Bull Case for Coreweave, Putin Suggests Summit, and the Read on Retail 10/19/26

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0:56Fred Kempe: You're listening to The Exchange. Here's today's show.

1:02Fred Kempe: Thank you very much, Scott. Tech stocks are bouncing back big time today as the market faces some key earnings tests this week. I'm Kelly Evans and welcome to The Exchange. The Nasdaq, as you can see, up 1.2 percent today, leading the major averages. The S &P 500 up half a percent, the Dow fractionally higher. And remember, the Nasdaq shed more than 4 percent last week. And it's the memory and software names leading the way. SanDisk still up about 6%, Western Digital 5%. As we wait to hear CapEx plans from big spenders like SpaceX on Tuesday and Meta on Wednesday. And Western Digital CEO Irving Tan will be with us post-earnings later this week.

1:39Fred Kempe: As for CoreWeave, it's rebounding a little bit today. They're now negative. The shares are down 1%. Goldman upgrading it to buy, calling the sell-off overdone. We'll have more on that in just a moment. But let's begin with a broader look at where we are in this AI and stock market cycle. Despite the tumble in certain AI stocks, the S &P 500 is barely below its all-time high two weeks ago. And our next guest warns, this may be as good as it gets for a little while. Let's bring in Michael Kantrowitz. He is the chief investment strategist at Piper Sandler. Michael, it's good to see you. It's been a little while.

2:12How are you, Kelly?

2:13Fred Kempe: And it jumped right out to me that you were saying, look, we've had all actually these positive earnings and economic surprises over the past 15 months. Yeah, that rings true. Brings us to today where you're kind of saying the way the market thinks about these things. Can we keep getting good news from here? Yeah, I mean, I think we can just to be clear, I think we can continue to get good news. I just think it's important you look back 15 months and just the increase in macro data, in earnings data, the positive surprises in both and the increases in expectations along the way have all been a massive trend over the last several quarters.

2:51that's obviously led to a lot of enthusiasm and some of the massive out performance we've seen in higher beta stocks. And my point today is just to highlight that looking out the next 12 months, we're certainly I think we're unlikely to repeat that trend in better data, better breadth and better expectations. And that's why we've been recommending clients start to, for several months now, start to reduce their exposure to some of the high beta areas of the market and increase their exposure to some of the higher quality areas within the market across sectors and themes.

3:26Fred Kempe: So let me put the question a little differently then, because maybe you can say exactly what you would describe as high beta. But the AI infrastructure names have certainly kind of been the tip of the spear. Absolutely. High beta is simply defined by either a five-year price beta measure or even a one-year beta measure within all areas of the market. So, yes, the AI trade and the build-out part of it is absolutely a high beta, high momentum, but also high earnings revision part of the market. And I think a year ago, you could have thrown a dart and made a good amount of upside really in many, many stocks.

4:03And I think it's going to get harder as we go forward. And the bar for expectations has shifted quite a bit in the last year and a half.

4:10Fred Kempe: High quality. What does that look like? If people, you're kind of saying maybe, you know, because there's two different ways you could go. You could say, yeah, you want exposure to those AI infrastructure names, sell off. It's an entry point. You're kind of saying, you know, something different, which is be careful there still. I'll say the likes of CoreWeed. You can confirm whether, you know, neoclouds are part of that group. And so where would you encourage people to look instead? Yeah, I think the simplest way to think about it is, you know, 15 months ago, we had a upside explosion in the pricing returns and smaller cap and micro caps tech stocks in the AI trade.

4:46And clearly, in the last few months, that's begun to shift back into moving larger companies with healthier balance sheets and better profitability fundamentals. So it's really just moving back towards those higher quality companies that as growth slows and breath narrows companies, I think investors are going to continue to move towards those names they can underwrite in a whole sort of various outcomes going forward. Can you give some examples? Sure. So some of the names that rank well, specifically within tech, let me just pull up some of my screens here. So one of the things admittedly with this shift in quality and what that means is moving to companies with higher free cash flow, higher profitability.

5:33It definitely reduced the number of semiconductors, for example, than we had in our basket a year ago where we were targeting much more risky cyclical factors. But names like Micron and SanDisk are among the higher beta names that also have stronger fundamentals relative to the rest of that group. NVIDIA, of course, would rank well, but it's definitely a move back up in market cap and towards companies with better balance sheets.

6:04Fred Kempe: Micron and SanDisk make the cut. That's interesting. Yeah, we're looking at earnings revisions, profitability metrics. You know, of course, they're cheap, but we measure on free cash flow. So they're not quite as cheap compared to an earnings metric. But yeah, again, there's still a lot of names in this trade that can do well. I just think, you know, compared to a year ago, where we are today and where we're going in a year, as things moderate and slow, especially from a starting point of such high expectations, which is the tech sector, 45 percent earnings growth for the next five years. It's hard to beat those expectations as the data start to moderate, I think.

6:43Fred Kempe: 45 % earnings growth for the next five years. We are living through a spectacular time. OK, so some of them maybe can still do that without disappointment, others more at risk of it. Finally, outside of tech, what do you think? Where would you go? Do you want to throw any thoughts about bond yields in there? I did note our friend Jason Trenert had a fun op-ed in the Wall Street Journal piece where he writes that Tara is the new Tina. There are reasonable alternatives, he says, to stocks. We know that's true as long as you don't mind the risk that, you know, there's some capital destruction if rates continue to move higher.

7:18Fred Kempe: Just curious how you think about that and other parts of the market. Yeah, I would certainly agree with Jason there that it's certainly competitive asset class now compared to 15, 20 years ago, even 10 years ago. I think there's three ways to get bond yields down sustainably today. One, highly uncertain, would be a sharp and material sustained drop in oil prices. So we all hope for that, but not really clear on exactly when that's going to finally pan out. Number two would be higher unemployment. Given where we are in the business cycle and how strong corporate profits are, I think it's unlikely we're going to see any material deterioration in employment.

7:58And the third way is what we've seen over the last week or so is a really sharp sell-off in the AI trade. And certainly on top of that, the most risky names. We saw bond yields come down a lot. Look at the market today. We're getting a rebound and yields are going back up. So it's kind of caught between a rock and a hard place there. If you need an AI sell-off to get yields down, that's really not a good thing. And if the market obviously bounces, then yields go potentially right back up.

8:30Fred Kempe: It even makes you wonder, and I'll just leave it here with maybe a quick response. If oil prices fell, do you still think that would be enough to bring yields down? Or do you need oil prices to fall and the AI trade to be hitting another kind of air pocket? I think if oil came down, yes, yields would come down to the extent oil is falling. But would it create a sharp and sustained move in rates? I don't think so. The economy is really strong. Labor data is much more stable than it was a year or two ago when the unemployment rate was going up. So until we see softer macro data, perhaps in three to four quarters and perhaps weaker employment, I think we're going to be stuck with higher levels of interest rates roughly around these levels.

9:16Could they move in the short term? Of course. Yeah. But meaningful, sustained moves. I don't think that's in the cards.

9:22Fred Kempe: I'll just translate that to politics, maybe even midterm politics. But in other words, even you're saying if we got a big drop in oil prices, unless it's, you know, that might not be enough to bring mortgage rates down in a sustained way. So I do think that that point is fascinating and worth emphasizing. Michael, thanks very much. Good to see you. You too. Michael Kandrewitz, Piper Sandler. Let's talk about CoreWeave shares now, which are coming off their worst week in nearly a year. They're near an 18-month low, and they can't even hold the bounce today. They were up 7 % earlier on and got a bullish move over at Goldman Sachs, an upgrade, but we're now down 1%.

9:56Fred Kempe: Our next guest is also bullish. He has a buy and a 140 % upside from here. He says CoreWeave sits in a position of strength. Michael Donovan is a senior analyst at Compass Point. Michael, it's great to see you. What gives you that conviction given its debt and liabilities? Great to be here, and thank you, Kelly. Well, for us, CoreWeave sits with about 1.85 gigawatts powered at the end of 2Q. We see them having about three gigawatts secured at the end of 2027. And you look at bottlenecks in the AI space, it is capacity. And CoreWeave not only has capacity secured for clients, but they also have a growing tech stack that we see delivering greater stickiness for both hyperscalers and also enterprises.

10:48Fred Kempe: Here's how one sort of critical analyst put it over the weekend. They said a company has, you know, 800 percent debt equity ratio, negative working capital of over$10 billion, quarterly interest expense of$700 million on quarterly revenue of$2.6 billion, and a Form 10Q with 50 pages of risk factors. It sounds like they're in a pretty precarious position to me. Well, if you look at it just from a 50 ,000-foot perspective and not honing in on each contract, you can get a little bit worried. But for us, we are looking at it on each project-level debt issuance and where the contracts are actually, when they're being deployed, how are they generating cash.

11:37So with CoreWeave, it's complex but not complicated. So when they go out, raise new capital, it's to fund contracts that are on average about five years. They'll come back to three years. But you can see that on the five-year ones at around year three that these GPUs are fully paid for and you have a nice cushion for cash flow to be able to handle corporate obligations. On top of that, we're seeing the lifespan of GPUs only extend. So when you're building out infrastructure, it takes a lot of money in the beginning. And also, you have to have conviction that the model is actually working. For CoreWeave, they are executing.

12:25We are seeing many more customers going to CoreWeave. So our conviction only rises from here. And we we believe in this model and that it will will pay out.

12:36Fred Kempe: Their revenue has doubled from one point two to two point six billion dollars year on year. But their net loss went from two hundred and ninety million dollars a year ago to six hundred and twenty six million dollars in 2026. So it more than doubled. When do you expect that to change? Well, we see this changing once you have a stabilized number of megawatts online. So in that question, it all depends on how aggressively CoreWeave can actually build out from here. So if they're targeting eight gigawatts of power online by 2030, but we are just in the beginning stages of this infrastructure build out.

13:21And we believe that the AI demand is there to support it. So once you have 8 gigawatts on a line 2030, we're looking at 2030, 2031 to really then start being a stabilized, slow growth avenue at that point. But I think more importantly, it's to look at each individual contract. Are those on track and are they generating enough cash to be able to serve the interest? And when you look at the ones that they deployed and YQ2Q, those are generating cash flow. And so for each individual contract perspective, once you get into two years, three years, then you see the margins really upticking. ticking.

14:13From an overall operating margin perspective, we see 4Q26 as being an inflection point, again, to those low teens, and then next year on operating margin, again, to the low 20s for pro-leaf.

14:26Fred Kempe: They could need, you know,$10 billion a year to meet their obligations. So they're either going to need a lot more cash quickly or more debt or more equity, it sounds like. Michael, thanks. We'll check back in. Appreciate it. Michael Donovan joining us from compass point. Coming up, Russian President Putin proposing a three-way summit between himself and Presidents Trump and Xi to end the Ukraine war. Ukrainian President Zelensky is not invited. We will have those latest details next. Plus, the XHP Home Builders ETF is on pace for a four-month losing streak. But Home Depot is outperforming the index so far this month.

14:59Fred Kempe: How do you play a stock that's become a bet on the direction of interest rates? The exchange is back after this. This is The Exchange on CNBC.

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16:41Welcome back.

16:42Fred Kempe: Oil prices erasing earlier losses are now up 1.5 % and we're right near session highs. WTI briefly climbing above 103 a barrel today after President Trump waived new duties on Russia just two days before they were set to be implemented. This is after he also eased sanctions on Russian diesel exports. And now Russian President Putin is reportedly proposing a high-stakes summit in the hopes of striking a deal to end the Ukraine war. Eamon Jabbers is in Washington with the details. Eamon? That's right, Kelly. The Wall Street Journal reporting today that Russian leader Vladimir Putin is pushing for a three-way summit between himself, President Trump, and Chinese leader Xi Jinping to end the war in a deal that would not include input from Zelensky and Ukraine.

17:26Meanwhile, Ukrainian President Vladimir Zelensky lamented, for his part, the U.S. government's pivot towards supporting Russia over the weekend. In the wake of President Trump's decision to send money to Russia to buy oil and suspend a new sanctions bill on the country late Friday night, Zelensky appeared on Meet the Press yesterday and called the U.S. government's reversal unbelievable. It's not about prevail or not prevail. It's all about it's about our people. If it's without United States support, it's very difficult. But if United States will support Putin, I mean, it's unbelievable. It's tragedy.

18:07It's historic mistake and big tragedy. And the Ukrainian government said that it hasn't been able to get a response from the Pentagon or from SpaceX about the throttling of the company's Starlink and Star Shield services, which are crucial to the country's defense against drone attacks. President Trump has said that he did not order the slowdown, but Elon Musk has suggested that the U.S. government is the entity that ultimately controls Ukrainian access to his government service. President Trump defended his pivot toward Russia in a social media post over the weekend, saying that he wants to keep Russia from leaving the negotiating table, and his ultimate goal here is to end the war.

18:49Kelly, back over to you.

18:49Fred Kempe: And is there anything coming from the Iran side of this that could be affecting oil prices, Eamon, today? Again, anything the president is doing, presumably to lower fuel prices, is having the opposite effect in the market right now, unless this is more related to the Middle East. Sure. I mean, look, the president has got two dilemmas here, right? He's pursuing an Iran war, which is raising the costs of oil and raising costs for domestic customers ahead of the midterm elections. And he's dealing with this Ukrainian situation and blaming the Ukrainian attacks on facilities in Russia for that increase in prices.

19:23What he's looking for is a way to push the political responsibility for that increase in oil prices onto the Ukrainians and then suggest to American voters that he's taking action and doing something that's going to help them ahead of those elections. I think this conversation will be very different on the other side of the election. But the big question here is where does U.S. support ultimately lie? Is it in Moscow or is it in Kiev? And as of right now, the U.S. is clearly tilting toward Moscow and away from Kiev.

19:57Fred Kempe: Eamon, thank you very much for now. Eamon Jabbers. So what could we reasonably expect to come out of this trilateral summit if and when it happens? For that, we turn to Fred Kemp. He's the president and CEO of the Atlantic Council and a CNBC contributor. Fred, it's good to see you. And what do we know? What are your thoughts? What could does it on on the surface seem to indicate Putin wants to make a deal? It doesn't indicate he wants to make a deal that would be at all useful to the outcome in Ukraine. But he certainly would like to make a deal that would give him access to the Donbass, the region that he really craves.

20:32And he'd like to lock something in. I wouldn't November 18th, 19th, but he's really looking at November 3rd. And he knows he has a window of opportunity with the president through the election. And then after the election, particularly if it goes the way it looks like with the House going to Democrats and the Senate as a toss up, I think Eamon Javers is absolutely right that the conversation becomes a lot different after the election. And Putin knows that as well. It's a floated idea for a summit. It's not a decided idea. And Xi Jinping will go along with it because he does want Russia to prevail in this conflict.

21:09On the other hand, it's his summit. It's the APEC summit. He wants to have good relationships with Europe. So the leader of China must be a little bit torn about this proposal and not entirely pleased that somehow his summit would become more of a Ukraine summit.

21:25Fred Kempe: What would the dates of this roughly be? It would be it would be November 18th and 19th at the APEC summit in Shenzhen. And so that would be when they're all together. And then by design at the APEC summit, Europe is not there. Kiev is not there either. I see. Now, obviously, Putin is not going to invite Ukraine to any kind of. But the whole point is, if you're saying, what do you think the U.S. should take this window of opportunity to, you know, see if there's something palatable in terms of the outcome here? I mean, it just seems obvious at this point. The president has done everything he can, I guess, to bring Russia to this point.

22:06Fred Kempe: But are the three of them going to walk away with something that the American public, forget Ukraine, which sounds like it would not be pleased with anything that might come out of this. What about the American public? So, Kelly, as you remember, when we talked in February of 2025, after the dressing down of Zelensky in the Oval Office, and we were on live, the two of us were on live, and it was a shock. And I said, well, this is reality. Geopolitics is reality TV. Let's wait for the next episode. And I feel we've got to wait for the next episode. Someone I've quoted before, who's close to the president, talks about the most important square foot of space, geopolitical space in the world being that between his ears.

22:52Only the president knows what he's going to say next and do next on Ukraine. What he is doing is he's facing more disapproval among Republican senators. Thirteen of them have opposed this diesel deal. He's he's certainly hurting with the American public right now. And I think you have to see everything he's doing in the context of his domestic difficulties and also geopolitical uncertainties. This is the most uncertain and volatile geopolitical period of any of our lifetimes, not to mention the volatile domestic political period. And I think you have to see all this as a context. The president is wanting a historic legacy and the historic legacy he's always wanted is to bring peace deals around.

23:35It just seems to me that this doesn't get us closer to it. It gets us further from it. One that we could actually embrace because it will only be strength with the Russians that brings them to the table in a mood to agree to something that would produce in the end a secure, democratic and sovereign Ukraine, which should be in the U.S. interest. It's certainly in the European interest.

23:56Fred Kempe: And while we talk about the bite that oil prices are having, there are still those, Fred, who say that this should be a moment for the U.S. to use the approach with Iran, more of the oil blockade with Russia now. That, you know, these are prices that are not sending the U.S. economy into recession, that far from appeasing or doing more deals with the Russians, we should use that tool, the blockade tool, to kind of use that power on Putin. That would be the, you know, it would continue to push oil and fuel prices higher, though, at least for a period of time. Yeah. So I think Eamon was right that this is more of a shifting of blame than it is a solution to energy prices.

24:36And one of the things that has gone unsaid is the Russians and the Chinese are helping the Iranians in their fight against the United States with material, with intelligence, with satellite photos. And so to a certain extent, this is not being recognized. And they, the Chinese and the Russians, could help a lot in bringing the Iranian conflict to an earlier close if they actually wanted to. I think the real question is, what's the president going to do regarding Iran after the elections? He certainly has a lot of plans on the table. He could escalate. He could reach a deal. and as I said, he's focused on his legacy and his legacy is more caught up right now, I would say, in Iran, in Russia, over Ukraine than it is in the actual outcome of the midterm elections.

25:30Fred Kempe: Fred, finally, while we have you, what are your thoughts about the riots that were taking place in France all weekend long, where Neil Ferguson and others are writing about the turn they think this is going to have for politics across Europe, which is probably emboldening or kind of seeing a continued move towards some of those parties on the right, far right, hard right, whatever you want to call it. In France and Italy, there's one that's four months old, barely. And can you just talk about what impact you're seeing this having? I think it's got a very negative impact. And if you look of the two major countries of Europe and two countries that have been giving Ukraine its greatest support are France and Germany.

26:11Germany has had the AFD, the far right party, win elections in two of its federal states. In the French situation, it is unprecedented violence. And that says a lot because France has had quite a bit of street violence in the past. It comes six months ahead of elections where Macron and his party are up to measuring what the future is and where the country is going to go. So Le Pen is, of course, the far right party there. Also pro-Russian, also probably wouldn't continue the support for Ukraine. And then beneath all of this is rising debt levels, growth that's not sufficient to pay for the rising defense needs that Europe has devoted itself to.

26:58So this really is a perfect storm of volatility, not just in a global sense, but also in a European sense, when its two most important leaders, France and Germany, are most needed to be stable and strong and steady as it goes. They both are facing growing political difficulties.

27:17Fred Kempe: That's a very good point. Fred, thank you for now. We appreciate it. Thank you. Fred Kemp from the Atlantic Council. Still ahead of us, a big step today towards 24-hour trading. We'll tell you what the SIBO and the New York Stock Exchange are doing. That's next. And as we head to break, check out big tech leading the blue chips today. Amazon having its best day since July. IBM, NVIDIA, Alphabet, and Microsoft also among the Dow leaders today. While Merck, Amgen, and P &G, some of the stronger healthcare names, are now among the worst performers. We're back with more after this.

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29:19Fred Kempe: Welcome back. The SIBO and the New York Stock Exchange are taking another step toward round-the-clock trading. Oliver Rennick is at the SIBO with the details. Hi, Oliver. Hey, Kelly. The options trading universe got even bigger today as SIBO and NYSE opened extended hours trading for two dozen of the most actively traded stocks, as well as the biggest index fund ETFs and GLD and XLF from 7.30 to 9.25 a.m. Eastern Time and 4 to 4.15 p.m. Day one results. SKUs did the most volume, perhaps unsurprisingly, more than 7 ,000 contracts. IWM did 3 ,500 and Tesla right behind at a little over 3 ,000 contracts, which included some speculative buying of way out of the money zero DTE flyers.

30:06So the action is alive and well. Why is this happening? In short, because the world demands 24-7 trading liquidity. SIBO just put up record numbers for its after-hours index options trading. And with crypto, perpetual futures, anything, contracts, this is just the way things are going. One small point of caution, if you're a retail trader, thin volume and liquidity at the start of these hours means be careful and mindful of the spreads you're being offered. This is kind of like Kelly in a poker room when they open up a new table. The guys that are waiting for that table are waiting for a reason.

30:41Fred Kempe: Oliver, thank you for saying that. This is the most important part of the whole thing. It might be great for institutions, but retail, I mean, let me ask you one more just quickly about this. How would you know, right? Do you just keep a close eye on that, you know, the prices you want? What would be the tell for the retail public? Volume and liquidity, Kelly. So there were trades in, it seems like, all but maybe three tickers here of the roughly 29 tickers that started. But obviously, 3 ,000 contracts is pretty low. For most of these stocks, we're talking on a daily basis, hundreds of thousands of contracts that were traded.

31:15Now, for things that are, like, really cheap, like, let's say those Tesla far out of the money calls they were buying, 14-cent flyers, those probably aren't going to change much. But if you're trading the stuff that you generally expect deeper liquidity for, closer around the money, things that have tighter bid-ask spreads, you're probably going to get something a little different when there are just fewer players at the start.

31:36Fred Kempe: And we'll have a lot more questions and more to learn about this as it gears up. Oliver, thanks for now. Oliver Rennick. Let's get to Frank Holland now for the CNBC News Update. Frank. Good afternoon, Kelly. Federal prosecutors say a former OpenAI engineer accused of planning a recording device in an executive conference room appear to receive significant Saudi government support. Court filings say the suspect frequently communicated with an unidentified Saudi royal who tried to recruit him for a kingdom-backed AI project. Saudi officials also arranged travel for his wife and his child after his arrest.

32:06Prosecutors have not alleged the royal directed the bugging. Canada has deployed 50 investigators to determine why military training continued before a fast-moving grass fire killed four soldiers and injured 39 others in Alberta. Officials knew the fire was burning but believed it was contained. Winds then drove flames more than a half a mile in under a minute. 19 soldiers were critically injured. A new dash cam video captures the moment a small plane crashed into a busy street in San Jose, California. The aircraft apparently struck a light pole, flipped and landed nose down. Two adults and a child on board survived, and no one on the ground was hurt.

32:41The pilot had reported engine trouble shortly before the crash. Kelly, back over to you.

32:46Fred Kempe: Scary. Thank you, Frank. Frank Holland. Coming up, the home construction ETF, the ITB, is lower. After builder sentiment fell to a nearly 14.5-year low earlier, Lenar, Toll, KB, Pulte, all under pressure, rising rates not helping. But there's one housing-adjacent name that Morgan Stanley says is playing offense in a frozen market. And we will reveal this mystery chart next on The Exchange.

33:27Fred Kempe: Welcome back. As we mentioned a moment ago, homebuilder sentiment sank to lows we haven't seen since June of 2012 today. It just keeps getting worse. Diana Olick is here to dig into the... I shouldn't say it keeps getting worse because for a while, Diana, actually it was a good period for homebuilding, right? But not anymore. It was, but then I'm going to say it was actually worse than analysts expected, although I'm not sure why, given what we've seen in this recent spike in mortgage rates. Still, as you said, builder sentiment dropped three points in October to 29, that according to the NEHB, and that is the lowest level in 14 years.

34:01Anything below 50 is considered negative. Sentiment stood at 37 last October. And this, again, is all about rising mortgage rates. No surprise. The average on the 30-year fix began moving higher in September, and it just kept going. It did pull back a little bit last week, but started this week up three basis points to 7.4%, according to Mortgage News Daily. Now, the builders also noted in their report that higher gas prices and inflation as weakening buyer traffic, which fell sharply to just 18, not to mention driving up their own costs, especially on building materials and diesel fuel. Now, in addition, 43 percent of builders cut prices in October.

34:41That is the highest share during this 2020 to 2026 period. Sixty five percent reported using sales incentives. And they also noted that immigration enforcement activity was causing construction delays and discouraging legal workers from reporting to work. So, again, you know, we keep saying it's getting worse. But until mortgage rates start pulling back, Kelly, this is going to be the mantra, I guess, going forward.

35:05Fred Kempe: Yeah, and no, and Goldman just put out a note within the past hour or so, and they're basically saying their 2027 housing outlook, unaffordability starts to bite. I mean, people would say it's been biting, but they're certainly not calling a bottom here. Yeah, and we're seeing analysts change their predictions. In fact, last week we saw Fannie Mae up its prediction for mortgage rates from 6.7 percent for all of next year to 7.5 percent. That's a huge jump in that forecast. And it really goes to show that going forward, we're not going to see any relief if these are all, of course, true. All right, Diana.

35:36Fred Kempe: Thank you, Diana Olick. The dismal sentiment number did pressure the housing and construction stocks along with rising rates today. And that includes the name Home Depot, which was our mystery chart. But Morgan Stanley says while the macro is tough, Home Depot continues to invest and take shares. That's what you got to do. You can't fix everything around you. The shares are up 9 percent so far this month. Here to discuss, Simeon Gutman is a senior retail analyst at Morgan Stanley. It's great to see you. Thanks for having me. We go back. Look, I don't think they can show the chart going back to January, but the shares hit their all-time high in February, two weeks before the Iran war, and obviously now remain somewhat beholden to what happens with interest rates.

36:11Yeah. I mean, it's been a tale of, I guess, two parts of this year. One of the contrasts with what the previous report said is that home improvement is on existing homes. You don't necessarily need turning homes to happen. affordability is a problem. But at some point, the demand that you get from replacement and repair should create enough growth for the sector. So it's an affordability problem. If you look at a new buyer, someone comes in the new market today for a new home, they're going to be spending almost 60 % of their disposable income on their mortgage, on property tax and insurance.

36:46Fred Kempe: 60%. Versus 40. Wow. Of their disposable income. That's the frozen market that we're dealing with. But step back, in home improvement, they're spending on replacement repair. And we think there's enough of a bubble in demand where that's going to help the industry. Who else in that? Home Depot is kind of sounds like your favorite. But this would implicate a number of other stocks, if you're right, about this general demand for kind of fix-up. Yeah. And the big getting bigger theme, which we see across retail, this platformization, it's going to be Home Depot lows. You have some segments beneath.

37:18And then even in furniture, furniture and furnishings has been a good end market. It's been surprisingly resilient, but eventually you get a cascade effect if you do something in your home. Make no mistake, it's still frozen. It's just the bubbling up of this pent-up repair and maintenance we think is good enough to create some demand for the industry.

37:35Fred Kempe: What other stocks do you like and what other data points do you have that tell you this is going to be more than just a 5 % year-on-year increase or something? Well, first of all, the spending backdrop is about the consumer spending on musts and wants, not on shoulds. So if it's a must and a want. So in the want category, furniture, furnishings. We like Wayfair. One of the after effects of COVID, people stocked up on home furnishing right away. It took us a little longer to redo our homes because we had to get labor. That furniture, it's turning over, it's replacing, it's breaking, it's wearing down.

38:09And it's one of those wants. So furniture is OK. That mid-segment is fine. And we think Wayfair actually compounds growth nicely. In the other want category, beauty, Ulta. It's under the radar. It's somewhat of a counter to inflation.

38:23Fred Kempe: And it's kind of a fix-up story. Yeah, it's aspirational. It's an aspiration at a reasonable price, affordable luxury under that theme. Business is doing well. They're coming off of easy comparisons, and you have opportunity for margins to grow, which is not something you get across the rest of retail. This is why I don't really like talking about the consumer. I mean, good luck trying. The consumer that you're talking about is a complicated story. It all makes sense the way you're laying it out, but there's not one broad way to say buy or sell a bunch. I mean, you cover the whole retail universe practically.

38:53Fred Kempe: So this has been one of the hardest areas, kind of the home builders. Like you said, Home Depot may be a little bit of a turn here. Do you think people can own it no matter what happens to interest rates? Well, I'd say yes and no. Look, we look at it from a risk-reward skew. The skew looks, they've bottomed earnings for the last few years, and at some point it has to turn. You can't not like anything because the end markets are not great. There are no great end markets in retail. Sporting goods, eh, beauty, eh. it's all about market share. And it's about platformization, taking market share within those end markets.

39:24We're in a stuck market and that's not going to change. So you can ignore it, but at some point it's going to turn. And when it turns, there's going to be a lot of money that's going to chase it.

39:31Fred Kempe: And in the meantime, we'll look back and say they did what they had to do to get through that meh period. Simeon, thanks very much. Appreciate it today. Simeon Gutman with Morgan Stanley. Coming up, Anthropic plans to put 5 % of the company's shares into a new public benefit fund. And it didn't take long for Elon Musk to fire back with a donation of his own. We'll have those details ahead. Welcome back. The S &P and the Nasdaq are rebounding from their worst week since June. Nasdaq a little more comfortably of 1 % today, half percent gain for the S &P 500. And we finally have a green session for the semis.

40:06Fred Kempe: The Sox ETF on track to snap a nine-day losing streak. Its worst stretch in 20 years, as we talked about. It dropped 15 % in that time, Lamb Research applied materials, KLA among the hardest hit, but they are bouncing back a little bit today. For KLA and AMET, they're only up about 1%. Coming up, a big update about Anthropik's IPO. It's not about timing, but it is about potential ownership. We'll bring you the full details next. Welcome back. A big announcement by Anthropik today saying they will commit 5 % of their pre-IPO shares to a new public benefit fund. Kate Rooney has more in today's tech check.

40:46Fred Kempe: Kate, how would this work? Hey, Kelly. Well, this is an unusual part of Anthropics' upcoming mega IPO. The AI giant is setting aside a portion of equity for a new charitable fund. So what we know right now is it's going to start with a 5 % stake, which could be worth at least$50 billion, up to$100 billion if this company does debut at around$2 trillion, which would be at the high end of what we've been hearing. It is still on track for November and that listing, according to multiple sources. Anthropic did hold an investor day last week as part of that. The company does say it plans to contribute more equity as its valuation grows.

41:22So they note a 2 percent increase for that public fund on every 50 percent jump in valuation. It's also a wholly owned LLC. So it's not a traditional charity. And Anthropic did say it's not going to be used for lobbying or political donations. The moves, Kelly, come amid public backlash that we've been talking about. We see it with data centers. There's been a lot of negative polling lately around this technology and the IPO. On top of all, that is about to create a record windfall for its founders and employees. This could be a way to garner some goodwill as part of that process. Anthropic is saying that some of the funds will go directly towards addressing the technology's economic consequences.

41:59The fund could support workers displaced by AI, for example. But important note here, the board gets to choose where to allocate the money. So this company, we should also note, is a public benefit corporation, meaning the board already has this dual mandate. They've got a fiduciary duty on one side and then their public benefit cause. They say that is AI for the benefit of humanity, Anthropic. And this move is already facing some backlash over the weekend when they did announce this questioning. We have people questioning, I should say, why Anthropic would retain control of the money versus just giving it away directly.

42:31Kelly.

42:31Fred Kempe: So a public benefit fund, they have a lot of them for like utilities across the country. But I just wonder why they're going that route instead of direct philanthropy. It's a curious move. It's I think that's what's getting a lot of attention, Kelly. I mean, this would be the largest philanthropic effort maybe in history. It could be 100 billion dollars at the outset. But I think the big question is, right, the board has discretion over where this is actually going. I mean, there has been pushback about the politics behind all of this, which they had said directly they're not going to use it for lobbying.

43:05But the question is, you know, they get to choose what groups are disrupted by AI and sort of where to choose that. I should also mention when I mentioned the Public Benefit Corporation, they have a board and then they have almost a shadow board. Sounds kind of sketchy, but that's not what it is. It's sort of a board that oversees the board and makes sure that AI safety is aligned. And so the governance with this company is so unusual. I think that also adds to the questions of what actually goes on behind the scenes here. And I think the lack of transparency in the beginning, again, they just announced this.

43:38The company has not gone public yet. That's what's getting the most attention so far.

43:41Fred Kempe: I'm looking at some of the, so Warby, I guess, and so, right, Warby Parker. Warby Parker. Yeah, there's not very many publicly traded. Viva Systems, Coursera, Lemonade, Allbirds. You know, they kind of remind me a little bit of B Corps. but I don't think the same or different. Kelly, I remember you and I talked about when Ben Bernanke joined this public, it was sort of the board of the board that I just mentioned. Ben Bernanke is somebody that's on that sort of sideboard that I mentioned who is in charge of overseeing the board. So there's so many layers of governance here that not that it's nefarious, but it's so unusual for a company of this size going public that it's adding to some of the confusion, I think, around where the money's going to go.

44:21Fred Kempe: All right, Kate, thank you, Kate Rooney. And going the other way, Anthropic. After they make that announcement, Elon Musk pledging to give every child in the U.S. a share of SpaceX. A little simpler to understand, maybe. Robert Frank is here to explain. How would this work, Robert? Kelly, it's kind of like the battle of the benevolent billionaires right now. Now, after that, Anthropic news from Dario Amadei, rival Elon Musk announcing plans to give every child in the U.S. a share of SpaceX. So there are about 73 million kids under the age of 18 right now in the U.S. So at today's share price, those donated shares would be about$10.5 billion, a little more than 1 % of Elon Musk's total net worth right now, about$950 billion.

45:07Now, to your question, Kelly, Musk did not say exactly how they would be given. So what was the structure? We don't know whether that's through the Trump accounts or maybe a not-for-profit, but the Treasury Department recently announcing new rules on those Trump accounts that allowed stocks to be given. Now, under those new rules, families cannot reject shares of any individual stock and they cannot sell them for at least five years. That would be crucial for any gift of a large number of shares of SpaceX. Now, Musk also, he has a lockup on his shares until June of next year. So if he gives Kelly, it's probably not going to be until next summer.

45:47But really, ratcheting up here, Elon responding to Anthropik saying, look, why don't you give them directly to the people? Don't go through this complex LLC, et cetera. Just give them to the people. That's what he's going to do. And then the question is, OK, if he does that, he would get immediate tax deduction. But if under the Trump rules, if Trump accounts, if he gives them that way, the families that receive those shares won't be able to sell them for five years. So that would prevent a lot of shares coming onto the market, perhaps depressing the sale price, which would also be good for Musk.

46:20Fred Kempe: So just to follow how this would work, if you have a Trump, do you need a Trump account in order to receive the SpaceX shares? And is there a right of refusal or they just appear one day? They would just appear and it depends on the donor. The donor can give them just to kids in Texas. He can give them to every kid in the U.S., in which case no family regardless can reject the shares that are given. So he can designate the specific population that gets it. Probably there would be lots of other stocks in that fund for all of American kids. So that wouldn't just be the SpaceX shares. But every kid in America would have a SpaceX.

46:58You could get tens of millions of kids, tens of millions of families that are suddenly shareholders and big supporters of SpaceX. So that would be another benefit to Elon Musk and SpaceX.

47:08Fred Kempe: And what do we do in the media. We're not allowed to own anything. So these shares appear in the account. And then what if you can't sell it for five years? Yeah, they would have a notional value and they would have a value as they sit in that account. But you wouldn't be able to sell them and cash them out and put them into a broadly diversified ETF until five years later. All right. Robert Frank, thank you. Interesting time. Thank you for watching The Exchange. I'll join Brian Sullivan for Power Lunch after this quick break. We'll have Dan Yergin on as oil prices heat up this afternoon. S &P Global's vice chair, that's after this.

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