A Chip Sell-Off, Netflix’s Report, & President Xi’s AI Pitch 7/17/26

9:11Eunice Yoon:Twenty nine countries are going to be or have already joined, not the United States. And this is meant to share technology and expertise in AI and ultimately to help set new standards when it comes to AI as well as rules. Now, President Xi had also cautioned against what he described as overstretching the concept of national security when it comes to AI. And today he's been preaching a whole lot of openness in contrast, or at least to attempt to contrast the Chinese perspective versus the U.S. closed model. Now, of course, openness in China is not really clear in terms of what they actually mean, because even though this is the World AI Conference, OpenAI, Anthropic, the big LLMs are not here, and generally the Chinese don't allow them to operate in China.

10:03Eunice Yoon:And in fact, a lot of the talks today in AI circles has been that Beijing could be moving to restrict foreign access to China's best AI models in the name of national security, as well as to protect the technology. And maybe possibly to show that China actually is very, very competitive. Moonshot, which is an AI company here, a small one, just rolled out the world's largest open-weight AI model that independent benchmarks say is just as good as fable. Guys? Eunice, thank you. We've been watching what's happening. Are those birds flying in front of you too? Oh, no. I think there might be some birds, but also dragonflies.

10:49Eunice Yoon:Sorry if it's distracting you, but I think it's because there's a light and it's sundown. It's attracting them. Yeah, they were big. I was trying to avoid them and pretend that they're not flying. Yeah. We had images of the birds, Hitchcock style here. Yeah.

11:06Hugh Gimber:It could be drones in China. You don't say anything.

11:09Eunice Yoon:Right.

11:10Hugh Gimber:Miniatur. No, no. Scary.

11:12Eunice Yoon:No, there are too many regulations right now. No drones. No drones. You know, you just what would you say? Well, President Xi is here. The security has been very, very tight.

11:20Hugh Gimber:Very scary drones. That's all we need.

11:23Eunice Yoon:So Eunice, just overall, the idea of this battle in the United States, we certainly look at it as a battle of China versus the United States. We think we're in the lead at this point and trying pretty rapidly to maintain that. How does China view all of this from that Graham perspective? Well, I think a lot of the Chinese companies believe that the U.S. is ahead. I mean, there's a big question as to how much they are ahead. And because we had this moonshot announcement, which came a little bit before the WAIC started, there were a lot of people who were saying, you know, look how good we are because these independent benchmarks, Arena AI, have said that moonshots, it's called Kimi K3, is really one of the best, if not the best right now in terms of being able to help with the web interface production or developing.

12:14Eunice Yoon:So that's so because of that, you know, there are a lot of people here who are very hopeful, but they do see the U.S. as a head, at least at this stage. Eunice, thank you very much. It's good to see you.

12:27Hugh Gimber:In sports news, basketball fans are waiting for LeBron James to make his free agency decision. And his call is impacting many people and businesses. Here's NBA Commissioner Adam Silver at CNBC's Game Plan Summit yesterday. day.

12:43Eunice Yoon:I guess all politics are local. The way I think about it is we have to finish up the schedule. Right. And where LeBron plays will affect the schedule. So I would like him to make his announcement already so we can finish the schedule. Because as you might imagine, the teams are calling us, the networks are calling us, and everybody wants to lock in the schedule. But it will influence how we set the schedule, how we set opening week, Christmas Day, etc. So I need him to make a decision. And but the direct answer is I have no inside information.

13:15Hugh Gimber:Reports say LeBron's most likely choices are the Cavaliers, the Heat, the 76ers, the Warriors or the Timberwolves. I'm not sure if that qualifies as most likely when you give six different teams.

13:28Eunice Yoon:But look, a lot of people have thought that Cleveland would be the way to some of the some of the possible choices. Some of the possible choices, but the idea of doing those. But yeah, it's anybody's guess where he's going at this point. He's the only one who really knows. The guess is that he will be the one who makes the announcement and everybody else will kind of scramble afterwards.

13:48Hugh Gimber:And if you get him, what is a guarantee? Certainly doesn't guarantee. Ticket sales. Right. Doesn't guarantee you that you're going to.

13:53Eunice Yoon:No, but my guess is he would be looking at the best way that he could possibly win too. Right. You go to a team where you feel like you can bring something home if this is going to be your last time around. Right. president trump's longtime teleprompter operator is under investigation by federal regulators in connection with bets allegedly made on prediction market calci related to statements made by the president white house press secretary caroline levitt did not name the operator but said that he is on unpaid leave and that he didn't handle the device for the president's address last night A person familiar with the investigation identified the operator as Gabriel Perez, who has handled teleprompter for Trump speeches all the way back to 2016 during the presidential campaign.

14:39Eunice Yoon:He allegedly made more than$90 ,000 in profits on those trades, but most of that money was frozen by Calci after the bets were flagged as suspicious. CNBC and Calci have a commercial relationship that includes customer acquisition and a minority investment. But this is one of those stories where, look, you can bet on all kinds of things. The million. How do you. That were never there before. And there's always somebody who knows something. I mean, it used to be simple. How do you wrap insider trading around all those things? It used to be this.

15:06Hugh Gimber:Remember on Oliver Stone, the first Wall Street, there was Stockwatch. Right. And we're seeing some weird things happen. Now it's everything. It's everything in the world. How can we possibly figure out insider trading on this?

15:19Eunice Yoon:Well, right. Right. And if you're looking at any of these markets and there's a big bet that like, let's say where LeBron's going to go.

15:27Hugh Gimber:Right. Someone new.

15:29Eunice Yoon:Or if there's even on CNBC's states, you know, all the things that you can bet on that were never there before. It's just really interesting to try and get our heads around how you do insider trading when it's the entire public at large. Calci, to their credit, though, are the ones who caught this and flashed it. Cheese will be next. Coming up on Squawk Pod, we are unpacking the pressure on chip and memory stocks with JPMorgan Asset Management's Hugh Gimber.

15:57Hugh Gimber:The question here is not about their earnings potential now. It's really about the sustainability of that earnings growth. And therefore, investors growing increasingly concerned about whether the earnings can be even better.

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18:11Eunice Yoon:You're listening to Squawk Pod from CNBC today with Joe Kernan and Becky Quick. The benchmark Philly Semiconductor Sector Index is down sharply from its June high. You're looking at a decline of about 17 percent. This morning, the drop is 4.3 percent. For more on the chip sector and the AI trade, we want to bring in Hugh Gimber, who is Global Market Strategist at J.P. Morgan Asset Management. Hugh, we watch these kind of swoons with semiconductor prices and with chips. What do you think is happening under the surface?

18:44Hugh Gimber:So a few points to pick up on here. I think first of all, we should highlight that the earnings power of the semiconductor names remains absolutely rock solid. We've had a number of reports out over the past week or two from some of the biggest players in the space, and they're delivering good earnings. But the question here is not about their earnings potential now. it's really about the sustainability of that earnings growth and therefore investors growing increasingly concerned about whether the earnings can be even better in 2027 or eight or nine. For me, I think what's key here is not so much what the semis names are telling you themselves, but rather what we're going to get from the hyperscalers over the next couple of weeks, because all of that earnings growth is because of hyperscaler capex.

19:29Hugh Gimber:And so to see a floor go into semiconductors, to see the valuations on offer today start to present good value, I think you need to hear more from the hyperscaler names over the next couple of weeks, really reaffirming to investors that, yes, CapEx estimates have already risen by a huge amount over the past six to 12 months, but that there's more room for them to increase again. And that's where you start to build conviction again in this longer term earnings story for the semis.

19:56Eunice Yoon:Well, that's key. Do the hyperscalers have to say we're going to continue to spend these amounts or do you think they need to rapidly or greatly advance, ratchet up how much they're spending in order for the semiconductors to get another bid?

20:09Hugh Gimber:I think they need to go higher. We've already seen significant upgrades year to date. If I just look at the biggest U.S. hyperscalers, analysts came into 2026 looking for roughly$500 billion of AI CapEx from those biggest five names. Today that stands at closer to 700 billion and that for me explains why analysts are already anticipating close to 100 % earnings growth in semis. So I'm looking for more than just confirmation that that capex is going to be delivered. I think you're going to need to see earnings upgrades move further. And really, there's a bigger picture point here, which is that across the tech space, it's unsustainable for only one group of a subsector to be pushing too far away from the rest of the pack.

20:55Hugh Gimber:Because ultimately, they all need each other. You need the semis to be getting the revenues from the hyperscalers. You need the hyperscalers to be getting the revenues from the large language model providers. And ultimately, for tech overall, you need sectors outside of tech demonstrating that demand for this technology is sufficient to allow all parts of the tech sector to keep a decent margin.

21:16Eunice Yoon:So you're looking at earnings not just from the hyperscalers, but what every single sector is going to be saying about what they're spending on AI?

21:26Hugh Gimber:Effectively, I think you have to look at each sector's neighbor. You know, to form a view on one, you have to look at where that revenue is coming from. And similarly, the bigger picture that we've been grappling with on AI over the course of really the past two or three years is about the money that's going to come into tech from outside of the tech sector to justify the level of return on investment which investors want to see. Now, at the same time, I think there's an additional nuance perhaps to pick up on, which is that the position of some of these semis names who aren't the biggest and the best or indeed aren't the cheapest is where I see a bit more vulnerability.

22:03Hugh Gimber:We've had headlines over the past 24 hours around the progress that Chinese models are making. We know that China is already highly effective at producing some of the cheapest. And therefore, for the semi-conductors, for the hardware names, I think you have to demonstrate that if you can't compete on price, you can really compete with a top tier product. And so if you're looking across semis for opportunity today, where clearly these moves are quite extended, for me, you still have to be focused on an up in quality approach. Because it's the mid tier that looks most vulnerable to disruption coming out of China.

22:39Eunice Yoon:Hugh, we've got to run, but is it fair? I mean, you sound fairly skeptical of the idea that these chip names and others can continue to grow. Is that a fair assessment of your take?

22:49Hugh Gimber:Look, I think the earnings strength that we've seen today has been justified, but we need more evidence to come in the coming weeks. And when you put that into context of momentum, seeing a sharp reversal, this to me is a healthy correction, but it only finds a flaw once we get that confirmation that CapEx plans are not just on track, but can continue to push higher.

23:10Eunice Yoon:OK, thank you. Next on Squawk Pod, a snapshot of America's housing, new data out from the Commerce Department, and analysis from our own team of experts, including Steve Leisman. Bring the rate down, that'll improve affordability. Not in a situation where we have a supply deficit, right? We'll be right back.

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24:54Eunice Yoon:Welcome back to Squawk Pod. This Friday, we got some data on housing from the Commerce Department. New residential construction increased 19 % in June, but that was driven largely by multifamily housing starts. The majority of home building in this country, single-family housing. And those starts and permits for future construction were both down. This gets to a larger conversation about affordability and politics, as you'll hear. Here's Becky. Steve Leisman and Diana Olick are both here to join us with more on that. Diana, why don't we start with you? Well, Becky, just a huge discrepancy between single-family and multifamily housing starts, and that is really the story of today's housing market.

25:36Eunice Yoon:You have this headline number on starts of a 19 percent month-to-month increase in June, but that is 76 percent increase in multifamily and actually a slight drop in single-family. Now, we had this oversupply in the multifamily apartment market for the last three years, a record number of units coming onto the market and the builders pulled back. Well, now suddenly you have them seeing rents are starting to stabilize again. We just got a report from Colliers this morning saying they were bullish on the multifamily REITs because they feel that the multifamily market has bottomed. That is, rents are coming up, vacancies are coming down.

26:11Eunice Yoon:And that's why you see this enormous jump in 76 percent in the multifamily. Single family, again, we talk about this all the time. It's just remaining at these very low levels because of high mortgage rates. We've seen the average rate on the 30-year six at about 6.6%, just not moving at all in June. And that's probably why you see permits for single family are down as well. Single family builders have a lot of issues when it comes to the cost, land, labor, materials. And we saw that in builder sentiment, which fell again yesterday. We've seen builder sentiment in the 30 range. 50 is the line between positive and negative.

26:46Eunice Yoon:Anything below 50 is negative. And we've been in the 30 range all year. So the builders are not bullish on their single family market. So again, these numbers are really indicative of this split between we're seeing multifamily come back and single family just not moving. Back to you guys. OK. Steve, what are you thinking? Well, a couple of things on the import price story. One of the things that's out there is this notion of are the end users or the exporters paying the tariffs? If import prices don't fall, it suggests that we're paying the tariffs. Does that math make sense to you? Explain that.

27:22Eunice Yoon:Well, if the price of imported goods was going down, it would show the discount for the tariff that's being paid. But it's not. Interesting. This is a surprise. The BLS saying higher prices for non-fuel industrial supplies and materials, capital goods and consumer goods, excluding autos, were more than offset the lower prices for automotive vehicle parts. There could be a AI import part of this thing, right, which is those prices are going up, as you know. So that's a big part of it. On the housing side, I'm just amazed by this debate we have, which is it's just an interesting debate. I don't know if you remember when I asked Kevin Wors, the Fed chairman about whether or not he saw rates were neutral or not.

28:04Eunice Yoon:And he said, yeah, everything but housing. And we can't have a separate interest rate for housing. But that's one of the areas that's really lagging. And I want to show you, just remind you from our CNBC All-America Economic Survey, what the 18 to 34-year-old group says about housing. It's their number one issue by far. Well, it's right now isn't the average age for people buying a new house age 40 or something. Didn't it just go for the first time? 40. Yeah. And maybe Diana Olick has a solution because she's our housing expert. So we asked Diana how to fix that. And are 18 to 34 year olds right, Diana, to be so concerned about this?

28:48Eunice Yoon:Absolutely. They're right. All you hear about is affordability, because remember, you know, you date the rate. You buy the house, you date the rate. So if your rate for your monthly payment on the mortgage is unaffordable, you're just not going to get into it. And also they're having trouble because of inflation of saving for that down payment. Now, as Becky said, you're right. 40 has become the new first time buyer age, and that is extremely high. We were seeing 30 before. But again, you know, it's how do you fix housing? Supply, Steve, you know, it's supply and demand. It's as simple as that.

29:17Eunice Yoon:I am not an economist. You are. It's all about building more supply, getting more inventory in there. And, you know, we have this talk about the single family rental investors and we have the new law that just went into effect that bans them from buying more unless it's billed to rent. Billed to rent would be great for those investors to get involved in. But again, those investors are barely four percent of the rental market and just a tiny piece of the overall number of homes for sale. I'm going to be an economic geek here. I keep coming back to this and I keep hitting my head over this. Bring the rate down.

29:50Eunice Yoon:That'll improve affordability. not in a situation where we have a supply deficit right you bring the prices keep going up that's look at what happened when we dropped rates to three percent it won't help you because you're still going to pay more it's just going to be the sellers can i can i just point out the demographics on the chart 18 to 34 year olds from your survey they're the ones who say that they have problems with housing prices it's their number one issue yeah that means the rent's too damn high because they're not home buyers right you got to be 40 but they should be it's not going up now again 18 it is 18 it is but not if you're 30 years old just forming a house you can get up you can you

30:28Hugh Gimber:forming a family 30 year olds live at home they do 50 percent some number that's why we should be that's why the house that's why it's 40 now because that's when you're moving out of your

30:38Eunice Yoon:parents house but the housing investment if you want to invest in housing you should buy shares and futon because that's what people are using. I mean, look, and I think, by the way, if I don't show it there, but you go into the next cohort of, what is it, 35 to 49, housing's number two. So that's right in there. And I guess the question is, do we have a quick second for Diana if the housing bill addresses this issue for younger Americans, Diana? Not really. Only if you're into manufactured housing and maybe on the rental side a little bit with the single family rentals. But again, it's all about more supply.

31:16Eunice Yoon:They're trying to help with zoning on that. But zoning is a local issue. It's not at the federal level.

31:20Hugh Gimber:I'll be back Monday, Joe. Would have been a strange survey results on what Americans think about socialism and capitalism. That was what it was. That was just wait. I was going to say to Rick, if you want to lower from the survey from 18 to 34, if you want to lower the rent, just freeze. I think this is a reason why you're 18, 34 year olds are hot on socialism. Right. Freeze the rent. Housing. That'll work. You'll get a lot more supply. That's interesting. Yeah. Wait, wait till we come back Monday with these results. We had LaFrac in yesterday.

31:46Eunice Yoon:If Joe's hair is real, it will stick to his head when his head, when the top flies off when he sees these results. That is a deep tease for you. Make sure you join us on Monday for more on the ongoing Squawk conversation about socialism, capitalism, and the economy. For now, that's where we leave you on Squawk Pod today. Thank you for listening. Squawk Box is hosted by Joe Kernan, Becky Quick, and Andrew Ross-Organ, weekday mornings on CNBC starting at 6 a.m. Eastern. To get the best parts of that three-hour TV show right into your ears, follow Squawk Pod wherever you get your podcasts. We'll meet you right back here on Monday.

32:26Eunice Yoon:Happy birthday to Becky and to all the other July birthdays out there.

32:31Hugh Gimber:We are clear. Thanks, guys.

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