A New Normal, From Wall Street to Y’all Street, and “Net” Bets 10/5/26

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1:04Thank you very much, Scott. The Nasdaq is at another record high today, even as Treasury yields keep rising. I'm Kelly Evans, and welcome to The Exchange. What if 5 % rates aren't restrictive? That's the discussion we'll have in just a moment. Stephanie Roth sitting right here next to me as the 10-year hits 533 today, its highest level in 24 years. Plus, we'll go across the country, not quite coast to coast, but from Boston, where we'll speak with AstraZeneca's CEO as they unveil a billion-dollar new research and development site down to Dallas, Texas. And then a flurry of companies like Energy Transfer, Dillard's, Sunoco, all switching from the New York Stock Exchange and now trading on the Texas one.

1:44CEO Jim Lee will join us. But let's begin with this continued upward pressure in U.S. interest rates. The ISM Services report today showed the same heat in prices paid that we saw with the manufacturing report last week. As a result, benchmark 10-year Treasury yield rising to 534. There you go, Stephanie, session high. Even as yields across the globe in France and Italy have leveled off, is it a troubling sign for the U.S. economy or not? Our first guest says it may simply be the new normal, certainly starting to feel that way. Stephanie Roth is the chief economist at Wolf Research here for our opening exchange.

2:18Welcome. Thank you. Good to have you here. Not to make you into a bond trader, but there is an economic significance in what's going on here. But you're saying maybe it's less than we might have thought. Certainly, if you told me at the beginning of the year the way that bond yields would have ended, I would have thought there would have been much bigger problems elsewhere. Yeah, you would have thought that certainly the stock market would have had a much harder time. And, of course, beneath the surface, there's been some challenges. But even the equal weight S &P has been up this year in an environment where rates have backed up 100 basis points.

2:45So what's going on? It's an economy that's incredibly resilient. And also, perhaps we're going back to the regime that we were in the 1990s, where nominal GDP traded in line with the 10-year. And our sense is that nominal GDP, probably over the medium term, is roughly going to be 5%. So maybe something around 5 % in the 10-year makes sense. What about 6? What about 7? I mean, we've had quarters where nominal GDP is that high, and recently. I would take the other side of that. So if you look at nominal GDP year over year, it's 6.5. Does that mean the 10-year should be trading at 6.5? No. Because nominal GDP is being held up by some one-off factors, especially when it comes to the Iran war.

3:21A lot of it's inflation-driven. Real GDP is really only running a little above 2%. Does the composition matter, though, of real versus nominal? Is the whole point that just whatever the sum is, that's where the 10-year goes? It's more on a trend basis. So if you think about over the next couple of years, where should nominal GDP be actually trending? And that's more like the 5 % in our view. Some people think it's closer to 6%, and that's why they're worried about the 10-year going to 6%. I would just take the other side of that because in one year's time, it's very likely that nominal GDPs can be out lower than where it is.

3:56Does the Fed tighten into that environment? I mean, what you're saying rings true, right, that we've had this big inflationary kind of overlay on top of a decent trend growth rate. And the inflation is really kind of an Iran war supply shock. Is that how you'd characterize it? So shouldn't that level off next year? And why should the Fed respond to that? Yes. I mean, it's been three things that have really been holding on inflation. It's been the Iran war. It's been the chip shortage and then tariffs. Those things are very much going to be rolling off when we head into next year. Should the Fed be hiking into that?

4:27I don't think they necessarily need to be. The inflation backdrop would look a lot cooler next year, whether or not they are hiking. But the market kind of took them there in order to establish credibility. They kind of had to do it. But that's probably why they're only going to be hiking a couple of times, which is different from historical hiking cycles. You have a point in here that I like in sort of a way of framing this. You say perhaps monetary policy simply works with long lags. But there is another possibility to consider. Maybe the economy is just much less rate sensitive than we thought.

4:56I've even heard others suggest that it's rate positive, meaning, you know, there's so many people earning that yield that there's ways that, you know, higher interest rates actually are stimulative in some fashion. But you basically think that we are in some ways insulated from rate shocks. I have to say, if I had to pick, I'm in the long lags camp. I think even if you look at the COVID episode, auto inflation, auto insurance prices didn't peak until the end of 2025. And a lot of that, granted, there's some weird stuff going on with the car market, but that went back to what they did in 2020, 2021, 2022.

5:34Sometimes I think, no, this stuff, it takes years for it to really hit the economy. But what do you think? Yeah, I mean, I'm with you to some extent. I mean, rates really only backed up materially in the past month or so. So the fact that we're saying the economy hasn't felt it yet is probably not fair. We're probably going to feel it over the next couple of months. At the same time, though, the economy is a little bit less rate sensitive than it was in years past, especially in an environment where AI investment is driving a lot of growth, and AI is just not that rate sensitive. When you think about the ROI on a lot of this investment, whether rates are up 50 or 100 basis points probably doesn't really matter a lot.

6:08So there are parts of the economy where it does, but there are parts that really it doesn't matter. Where would you be looking and then kind of the near term for signs that there's more distress? Like, in other words, that the tightening is having an impact and probably not a good one. I mean, the whole point of tightening in some ways is to kind of slow the economy, take the heat out to make people feel the pain. Where would you be looking for that? Yeah, I'd be surprised if we don't see it at all, because that would be a little bit concerning. Then rates that would give the bond market signal to just keep taking rates higher and higher, which has been the trend in the last couple of weeks.

6:37Eventually, that will probably fade. Things to look out for on the consumer side. Are we starting to see the consumers react both to higher rates and higher gasoline prices? Our expectation is yes. That usually takes a couple of months. Housing has been a problem. It will probably just continue to see some additional pressure. And then just watching credit spreads, you're starting to see at the margin that there's starting to be an impact. But you should see a little bit more of that. And that would tell you that rates are actually having some impact on the economy. Let me ask with a close with a final question, which is why do you think bond yields have gone up so much?

7:05and so quickly and so persistently? I mean, is it as simple today as saying ISM prices paid was hot? That's giving us a couple more basis points on the 10-year. No, I don't think that's the reason. I think it's been an environment where the bond market is reassessing today's environment, different from where it was, that it's an environment where nominal growth is just going to be slightly higher than where we've been. AI is legitimately help holding up GDP. And I do think the bond market has taken a bit too far. And the bit too far piece is tied to the ISM services and some of the other gasoline price impact.

7:36That's probably the biggest reason that you've seen a sort of an above trend, sort of above that 5 percent level. But it's been an environment where you probably should see slightly higher 10 year yields, especially compared to growth, than we've been in the last couple of years, certainly over the past decade or so. All right, Stephanie, great to have you here. Really appreciate it, Stephanie Roth. Our next guest says bond yields at these levels are starting to create some real competition for stocks and could be a headwind if we stay here or keep rising. David Katz is the chief investment officer at Matrix Asset Advisors.

8:09David, welcome. And how are you thinking through this? Basically, the market has held up unbelievably well in the light of interest rates moving up. We think if rates stay up here, it is going to become problematic for stocks. However, we think that rates are going to actually start to trend lower as soon as you get some sort of resolution in Iran. Oil prices will come down pretty quickly. And then we think inflation numbers will come down a great deal. So we're trying to look at where things are going to be in three to six months and buy stocks based on that today. But if we're wrong and rates continue to go higher, it's going to be a headwind for stocks.

8:45Would you, not that it's your mandate per se, but would you be buying bonds and fixed income here? We actually, for bond accounts, for balanced accounts, we like bonds a great deal. We think your sweet spot is two to six years. By a laddered portfolio, you can lock in 5%. We think maybe a month from now you might feel silly. But we do think six months, 12 months from now, you're going to be really happy having locked in 5%. We're uncomfortable with longer-term bonds because we still think that rates on the long end could go up. But we're less hawkish on the Fed than the market is right now. Okay, interesting.

9:17And just to be clear, you're saying you're not making a call that the 10 years, you know, peaking out or the 30, which is almost at 5.7 percent. So if those go to 6 or 7 percent respectively, that wouldn't really surprise you. We think it can drift higher. We wouldn't think that it's going to melt up to a 6 or a 7, but we definitely think it can drift higher. If you're buying a 10-year bond or a 15-year bond and rates move up a half a percent, you're going to lose principal. If you're buying a 5-year bond and rates move up a quarter or a half a percent, you're still going to get a positive absolute return.

9:47Hmm. That's a great way, a great data point or kind of illustration, David. So let's switch over to kind of what you do. You are picking Goldman. I mean, as you acknowledge by the dip here, is this a rate issue? Is it a quarter issue with some of what's going on with kind of the quieter IPO season and all of that? Goldman's on your list. You've got Home Depot, Pepsi, Uber, NextEra. Just talk us through these. So the market is at all-time highs. Yet underneath the surface, a lot of sectors have done particularly poorly, and a lot of stocks have done particularly poorly. We put new money in the stocks that are good long-term plays that have done poorly.

10:22You know that we've liked financials for a long time. We've been much less positive on financials for the last few months because they had done so great. They've had a significant pullback. So we are buyers of that group now. Goldman was at$1 ,150. Now it's at under$900. The quarter is going to be a little bit light, but the fundamentals for the group and the fundamentals for Goldman over the next six to 12 months are robust. You're getting a really good business on a dip. So we'd be buying that here. Again, consumer staples, consumer discretionary have just been thrown out. So they're down about 10 or 15 percent this year.

10:57So you're buying good businesses at 15 times earnings. One day, interest rates will move lower. One day, housing is going to recover. Buy Home Depot now. You get a nice yield while you're waiting at a great valuation. Pepsi is a global powerhouse at under 15 times earnings, paying you over a 4 percent dividend. Again, patience, and you're going to be very rewarded. The stock market has become very short-term oriented, and we think the key to investor success is take that longer-term view. I love once you have to get to the point of, say, it almost sounds like a country western or a Broadway tune.

11:29One day, interest rates will go lower. That's how it feels to people in the market. I think it's just been this relentless, ever moving March higher. So as you say, September, it was a bit of a tough month. Eleven of the 12 sectors were lower. We had four to seven percent declines across, like you said, Staples, real estate, industrials. But you are it's not just Goldman and the names that we showed. You like consumer discretion. You like Staples, utilities, financials. So if we don't get near term relief in rates, you acknowledge they may that may be a little bit of a tougher period. But you'd still own them and say, you know, at some point, you know, it doesn't have to be next month.

12:03Maybe it's, like you said, six, 12 months from now and beyond. We absolutely would own them. You're getting a 3 % or 4 % dividend while you're waiting. They're good long-term businesses. We do own a number of AI plays, but at some point that is going to slow down. And when it slows down, that money is going to redeploy back into these areas that are pretty dull, like utilities or consumer staples. All right, David, thanks so much. Appreciate it today. Absolutely. Have a great day. You too. David Katz of Matrix Asset Advisors. Coming up, AstraZeneca opening its billion-dollar R &D site in Boston today.

12:35What does it mean for its pipeline and the growing competition in biotech? We'll talk to the CEO exclusively about that ahead. Plus, from Wall Street to Y 'all Street, the Texas Stock Exchange, the Texi landing its first primary listing, with energy transfer defecting from the New York Stock Exchange. Will more firms follow suit? We'll ask the Texi CEO next. The Exchange is back after this. This is The Exchange on CNBC.

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14:40Three, two, one.

14:51That's the Texas Stock Exchange's bell ringing ceremony this morning at Energy Transfers Dallas headquarters. The pipeline company becoming the first major firm to switch its primary listing from the New York Stock Exchange to the Texas Stock Exchange or the TXI. Should we expect more companies to move from Wall Street to Yall Street down there in Dallas in its financial district? Joining us now in an exclusive interview is Jim Lee. He is the chairman and CEO of the Texas Stock Exchange. Welcome. It's great to have you here. Well, thank you, Kelly. Thank you for having us. You know, I admit to being a little, what's the word, numbed, I guess, to the launch of new exchanges, because I remember the huge deal we made over IEX and everything 10 years ago.

15:31And then there was the long-term stock exchange. Do you think you'll be able to stand out from the pack, Jim? Well, this was a big day in Texas, as your lead-in suggests. The movement of primary listings out of New York and into Texas is underway. And we couldn't have scripted a better kickoff. As you mentioned in your lead, energy transfer, but also the energy transfer partnerships, Sunoco, Sunoco Corp, USA Compression,$100 billion of market capitalization. It's a 30-year-old business. We also opened today with Dillard's, a$10 billion business that has been listed on New York exchanges for 70 years.

16:10This has never happened in those exchanges that you mentioned, but this is just the beginning. I think we're on the verge of the largest transfer of listings in history. And let me tell you why this is happening. We've been out on the ground listening to companies and issuers for years. And there's a broad recognition that we need a third listing alternative. And that's exactly what we delivered this morning. Why do they need it? What's in it for them? Well, there's a larger problem that we're solving. You've seen if you zoom out 30 years, there's been a 50 percent decline in the number of public companies in the United States.

16:48And if you look at the IPO pipeline, it's heavily backlogged despite recent upticks. Sponsors worldwide are carrying over 31 ,000 public companies with$4 trillion of market cap. That's nine years of exits at the current exit rates. And frankly, during this period, we've had a listing duopoly, only two exchanges. And if you're looking for additional validation, look no further than the capital position that we announced this week. We have invested in the Texas Stock Exchange$430 million of capital from the largest financial institutions on earth. And it's a recognition of the need for a new alternative listing venue and the strategic importance of Texas.

17:35So let me ask about a proposal by the SEC recently to do away with quarterly earnings and just go to twice a year in order, they say, to have the public markets better compete with private. Well, I'd rather have the private markets be held to the same transparency and reporting standards as the public markets to some extent. I just think transparency benefits everybody. That's just maybe that's the you know, that's just my point of view. So as the SEC considers loosening that up a little bit, and I don't know if they will. What problem is it that you're trying to solve? Is it specifically about going public?

18:10What's different about going public with the taxi than about going public with the NASDAQ or the New York Stock Exchange? There are larger trends that have led to a 50 percent decline in the number of public companies over 30 years. It has, frankly, become too complex, too costly and legally treacherous to be a public company in this country. Reporting has become too cumbersome. Governance is in many cases become weaponized and activism is driving up litigation costs with limited alternatives outside of Delaware. And frankly, the other two listing alternatives have not provided solutions. The movement of companies to the Texas Stock Exchange is proof that there's another way.

18:54And I'll tell you right now, you have to think about what we're doing alongside what the state of Texas is doing and increasingly the federal regulator. You mentioned the SEC. The leadership at the SEC has been very direct and outspoken. They're in the process of rolling back the apparatus of reporting to the materiality North Star, as the chairman references it. I applaud them. That's where it has historically been. And a lot of these costs are being driven up because of the apparatus around reporting. The other thing that's happening is the SEC has stepped back and is pushing back governance to the states where it belongs.

19:33Wall Street Journal just two weeks ago pointed out that Texas is now the model in the country for governance. And we need litigation alternatives. And Texas is, again, being put up as the top. The energy transfer CEO this morning said it best. He said where companies headquarter, where they legally domicile, and where they list are increasingly interrelated. And in some cases by statute in the state of Texas. And a lot of this comes together to reduce the complexity, reduce the cost and the legal activism and weaponization that has creeped into our public markets that has made it so difficult to be public.

20:18And the private markets have done exactly what they should. They filled the vacuum that occurred when great companies have pulled back from being public. They're going public. Those that do, much later. standard, the average market cap of companies going out right now versus the year 1999 is over four times. It's over two and a half trillion dollars, excuse me, two and a half billion dollars, the average market cap of a new offering coming out. And what's happening there is that we're limiting access to the country's best companies for everyday investors. You know, I'm a big fan of SpaceX. I think it's remarkable the business that was built.

21:04They went public 24 years after it was formed and multiple, multiple financing rounds and billions of dollars raised before they went public. And they went public at almost$2 trillion. The steepest part of the curve, the growth curve, and thus the wealth creation was already harvested by the time it came to market. I think there's still a lot to run there. And SpaceX is an extraordinary company. But if you look at Apple and some of the others, they went public and Amazon, they went public in three or four years. And so much of the curve, the growth curve, was harvested and shared by the nurse in El Paso and the line worker in Oklahoma City.

21:50Right now they're being shut out of it largely because of the friction in our public markets. We're here to address that. Yeah. Well, Jim, thank you for joining us to explain both the backstory, some of the differences. And we'll be looking for those IPOs, more those who are changing their listings, see if it has any impact in addressing those concerns. And many more questions I could ask you about. Again, this doesn't impact the way that everybody has a trade, right, because of Reg NMS kind of the same way. So this is really just about how you come to market. Yeah, quickly, Jim. That's exactly right.

22:22You know, Texas capital has moved. Schwab has announced. SECO has announced. Tomorrow we'll announce more. The movement of primary listings to Texas and out of New York is going to be one of the largest trends and movements that you see in the capital markets over decades. And it's starting just now. This is just the beginning of it. Well, maybe we'll come down and check it out ourselves. By the way, it's the private equity firms in Dallas that are keeping all these companies. I know about it. I know of many firsthand. No. Jim, really appreciate it. It was our pleasure, Kelly. Thank you for having us on.

22:56Thank you for making the time. Important week, and we'll be watching, that's for sure. Jim Lee of the taxi. Yeehaw Noah. Coming up, the Brazil ETF, the EWZ, having its best day since March of 2020 as the country's presidential election heads for a runoff. Can investors stay bullish or is Brazil a one-day pop kind of situation? We'll talk about that right after the break.

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24:53Welcome back. We have some news in the media space. Alex Sherman with the story. Alex? Yeah, you know, the long-awaited merger between Paramount Skydance and Warner Brothers Discovery is expected to close tomorrow. And we're starting to get some news in terms of who's going to run that company. I can exclusively report to you right now that Luis Silberwasser, who has been the CEO of TNT Sports since 2022, will be departing the company. CBS Sports CEO David Burson will run a global group of sports that includes both the TNT Sports and WBD sports brands, including CVS Sports, which he already runs.

25:36All of those brands will report up to Burson, who will run this new global sports division within the combined company. Each of the different divisions of this company is going to need to make leadership decisions. Some of that news is already coming out. In some cases, the leader of the previous division may stick around in the company. In this case, I can tell you, Louis Silberwasser will be leaving. He has done an admirable job of running TNT Sports ever since they lost NBA sports rights. He's been able to cobble together a bunch of sort of, I would say, B-level sports. You know, the French Open, NASCAR, he already had NHL rights, and has been able to maintain distribution fees for the broader Turner Sports WBD sports group.

26:25But he will not be sticking around at this newly combined company. Kelly. All right. Paramount Skydive shares, by the way, up about 2 % today. Alex, thanks so much. Alex Sherman. The Brazil ETF is meanwhile having its best day since March of 2020. And it's hitting a six and a half year high as the presidential election there heads to a runoff. Seema Modi has more. It's up 13 % today, Seema, and up 36 % this year. Kelly, as you and I know, the election is going to have a huge impact on markets. This is a strong showing for Flavio Bolsonaro, the 45-year-old senator, son of former President Jair Bolsonaro, who has been campaigning for a free market economy, a message that so far is resonating with Brazil's 158 million voters.

27:07He came out ahead of Brazil's leftist leader Lula da Silva in the first round last night. The runoff now slated for October 25th. While his father may be jailed for corruption charges, his two brothers and mother have seats in Congress, making this a potentially full family affair if Flavio does win the presidency. And the market is pricing in a Bolsonaro win. Brazil has already outperformed other emerging markets and the S &P 500 by a wide margin this year. HSBC says Brazilian equities can continue to trade up if Bolsonaro clinches the win. Experts say Washington will likely welcome Flavio's potential victory.

27:42He met President Trump at the White House back in May. But the key question is whether Brazil aligns itself with the U.S. or China in foreign policy at a time when Beijing has been investing heavily in the country's energy sector. Kelly, it also marks a potentially dramatic shift to the right for Latin America's largest economy, changing the political balance in South America, joining countries like Argentina, Chile, and others that are also led by right-leaning leaders. Could be a huge deal as you see the market reacting in such fashion. Seema, thanks very much, Seema Modi. Sticking with international, some startling headlines out of Russia over the weekend.

28:19While closer to home, the U.S. is pulling its B-1 bombers out of the U.K. on concerns about that suspected terror plot. Eamon Javers has the latest from Washington. Eamon. Hey there, Kelly. The White House is monitoring a pair of difficult situations overseas today, starting, as you say, with this outbreak of suspected plague in Russia. Secretary of State Marco Rubio said this morning that he doesn't think the outbreak is cause for alarm, but said the administration is watching the situation closely. Now, the Associated Press is reporting that Russian authorities have quarantined a hospital and are monitoring contacts of an employee at a plague research institute in Siberia who contracted pneumonia of an unknown cause.

29:01The AP says the woman worked at the Irksuk Anti-Plague Research Institute of Siberia in the Far East. There will be questions here about the possible involvement of Russian bioweapons research. But the situation on the ground, Kelly, there is far from clear. And separately this morning, Vice President J.D. Vance acknowledged that the U.S. military withdrew B-1 bombers from England yesterday as a result of a potential Iranian threat to the airbase where they had been stationed, which is known as RAF Fairford. The American bombers there had been flying missions against Iran, but the vice president said the military was simply being cautious.

29:42What you saw there is the secretary of war out of an abundance of caution trying to protect our guys. We do feel with some confidence that the Iranians are, you know, they're trying to do what the Iranian state has done for 49 years, which is engage in acts of terrorism against the United States and against a lot of other people as well. So we are being extremely cautious. And for his part, the spokesman for the Iranian foreign ministry suggested today that British concern about the airbase could be a false flag operation designed to pin the blame on Iranians for an operation that he suggested may not even exist at all.

30:16Kelly, back over to you. In the meantime, you know, that was the launching pad, was it not, for a lot of the strikes on Iran? Now those bombers are not there? Absolutely. Now, the U.S. has the capability to fly missions from the United States and to refuel aerially. But, of course, any time you move, you know, continent to continent like that, you're adding lots of hours, lots of refueling, lots of logistics to the process. So it is, you know, it does chip away at U.S. capability for sure. All right, Eamon, thank you for now, Eamon Jabbers. Let's get over to Julia Boorstin for the CNBC News update.

30:49Julia? Kelly, Israel was reportedly prepared to shoot down a fly Dubai plane after the captain was attacked in the cockpit last week, even with more than 150 Israelis on board. CBS News reports that Israel has a long practice procedure for a possible 9-11 style event. Fighter jets were scrambled and Israeli airspace closed, but those jets were called back once the plane turned towards Saudi Arabia to land. A federal appeals court today is hearing arguments from the Trump administration looking to renew its effort to end more than$2 billion in grants awarded to Harvard. Harvard has won several court victories over the dispute.

31:26It began when the Ivy League school rejected a list of demands from the administration, including ending DEI programs. And Starbucks is being sued by customers who say the chain is falsely advertising eight protein beverages as sugar-free because they contain lactose, which is a naturally occurring sugar in milk. The complaint seeks unspecified damages for false advertising. On its website, the sugar-free beverages are described as protein-packed with no added sugar. Back over to you. You know what I've learned about sugar-free, Julia? There's always sugar, or it's thereritol, and that's even worse for you.

32:02Maybe you're just better off eating the sugar. Yeah, I do too. Makes me feel better to think that. Julia, thanks. Coming up, AstraZeneca's new billion-dollar R &D site is opening in Boston today. It's part of the company's$50 billion commitment to research and manufacture drugs here in the U.S. The CEO will join us live for an exclusive interview on what's in the pipeline and how American consumers may benefit from the company expanding its footprint.

32:47Welcome back. AstraZeneca was one of the first drug makers to sign a most favored nation drug pricing agreement with the White House and HHS last year. It's committing to keeping prices here similar to those paid in other developed nations. The company also announced a 50 billion dollar investment into stateside manufacturing. And that brings us to today. It's starting to bear fruit. AstraZeneca opening a new R &D site in Boston today. Joining us now in an exclusive interview is the CEO, Pascal Soria, and here on set with us, CNBC reporter Annika Kim-Constantino. Welcome to you both. Pascal, what more fruit are we going to see from this R &D site in Boston?

33:28Thank you for having me. And as you said, this is part of our$50 billion investment across the U.S. until 2030, and we already have several manufacturing plants that are built in Virginia, Maryland, Texas and others. But this is an R &D investment here in Cambridge, in Kendall Square, at the heart of science. It's a billion dollar investment. We will have 2 ,000 scientists working here and quite frankly, what we hope to get out of this investment is recruiting great talent, sharing, collaborating with the academic institutions around us, the MIT, Harvard, and many others. And also, we are actually building this R &D site with robotics and AI at the core of everything we do.

34:13So faster, better invention of new products and development of new products is really what we are hoping to achieve. Great, Pascal. So how should investors measure the success of this R &D facility five years from now? Would that be more medicines? Would that be medicines entering the clinic faster, faster development timelines, higher success rates or something else? Yeah, absolutely. It's faster, lower cost of research and development, more products that are delivered to better products that are delivered to patients. We are on a race against disease and there's a lot of unmet needs out there.

34:53Of course, for instance, cancer is a big focus for us as a company. And we are looking at a time when And curing some cancers will be possible, and it's not that far away. And all this great science and this robotics, this AI, will facilitate this. And there's a lot of competition in our industry and across the world, and we want to be one of the best companies bringing those medicines to patients. Pascal, it's Kelly here again. You mentioned AI. I'm curious, because you're able to start today, how does this technology, artificial intelligence, if it does, change the way that you might invest, build, You look to develop drugs, rare disease as well as an area where I know you guys have a little bit of a focus and probably one of the kinds of areas that could benefit from this technology.

35:39Yeah, it's a great question. But actually, it's not only about AI. It's also about robotics. Essentially, the idea is to really leverage AI to invent new medicines faster, but also invest in robotics to simplify and accelerate the process of discovering and developing molecules throughout the preclinical phase in particular. So about 20 % of the investment in this site is going to robotics and AI. So AI will, I mean, is already actually, I should say, enabling us to invent better molecules, more molecules. It's also enabling us to design better clinical programs. So it's completely changing the way we research and develop new medicines, just like it's changing the way we manufacture those medicines, also the way we commercialize them.

36:26So it is a total transformation of the way we operate as a company. And last week, you announced a$2 billion investment in clinical collaboration with Summit Therapeutics. So tell us, you know, what opportunity does Summit's drug, Avunesimab, bring to you or unlock that wasn't already available to you with your current oncology pipeline? Well, we believe the future of cancer care is about combining antibody drug conjugates to replace the old chemotherapies. Antibiotic drug conjugates are also called the smart chemotherapy. And you need to combine this with immuno-oncology products. The first generation of those is made of PD-1 or PD-L1, and they're already in use today, and they have a big impact on cancer.

37:14But there is a next generation of this IO that are IO-bispecifics, immuno-oncology products that are bispecifics with two targets, PD-1 or PD-L1, and in that instance, VGF. And so this kind of IO bispecifics is the next generation. We have other types of bispecific IO agents, but this one in particular is very exciting because it can help address a certain number of tumor types that can be better treated in combination with antibody drug conjugates, better treated than with existing first generation PD-1 or PD-L1 agents. And you're one of several drug makers racing to enter the obesity market.

37:57And so where does AstraZeneca have the greatest opportunity to differentiate in this crowded space? Or what unmet needs can you uniquely address with your pipeline in obesity? Yeah, so first of all, we are working on oral agents. We have an oral GLEP1 in development in phase three. And we want to combine those with other agents. If you go to the physician and you have hypertension or you have elevated cholesterol or you have diabetes, most likely you will also have excess adiposity and you need to lose weight. So we are developing an oral agent that we can combine with other products that we also have in development for cholesterol, for diabetes, for hypertension.

38:39That's one avenue, oral agents. The other avenue is injectables that are given every month instead of every week to make it easier and simpler for patients. Another avenue, again, is to combine these mechanisms with other agents. For instance, combine the so-called GLP-1 with an amylin agent or developed by specific that are GLP-1 with glucagon agents. And the idea here is really to improve the weight loss, the quality of this weight loss. We work on improving the reduction of fat, but minimizing the reduction of muscle that happens. We're also working on new mechanisms that are helping remove the fat from your liver in particular, which is really over time driving the disease, this fundamental insulin resistance disease.

39:32So we're working on different mechanisms to improve the quality of weight loss, but also add some new mechanisms that will help protect the muscles or help remove the fat from organs like the liver. As we read more about the importance of protecting that muscle amid weight loss. Pascal, Annika, thank you so much. And Pascal, congrats again. We look forward to more of the investment to come. Pascal Sorio is the CEO of AstraZeneca. Coming up, less than a week after leaders from OpenAI, Anthropic, Google, and Meta signed a, quote, morally binding AI safety pledge with the president, executives from all four are testifying at a New York City council meeting.

40:12We'll go there live for the latest updates next.

40:18Welcome back. Anthropic, OpenAI, Meta, and Google are all publicly testifying at this AI safety hearing, a rare New York City Council meeting. Ashley Kapu is outside City Hall with more in today's Tech Check. Ashley, you've been there all morning, I guess afternoon long. What are they saying? Yes. So executives from OpenAI, Anthropic, Meta, and Google are speaking right now, as you mentioned. They're addressing their company's safety policies and the risks that are posed by AI technology, trying to assure council members that they're taking safety seriously and working to implement strong guardrails.

40:54What's the feeling in the room? How is it going? It's been interesting for sure. Speaker Julie Menon is not going easy on the companies, and her direct questioning has led to laughter in the room on several occasions. She's pushing the AI companies to quantify the risks, for instance, And when OpenAI's representative said she didn't know, Speaker Menon said she was being flippant. So definitely the pressure is on and the audience is paying attention. As I understand it, X has, you know, was asked to be there and they chose not to come. Everybody else is sending, not their CEOs, obviously, but more senior executives from kind of those relevant parts of the business.

41:34I think they said they're going to try to subpoena X or Elon Musk. Is that right? Yes, they already have filed a subpoena against Elon Musk to try to compel someone from SpaceX AI to appear, but they're not here today. There could be further action taken, but they're a noticeable absence in the room for sure. And finally, what are the consequences after this hearing that, you know, they're going to do what to these companies? City Council has kind of positioned this meeting as a chance to learn more about the risks, kickstart a conversation here and get some input on the bills that they're weighing to implement.

42:10And Speaker Menon has also mentioned that she wants to kickstart this conversation all the way to the federal level, which, as a reminder, Congress is heading into the midterms here. There's kind of a small window where real action could take place at this point. So she's really trying to just continue the conversation and make sure we spell out the risks and hear from these executives themselves. All right, Ashley, we'll let you get back to it. Thank you for that report, Ashley Kapu. And we'll actually have a lot more on this story with the New York City Council Speaker Julie Menon, joining us right here on The Exchange tomorrow in a first on CNBC interview.

42:41Next hour, we'll also be speaking with former OpenAI safety researcher Stephen Adler, and that'll be 2 p.m. Eastern on Power Lunch today. Coming up, bet the net on the names, that is. Jeff Kilberg buying cybersecurity stocks at the start of Q4, including this one, our mystery chart today, of 84 % this year. Send in your guesses. We'll reveal it next.

43:06Welcome back. The Nasdaq hitting another record high today, despite those rising treasury yields. Tech is the second best performing sector this year after energy. But our next guest is still finding opportunities with some of the high flyers buying the net tickers at the start of Q4. That means Arista, Cloudflare and Fortinet. Fortinet, by the way, is up 130 percent year to date. Let's bring in Jeff Kilberg, KKM's financials founder and a CNBC contributor. Jeff, nothing but net. You got all the net names. Is that just for fun? So you think cyber is the way to go for Q4? Well, I think the nothing but net phrase is actually just a way of looking past the AI direct hyperscalers.

43:46And we had to find a way to participate. And if you look at Arista, yes, it's up about 58 % year-to-date. But this is a company with 50 % operating margins. When you think about all the money, Kelly, is being spent by the hyperscalers on their GPUs, this is the network. This ties it all together. So they're not going to cheap out, in my opinion. And that's where there's opportunity. But this is the only of the three net names. This is the only one that's actually below the consensus street target price of$242. So it's about 20 % under. The other ones are not. But if we shift gears into Fortinet, yes, we do own CrowdStrike.

44:19And yes, we own Palo Alto Networks. But we also want to own this because of the fact that it has the ability with a 4P of 53 times moving forward. You're going to see more and more money being spent on cyber. So this is just a diversification. We actually own Palo Alto Network in our central portfolio. We own Palo and CrowdStrike in our Gary ETF. But we want to own this here as well because of diversification. And last but not least, Cloudflare. I'm going to come up for error here because this has a 4 PE of, guess what, Kelly, almost 300 times. I was still in the high 100s. 246 we're showing. But again, the point is it's highly valued.

44:56We'll see what actually happens with the earnings when they come through. Quick coda on that. Why do you think and how do you think it can grow into that valuation? Well, I think, Clough, it's the crossing guard, right? So it's going to help you in all the Internet traffic. It has the ability to continue to grow. It doesn't make money. Let's be clear. And you know I don't love companies that don't make money. But you're buying the network, the capability, the moving forward. But I think when you look at how it kind of compares with a$350 price target, we're above that. So it is a little overrun.

45:24But here again today, it's up another 4%. So can't stop, won't stop. Nothing but net. Yeah, not profitable, 240 times P.E. But again, I'm still haunted by the early Netflix days when it looks similarly ludicrous. Earnings broadly, we're kind of kicking off this week. What are your expectations? Anything you'd really be kind of betting on one way or the other? Well, we've talked a lot for the last couple of months, and that's been my cautious optimism on all the different headwinds. You know, the 10-year at 5.3 and crude oil still at$90, you would have thought I was crazy a couple of months ago.

45:54But that's the offset. It's the strength. It's the robust component of the earnings season. So with the forecast right now of earnings per share year-over-year growth of 29%, that's remarkable. That'll be the third consecutive quarter of over 25%. So that's the offset. We've talked about putting it in context, Kelly. The 10-year average for earnings per share year-over-year growth is 8%. So I wasn't a math major in Notre Dame, but nonetheless, this is pretty remarkable to see this type of profits being produced by U.S. companies. And that is why we continue to move higher. That's why I have another NASDAQ 100 record high today.

46:27All right. Finally, we've got to talk some SpaceX because I think it's up another 5 % today. Morgan Stanley, more love from the street. They say the stock is cheap and getting cheaper. Investors, they say, still have a few weeks to catch this opportunity. It's at 168. You were on this when it was in, what, the 120s? And again, I'm just going to make the point. We don't know how the story ends, but this has certainly defied the way that we were warned that a$2 trillion company would trade after its mega IPO. And I think the price discovery mode has provided opportunity. But 170, that was the June close.

47:00I want to see it get above here. But we're long and strong. We own in our Gary ETF. But I think there's more room to run. It truly is a rocket company, Kelly. Hang on tight. All right, Jeff. Thank you, as always. Really appreciate it. Good to see you. Good to see you. Jeff Kilberg. That's it for us. Thank you for watching The Exchange. I'll join Brian for Power Lunch right after this break.

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