11AM Hour: Tech Stocks Sell Off, Tapestry CEO & Box CEO 11/5/26

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1:04Good Thursday morning. Welcome to Squawk on the Street. I'm Carl Quintanillo with Sarah Eisen, live at Post 9 at the New York Stock Exchange. Today, that short-lived midterm rally is over for now. Tech taking it on the chin today with the Nasdaq now pacing for the worst day since June, S &P worst day of the year. Investors continue to rotate out of AI-related names. Chips are tumbling. We'll talk about the implications with Janice Henderson's Richard clothed. Plus, speaking of chips, Box announcing a new partnership with NVIDIA. The CEO, Aaron Levy, will join us first on CNBC to discuss. And we'll get a read on the state of the consumer and inflation with the CEO of Tapestry, one of the few names today that is actually up better than 6 percent.

1:42We'll start on the tech sell-off. Two names in particular, Qualcomm and Arm, both plunging after earnings results. Seema Modi joins us with more on the story. Seema. What a day, Sarah. The street doesn't have any tolerance for a lighter profit guide, which is what we got from Qualcomm as handset chip sales for the quarter fell 26 % year over year. CEO Cristiano Amon on the call saying Android China market did bottom while also painting an optimistic picture of Qualcomm's data center push with revenue expected to hit$5 billion in 2027. Still, analysts at Goldman Sachs noting that investors want to see more evidence of the magnitude and timing of the business ramping, especially if it continues to see a weak smartphone market.

2:21That's, of course, Qualcomm's biggest market. Qualcomm also raising prices, pointing to not just memory costs, but wafer fabrication, advanced packaging and other manufacturing-related components costing more. We're looking at shares down about 14 percent. And Arm Holdings is down similarly as it too saw weakness in the smartphone market. Arm's technology, of course, licensed out to Qualcomm and other semiconductors like NVIDIA. It did see its data center royalties double year over a year. City analysts say investors should be a buyer of this stock on weakness, calling it a key beneficiary of the AI infrastructure spend.

2:55But guys, the challenge is the narrative has certainly gotten blurred by that Democratic sweep and how much this data center timeline gets elongated after 2027. CEO of Arm, Renee Oz, telling CNBC in the 9 a.m. hour it does if the U.S. does not take up the mantle of data center construction, there will be others around the world to meet that demand. A big comment today. Seema, on the arm fiscal quarter guidance, really not that far removed from consensus. Am I right? That's right. But I think in this environment where every number is being watched so closely, there is really no room for error. And also, I think expectations were very high.

3:32There's a lot of focus today on the magnitude of the sell-off we're seeing in semiconductors. But it's worth noting that the sell-off sort of started in July with the semiconductor sector now down about 30 percent since then. And during that same time frame, you'll see that the IGV software ETF has actually outperformed. So that change in leadership in tech is something notable, although today would point out that software is down core. We've guys, I was just taking a look at the price action. If we were to sum up losses there, it's now down about 70 percent from its high. That earnings report comes out next Wednesday, and the big topic there is going to be capital raises.

4:08I think analysts had bared expect about$30 billion next year. But how does that get influenced now by what we saw from the midterms? Yeah, the whole picture has kind of been clouded up here. Seema, thank you very much. And by the way, do not miss the CEO of Qualcomm. He's joining the next hour on the Halftime Report. For more on the AI trade and the sell-off this morning, let's bring in Janice Henderson, tech portfolio manager, Richard Claude. Richard, appreciate the time, especially on days like today. Thanks for being with us. Morning, Carl. Yeah, fun day today. Yeah. So, I mean, it's been suggested so far this morning that this may be as the result of some desks giving, especially these statehouse races, a second look.

4:46Do you think there's more to it? Yeah, I mean, look, this is coming, as was highlighted off, you know, a few months of we've had, you know, a lot of volatility, big drawdowns in some of the areas where, you know, many participants were focused. And so, you know, kind of sitting there jittery, I think, you know, I think before this 40 % of long short funds were down year to date, there's a lot of pressure and a lot of forced selling. And that's what we're seeing today is kind of one of the first kind of totally correlated drawdowns across different areas. Yesterday we saw the mega caps up and some of the AI infrastructure names down.

5:17Today it's everything down, including software. And there's just a bit of a buyer's strike today with all sort of participants selling. So that's why we're seeing some of these outsides move, unfortunately. I was going to say, is there any area of tech that you can see where positioning is improving today? So, you know, there's some areas, Motorola Solutions and some good results and was up. We're seeing a little bit of rotation into some of the, you know, sort of the internet names. You know, overnight we saw some rotation in, you know, from Taiwan and Korea into Hong Kong and Tencent was up sort of strongly.

5:51You know, Sony reported some good results. And again, they were up strongly overnight. So there are some brief pockets of respite from this, but obviously, you know, pretty, pretty painful across the board today. Is it justified? I mean, is there a real rethink on how much is going to be able to get built in this country and what that investment might mean for the overall economy? Yeah, I think some degree of blue wave was priced in, but just the degree of it and then obviously the Texas governorship to swing blue. And given that's about a third of a future kind of data center build out in the U.S., that's just led to some additional jitters.

6:30Now, if you kind of analyze what Hinojosa said, it's not kind of don't build any data centers ever. It's just let's build them right. Let's make sure we've got the right legal framework in place to do that. You've seen some of the builders react to that. So you've had some Altman come out and let's not have these NDAs. Let's just be very clear and engage with communities as to what we're doing here, what we're getting, what the impact is going to be to your community, to electricity prices and things like that. So, you know, ultimately, that's a good thing. But, you know, obviously there's going to be a knee-jerk reaction and that could lead to some delays and that's going to be some concerns.

7:04We're not going to solve for that in terms of knowing the answers to that anytime soon, unfortunately. It does kind of feel like a moment in which if you had theoretically a press conference with the Texas governor who would essentially say, look, we're not here to demonize data centers, but we're going to have robust conversations about it. I mean, I guess it feels like you might be in a moment where that would result in a bit of a face ripper rally. yeah absolutely i think that that would be helpful um so once i think everyone's digested their wins and had the parties and gets the serious stuff of you know what they're actually going to be doing uh when they when they get into into the state house um then you know that would be helpful i think obviously we've got the the anthropic ipo process going on in the background and again you know we'll see if they can come forward and talk about you know a re-acceleration in their business some of their plans obviously they've made huge commitments to build out and And you again can update us as to, you know, they're going to continue with those plans.

8:00They think those are still doable. So, you know, there are things that can, I think, can come out and kind of make everyone a little less fearful than they are today. But we knew a lot of these issues were going to be kind of plaguing us along the way. It was never going to be linear. I think kind of our advantage as long-only managers, as active managers, is we can do the work and try and assess that ourselves. And we're not slaves to volatility. Obviously, many market participants are either because they're getting margin called and they've got leverage or they're sitting in a pod and they have a drawdown and they're going to get fired.

8:29So we can hopefully take advantage of that volatility where it's appropriate. I think no matter what, you're definitely going to get pushed out the data center bill. I mean, in this particular case of Texas, what she has said is she wants a moratorium until there's legislation passed around permitting data centers. We know that can't. I mean, she doesn't come in till January. We know the legislative process takes time in Texas and they need two thirds, but they want to do anything before September. So all of this just I think, Richard, feeds the feeds the worry and the concern that was already there from Wall Street, which is how long do the revenues get pushed out?

9:04Right. If the one thing that was happening fast was the data centers were getting built fast. But if that now slows down, too, then what do we see on the other side? Yeah. And look, there's a little bit of near-term respite because I think the current freeze from Abbott ends in December and there's a tiny window over Christmas. Maybe there'll be a few applications put in. It's going to be a busy Christmas for a few folk in Texas before she comes in and then has that sort of immediate freeze. Now, obviously, that's going to be impacting pipeline beyond 28. So there's still plenty in the pipeline through next year and beyond that's still there.

9:40And also, there was over 400 gigawatts in the pipeline in Texas, which was a lot of speculative building there that needed to be cleaned up anyway. And when we think about investing, you've got to think about that risk curve. We've seen some of the impact of the neoclouds, but the hyperscalers are probably the most likely to actually be able to deliver on their roadmaps of building out those data centers. As you go down the spectrum, and you go to Oracle, you go to the neoclouds, you go to some of the most more speculative stuff, yeah, then it's going to be much more likely that that's not going to get done.

10:08That's going to be much more risky. And that's before you adding some of the financing concerns as well. So, you know, again, from an investor point of view, you can think about that risk spectrum and where you want to sit on that. And obviously, there were just a lot of market participants who were sitting at the riskiest end of that, that are seeing the biggest drawdowns and the most volatility at the moment. Yeah. I wonder if you'd entertain some game theory on neoclouds specifically, because the last time the S &P was around these levels was early August. Core Weave was around 100, maybe 105.

10:37Then we've been through the worries about the unsecured debt. We've had the Elon tweets about guppies. We're way below what was then the street low target of 51. We're now at 41. I just wonder, do you see things that are systemic in that part of the build-out? Well, what's happened this week certainly adds an extra level of uncertainty. But I think the market was being a bit unfair on them. I mean, I think as equity investors, is we don't spend as much time or enough time looking at our fixed income colleagues. And we look at charts for CoreWeave that looks at some of their unsecured debt and go, oh my God, that's blown out.

11:13That looks really scary. Or look at the CDS. Actually, if you look at their asset-backed kind of debt, which is funding a lot of their build-out, actually, that hasn't budged barely at all. So that still looks pretty solid. And then you've got to look at the other side of the spread. You've got one side of the financing costs are going up, but obviously, the compute costs that they can rent out are going up exponentially as well, as we heard from Elon when he was talking about SpaceX. So actually, that spread's still pretty positive for them. So the return that they're getting, even with higher financing, is still pretty good.

11:41In fact, it is actually expanding. But ultimately, why do neoclouds exist? I mean, as investors, do we really need them? I mean, they're financing vehicles, right? They sit there so that not everything has to sit on a hyperscaler balance sheet. So Jensen has more than three customers. But obviously, as investors and as equity investors, we step into that, we're going to be taking on a lot more risk. They're the marginal demand. And that, you know, is a riskier part of the market to be investing in. So when you saw many of these, you know, kind of, you know, portfolios that had, you know, 10%, you know, three positions in neoclouds, that was probably taking on a little bit more risk and beta than was appropriate.

12:16Yes. Good perspective, Richard, especially on neoclouds and on the chips with the Sox now having its worst session since early COVID. It was about six years ago. Richard, hope to talk soon. Thank you. Richard Clogue. You know who we need, CNBC senior markets commentator Mike Santoli to weigh in here on the sell-off. He's with us from NASDAQ today. Mike, what's weird is you might, if it's a reaction to the pushback against data centers, particularly in states like Texas, it's weird that you're seeing this sort of delayed reaction. I would have thought you would have seen more of it yesterday. Well, Sarah, we saw it yesterday, but it was very localized.

12:53And it was very much restricted to semiconductors, a little other hardware food chain type plays. And they vastly underperformed. And the market thought it could, again, get away easy by rotating it to other areas. Now, the rotation was both impressive and exaggerated and seeming a little bit forced, right? Everyone talked about Apple being up 5%, 6%. So today it feels as if you have the bear case that is in ascendance again, badly received semi-earnings, the IRN news, all the things you've been talking about. And then there's this bear case that can't be disproved in the near term. And therefore you have, I think, positioning taking over.

13:30And it is remarkable. And I think it's a little bit jarring for a lot of traders because you thought we came into the week being able to say, look, we got positioning among hedge funds way down in tech. You've had this liquidation in most of the semiconductor and related areas. And so you could probably start to pick up the pieces from here. And that failed. I do think we're also undergoing what was probably a not surprising test of the overnight low in the S &P 500 futures from election night. Now, we've cracked through that already. So I think that you just didn't have an answer for this snowballing weakness in the direct AI trade the way we have for a while.

14:08The median consumer cyclical stock was up 17 % since October 1st. Consumer staples are up like 15 % in that period of time. And we just ran out of other things that could plausibly be bought to offset the weakness. I think that's where we are. The other thing that I have in mind is 2018. Every time somebody has been talking about, you know, following midterm elections, the market is almost always up over the months to come. And it's a fourth quarter rally in the making. Yes, the patterns are pretty clear on that front. But in 2018, the day after Election Day, the S &P was up 2 percent and then went straight down.

14:43And then you had this complex correction and Fed was tightening and all the rest of it. So I'm not saying we're having that, but it does feel as if the market has to move prices farther and faster to find people with conviction to stand in the way. You were talking about the Anthropic IPO. That's probably the next thing that that has to happen if you're going to be able to stop the bleed in terms of the infrastructure names. Mike, you and I have been talking about long-term trend lines for a while or moving averages. And I just wondered what you make of the severity with which the NDX did slice through the 200-day because we did it at the beginning of the war action and it rebounded pretty swiftly.

15:20Right. I mean, I think the way I look at it is, again, the market thought that it could just check off the boxes and have a scripted comeback, which was NASDAQ 100 hits the 200-day for a day or two, doesn't really break it. And then we rallied, you know, yesterday. And it wasn't enough. You didn't have follow-on buyers. S &P 500, the futures clicked 7 ,500 overnight on election night and then rallied hard. So I do think that it's sort of like when it works, it works. And when it doesn't, you have to have a little more of a give up trade and you have to, you know, redefine how extreme things have to go to to get to capitulation.

15:57The remarkable thing, and everyone's trotting out the extremes of how weak semis have been for how many months and all the rest of it, they're still up 30 % year to date. I mean, as a group, it's up 20, 30 % year to date. So it's all a measure of how wild things got in the first half of the year that we've had all this dismantling of the trade. And still, if you own them coming into the year, you're still in the green. Yes. which we could say about Caterpillar for a while, but no longer has Cats read for the year. Mike, I imagine we're going to talk a lot more. We'll see you in a bit. Mike Santoli this morning.

16:33Meantime, Sherry, the GE Aerospace are down today getting caught up in this sell-off. Our Morgan Brennan joins us now from Kennedy Space Center with the CEO of GE Aerospace. Morning, MB. Hey, Carl. That's right. So joining me now is Larry Kulp here at the Upsummit at Kennedy Space Center. It's great to be with you. A lot to get to. But first, I want to start with some news that you're making this morning. You are partnered with Beta Technologies, which is a partner and you're invested in as well, on the world's first hybrid electric assisted takeoff of a commercial aircraft. I mean, it's been a big topic here, hybrid electric propulsion, electric propulsion.

17:06Why is it so meaningful? What does it speak to the future of flight? Why do investors need to pay close attention? Morgan, good to be with you here. What an event this is. The Upsummit's grown the last few years and to be at the Kennedy Space Center, right, as we look around, just a lot of the future staring us a smack in the eye. And we'd like to think our partnership with Beta is very much a part of the future. You might recall back at the Farmborough Air Show, we were really excited to unveil the first high-altitude commercial demonstrator of hybrid electric technologies. What we're announcing today is that we've added to that progress with that assisted takeoff.

17:44So what it means fundamentally is we have now demonstrated that hybrid electric technology is applicable in commercial applications through all phases of flight, takeoff, climb, and cruise. Now, this is going to be something that probably is part of a next-generation narrowbody, a plane that won't necessarily fly commercially until, say, 2035 to 2040. But this is one of the requisite building blocks for the engine technology to enable that next generation of not only fuel efficiency, but reliability and durability for the airlines. So it's a step in the right direction, very much in line with everything that we're doing with our friends at Beta.

18:22And we're very much excited about today's news. Listen, I know we're talking about long lead times when it comes to innovation, realization of technologies like this, increased fuel efficiency for future aircraft. But when you see fuel prices at these elevated levels right now, does that accelerate the timeline at all? Does it stoke demand, even if it is years out? Well, I think it just reminds us that the imperative for us as a propulsion provider is to invest in the technologies today that will result in the products tomorrow that deliver that next generation step function improvement in efficiency and durability.

18:57There's no way an air framer can really invest in a new program without the promise of that improvement. And certainly the same applies to the airlines. An airline can't modernize its fleet solely on the back of a very modest improvement in fuel efficiency. Fuel, of course, being one of their biggest cost drivers. So at GE Aerospace, I think we've led the industry through successive product generations because we're always looking for those breakthroughs. And those breakthroughs are going to require technologies, not only like hybrid electric, but what we're doing with open fan architectures, what we're doing with a compact core, the hot section of the engine, to make sure that when the airlines and the air framers are ready to go, sometime in the next decade, we have technologies that we can quickly turn into product.

19:42How do midterm elections affect this conversation if they do? Well, I think fundamentally with a company like ours, with$210 billion of backlog sold out into the 2030s, what has played out here over the last several days doesn't have a lot of impact. We'd like to think that as a company, given that we've dealt with 20 administrations now of both parties and different configurations on the Hill, we'll continue to do what we do. And much of the agenda here at the UP Summit is focused on some of the key initiatives at the DOT, like air traffic, modernization. I think that's a good thing for our economy.

20:23I think it's a good thing for our country. And those are the sorts of issues that are hopefully bipartisan in nature. And just very quickly, you have a big book of defense business as well. Do you expect impact there with defense spending? We don't. Our book to bill this year is on the order of 1.5. So we've had a very strong year. We power more than two thirds of the U.S. defense forces between jets and helicopters, many of which are being used actively today in the Gulf. We haven't actually seen much by way of follow on activity yet in terms of sustainment replenishment. But we would expect that to play out in the months to come.

21:01So our defense business is as busy as our commercial business. We're excited about that. I don't think we really see a meaningful change. anytime soon. Okay. Larry Culp, CEO of GE Airspace. Great to be here with you at the Upsummit. Guys, I'll send it back to you in the studio. Sarah? Okay. We're keeping our eye on this sell-off, which is broadening and deepening. It's down about 1 ,200 points. Check on the financials right now. They're not down as much as some of the tech sectors, but they are selling off sharply. Goldman Sachs shaving almost 400 points off the Dow by itself. Leslie Pickard joins us now with a look at the group, Leslie.

21:34Hey, Sarah, you bring up an interesting phenomenon on that we're seeing with the banks in particular right now, which is that the KBE, the ETF that holds some of the biggest banks, is down by less than 1%. So it's doing better than the broader indexes here. But the banks that are more capital market sensitive, Goldman Sachs, Morgan Stanley, those that are perceived to be closer and more beneficial or benefiting more from the AI financing buildout, those are the ones that are down by the most. So Goldman is down 6.4%. It was down as much as 7 % just a short while ago. Morgan Stanley down 6%. That's also come back a little bit, but still pretty steep declines here.

22:14And you can see Citi down by just under 5 % as well. The banks that are holding up the best are the ones that are maybe playing a little bit of catch up as it pertains to the AI financing. There have been a lot of stories written about Bank of America being essentially late to the party as it pertains to AI and financing. Well, Today, it's down by 2.2 percent, so it's doing far better than its peers. Wells Fargo down about 3 percent, still underperforming the S &P this morning, but not down by as steep of magnitudes as those that are seen as more capital market sensitive. As it pertains to private credit, kind of an interesting phenomenon here as well, because you see Blue Owl down by about 7.8 percent right now.

23:01That is also a company that has been a big player in some of the data center financing from the private credit side. But also you have Carlyle, which is down 8 % on more of the private equity side and Apollo down by about 5%. So we're seeing this dynamic kind of shape up in real time. It's fascinating given that this area really saw more of a bounce yesterday after we got the results of the midterm and now clearly, you know, reacting in the way that you're seeing with more of the AI supply chain today. Yeah, it's who's closest, right? And who's most intertwined with AI? And that includes deals, Leslie, and questions about big IPOs coming, like Anthropic and big fundraisers like OpenAI and just, you know, how many days like today will it take to change things like that?

23:53I think that is the key question, Sarah, because if you're pricing an IPO in particular, it's one thing for the market to be down in kind of a stable fashion. And you can find a price discovery based on some sense of stability, even if the market is down. But when you get the big price swings, that's what makes it really, really challenging to price IPOs, because you're looking at the comparables in the market and you're trying to assess where this company fits in when you kind of cobble together all of those things. Now, people will tell me, when there's a deal like Anthropik that it's in a class of one, it's not as susceptible to the comparables that are out there.

24:29But if you have a lot of fund managers, TMT managers who are usually participants in an IPO and their own P &L is heavily underwater as a result of just the massive volatility swings that we've been seeing as of late, then it is kind of harder to encourage them to participate in a big IPO unless they perceive there to be a discount, unless they are able to kind of get a bigger allocation as a result of that. So there is a little bit of gamesmanship that is involved in a market like this that you may not see during more stable times. Leslie, do you think we get any color on the anthropic issue or any of the open AI meetings in the coming days?

25:11Yeah, no, those are the calls that I'm making, Carl. So I'll definitely let you know when I hear more. But as of now, I get the sense that it's still all systems go. I mean, it's definitely something that we need to be watching. I think price is really important here. That's something that Jim Cramer talked about a few hours ago, this idea that this deal is really important for the market and it has to come at a price that works. I think all of the advisors who are working on this deal in the company appreciate just the magnitude of importance that this one IPO signifies for an uncertain market like this.

25:46And so it basically has to go right if it happens, assuming that it does go forward with, you know, as expedient timeline as they could possibly do. You know, so those are some of the key questions that I'm definitely asking sources. And I'll let you know as soon as I hear any updates based on today's market activity. All right, thank you, Leslie. Please keep us posted. It's a good time to have a tech conference And I'll be at Citigroup's tech conference tomorrow in Pebble Beach, where I'll speak to Citigroup's chief executive officer, Jane Frazier, about what could be happening here with the AI trade, deal impact, banking spillover, and then OpenAI's CFO, Sarah Fryer.

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28:16With us now to talk more about today's market sell-off is a chief investment officer and one point at BFG Wealth Partners, Peter Buchvar, also a CNBC contributor. Peter, great to have you. Thanks for coming on. Hi, Carl. As you look around today, is this signaling to you the end of the AI trade? I think it is. But we need to separate the AI trade from the further development of the technology. Stocks trade on rate of change of growth. And right now, investors are questioning that$1.2 trillion of CapEx that we forecast for next year are from$800 billion. Well, maybe that's not going to happen. and they're after that in 2028.

28:59These stocks, these stocks being the picks and shovels that are hugely reliant on the development of that CapEx. Well, if the rate of spend, which will still be higher than it is this year, if that rate of spend slows, then their order books slow. Then of course, with Anthropic, the competition from China, the open source, open weight, people are now questioning that. So the technology is still gonna continue on in terms of its development, But if there is a slowdown in the actual development and the buildings and the infrastructure and so forth, that's what stocks are going to trade off. We've been talking for so long, Peter, about how the AI buildout was starving other elements of the economy, right, creating scarcity.

29:44And I just wonder if the buildout slows, does it mean peak nominal growth? Well, we've seen many economists estimates that about half of GDP growth has been a contribution from the AI build. And whether you're a steel company or providing cement or HVAC or the technology guts that go into it. but I estimate up to 70 plus percent of Q3 earnings growth is a beneficiary of this AI buildout. And that potentially is under threat if that slows down. And we know, of course, all this ties into the health of the stock market, which then filters into upper income spend, which is a further contribution to GDP growth.

30:29And one last thing is that we know we've all talked about the circular financing situation. Well, in this current situation, it matters more than ever. And I'm not meaning to pick on NVIDIA, but you take NVIDIA that has guaranteed a lease at some neocloud. And what happens if that neocloud, that building doesn't get built? Well, they're on the hook for the lease. And because it doesn't get built, they're buying less chips. And what does that mean for the cloud backlog of a hyperscaler that was providing services to that facility? So this is where you see the flip side of all these huge interrelationships that have taken place over the past year and continues on seemingly.

31:13You also see just how much the overall economy is being driven by all of this, the investment and the build out and the jobs that have been created. And I think you see that reflected in the fact that treasuries are in demand right now, that only defensives are working right now. Now, Peter, how do you reassess the economic outlook if we're talking about a slower and potentially less build out of data centers in the U.S.? Well, that's the key is because we're still going to get a lot of spending. When you think about 2027, a lot of the facilities that are being constructed have probably already started, you know, just because it takes time to build these things.

31:51So there is, in a way, some built in GDP growth from it. But to my point earlier, if the rate of change starts to slow in terms of the spend and the development and rollout of this, that's when we sort of get caught. That's when the stock market starts to get negatively impacted, which then filters through and potentially negatively impacts upper income spend. I mean, when you think about the S &P, if, and I emphasize if, we continue to falter, you have to assume it's going to have an impact on upper income spend. And then also that's going to flow through to the Fed. I'm convinced that if this sell-off continues, the Fed is not raising interest rates in December.

32:29There'll be some hawks that look at the inflation stats, but Kevin Warsh told us at the last meeting that AI and the data center build-out is now a key focus of theirs, and they're seeing what's going on. You can be sure Kevin Warsh is watching the credit default swaps of CoreWeave. Indeed. And to your point about spend, I mean, even with this sell off, we began the morning with both Visa and MasterCard at all time highs. So we continue to watch some pretty decent forecasts for holiday spend as well out of Visa. And then, of course, Sarah led us off with some good productivity macro prints. That's the irony.

33:08I know that we're starting to see evidence in the real economy that the productivity is coming through, Peter. That's what we've been waiting for. No question. We're back to this 2%, which is hugely crucial for the growth of the economy because labor force growth has been nominal. So you really need that productivity to drive headline GDP growth. The question, though, is what happens from here if there is a break in this data center buildout? Because, again, we know we're so dependent on it. Peter, really appreciate it. Important day. Viewers are better for it. Good to see, as always, Peter Bookvar.

33:45As we're seeing a bit of a sort of classic midday lunch hour bounce, but really just back to 7470. I mean, the Nasdaq at one point was down 5.4 percent, so definitely come back a little bit. We're down 4 percent, though. It's brutal. It's widespread. I mean, it's ugly. Let's show you how the media stocks are faring. Julia Borstein joins us now with a look at that group. Julia. Let's take a look at the telcos because they are bucking the downward trend right now. T-Mobile, Verizon, AT &T all higher as investors are rotating into defensive stocks that pay dividends. Though it's worth noting that those telcos are all down in the past two months amid concerns about new competition from SpaceX getting into the mobile carrier space.

34:27We also want to take a look at Snap. Those shares are down 15 percent, now 13 percent, after yesterday reporting revenue and user growth at missed estimates. CEO Evan Spiegel saying Snap's 4 percent ad growth in the quarter remains below their ambitions. And then also check out Meta. Those shares down over three and a half percent, swallowed into the AI sell-off as election results are hurting the outlook for data center buildouts. Dina Powell-McCormick spoke yesterday at the Wall Street Journal tech conference, saying that the election is going to make it harder to build data centers now. Meta also chimed in on OpenAI publishing its data center commitments policy, saying we're glad OpenAI is joining Meta in a long ago commitment.

35:10Meta made to pay our own energy and water costs so they're not passed on to consumers. See, Meta's platforms now down nearly 4%. Sarah? Yeah, that would have been helpful before the election, maybe, if they wanted things to go more their way. Thank you, Julia. Julia Boorstin, joining us on the phone to talk more about the sell-off is Eric Johnston, Chief Equity and Macro Strategist at Cantor Fitzgerald. How are you looking, Eric, at the sell-off, which has been pretty intense, specifically around tech and anything to do with AI? Yeah, so I was pretty surprised at the move yesterday in the market, you know, considering the fact that there has been a huge change in the outlook for AI infrastructure build out and, you know, the entire economy and the consumer and earnings growth are all levered to that build out.

36:01So, you know, the take from the election was to sell AI infrastructure and buy everything else, but the everything else is benefiting from the AI build out. It's all interconnected. And so I think you're seeing that today where now some of the other sectors in the market are sort of catching down to what's going on in the more picks and shovels names. But don't you have to I mean, yes, for sure. I agree. I thought it seems like a delayed reaction a little bit right now to me. But when you look fundamentally at what's changing, No question we saw a sharp rebuke of data center building in this country, especially in places like Ohio and Texas.

36:43And Texas is so key because so much capacity for data centers is coming online as a percent of the rest of the U.S. But fundamentally, I mean, do you think this alters the view of what happens there? So I think in the longer term, the answer is yes, right? Because any sort of marginal change in that trajectory of spending. So right now, there's been a bottleneck, right? There's been a bottleneck around the picks and shovels, whether it's energy, whether it's semiconductors, etc. If this cycle gets elongated, then that bottleneck goes away. It impacts pricing. It impacts margins. So I think from a longer-term perspective, yes, this is a meaningful change.

37:29However, I think in the short term, the moves that we're seeing are going to reverse. I think in the short term, these moves are probably too violent considering relative to what the actual impact is going to be. And so you're seeing massive volumes today. There's clear capitulation. This is where everyone, whether it's the individual investor or institutions, have been hiding. And so I think today is the capitulation move in the short term for the picks and shovels name. Yeah, to that point, we're seeing a lot of desk notes today, Eric, that suggest that what's different about, say, Friday is that a percentage of the notional of long only versus hedge funds, this is a much more long only story today in the way of selling.

38:20yeah and i think like this hasn't i think it's key to realize this didn't start today yesterday or or last week right there has been a tech de-risking going on specifically in the picks and shovels um for the last six weeks and so you're if you i think we're going to kind of look back and say okay there was this de-risking that was going on it was going on for weeks on end And then we sort of got this crescendo move with what's going on with the election and the takeaways. And like I said, the takeaways are real and will have impact over a long period of time. But I think the aggressiveness of this reaction after that six week of de-risking that had already happened is making it such that, you know, these are very interesting short term levels for these names.

39:09All right, Eric Johnson, thank you for phoning in with your reaction to what's happening in the market today. We appreciate it. Take a look at shares of Box. Box is bucking today's broad sell-off. The company's BoxWorks events getting underway in San Francisco, gathering together some of the biggest players in enterprise AI, including NVIDIA's Jensen Wong. That's as Box announces an expanded collaboration with NVIDIA alongside new product launches. NVIDIA's stock is down sharply today. Joining us now to discuss all of it first on CNBC is Box CEO Aaron Levy. Aaron, kind of an awkward day for this, just because it's really ugly out there in the markets.

39:45And now the concern is whether AI investment in this country is peaking. What do you think? You know, I think I heard a little bit in the last part of the conversation. I do think that the near-term trades, obviously, you know, can be quite volatile, but it's unquestionable that there's a long-term trend toward being able to power intelligence across our organizations and enterprises. Obviously, there's going to be some near-term dynamics around where we build data centers, how the supply chain continues to operate. But I think this is clearly only going in one direction as we think about the utility and the productivity gains that AI delivers.

40:19So today we're really excited about the announcements that we're making around the future of how enterprises can leverage their unstructured data, their most important enterprise context with the power of AI. We have a number of major announcements that we just put out there around where we're taking the platform. So tell us a little bit about that, what you're offering enterprises that they can do with their data that they weren't able to before. Yeah, so there's three really big announcements. The first, in partnership with NVIDIA, we're introducing a new context retrieval technology, which makes it so enterprises can ensure that their enterprise content can be securely accessed by AI agents.

40:57So AI agents can access exactly the most relevant information across all of the data inside of an enterprise. This is in partnership with NVIDIA's technology and some of their latest breakthrough models. So we've introduced that. Another big announcement is a new autonomous system called Box Architect. Box Architect lets enterprises really design, automate, build out, and optimize their workflows that deal with their unstructured data. So Box Architect will let you start to autonomously run any kind of business process dealing with enterprise content. And then finally, given the cyber threats that we've seen recently, we're introducing all new cybersecurity and threat detection capabilities to ensure that enterprises can protect their most important unstructured data as agents start to need access to that.

41:43Or even if you have rogue or malicious agents trying to get access to information, we can help protect that enterprise data. So three massive announcements that we're focused on, and we're already getting really great reaction from some of the very early teasers that we've out there. And our keynote is in just a few minutes. Okay, great. Well, I know you have these new offerings, but how would you describe in general, Aaron, what enterprise demand for these AI products looks like right now? Yeah, so overall, we're seeing just continued acceleration of the adoption of AI. We are at a period where the world is moving from thinking about AI as chatting with an LLM or maybe accessing a limited amount of data with an AI model to really being able to deploy agents inside of workflows and business processes.

42:30And so we're entering a very different period of what AI adoption is going to look like, where you can have agents running in the background, you can have swarm of agents attacking any kind of specific problem in your organization, you can deploy agents inside of workflows. So all of these types of capabilities are only really available because of the latest breakthroughs we have in the most recent AI models. And what this is letting you do is everything from accelerating loan processing or accelerating due diligence or accelerating drug discovery processes or making it so we can have better customer onboarding experiences or better legal reviews when we're doing a transaction.

43:07These are the more kind of practical, productive ways that we're seeing AI be deployed inside of organizations. And obviously, we're building the platform to make it so enterprises can connect their enterprise content to the latest breakthroughs in AI. Aaron, market keeps getting buffeted by these headlines about a bank here or a tech company there that is restricting AI usage among its employees or trying to limit its AI spend. Is that about the cadence of budgets? Is it a timing thing or is it to reflect a wholesale rethinking of AI budgets? I think, you know, it's I would generally say it's always hard to kind of over rotate on one or two announcements of one company's policies.

43:50There's a lot of dynamics that go into that. Some companies, you know, sometimes over-deploy AI and realize that they need to kind of figure out their budget allocation process. That probably slightly misrepresents the broad scale adoption trends that we tend to see across at least our customer base and across the economy. If you study even Silicon Valley companies that are often the earliest adopters of these technologies, we're still in a period where we keep reaching new sort of levels of frontier of how we're going to use AI inside of our workflows. So cybersecurity is a great recent example where a year ago, we probably had very few tokens going into cybersecurity use cases.

44:33And now we can imagine a world where we might have 50 or 100x more tokens than we do today just applied to cyber because you're going to want to be able to scan every log, see every incident, take a look at your entire code base. And there's going to be more and more examples like that across many parts of our workflows or business processes. So we're still very much in the early innings of what AI is going to look like. Obviously, we hope that the price per token continues to go down because that drives even more use cases and adoption. But I think we're in the very early part of the curve of the overall wholesale adoption of AI in the enterprise.

45:04You know, it's striking to hear you talk about, you know, all of this incredible promise around the technology, the fact that it's a number one priority for enterprises in this country. And yet the public perception is so lousy, as we just learned in the midterm elections. Why do you think there's such a disconnect? And how do you go about changing the public perception? Yeah, I mean, this is, I mean, I don't know how long we have on this show, but, you know, there's a lot to unpack there. You know, clearly, sometimes the messaging from the actual AI ecosystem, you know, can certainly exacerbate this issue.

45:39Obviously, the more kind of risk and doomerism kind of focus messages certainly is never going to make people excited about this technology. That would never work. I, you know, from what we see on the ground, the incredible amount of positive use cases that are out there with AI. I was talking to a leading healthcare CIO last night, and it's literally universally unequivocally positive if you're in healthcare. The ability to go spend more time with your patients, the ability to sort of see patterns among a patient's record that you would never have been able to spend the time on detecting previously.

46:14the ability to connect disjoint data sets to be able to discover anomalies in somebody's, you know, kind of patient record. These are the more daily pragmatic use cases that are already being rolled out. I was talking to an architecture firm that is seeing just a way better experience on how they do their engineering processing because they can have AI agents do all of the sort of boring, messy work that they don't want to be a part of or have to spend time on so they can deliver better value for their customers. You talk to banks and life sciences companies, the ability to accelerate and improve the client experience.

46:49These are the more traditional in our world, very pragmatic B2B use cases. They obviously don't play well in the headlines because it's much more of the core productivity gains of AI. And I think it's a little bit easier to rotate it toward maybe the more risk-oriented messages. And that's something that our industry needs to work on clearly. But ultimately, obviously, the consumer needs to see the direct benefit. And that's something that will just take time as the diffusion of this technology continues to play out. And we obviously need to make sure that we're really, really focused on the jobs conversation.

47:19I'm an extreme jobs optimist that AI is going to actually create more jobs and help augment the acceleration of many of these industries. But we have to make sure that that message and that roadmap is much more clear to the market. I know. It's so It's so different. It's so stark how different the public perception is here in terms of the costs and benefits than hearing you and other companies that we talk to every single day talk about it as well. Aaron, thank you for joining us on some of the big announcements that you have today. That's Aaron Levy, the CEO of Vox. Let's get back to our senior markets commentator, Mike Santoli.

47:53Mike, as we did bounce right off of 7 ,400 before the top of the hour. Yeah, exactly. That's like the July 31st low. So, I mean, the market is trying to make some of these things work to say, OK, it's enough for now. VIX peaked at 28. You have a pretty good spike on that chart as well. So, you know, anybody's guess, but that stuff is the things that you want to see line up. A bigger picture, markets acting like, you know, we've seen peak capex growth, peak earnings beat rate growth, peak earnings growth year over year, probably peak concentration for the market. Equal weight S &P made a new record high yesterday.

48:28We're only 2 % off the high, but I really think it's got to be the AI theme has to reassert itself to rescue, you know, the trend at this point because we got everything we could out of the stuff away from tech for the moment. All right, Mike, thank you. What a difference a day makes after a midterm election. Let's get to the winners in this sell-off. We hit box. Another big winner at the top of the market is Tapestry, the company behind Coach and Kate Spade, getting a nice boost this morning after reporting fiscal Q1 earnings, posting a beat on the top and bottom lines and also raising guidance for the full year, noting broad-based consumer resilience across North America and long -term opportunities in China.

49:07Joining us first on CNBC, Tapestry CEO, Joanne Pervosserat. Welcome back. It's nice to see you. Thanks, Sarah. It's great to be here. It's good to have you on a day like today, clearly bucking the overall sell-off. What are you seeing in the underlying business right now from consumers? Well, it's an exciting time to be at Tapestry. And as you kicked off at the start, we just delivered a strong Q1. We're seeing compounding growth, really moving from strength to strength at Tapestry. And we're winning broadly across the world, as you noted, and attracting new customers both into our category but into our brand.

49:42So we're gaining share around the world. And that gave us the confidence to raise our outlook for the year. And I think it really points the durable nature of what we're building at Tapestry and how it's resonating with consumers everywhere. And it's more important maybe than what we're delivering is what we've built and how we're delivering these results. Is it the innovation that's coming from Coach? Is that what's getting them? Absolutely. That's an important part of the story. But for tapestry, it always starts with getting close to our consumers and really understanding where they are at this moment in time.

50:16So it's a muscle that we continue to exercise, understanding our consumers, gaining those deep insights, and then moving insight to action in our business. And when I say insights to action, it is building incredible product, product innovation. It's marketing and storytelling that resonates and experiences that consumers can engage with around the world that resonate. And it's a combination of these things that deliver such an incredible value proposition. And that is a unique space for us. And it's what continues to drive our durable growth, that value proposition that I think is unparalleled in the market.

50:55where the prices aren't as high as luxury, but you're still getting a nice product? Is that what you mean? Yeah, what we hear from consumers, particularly today, is that they want to buy and spend their money. They're active. They're discerning, but they're active. And they want to spend their money where they think it's worth it. And that value proposition has a couple of different pieces to it. It's not just about price. And I think that's an important distinction. It is about quality and durability and craftsmanship. Customers are really leaning in to high-quality products that are durable, that are crafted to last, that do reflect the innovation that we're able to bring.

51:32And the value proposition where we can play gives us an exposure to so many consumers across a broad market. That's why we continue to win, and that's why our business model is durable over the long term. Although we've had some conversations this morning about stock prices and the wealth effect, and I would assume you would acknowledge that if that continues, it forces the conversation about price. Look, we love a constructive market and constructive market everywhere, but what we're delivering is incredible value for the consumer. And that's what we're hearing resonates. In fact, in today's market around the world, the global dynamics and with a more pressured consumer, our value proposition is even stronger than ever.

52:16when people start to look at what we're really delivering for them, not only the product and the functionality, the beautiful leather. You know, we have 85 years of craftsmanship experience and we're delivering at a scale that is differentiated in the market. We can deliver craftsmanship, innovation and quality products that can last the test of time for our consumers, products that are versatile. They can move from day to night. These are the trade-offs that our customers are thinking about when they're engaging with brands. And they want to engage with brands and products they trust. So you're saying maybe steal some share at the higher end?

52:53Well, in fact, where we play, that may be true, but we're playing our own game. We're interested in bringing new customers in to the market, and we're interested in young consumers. Gen Z. We want to be that first luxury bag purchase for our consumers. We want to earn the right to have that place in their life. And this is something that's been true to our brands over time and history. When Coach first came on the scenes, Coach welcomed more customers into the market at price points that they couldn't have accessed the market before. So we hear all the time these great emotional stories about, I remember my first luxury bag purchase.

53:33I remember my first Coach bag or my first Kate bag. It was at a meaningful point in my life. I carried it with me for a decade and it made me feel confident. It gave me that spark of joy. That emotional resonance and being that first bag purchase allows us to grab more customers, more new customers, and also keep that brand love and foster that brand love for a lifetime, which is great for lifetime value as well. It's all working really well for Coach, but why can you not transfer that strategy and that recipe and that success into Kate Spade, which still continues to be a problem? Well, we're doing the work at Kate Spade, and we do have learnings from Coach and the capabilities at Tapestry that are coming to bear.

54:13Kate Spade this quarter was in line with our expectations on the top line, and we expanded gross margins. So we're building a stronger foundation so that we can scale. And excitingly, we had Jonathan Saunders, our new executive creative director, joined last month. he's hard at work, hit the ground running, and bringing more emotion and distinctiveness to the product. So as we go through our phases of streamlining and solidifying, we're bringing more emotion back to the product and the experiences and the storytelling that resonate. And we expect to make progress, but continue to believe in the potential of this really terrific and iconic brand.

54:52Well, the stock has been a winner and certainly stands out today. So thank Thank you for coming on and talking us through what you're seeing. A lot of the analysts like the Gen Z relevance as well. Joanne Kravosserat, the CEO of Tapestry. We continue to monitor the sell-off. We'll be back in just a minute.

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56:45Welcome back. We just heard from Tapestry. got another strong read on the upper-income consumer, Ralph Lauren. Shares are falling today despite the company beating earnings and revenue estimates and raising its full-year guidance. The current quarter guidance may be coming up a bit short of estimates. I did speak this morning with CEO Patrice Lube about the quarter. He said the guidance raised on the top and bottom lines demonstrates the resilience of the consumer that they see, the diversity of their growth drivers, and agility and operating discipline of the team. He pointed out to me that the brand rankings for Ralph Lauren are the strongest they've ever been and that they're taking share.

57:19In terms of geography, though, it is a little lumpy. He said that Europe is seeing industry-wide traffic pressures on brick and mortar, not necessarily online. So there's a more cautious guide there moving forward on Europe in particular. But he says they are taking up estimates in North America and Asia while down in Europe. In North America specifically, the home market, Patrice says that they are driving growth above expectations. They're done mostly on the wholesale reset. In other words, they got rid of some of the lower priced outlet stores and that sort of thing and have been really focused on growth both in wholesale and direct to consumer.

57:55Olympics, he says, is a major opportunity in the U.S. And then overall on the consumer, he says they see resiliency across key cities around the world. The core consumer, he says, for Ralph is now higher value, less price sensitive, and younger, and they have higher basket sizes. In other words, They've really upgraded who they're catering to over the last few years. He also notes that the shape of the customer is materially different than 10 years ago. And one way that investors in Wall Street see this, Carl, is in AUR, which is the annual retail, average unit retail, which is basically, it's not that they're just raising prices, which that comes with it, but just the value perception and the elevation of the brand where they get more premium pricing.

58:38That's gone up for the last 38 quarters, went up another 9 % this quarter. I wonder how much of the story involves China, because we did have a China Miss at Apple, BMW guided lower in part because of China. Is that an issue? They have 35 % growth in China, so it hasn't been an issue for Ralph Lauren. And also Tapestry, too, with Coach has been really strong double digits in China. I think both of these brands are growing share at a time where luxury, you know, the ultra luxury brands, they just went up too much on price. There's been a pushback for consumer. And so So that presents an opportunity overall.

59:11Yeah, I definitely have seen that from the big luxury names in the last couple of weeks. So we sit here at$7 ,450 or so, having bounced off a$7 ,400. At one point, we were looking for a bid and weren't getting them in the mid-morning part of the action. Look, it's not helpful. You see headlines from Dina Powell, the president of Meta, talking at this Wall Street Journal conference, saying maybe we look to build data centers outside the United States. I mean, that's the conversations. We've talked to a few folks, too, who have said, I don't know, Saudi Arabia has voracious demand for building data centers.

59:42If that's where the electorate is with this pushback, then, you know, maybe the investment continues at a high rate, but isn't necessarily inside the United States. I do wonder if we're going to continue to have that conversation. So an important afternoon session is on deck. Let's get to the judge.

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