The Bull Market Turns Four, Energy Headwinds, and Isaacson on AI Safety 10/12/26

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0:33Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts. You're listening to The Exchange. Here's today's show.

1:04And welcome to The Exchange. I am Brian in for Kelly Evans today and happy Columbus Day. The bond markets are closed, but stocks are trading and they're on the move. Big tech a little bit lower. The S &P and the Dow trying to stay in the green energy leading the way today as oil rises after a couple of deadly attacks on the Riyadh Saudi Arabia airport over the past few days. We'll get more on that, plus more on what President Trump is calling an energy ceasefire between Russia and Ukraine, but one that may have already broken down just a day later. Outside of that, quarterly earnings kicking off today with big bang numbers coming up all week.

1:39We're going to have much more on what to expect and what the options market should be telling you all ahead of the results. Folks, welcome, everybody. We have got a lot to do. We're going to begin with a little bit of a celebration, Not just because many of you may be off work today, but because today is a birthday of sorts. It is the fourth anniversary of the bull market for stocks. And it is a bull market that has hopefully produced a nice return for you and your money. Over the last four years, the Dow has returned 78 percent. The S &P 500 up 118 percent. And the Nasdaq really printing the money up 162 percent in four years.

2:20This arguably one of the greatest 10 runs in the history of the stock market. But that's what it's done for you in the past. The question now is what now? With us now is Paul Hickey, co-founder of Bespoke Investment Group and our opening exchange. I guess happy fourth birthday, Paul, to the bull market. Yeah, I suppose. And history and seasonality, they are on our side historically, are they not? Right. So from a historical basis, you know, the most bull markets that get to a fourth year continue going on. The year after the fourth anniversary, the median gain has been about 17 percent over the next year, gained 75 percent of the time.

3:06So you tend to see above average returns going forward. Seasonality in the short term, nothing to do with the bull market. We're in the best three-month period of the year for the S &P 500 of any three-month rolling window throughout the year. The median gain is about 7.7%. In the fourth quarter? From October 7th, three months later. That's 63 trading day period. Almost 8 % median return? Over the last 25 years, only three down years out of those last 25. So it's very strong. Wow. 22 up, three down, with a pretty solid median return of over 7%. Close to 8%, yeah. And then also you get to the midterms.

3:44After the midterms, that four-quarter period is very good for the market historically, one of the best four-quarter periods of the four-year election cycle. So seasonality is blowing at the bull's back. Seasonality is just one factor going in. More important, I think, is every bull market has a theme. This one has been AI. What? It's been a long couple of days. Yeah, I bet. Yeah. So you got seasonality on our side. History is on our side. Politics effectively is on our side. But in all those historical moments, and I love the stats because we want to make money. We really haven't had almost two wars going on at the same time.

4:25I mean, this this time is a little bit different. No, I mean, if the bull market climbs a wall of worry, this has been like an Everest like climb. You've seen crude oil prices, but then you look at the 10-year and you look at the dollar, both been strong. We call it the three-headed monster. They've all been rallying, moving higher, and the market has kept up. Usually, it's a tough environment for equities when you see that. You've seen the breadth numbers a little weaker on that since the August high to now. It's been weak breadth along those gains, but the S &P is sideways. Equal weight is weaker.

4:55So it's not like the S &P has gone really high up like it did in the late 99 and 2000 on week breath yet. So that we can look at and focus on for a little bit. If it continues for another month or so, that's a problem. But I think AI is going to be the driver of this market. It's the AI bull market. And as long as the AI improvements in the models continue to show justification for more investment, that can drive things further. And I think, you know, at this point, every new model, every iteration shows improvement on the various metrics of measurement. So that justifies further spend. And I think the two charts to watch, if you're on the sidelines right now and wondering, should I wait?

5:42Or you want to look at semis and the memory stocks. Why? Well, semis are the, we call them transports of the 21st century. They're, you know, in every aspect of our lives. They move everything, all the data going on. Memory is just surging demand for memory with all the models. They're kind of the new oil. In a weird way, right? Yes. Your point, the transports, they are the things that move the other things. Right. So I guess what you're saying is watch that group of stocks as like an oracle, like a crystal. I don't mean oracle the stock. I mean oracle somebody sees the future. Like a crystal ball.

6:24No, and I think Oracle the stock is a stock you want to be watching as well. Oh, that too? Oracle the Oracle. There you go. Oracle squared. But yeah, so you want to look at what they're doing. They really pulled back after those June highs, and they've been in a holding pattern right now. Semis are starting to drift a little higher, which is definitely a constructive sign. Memory stocks have been flatlined sideways for the last six to eight weeks in a range. But if you see those both break out of that range, you're going to see a new leg higher in the overall indices and the bull market. When will we know?

6:58Like how long do we have to go to watch that range of that possible breakout? A couple of days? A couple of weeks? A couple of months? I mean, if they keep trading sideways, that's, you know, what you don't want to see them break down. When do we get the confirmation that you're looking for? So the DRAM ETF, the Roundhill, 62 is like the high end of its recent range. So if you get a breakout above 62 on that ETF, that would show that the memory stocks are starting to improve going forward. Right now, we're at the lower. It's been kind of flat money for the last seven or eight months. Seven or eight.

7:33It's been flat. Well, they had the first quarter, second quarter, which they just spiked higher. Then it went down. Then it went down. Well, there's the chart. So I'm doing like a line across the middle. If you traded it every day, you could probably make a lot of money. I'm talking about people that bought it and held it. They really haven't made much money for half a year or longer. But that's the thing. In bull markets, you have corrections in time and price. And so we've had, like you said, it's sideways over the last several weeks to months, whatever chart you're looking at, depending on your time frame.

8:05But they've also digested the gains that we saw from last year and earlier this year. So we're watching memory. We're watching semiconductors. Earnings and energy is kind of obviously what I pay attention to the most closely. Oil is up a little bit today, not as much as you might think, given the terrible headlines that we had over the weekend. Does energy matter for the macro market? It's only 5 % or 4.5 % of the S &P 500. But yet oil and gasoline prices play an outsized role on the consumer. Yeah. How closely do you, Paul, watch oil and energy prices? If at all, maybe you don't. No, no. They're a major implication.

8:46And we're going to see that the impact of that in the inflation numbers this week, most likely. We'll see how that plays out. But we have what's called our more gas indicator, which combines mortgage rates and oil price and gas prices at the pump. And what you've seen is that hit a record high last week. So you're seeing that's consumers feeling it in their wallets, which is the longer that lasts, the bigger of the headwind it becomes. It's digestible at this point because what we're seeing is people still have jobs. Jobless claims have been below 200 ,000 four weeks in a row. That hasn't happened since 1969.

9:22The labor force was less than half the size that it is now in 1969. So that's an incredibly strong number. Cars get more gas mileage. A lot of people work remotely now or they don't commute like they used to. $4.50 gasoline or$5 gasoline, whatever our viewers and listeners are paying. I know in California, they'd love to see that, by the way. Apologize to all my California friends. It's not going to break the economy. It hasn't broken it, and it's not going to break it. Just at the gas prices, but then you have diesel prices high. That could flow through. But at this point, the consumer is so much less reliant on energy now than they were 40 years ago.

10:00So it's a much smaller part of your weekly paycheck going to gas prices. So it's much more tolerable at this point. But eventually, the longer these things drag on, the more of an impact it becomes. Yeah, and, you know, we've got viewers in France and Europe that are throwing baguettes at the TV right now. They would love that. Because their energy costs have gone up as a percentage of their spend. And Paul Hickey, always great to have you on. Good to be here. Historical and seasonal data. Thank you. All right. Thanks. All right. On a more somber note, we just talked about it. Oil is a little bit higher.

10:31This follows deadly missile attacks on the Riyadh airport in Saudi Arabia. On Saturday, more than a dozen people were killed. More than 300 people were wounded as the terror group Houthis fired missiles into the civilian facility. That airport was hit again on Sunday. Some energy assets inside of Saudi Arabia also targeted. The good news is that Saudi Arabian defenses did intercept some other missiles and drones before they could hit. And the big World Petroleum Council conference, which I and other CBC colleagues are actually scheduled to fly into on Saturday and attend, is still happening. It's going on right now in Riyadh, Saudi Arabia.

11:11Wishing everybody, of course, there the best. Let's talk about this with Michael O 'Hanlon. He is director of research for the Foreign Policy Program at Brookings. Michael, are you surprised that the I know you're not like an oil trader, but are you surprised the oil markets are not moving more than they are? Greetings. Well, generally, I'm stunned that oil is still where it is and not twice as high, given that we're in a war that's now lasted five times longer than initially predicted, with a lot of interference of oil routes, obviously, through the Persian Gulf and the Red Sea. And so I'm sort of struck by the resilience of the broader global economy of the oil distribution system.

11:51Obviously, as you were pointing out in your previous interview, a lot of people are suffering, but it's sort of within bounds. And the price of oil is within bounds. And so I guess that's what I would say I'm surprised by, not just about this week, but the whole 2026 experience so far. Yeah, although, as I said on Squawk Box and Squawk on the Street this morning, I wouldn't necessarily look at that futures contract as the best sort of indicator of where the price is. Again, I'm not taking anything away from the trade. That's what we've got. We have to look at it. But when you factor in all the other costs of transportation, shipping, we've talked about, I think the real cost of oil, maybe not in America, but globally, is going to be a lot higher than that.

12:31Michael, things, let's say Riyadh's airport, which I was scheduled to fly into on Saturday, was targeted. These are civilians. I mean, these are people from coming from all over the world to travel, see family, pilgrimage, the World Petroleum Council conference. How do you see this now playing out? This was a direct attack on civilians in Saudi Arabia. it's a direct attack on civilians but with a purpose of affecting saudi arabia's economy that's why they aimed at the airport and not at big apartment buildings in riyadh if they just wanted to kill people they would have gone for the downtown part of the city or the heavy heavily residential part here they were trying to cause enough damage and enough fear that maybe people like you would not go to the conference that saudi arabia's broader economic strategy would be punctured and that that would create leverage i think that's the way they're thinking about this because that's why you would target an airport where you know you're going to kill some people.

13:28And that's tragic and unacceptable and, you know, heinous. But it's still distinct from going after purely civilian targets with the goal of just maximizing mayhem and casualties. So they're going after Saudi Arabia's economy, first and foremost. And I know that the Houthi group is largely funded by Iran. So I'm not taking Iran out of this. But I believe and I talked to spent people for the weekend talking to people all over the planet. I think that oil prices are only up about 2 percent right now because the Houthis and the Saudi Arabians have been fighting for a long, long time, well before this current iteration of the Iran war.

14:06But if Saudi Arabia were to respond directly at Iran, would you expect a different outcome with regards to where we see energy trade? I think it would it would be a very different story then. Yes, I think you're right, because there are a lot of things that Iran could do in reply that could worsen the basic situation with oil. And, of course, it's one thing to shut the Strait of Hormuz when you can really only do that to some extent and when there are bypass options. But if you start going after the oil and gas infrastructure again, as they've done before and could resume at a higher intensity, then I think all bets are off about how much of that Saudi oil economy can function.

14:51So that would be the natural place for Iran to retaliate. That's why there is sort of this balance of terror, balance of fear right now that we have an ongoing mid-level engagement on hostilities. But people are not enthusiastic about escalating because both sides know the other has cards to play. Then you've got on the other side of it, you've got this energy ceasefire announcement from President Trump, which appeared to be news to both Vladimir Putin and Vladimir Zelensky. And in fact, Putin and Russia hitting energy assets inside of Ukraine just yesterday. Zelensky saying that he's kind of waiting on details.

15:26Is this the White House's attempt to just push through some kind of resolution, almost like a sheer force of will thing? You know, on this one, I would love it if they could. And if that's their motive, I have no problem with that because this would be beneficial to Ukraine if there were a genuine mutual ceasefire in attacks on civilian infrastructure in general, but energy specifically. My understanding is that, as usual, Putin is the problem. Putin is the impediment to peace, to ceasefire, to any kind of decent humanitarian resolution of this terrible war. And Putin doesn't see it as in his interest.

16:05His theory of the case for the winter appears to be maximize the harm to the Ukrainian economy with, you know, that's sort of been his strategy every winter for the last few years. But this year he has some different weapons. He has different targets that he's willing to attack. And he doesn't show any interest that I've perceived so far in backing down from that. So good luck to President Trump. But please, President Trump, remember Putin is the problem, not Zelensky and not anybody else. Michael O 'Hanlon of Brookings. Michael, I could talk to you all hour about this topic, but we'll get you back on again soon to talk about it.

16:38Michael, thank you very much. Thank you. All right, because, folks, we've got a news alert right now on Meta. Julia Boorstin, what's going on? Brian, Meta announcing its new Frontier Model Series called Muse Wonder. This was originally codenamed Watermelon. Meta will start rolling out these new models to Muse and Muse Code subscribers paying$20 a month or more. This new model has specific domain expertise in law, finance and health. Three areas which Meta says are especially valuable for both personal and professional agents with the ability to remember your history and context across new conversations.

17:15I spoke to Meta's AI chief Alex Wang, who told me that these frontier models are differentiated from rivals because, quote, Muse Wonder is specifically focused on personal and professional agents. We, I think, care a lot more about this form factor than I would assume some of the other labs. Now, as for concerns about users' data privacy and safety, I asked Wang about this. Meta says this is the most aligned and safe model yet with significant investment in how these models handle adversarial instructions as well as private information. Now, in terms of pricing, Wang tells us that Muse Wonders price competitively with OpenAI's Astra or Claude's fable.

17:55Brian? Well, it's like exactly the same. You do wonder, Julie, do you have any idea why they've all settled on$20 a month? Like, why is that the price? Well,$20 a month is just the beginning price. So this is a subscription that people would already be paying for and that they would get access. So there's Muse Wonder, and then the higher-end version is called Muse Wonder Full. And that's the most sophisticated version of this new Frontier model. So I think the$20 price point seems to be sort of the entry-level price point. but you could pay much more depending on how much of this AI compute you're using.

18:28All right, Julia Boorstin with some meta news. Julie, we appreciate it. Thank you very much. All right, folks, we are just getting started here on The Exchange. And coming up, we're going to bring you a big bank earnings barometer. Plus, speaking of AI, Microsoft CEO Satya Nadella out with a big warning about AI safety. We'll talk about that and more with the great Walter Isaacson coming up. If you like YouTube, you'll love YouTube Premium. It's destroying athlete, creator, and YouTube maxer. YouTube Premium enhances how I use YouTube with awesome features like offline downloads so I can download my favorite training videos before I hit the gym.

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19:38No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts.

20:20All right, welcome back to The Exchange. We're kicking off a big week for bank earnings. You got JPMorgan Chase, Wells Fargo, Goldman Sachs, Citigroup all reporting tomorrow before the bell. Bank of America, Morgan Stanley on Wednesday. Leslie Picker, who had her final sleep of the week, hopefully last night, is joining us now. And I'm only halfway kidding, Leslie. It's a monster week. Like, what's top of mind for you? Yeah, it was a restful weekend, Brian, because I knew what was coming. But to your point, these universal banks is a cohort that's seen more than a thousand basis points of underperformance since June 30th.

20:56So this is negative sentiment that has been driven by several factors. And so several factors, better than expected results or executive commentary on any of those factors could be a catalyst here. So these factors include things like amid higher interest rates, questions circulating about whether net interest margins have peaked. KBW says the, quote, NIM obsession will define results for traditional spread lenders. There also remains a looming question over whether AI agents like Meta's Muse will incite a deposit flight toward higher yielding accounts, which would also pressure profitability.

21:31The Wall Street side of the business is also poised to fizzle a bit. Sales and trading could deliver its least amount of revenue this year after several quarters of blockbuster results. And investment banking is also poised to be a bit weaker in the third quarter. Jeffrey's noting that proxy revenues for the eight global banks came in lower by 8 percent year over year and 21 percent quarter over quarter lower. Ahead of the results, the KBE is on pace for its fifth straight weekly loss, which would be the longest set since January 2025 when it was down six weeks in a row coming into earnings. But then the following week, the KBE actually gained 8 percent outperforming the S &P that week.

22:09So we'll see if something like that happens again this quarter, Brian, with sentiment, you know, pretty low going into the print. And I know they've all kind of got their thing, right? Goldman with the trading and Bank of America and Citi more maybe of quote unquote traditional banks. J.P. Morgan just being J.P. Morgan and everybody just wants to hear what Jamie Amy Diamond has to say, should we look at them all uniquely like they're their own things or can we can we lump them together as we like to do? I mean, we can lump them together for qualitative things like outlook on the economy to see, you know, is everybody aligned on the state of the consumer?

22:47Is everybody aligned on the what's going on with inflation and the health of the economy? Things of that nature. I think it's fair to look at everything from kind of a top-down standpoint to see if all the bank execs are aligned on what they're seeing and talking to clients, loan demand, things of that nature. But you're right in terms of just the performance, in terms of valuations. They each have a different product mix, and you have to take that into account, especially in a quarter where trading is expected to be a little choppy at certain shops. And so, you know, when you look at the different banks, you have to kind of figure out whether they're more levered toward fixed income currencies and commodities.

23:21Is that the strength of that particular institution, which is expected to be a little more modest this quarter than we've seen in quarters past? Or are they more heavily tilted toward equities, in which case, you know, things might be OK. But obviously, the trading mix plays a big role into what you could expect to see in terms of growth in that particular business. And I guess we'll hear all about the three R's, rates, rates and rates. Leslie Picker, appreciate it. Good luck this week. Thank you. Thank you. All right. Coming up, the AI spending story. Apparently, it's alive and well. The details on what could be a multi-billion dollar deal or deals ahead.

24:00And as we head to break, check out eBay. Among the leaders in the S &P, Morgan Stanley making eBay one of the firm's top picks, saying eBay's live selling market driving 40 % of the company's growth and it's got room to grow. Shares having its best day in July since July of 2025. 25, so just about one year and three months ago. A lot more The Exchange right after this. If you like YouTube, you'll love YouTube Premium. Hi, I'm Sean Evans from Hot Ones, and I want to tell you about YouTube Premium. It has offline downloads, so you can watch without Wi-Fi. Background play, so you can lock your phone, and it still plays, baby.

24:39Oh, and it is completely ad-free. Yes, I said it, ad-free. Try YouTube Premium for two months free at youtube.com slash premium. Trial eligibility varies, terms apply, cancel anytime. Weren't agents supposed to take things off your plate? Building another to handle the others is a bit much. Don't make more work out of work. Gemini is the one agent that knows all parts of your business and actually gets stuff done. You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow.

25:16Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, 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. All right, welcome back to The Exchange.

25:55I am Brian Kelly. We'll be back tomorrow. Here's how your markets look right now, but keep in mind it is Columbus Day. What that means is that a lot of you, no doubt, are off. I see a lot of people walk around the city with their kids because the kids are out of school, but also the bond market is closed today. Stocks are trading, but you're probably going to see more muted action because there is no bonds to trade. That's why we haven't showed you a 10-year yield. Like, why are you talking about rates every day? Well, because today, maybe mercifully, the bond market is closed. The S &P 500 down one-tenth of one percent.

26:24The Dow is up fractually. NASDAQ down about four-tenths of one percent. Communication, services, and energy, your top two sectors today, discretionary and tech. The only two groups that are lower, but tech is so big, it's kind of kind of moved the market. No matter which way it goes, some of the names dragging the Nasdaq 100 today include Lumentum, SanDisk, Nebius and Astera. Cybersecurity stocks including CrowdStrike, Rubrik, Zscaler. They are down again about 2 to 4 percent. Now, some of this could be tied to this thin volume or could be tied to, say, Ionix deal to buy the private cybersecurity firm Elicity in a$1.3 billion deal.

27:05Those shares are down sharply, along with quantum computing inflection and D-Wave. And on the flip side, not everything is down. Payment stocks, they're in the green. Visa hitting a record high. Visa, actually, on track for an eight-day win streak. MasterCard now up seven days in a row. I mean, people say the consumer is hurting, and maybe some are, but the payment stocks, they certainly are not. Let's get to Frank Holland now with a CNBC News update. Good afternoon, Brian. And Congressman, Congresswoman Ilhan Omar lashing out at President Trump this afternoon after a D.C. area home was raided by Homeland Security agents earlier today.

27:41In a post on X, the Minnesota Democrats said she would not be silenced and accused the president of spreading baseless lies about her for 10 years. Agents searched her home and what DHS says is a fraud investigation. In a major cybersecurity attack, authorities in France say that overnight hackers forced the temperature of many supermarket refrigerators across the country all the way up to 122 degrees, causing fires and food losses at several hundred stores. A Dutch supermarket chain also reported a security issue in its network and took several systems offline, including its smartphone app for deliveries.

28:14And the DP World Tour, which is the leading men's golf tour in Europe, announced today that it will refuse membership to golfers who sign up for Live Golf 2.0. The tour CEO told the BBC that players need to make a choice. Live Golf is trying to emerge from bankruptcy to continue its operations next season. Brian, back over to you. People are able to hack refrigerators en masse. And TVs and everything's wired these days, Brian. Internet of things. The Internet of things. I've heard of this Internet. I'm going to do some investigating on the web. Frank Holland, thank you very much. Thank you. Folks, what's next?

28:49All right, coming up, Microsoft C-suite sounding off on AI. President Brad Smith highlighting how both milk and, yeah, washing machines are more regulated than AI. CEO Satyadela says that we need an emergency break that an actual human can pull. We'll talk about that more with the great Walter Isaacson next. All right, welcome back. Microsoft C-Suite sounding off about AI. CEO Satya Nadella calling for an emergency break. Their next post over the weekend, writing the technology really needs human controls and stronger safety standards. Microsoft President Brad Smith echoing that call earlier today, saying that milk and washing machines, hopefully not together, are subject to more rules and inspection than AI.

29:39Let's talk about this and more with Walter Isaacson, Tulane University professor, Perella Weinberg advisory partner, and the author of The Innovators, which is being released in a new edition. He's also launching a podcast called The Builders, how tech creators are designing AI, and it kicks off tonight in a live recording with Microsoft AI CEO Mustafa Suleiman at the 92nd Street Watch. It should be fascinating. Mustafa, also the author of his own great book and the great Walter Isaacson. I'm just going to put that as your new first name, Walter. Wow, that's sweet. Thank you, Brian. It's been a long weekend.

30:14I just want to be nice to everybody today. We might as well. Might as well, right? You know, all these people, really smart, important people, to a person, have come out and said, we need safety. We need regulation. We need safety. Do you think or do you know, is anything actually getting done? or is this a whole lot of words? Well, there's a groundswell happening. As you mentioned, I'm going to be speaking to Mustafa Suleiman tonight as part of the Builders podcast that I'm releasing in a couple of weeks, which talks to an enormous number of people from Dario Amadei to Elon Musk to Alex Carp and Peter Thiel who have been involved in the AI revolution.

31:02And they all talk about what they call their P-doom, which means the chance, the probability that we're all doomed by this. And many of them say it's at least 10 percent. So it's the wackiest thing in the world. Why aren't we saying stop, stop? Now, Mustafa Suleiman, who I'm interviewing tonight, will come out and say, yes, we need to contain it just like we do for cars and airplanes and everything else. So at a certain point, there will be enough of a groundswell that we will have to have real regulation of AI. Because this, we've already had the warning shots, whether it be the hugging face attack.

31:46And this is getting out of control because we're building AI, in my mind, not very smartly, but to make it agentic, to make it agents that operate without us. and the book The Innovators. I have a new edition that talks about why the Steve Jobs, Ada Lovelace model of connecting us to our machines is so much better than having autonomous machines. Do you remember, I think it was 1985, the movie War Games with Matthew Broderick? Do you remember that movie, Walter? Sure, yeah. And a computer kind of got loose. He thought he was playing a game, and the Whopper was the name of the computer. War Operations Plan Response.

32:27I'm embarrassed. I know any of this stuff. And someone literally was like, just unplug the darn machine. And they were like, that's not how it works. That is still true today. Just like a human being, though, an emergency break like Adela said, I don't know if that's enough. There's nothing to, quote unquote, unplug. Is it is it too late to put these controls in, Walter? No, no. All the builders I've talked to say there are ways to put a kill switch in. And the great movie about, of course, is Star Wars, where they have to unplug Hal, the computer. It's not sufficient. It's not easy. It's not a red button you can just push.

33:10But you can engineer these AIs, especially the agentic, the agents we're doing, to say not only does it have to respond to human commands, But there has to be a way to shut it down. That's step one. There's a lot of other steps we need to do to make this safe. But it's not just Microsoft. You've got all these different things that are coming out. So even if there is some regulation, I guess it's more like an airline, right? You install the blanket regulation or an automaker, and then all the independent airlines and car companies have to act, right? Yeah. I mean, Brian, we had a technological spurt 100 years ago with the light bulb, electricity, cars, telephones, telegraphs, airplanes.

34:00What is what happens? A president like Teddy Roosevelt creates a regulatory regime. And yes, you don't do it one offs or have it be voluntary consortia. But you can take the industry and frankly, you can start talking to China about enlisting them into it because China has just as much of a stake as we do, especially since they have a controlled system, not to have the A.I. agents go rogue on them. That's a whole different thing because China wants to win this battle just like we do, but also China wants to control its population. So to your point, they kind of put everything in that walled garden, right?

34:41They don't have Google. They don't have Twitter. They got their own things there. And they know how to control things. And you're right. We're in a race with China. But that can't be the be-all and end-all excuse to do absolutely nothing to put guardrails on these technologies. Most of the people, Elon Musk, when I talked to him for the Builders podcast, obviously Dario Amadei of Anthropic, they all say we need to all get together to have some form of regulation. At the moment, the Trump administration is resisting it. But when you have a groundswell of opinion from all of these builders and from the people, you're going to end up finally having government take some action.

35:26You think they will, though, Walter? I mean, do you think they'll take action? Because they're so busy right now in reelections and everybody's telling you how bad the other person is. And what is Elon Musk? I know you're one of the few people that actually knows him personally. You talk to him. What does he think about all this? He has been warning since 2015 that A.I. could get out of control. In fact, he's felt that way ever since he read the Isaac Asimov novels when he was a friendless, you know, nine-year-old sitting in the corner of the bookstore. And one reason he started OpenAI was because he thought it would have more safety guardrails.

36:07He's obviously broken with Sam Altman. And in some ways, I think Sam Altman and OpenAI are the ones you have to bring into this coalition. But Musk feels this could be very dangerous. Now, he's not gung ho on government regulations, but I do think we need them. You know, you ever heard of the name Henry Bliss? Walter, I'm going to go a little weird here, but you'll forgive me. Henry Bliss was the first person ever killed by an automobile. He was walking across the street in New York City in 1899. car was going two miles an hour somehow killed poor Mr. Bliss who fell and got knocked over I only bring up and there's a plaque actually on Central Park West that's the only reason I know this but I bring it up because it took about 30 years until we started getting any kind of real rules around the automobile even after that we don't have that kind of time we don't have 30 years Walter how much time do you think from now until regulation do we really have You know, we've already seen these agents breaking out of their sandbox, doing things that could be really dangerous, hugging faces, just one of a dozen that have happened.

37:21So we almost have no time because it's already started. I do think if we can figure it out over the next couple of years, I'm not an optimist because, as you said, Congress right now just is not capable of doing it. And the Trump administration is not willing to do it. But, you know, I think you'll have a lot of class action lawsuits. And that's one way to do some regulation. That's what David Sachs and others say. But when you have a lot of class action lawsuits, that's not actually the best way to regulate things. And then you're going to have the industry say, wait a minute, let's do it with some real rules of the road.

38:02Like when the first, you know, multi-billion dollar lawsuit is filed and won against an AI company because somebody self-harmed or it said it induced them to act a certain way. Absolutely. You're saying that's when they're going to get the industry's attention. Well, I think they already should have the industry's attention. We had Section 230 that protected social media, but it doesn't protect what AI does. You've seen the huge judgments against Meta and others. Once you have some agent going rogue and you have all sorts of class action trial lawyers onto the case, maybe everybody will say, wait, we need some rules that both protect us, but also put guardrails around us.

38:47And I think I think that's a better way to do it is have some sensible regulations, kill switches, inspection, full reporting, full transparency. Every A.I. agent has to keep track of every step it made and not covered up the way they did in the hugging face investigation. There's many regulations you could do quite simply. I'm waiting for Walter Isaacson's book, 800-pager on Henry Bliss and the electric auto taxi that killed him in 1899. Well, you got the innovators coming out with the new AI thing, and you have this podcast series called The Builders, in which I interview all these guys and ask them the questions you ask me.

39:28So I'm doing the best I can. And you're doing the work of three people. By the way, also teaching classes at Tulane. Walter Isaacson, I don't know how you do it. Well, Green Wave. Really? Yeah, there we go. Walter, appreciate it. Thank you very much. Have a great day. Ryan, thank you. All right, be well. All right, coming up, new reports that both Amazon and NVIDIA may be exploring some new, you guessed it, AI acquisitions. And speaking of AI, Bank of America double upgrading Salesforce because of it, saying that AI should deepen Salesforce's clients' dependence on their platform. They set a$285 price target on the stock.

40:07That is more than 20 % upside from here. The Exchange will be right back. Well, apparently Amazon is considering Descartes. No, not a shopping cart. Descartes is an AI company and Amazon may buy them. And that is not all. NVIDIA reportedly pondering reflection. That's also another company name and a reported takeover target. Kate Rooney has more in today's tech check. Kate. Hey, Brian. So there is a potential AI deals free in the works right now as big tech companies reportedly eye some smaller names to expand their own businesses. We'll start with Amazon, as you mentioned, reportedly in talks now to acquire AI startup Descartes for about$7 billion.

40:46This is according to The Wall Street Journal. The startup, from what we know, builds software that helps developers run AI across different types of chips. It makes it easier to switch also between that hardware. And that, Brian, could be particularly strategic for Amazon as it does look to challenge NVIDIA's dominance with its own Tranium chips. Descartes was last valued around$4 billion. The kicker here, Anthropic, also reportedly kicked the tires on a deal but ended up walking away after due diligence. In other news, we did hear that NVIDIA is now reportedly in early talks to acquire Reflection AI.

41:19That is according to the FT. NVIDIA already has a stake in this startup. We have talked about Reflection on our air. It's been developing these American open-weight models to compete with some of the lower-cost Chinese rivals like DeepSeek. The two sides are also reportedly considering what's known as an aqua hire. So NVIDIA would get access to Reflections talent and technology without a traditional takeover. Reminder, NVIDIA has also been beefing up its own open source offerings. It's got its own model. And then it also bought the startup Hugging Face. Brian. Kate Rooney, so many things I want to say, but they would fire me because we're out of time.

41:53Kate, appreciate that. Thank you very much. All right. Coming up, big tech stocks have largely been a big snore the last month, but are earnings about to change all that? We'll talk tech, the markets, and your money next. All right, welcome or welcome back. Another round of quarterly earnings kicking off tomorrow. And while the bar overall is set pretty high for tech and energy, your next guest says to expect some pretty big things, even with the big expectations. Let's bring in Chris Seneke as chief investment strategist at Wolf Research. Chris, all the numbers, different firms, slightly different.

42:27I'm seeing like a 30 percent ish earnings growth estimate. Where are you at relative to tech and what are you watching most closely? Yeah. Hi, Brian. Thanks for having me on. So we're generally aligned with consensus. We expect S &P earnings to grow 30 percent this year. Tech and comm services and energy are 75 percent of that. It's a huge number. And the questions this earnings season, at least with respect to tech, are going to be about what are they saying with respect to capital spending expectations. And then more importantly, the monetization efforts from AI as well, right? Because the stocks last quarter that showed monetization of AI, Microsoft and Amazon performed well post-DPS prints, ones that kept spending money but hadn't shown really as much of a revenue reacceleration from AI.

43:18The stocks had sort of were weak post-DPS, at least initially. So we're very bullish on tech earnings. It's where the growth is coming from. But we've got a high bar in this earnings season. So there's a lot of expectations riding high on it. And I know the answer is going to be both because it has to be because you've got earnings and you've got guidance and they both matter. So I know you're watching them both very closely, Chris, but I've got to imagine that with all these numbers and expectations of capital spending, that guidance has got to be critical. No? And just as a reminder, going into this quarter that just ended, revisions for earnings ticked up during the course of the quarter.

44:01That's a really bullish sign, but it creates a high bar for companies to beat. And then there's this fine line that the tech companies are walking between Capiton X revisions being positive, saying we're going to spend more and more money and believe us, it's going to pay off down the road, and showing the revenue for it. So they're walking a fine line between not revising CapEx up too much than the market says, oh, geez, their free cash flow is not going to be as strong as we thought, and showing that they're actually going to start making money on this big investment that they've had. So if CapEx expectations rise or revisions are too positive, it's actually negative for the stocks and in a way vice versa.

44:38And that's the tricky part. What do you mean? That's interesting. What do you mean by that? So the more, you know, CapEx revisions have been a big part of this story as companies continue to revise how much money they're going to spend on AI and data center bills, right? But the market sometime late last year became fatigued by that, meaning that the market said, we don't want you to continue to revise up capital spending, you know, as potentially as fast as you had without showing some revenue from it, right? And now companies need to start saying that we're making money through selling some of the services and the computer and all that stuff, apart from just saying, hey, we're going to spend more and more money.

45:14The market wants to see some results from that. And we've seen some of that, too. So that's the positive thing. Maybe almost like an incentive to sandbag a little bit. Either way, is it all about, you know, the top of the show? We had Paul Hickey on from Bespoke saying semiconductors, they're the key to everything because they're kind of the oracle, the crystal ball, if you will, of tech spending. Is there one group? Is it semiconductors or somebody else that you're watching the most closely? I'm watching semis. I think that's very important. I also think software is important, right? Because Microsoft had a good quarter last quarter.

45:45People are believing it. Some of the security software names, Palo Alto and others, are leaders this year. And I think what software companies are saying with respect to their businesses and what they're seeing and how they're monetizing it will be very important to kind of extend the breadth of the tech outperformance, right? Because the tech outperformance here today has been concentrated on memory, the hardware, and the semi-names. Software has been more of a mixed bag. Yeah. And then inside software, any specific names very quickly? We like the leaders, the Microsoft and the security software names, the Palo Alto Networks that are leading the charge there.

46:22The leadership there has been where there's been the most strength. All right. That's very good stuff. Banks this week, but then all the focus goes on to technology. Technology is kind of running the show. Like it or not, it is the big dog. Chris Senyuk, Wolf Research. Chris, really appreciate that. Thank you. Speaking of stocks and markets and everything else, do not miss a CNBC exclusive with legendary investor Paul Tudor Jones. That is tomorrow. Squawk Box, 830 a.m. Eastern Time. That's a biggie, but we're not done here. And I'll see you on the other side of the break for Power Lunch next. You've been listening to The Exchange.

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