It’s All One Trade: Steve Eisman’s AI Market Play 7/27/26

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1:28And oil prices falling. Halima Croft on global energy. Do I think oil is a barometer for the pressure building in the Middle East? No, I think it's a broken barometer. The market's rise boosted by enthusiasm in one key technology. We turn to veteran Wall Street watcher Steve Eisman. Oh, I think it's all one trade. It's AI. Who is reducing his exposure to artificial intelligence, including trimming his stake in long-held stock Alphabet. What scares me is that it's all one tray, so it better succeed. Plus a pill to treat Alzheimer's. We think our drug is creating this resilience. Stanford neurologist Frank Longo on the breakthrough in clinical trials that he wants to get into patients.

2:13This is a drug right here. It's a pill. It can be taken orally. It is Monday, July 27th. Squawk Pod begins right now. Stand Becky by in 3, 2, 1, cue it, please. Good morning, everybody. Welcome to Squawk Box right here on CNBC. We are live from the Nasdaq market site in Times Square. I'm Becky Quick along with Joe Kernan. Andrew is off today. A third week in a row of declines for the Dow last week. But if you're looking at the Dow and the S &P 500, they're less than 3 % from all-time highs. It's the Nasdaq that people are watching a little more closely, the technology names there. The Nasdaq is more than 8 % from its all-time high.

2:54But the gains that we're seeing this morning soundly because of what we've seen with energy prices dropping rapidly over the course of the weekend. You'll see that at this point, if you check out WTI, it is down by close to 8%. 82.35 is the last trade for WTI. And, Joe, it's interesting. Last week, WTI was up by about 8.25%. So we've seen it give it all back over the course of this weekend, basically. I just had the, I don't know, the overall feeling that it seems heavy to me. And we'll have Halima Croft on it. We'll talk to her about it. I don't know what the spot price looks like. But the futures seem like even a glimmer of anything.

3:35And they immediately, we talked about it was the frog boiling. Because grudgingly going up, I mean, it was a kinetic war. There were, you know, forays back and forth every night, and it was going up like a dollar, a dollar, a dollar, a dollar. 13 days in a row, you have the United States launching a tax. Almost like resisting to go up. I think that the market might be well supplied or something. I don't know. We'll talk to Halima about it. But my feeling was, you know, it's ready to go back to 80 in just the drop of a hat, which it did. And it's all good for everything. I mean, I'm glad it's not 130 or something like that.

4:12But with the Red Sea involved now and the strait closed. With the Bouthis in Yemen, yeah, launching attacks on Saudi Arabia's flank, where they've been getting out. I think they've been getting out maybe 7 % of the daily oil usage through the Red Sea. Halima's going to make the case that, you know, don't be complacent and don't think that it's over and don't think that the strait, if it does reopen, suddenly everything goes back to normal. I don't know. No, it just seems maybe not heavy, but it just seems it's never gone where it could have gone. No, it seems like a risk off position where anytime talks open up, people think that this can change pretty rapidly for the better without those attacks taking place.

4:52And the future is kind of similar to they seem to want to go higher. But so many people think that it's the most expensive market that we've ever seen. And, you know, that that AI has inflated the bubble so much and it's so much like 1999. I think the hardest thing to do right now would be to buy at these levels. And if it's the hardest thing, that's usually the right thing. But let's talk about... Steve Eisman is going to join us today. He's going to talk a little bit about the AI trade. His point is that it's impossible to get diversification at this point because everything's an AI trade. Even the banks, he says, are AI trade at this point because they're doing so much financing for AI trade deals that are out there.

5:35So either it's going to be a huge win or everything's going to collapse. It's a it's a bilateral way of looking at all of these markets today, too. I read something. I shouldn't. And I shouldn't. I probably shouldn't voice my. But I read David Fox, who built like one of the largest law firms in the country now says A.I. is the is the profession's future. And I was just thinking, what if there were no lawyers? OK, can I just tell you? What if it was all A.I.? What a wonderful world. it would be. Except I had a conversation in the hallway with Walter Isaacson on Thursday after the show because we'd been talking about this idea.

6:17I'm sorry, was it Friday? Yeah, Thursday, I think it must have been when he was on. We had been talking on air about what you do with a situation like an open AI where its bot gets loose, it goes and hacks into places. How do you stop without regulatory oversight, which is going to be pretty hard to get anybody on agreement on regulatory oversight. How do you stop that kind of outrageous behavior and force the AI companies, the big, the big, you need lawyers to do that? Yeah. Basically he said, that's what you might be able to use. Why can't you use AI lawyers for? Because they're all over the place.

6:48Why can't you use AI lawyers to do it? You've bought to do it. Had another road trip, you know, six hour trip. Every billboard are the shyster personal injury types. And they all have different, They all have these parasites. They all have. Walter's point was maybe those parasites could do something useful for society. Well, that would be a switch. Yes. And I said, she goes, you know, a lot of people need those people and you need to advertise to get your name out. And I go, they have magnetic business cards as the ambulances are driving by. Call me, you know, hoping for another whatever that horrible.

7:27Walter's point was that they've been a little too aggressive down in New Orleans with some of the cases they've taken down there. But maybe they could do some good for society by trying to put clamps on AI. See, I really wish I hadn't gone down this path at all. I'm going to hear from some of these people. In fact, they might sue me for saying these things because they are looking for a reason. And a pause in fighting between the United States and Iran. That's what we've been talking about this morning. It's reflected in the price of oil. So our Dan Murphy joins us right now with more from Abu Dhabi.

7:59And Dan, what's the feeling on the ground there? Becky, Joe, good morning. Well, the pause is in and the war premium coming out. As you've just flagged, a huge reversal for Brent right now and oil prices pulling lower. There have been no U.S. strikes on Iran since Thursday night, crude on a heavy rollback as a result. And Brent's actually snapping what was a three-week rally after trading above 100 USD last week. Analysts at ING putting it pretty plainly this morning, saying the price action in oil this morning clearly reflects the market's desperation for positive news. ING also calling this the first tangible signal of de-escalation.

8:39Now, we don't know what prompted this halt or how long it might last. The U.S. ambassador to the U.N., Mike Wald, speaking to Fox News at the weekend, saying President Trump has paused attacks on Iran to give diplomacy more time. At the same time, Axios reports today that CENTCOM's own commander, Admiral Brad Cooper, told the White House that 13 rounds of strikes had reached the limit of what U.S. airpower could achieve. His message to Trump was either return to full war or stop. And President Trump has chosen to stop. At the same time, Yemen's Houthis claim they struck Saudi oil facilities on the Red Sea coast.

9:17Aramco and the Saudi energy ministry have not commented yet. And traffic through Bab al-Mandeb fell again on Sunday, according to Kepler data. And there's a third supply risk that's emerging as well. Ukraine saying it hit several Russian oil sites and an Iranian merchant vessel in the Caspian. Iran says one sailor was killed and is now demanding a U.S. response, a U.N. response, I should say. So the next signal that we're watching is actually going to come from Washington. Benjamin Netanyahu and Vladimir Zelensky due to meet President Trump tomorrow. So for oil, the question is whether this pause becomes a real de-escalation moment or whether any one of these flashpoints puts that war premium straight back in the price.

10:01With that, it's back over to you. All right, Dan, just the feeling of what's been happening with the Red Sea, too. How has that changed the feeling on the ground just with the renewed tax on some of the U.S. allies at this point? Well, we're trying to get clarity on exactly what's happening inside the Bab el-Mandeb right now. For weeks, for months, in fact, we've been talking about the block inside the Strait of Hormuz. Obviously, that's been material for oil prices. But at the same time, the Houthis have been threatening vessels inside that critical Red Sea waterway. It means oil out of Saudi Arabia either has to move south and attempt to pass through the Bab al-Mandeb or alternatively move north through the Suez Canal.

10:45Shipments, according to Kepler data that I've been monitoring, have been pretty slow at this point. So it seems as if there is a hesitation on the ground to actually get those ships moving. And of course, moving through the Suez instead of going through Bab al-Mandeb, of course, adds to the time and adds to the cost. So there's an extra impetus there to not make that journey. All of that should be a catalyst for a higher oil price, but that's not necessarily happening right now. The mood on the ground here, I can say, is one of cautious optimism right now. Obviously, the market's certainly taking this pause in their stride right now.

11:21We're watching and waiting to see exactly what happens next and whether or not we will see a resumption of hostilities. I think the real signal is exactly what we see coming out of the meeting between Trump and Netanyahu this week. If the Israelis push the U.S. to try and perhaps return to the conflict here to ensure that Iran can never have a nuclear weapon and to maybe end this once and for all. Or if the president decides to do what he has done now and continue to put the brakes on and push for a diplomatic track. Either way, market's watching very closely to see which way this goes next. All right, Dan, thank you very much.

11:59It's good to see you this morning. Meanwhile, U.N. Ambassador Mike Waltz gave a round of interviews at a Sunday news shows and addressed reports the U.S. is running low on air defenses in the Middle East. The U.S. military, and I've verified this every which way, has everything that it needs to conduct this campaign as effectively as it needs to be. And I have to tell you, the people that are leaking this nonsense deserve to be in jail. NBC News reporting late last week that the military is letting some attacks through in order to preserve weapons that are used to intercept incoming projectiles.

12:42Joining us now is Halima Croft, Global Head of Commodity Strategy at RBC Capital Markets and a CNBC contributor. Halima, I was talking about just trying to summarize your overall feelings that, you know, don't get too complacent here about a pause because it's still going to be a while before anything normalizes. But then I was making the point that it just seems like we're fairly well supplied because the minute you get any indication of a pause. It seems like the bottom drops out. It took a long time, 13 trading days to get back from 68 or 69 back up to where we were up near 90. Why does the market seem like it doesn't want to go to 120?

13:31Because in the old days, if you even said there's a possibility the straight's going to be closed, you'd go to 140 or something like that. Why isn't it like that? is that basically a lot of people in the market are still pricing endgame. And so anytime you have a pause, then we move to how quickly can we get ships moving through the straight-to-form moves. So I do think we're getting ahead of ourselves in terms of normalization. But when you bring up the issue of being well-supplied, I think the China factor is still so paramount. The fact that the Chinese made the decision to slash imports by four to five million barrels a day.

14:08Like that was really consequential in terms of market balances. Now, we also really did run down our reserves. Our inventories have really been run down. But the China factor, I think, has been really critical in terms of why we're not at 200, despite the fact that we have very little traffic through Strait of Hormuz. Now we have issues in the Red Sea and Ukraine is still hitting Russian energy targets. Because the futures, they should be reflecting your fears and your angst, I think, because it's not going to be easy. Right. What's spot right now? Approximately. What are people paying? What's the highest people are paying anywhere right now?

14:49Well, I think the key thing is, like, if you're China, we did see them, like, really starting to try to source Russian barrels again. Because if you're trying to actually buy the barrel, that's different than the price that you see on the screen. And one thing I'll tell you early on in this conflict, like, we heard from Middle Eastern national oil companies that in March, you know, Asian customers were paying$175 for their barrels. Now, so there was always this discrepancy. The key factor, though, is going to be, Joe, as we get into fall, do we see any type of normalization in terms of flows? And does China come back as a buyer into the market?

15:25If there's another formal ceasefire that they say, and who knows how long it lasts or what Iran does, is 70, are we headed back there near term? So again, are we going to have this kind of stalemate where you have these periodic two weeks of bombing, ships attacked? Then we have a pause. Does the pause turn into something that's durable? I mean, we also have to get the mines just cleared out of the strait. I mean, we talk about the attacks on actual vessels. The middle corridor of the strait is pretty heavily mined. And so, again, to get this key transit point open is going to take a while. We certainly need to see a stable security environment.

16:08I mean, there have been times through this whole conflict where people that market watchers are actually saying that oil is getting it wrong. It's like it's funny when when people do that. I don't I don't know how well they understand markets, but there are times where they say, well, it's obvious that I think they attribute it to individual traders or something, not the collective wisdom of of of of the marketplace. Has oil been been right about things? Or I think in your view, you think oil is is underestimating the true risk of the conflict staying. Do I think oil is a barometer for the pressure building in the Middle East?

16:51No, I think it's a broken barometer. But again, if China is going to scale back their imports by four to five million barrels a day, that plays a big role in terms of balancing the market, as well as running down our inventory buffers. So again, what are we looking for oil to tell us? Are we looking for oil to tell us how stable the security situation is? I don't think oil is a leading indicator of how stable the security environment is in the Middle East when you have essentially China becoming. China's now the swing consumer. So when China decides they're going to pare back their imports and we can run down our reserves, like that allows us to get through a crisis for that$200 oil.

17:32It doesn't mean, though, yeah. People that know what they're doing should have been should have been factoring in what China, I mean, it's a global marketplace. If that's what was going to happen, we should have known that. Were you predicting much higher prices or something? Is that why you're you're you keep saying, well, if it wasn't for China, then I would have been right. Is that where this is coming from? No, I think you have to be humble a little bit and saying, like, what did you not anticipate? And certainly we thought the scale of the disruption was so much bigger than we saw in Russia, Ukraine.

18:02And we should have been at those price points. But again, like if China is going to change our purchasing policy, if we are going to run down our reserves, I mean, I do think you end up in a different place. Again, if you ask me what I did not anticipate at the start of the conflict, I did not anticipate China playing such a big swing factor in terms of scaling back imports. So, again, it's a little bit of humility in terms of where the market is right now. Where did we get in at the beginning of the Ukraine war? What was the peak? I mean, we took out like$128. And so we never got close to that in terms of Brent pricing.

18:41And again, we never had a significant supply disruption in Russia, Ukraine. That was driven by a fear of a three million barrel a day disruption. You know, at one point during this war, we had over 10 million barrels being disrupted out of Hormuz. So the scale of the disruption was much larger this time around. It's still much larger, but the price response has been more muted. So, again, I think we have to look at other factors in the market. That's what's weird. You expect these futures to go absolutely crazy. And your point is that it didn't happen because of China. So we're going to take that to the bank because, I don't know, 80 just seems like the market must be wrong or something.

19:25Anyway, Halima, thank you. Thank you. Cheese will be next. Coming up on Squawk Pod, investor Steve Eisman, made famous by the bets he made in 2008, immortalized in the big short. He's not shorting the market now, but he's being cautious about big tech's reliance on artificial intelligence. So if this is a binary situation where AI succeeds and the market continues to push higher and higher, what happens if AI doesn't succeed? I think we have a big correction. How big? Now that's a hard question. Eisman's take on this AI everything market right after this break.

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20:42Join host Keith Lansford for this information-packed daily market preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts. Ever finish your to-do list just in time for three more things to get added? That's what managing technology can feel like. There's always another ticket, another update, another thing demanding attention. That's why CDW's here.

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21:38This is Squawk Pod. Stand by Joe. Here's Mike. You're watching Squawk Box on CNBC. I'm Joe Kern along with Becky Quick. NVIDIA is in talks to provide a$250 billion backstop for OpenAI as part of a large data center project. There's a Wall Street Journal report that says that it guarantees from NVIDIA would help OpenAI lease a 10 gigawatt project in southern Ohio that's being developed by a soft bank subsidiary. And NVIDIA's backing will help the data center developer raise debt at more favorable terms than it could without a financial backer. And since it's not rated, since OpenAI doesn't have an investment grade credit rating as an unprofitable private company, terms have not been finalized and the deal could still fall apart.

22:29Anthropic, Microsoft, and Alphabet have also expressed interest in the site. And joining us right now to talk about what's really moving the markets is Steve Eisman. He is the host of The Real Eisman Playbook podcast and former senior portfolio manager at Neuberger Berman, obviously somebody who understands when markets get inflated at times and has done very well by poking holes in some of those things in the past. Steve, we've got a Fed meeting that's happening this week. We've got the busiest week of earnings. But you're really looking at this as an all-AI market at this point. Oh, I think it's all one trade.

23:06It's AI. Either it'll succeed or it won't. But I mean, I just take, for example, you know, the investment banks well reported. The numbers were really great. But, you know, why were they great? They were great because they're doing a lot of AI financing. So it's not like, you know, if you bought Goldman Sachs, you're diversifying your portfolio away from AI. I think the biggest news is that a year, if we were sitting here literally a year ago, the entire debate on AI would be, it's all great, rah, rah, let's spend money. Every time one of the companies would increase their capital expenditures, the stock would go up.

23:43It's much more complicated now. That doesn't mean it's all negative, but it's much more complicated. So you've got, it's become very capital intensive. It's questionable whether any of the LLM models have any moats around their businesses. And the Chinese AI models are a lot cheaper. So is there going to be a price war? I don't know the answer to a lot of those questions, but I don't think anybody else does either. And that's why, you know, for example, last week when Google reported the stock went down. Not because they didn't beat expectations. It's not because there was huge demand still coming through.

24:24But they increased the capex from$190 billion to$205 billion. People are freaking out. You know, we were asking the question earlier today, what would happen if some of those big hyperscalers actually cut their capex? How would the market react to that? I think the market would go straight down. I think so, too. To me, it's your damned if you do, damned if you don't situation almost. I mean, in the end of the day, it all boils down, in a sense, to NVIDIA. NVIDIA, I think when they reported last quarter, had 85 percent revenue growth. So if the hyperscalers cut, it wouldn't be 85 percent. And, you know, maybe that would be healthy for the long term.

25:06But I think the market would go straight down on that news. There's the front page story today in The Wall Street Journal that says NVIDIA is in talks to back open AI on a$250 billion financing, basically. for a data hub that could wind up costing half a trillion dollars in the long run on some of these things. NVIDIA has been involved with backing a lot of these deals. And if you ask Jensen Wang why, he would say because they are looking for the bottlenecks that are preventing AI from moving forward and they want to make sure they clear those bottlenecks. It's a sound strategy, but what do you think as somebody who watches the markets in terms of what this means?

25:44Look, I have questions about the health of Anthropik and OpenAI long term. I mean, this is great for NVIDIA long term, but Anthropik and OpenAI, the cost of their models is about five times more than Chinese models. So I think one of the bottlenecks is what's the future health of Anthropik and OpenAI in the face of models that are much cheaper? I don't know the answer to that question, but I don't think anybody else does either. Why are Chinese models so much cheaper? Because they're open source. And anthropic and open AI are closed source. And for whatever reason, the closed source models are just much more expensive.