when we come back. What I hope happens is a continued focus on where are where are the material financial risks in the system rather than regulation. That's more governance and other pieces focused because it's there's some tail risks out there and there's a lot of new innovation that's come. So good, responsible regulation that protects consumers but also allows innovation and growth. That's what we'll be after. That was Citigroup CEO Jane Frazier last hour with me on the impact of the midterm elections on potential regulation.

39:47Sarah Friar: That says data shows Democrats are being advised to focus on corporate oversight. Megan Casella joins us with more. I tried, Megan, to ask her how she felt about Elizabeth Warren chairing Senate banking. But she said they always work with Washington on both sides. Everybody's got to work together. Everybody has the nice words for now, Sarah. But new polling shared exclusively with CNBC does show that two-thirds of voters think that investigations of corporate greed should be the top priority for Congress next year. That's higher than investigations into President Trump, his family, or the broader government.

40:19Sarah Friar: The progressive think tank, Groudwork Collaborative, they're behind this poll. They have been briefing lawmakers and staffers in leadership and oversight roles on all of this. And they say that when it comes to specific sectors where voters most want to see action, they list in order health insurance, oil and gas and big tech or AI companies. You can see a few others up there as well. Now, Groundwork tells me that their goal here is to encourage Democrats to use their majority for investigations that voters believe would actually have an impact on their own cost of living. They say the poll and some focus groups they did showed that voters want to see consequences.

40:51Sarah Friar: Those could be lower prices, resignations or the most extreme for executives to go to jail. An oversight toolkit that they're circulating on the Hill specifically recommends public pursuit of jail time, which they say, and I quote, offers voters tangible evidence of Democrats' seriousness about the criminality of corporate greed. Other recommendations include issuing subpoenas even just for the sake of subpoenas, which they say could be worth it if an executive is likely to refuse to comply, and accessing and possibly publishing corporate tax returns. And guys, to be clear, this is just one set of recommendations, but it does give us insight into at least what some Democrats are thinking about as they prepare for next year.

41:30Sarah Friar: Poll after poll in this election showed that voters care most about the economy and about corruption. So the Democrats that I'm hearing from believe that they could address both at once by going after corporations in this sort of aggressive way. Guys?

41:43Heath Terry: The journal piece last night is titled Elizabeth Warren's power in the new Senate is a Wall Street nightmare. but it sounds like you're seeing they might have bigger fish to fry.

41:54Sarah Friar: Right. I mean, of course, she is going to be in a very powerful position, expected to be lead of the banking committee. I was reading, of course, that anybody that got a letter from Warren in the past year or two should be on notice now, but it's not going to be just banking. It's going to be much, much broader than that. I was talking to folks about what the Judiciary Committee will be up to, the Oversight Committee, the new incoming finance chair, Ron Wyden, is talking about this as well. We saw so many lawmakers and Democrats being very public on social media and in their commentary so far about just how much they want to lean into subpoenas and investigations.

42:27Sarah Friar: And these folks at the think tank that I was talking to said they want to make sure that lawmakers don't do what they did in 2019, when they spent more than a year on impeachment of Donald Trump and Trump remained more popular at the end of it than when they started. So they don't want Democrats. That's what they're advising them. Don't waste time on that. focus here on corporations, that is something that voters believe could actually help them. So it's not just banks, it's every sector. Yep, that head of global affairs or government affairs job is kicking into action at all these companies. Thank you, Megan Casella.

43:02Sarah Friar: Still ahead, what OpenAI CFO Sarah Fryer just told us about demand for AI and the AI buildout in reaction to the midterms. We'll share that with you when Squawk on the Street comes right back.

43:12Unnamed Host: The demand for AI is real. I heard Jane Fraser on here earlier with you say the same thing. What does that mean? At OpenAI we're building a durable, strong business. My job is to manage through scenarios as they come up. We saw a breakout Q3. Our business grew 70 % quarter over quarter. Our enterprise business doubled. So what's that telling you? It's saying people are actually using AI and getting value from it.

43:40Sarah Friar: All right, some news there from OpenAI CFO Sarah Fryer earlier this hour, confirming 70 % jump quarter over quarter in the business, says half of the business now is enterprise, half is consumer, a distinction she also made when I asked her about Anthropix S1, which she said she, of course, did look through and said, you know, we have the consumer business, didn't confirm any of the financials there. Also, as far as the midterm election and how they were reading the public pushback against data centers. I mean, the message is we're going to continue to build because the demand is there. But clearly, they're paying more attention to how they engage with communities, involve communities, pay for electricity costs.

44:19Sarah Friar: I mean, that was clearly, I think, the takeaway that that they and others who are building data centers got. But whether it's Sarah Fryer, Carl, or Jane Frazier, the CEO of Citi, who we talked to earlier. I mean, they said we're not pushing against progress here. The demand is there. It's from around the world. Frazier wouldn't even go to whether we're in peak data center build out or peak CapEx or anything like that, because she said she's traveling around the world and she sees it here in the U.S. and enterprises are adopting it. And that is ultimately what is driving this thing, despite, you know, some bumps in the market and, of course, the political backlash.

44:57Heath Terry: Yeah, although interesting to hear Heath Terry talk to you about peak perhaps CapEx growth. We're not doing we're not doing 40s anymore and we'll see what next year brings. I was really interested in what PayPal said to you about the use of AI, what it does to headcount, what it does to costs. I mean, look at Airbnb today opened at an all time high. And there's a company that's already been re-rated because of how they are using AI to address customer issues.

45:25Sarah Friar: yeah no what paypal said was interesting enrique laura's where he where he said that you know they're in cost-cutting mode because they're in the middle of a turnaround and what he said is they're leaning into ai and he didn't say it's he didn't go as far as saying that it's replacing jobs but that it is but it is being used as a productivity tool as they do layoffs it's a very different position than say what we heard from sarah fryer of open ai who said you know as enterprise becomes a bigger book of their business, what they're seeing and what she's seeing on her finance team is the empowerment of workers around AI pointing to things like the strong, strong jobs report, which that, you know, these companies are going to have to continue to do to get the public on board because there's clearly a lot of negativity out there.

46:08Sarah Friar: And I think the messaging needs to change. And it's as long as we can continue to get good jobs numbers at a time where these companies are adopting AI so quickly and so intensely, I mean, that, that will ultimately be the proof.

46:20Heath Terry: Yeah, that would be the perfect marriage of that progress, the positive impact on things like GDP, but also a labor market that's not really blinking in the face of it, given what Jan told us today about jobless claims and the breadth of hiring, which was really evident in today's print. As for the market action, Sarah, VIX is not far from 24 still, so it's not like things have been cleared completely, but we're holding 7 ,400 by a pretty comfortable level, dows up 100, and we'll see how all this gets processed in the coming week. Safe travels home. Let's get to the judge.

46:51Sarah Friar: All opinions expressed by Squawk on the Street participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet, or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Such opinions are based upon information Squawk on the Street participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such.

47:23Sarah Friar: To view the full Squawk on the Street disclaimer, please visit cnbc.com forward slash Squawk on the Street disclaimer.

47:28Heath Terry: Building a portfolio with Fidelity Basket portfolios is kind of like making a sandwich. It's as simple as picking your stocks and ETFs, sort of like your meats and other topics, and managing it as one big juicy investment. Now that's pretty good. Learn more at fidelity.com slash baskets. Investing involves risks, including risk of loss. Fidelity Brokers Services, LLC. Member NYSC SIPC.