the Exchange 10/13/26

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1:04That was a great show, Scott. Thank you. And competition in the memory space and a new warning about AI growth are overshadowing earnings today. I'm Kelly Evans and welcome to The Exchange. Goldman and UnitedHealth are failing to keep the Dow in the green this hour. The S &P and Nasdaq also lower. Dow's still the worst performer. Called the Russell, actually. The chip stocks are a big drag again. Memory names in particular are struggling amid concerns about Chinese rival CXMT. Micron down about 5%. A warning from Broadcom's CEO around AI growth is not helping either. The mega cap tech names are doing better, though.

1:37Meta, a standout this session. Microsoft back above$4 trillion in market cap. And Apple trying to close again above$5 trillion. And remember when the MAG-7 were left for dead? They certainly keep surprising. To talk more about that, let's bring in Drew Pettit. He is the chief investment strategist at Roundhill Investments. And he's here for our opening exchange. Drew, it's good to see you. You got the MAG-7 ETF as well. So I must be feeling a little bit better about that lately. Yeah, look, markets are interesting and they don't really like stock stories that are in transition. And that's where memory is right now.

2:11It was a big growth story. We saw huge earnings revisions. Now it's about where's the long term and kind of prove it out. So some choppiness, some pullbacks on negative stories make sense. On the flip side, MAG and the MAG-7 ETF breaks to new highs because revisions are really strong. You're getting the factor tailwinds there. And the idiosyncratic stories, which drive most of this, have been really good around Meta, Google, and some of the other names as of late. I'm seeing more, follow a lot of investment professionals, their newsletters and things like that, Drew. And a lot more people are talking about how it's really the top.

2:47These names we're talking about that are holding up the whole market. And a lot of the smaller names are at, you know, maybe it's recent lows or 52-week lows, or in some cases, all-time lows. And that's where they're starting to get interested. It's not with, you know, the MAG7 names or even some of the tech high flyers. It's kind of all the other stuff in the market. What do you think about that? And where else do you see momentum lately? Yeah, it's funny. I do like this idea of barbelling, right? So MAG7, large cap growth, I think it's a really good way to tilt your core into the end of the year.

3:18The diversifiers on the other side, people always thought about like low beta, consumer staples, utilities, and so on. That's a little bit messy because you don't have a good revision story. But some of the halo stocks, so hard asset, low obsolescence, say that 10 times fast, you're starting to actually see some better revisions here and some good stories. And they're a really good complement to large cap growth. Doesn't offset the gains you make there, but it helps you kind of wade through some of this uncertainty. Well, speaking of kind of this idea of a two-speed market, actually, Paul Tudor Jones weighed in on that this morning.

3:51Take a listen. It still feels like 1999, a two-speed market. You've got it completely, perfectly bifurcated in the sense that you have, obviously, everything that's adopting AI and everything that's not. And they're going in opposite directions. And that was pretty much the case in 1999. And, Drew, I mean, you were just talking about, yeah, you wanted to have a barbelled approach. You probably could have said the same thing back then. And so maybe the larger question to ask is, do you think the market is vulnerable or fragile in some ways to that kind of mega reset? Look, it is in a sense because the big names are a big weight, but they're also a big earnings driver.

4:34So the way I kind of spin what Paul's saying is the market's surprisingly micro efficient right now, even though the macro and the index might not feel that way. So the big cap names in AI growth, mega cap growth, AI trade, the revisions keep going higher and higher and higher. The fundamentals are really good there. You should be comfortable in a lot of these names. On the other side, a lot of the consumer and rate sensitives, small caps, for example, have bad revisions and haven't traded well. And to be honest with you, they're not really that cheap either. So I think it's micro efficient under the surface, but it makes you feel like the macro or the index isn't.

5:14Yeah. What do you think of rates, by the way? I was happy to check and see that we're down, you know, 10, 15, maybe 20 basis points in the recent highs. Yeah, it gives us a little bit of wiggle room, but not a lot. We do a lot of this what's priced in work. It's something I've done for years, and it helps me kind of ground where we think markets can kind of handle certain sensitivities. The 10-year at 5.3 percent, we think, is the risk-free rate that markets are pricing in and what it can handle. And that's really baking in strong growth expectations. So we don't have a lot of wiggle room still, even after that pullback.

5:50But I feel a lot better seeing a 5-2 handle on the 10-year right now. Any way of telling whether the worst is over? On the rate side, I think we kind of got to get through midterms. We got to feel a little bit better about spending and real rates and where the Fed trajectory is going. That to us probably, I would say could kind of soften some of the blows in the 10 year and raise higher. It's a good point. I'm glad you brought it up. What are you focused on? That event is now coming in, what, two or three weeks time, the midterm elections? Yeah, to us, it's going to be revisions, revisions, revisions.

6:24I'm going to be honest with you. I haven't made any money personally, and I don't think a lot of clients have made money personally trading midterms. I think the fundamentals work through it. We just kind of got to get through the clearing event there. You might have more rate moves that matter to the macro, but I think the fundamentals stay intact through the November elections. So when you say revisions, you mean the most important thing for you is earnings revisions as we kind of get through each quarter? Yep. Yep. Look, we all get the joke. Companies beat earnings every quarter. And we do expect a better beat than average this quarter.

6:59But because so much good news is priced in, you have to move the outlooks higher. They have to go up. So as long as earnings revisions for the S &P 500, for the mags and for some of the key AI bottleneck trades, if those keep moving higher, you can continue to buy those. And revisions where they've moved lower, if they stabilize, those are the things you can kind of add to your portfolio as barbells. In that case, what do you see? I mean, it's literally very early. You know, we've heard from the banks, we've heard from a couple of companies here and there. But what are your takeaways so far? What jumps out?

7:34Well, it's the commentary and where people think margins are going to go. We always focus on top line, bottom line beats. It's a really quick, good headline. Companies want you to look at that. But analysts are actually really good at getting gross margins right. And the only way to make somebody feel good about durable demand and how to get your revisions higher is to beat on operating margins. So I don't think you really heard that from the banks. a little bit from JP Morgan talking about NIMS being better than expected, but just really key on gross margins. I think that's going to matter the most this earnings season.

8:11Love it. Gross margin. They're not gross at all, actually. They're great. Drew, thank you. Drew Pettit, good to see you with Roundhill Investments. Let's turn now to the big banks delivering a kind of mixed quarter so far. I mean, if you look at their reaction, well, Citigroup is down 4%, but let's go through what they said. It was a rare miss for JP Morgan, the first on EPS in three years. Goldman beat on the top and bottom line with equities revenue surging 72 percent. It was the best Q3 in terms of revenue for Citi in a decade, although you see the stock reaction there. And we got a revenue miss for Wells Fargo.

8:41The big takeaway, investment banking equities were helpful. Fixed income and currencies, those were a headwind across the board for these companies. For more on why our next guest is looking elsewhere in financials right now, let's bring in Chris Katowski. He's a senior research analyst at Oppenheimer. Chris, elsewhere like regionals, insurance companies, where are you looking? Well, I'd look mainly to the alternative asset managers. I mean, they're cheap and they're still growing. I mean, they still have like mid-teens AUM growth. So those are the companies I'm drawn to. I cover three broad groups, the investment banks, the commercial banks, and the alternatives.

9:20And I'd say in general, I'm kind of cautious on the investment bank because these spectacular earnings you've been seeing have been driven primarily by the trading side, primarily by equities, and within that, it seems like primarily by financing. So that just seems to me kind of like a narrow base. By contrast, the commercial banking fundamentals, they're all basically plain vanilla, as expected. Loan growth is roughly as expected. Credit quality is expected. The card fees are as expected. So that's kind of boring. And the commercial banks are kind of fairly priced in relation to history. The investment banks, I see the beats as being relatively narrowly based.

10:09And the stocks are trading at about a 30 % premium to their historic averages. The alts, on the other hand, you know, despite all the naysayers, they continue to chug out mid-teens kind of AUM growth. And they're going wanting. They're down, you know, 20 to 30 percent year to date. It's not just the naysayers. They're all down another 3 percent today. So the market seems to be giving them a thumbs down. And if I were to think about it, OK, going forward, where might the excesses be when it comes to financing data centers or so forth? I'd probably think in the alts. I don't know if that has anything to do with potential risk down the board, though.

10:49Maybe it has nothing to do with it at all, and they're trading weak for other reasons. Yeah, I think they're trading weak mainly for other reasons. And I think the legitimate concern or the legitimate issue is that monetizations, sale of assets, have been relatively slow. There have been a lot of disruptions in the economy. But, you know, that can change in a hurry. And, you know, I'll go back to late in 2020. You know, when you looked at our 2020-21 estimates, you know, this was already, you know, after we'd kind of gotten past COVID and the stocks had recovered and we'd lost or regained all the ground.

11:31Well, you know, compared to our November 2020 estimates for the alts, they ended up beating those by about 70 or 80 percent. Wow. Yeah, so the thing is just you have to, when you look at the alts, you just have to recognize that it's not going to be linear, and especially not on the realizations. But at the same time, you still have institutions, you know, very consistently allocating to these companies. And, you know, the basic joke, and the picture hasn't changed at all, is that private markets are growing roughly twice as fast as the public markets. Well, points taken, you know, and they've certainly like it's not unfamiliar to investors to say, yeah, the place that nobody wants to go might be the place with better opportunity.

12:19I guess I would just in a stronger IPO market would heal things. It sounds for them quite a bit and probably help the big guys, too. So, you know, I guess the final question going back to this, this sort of weak stool you were talking about for the banks is why was their their trade, their equities trading financing so strong this quarter? And could that be like a nice peg to sit on? Why does that have to be so such a shaky one? Well, it's it's been strong all year long. And the thing is, like, if you if you if you go back to the 20 teens, the industry was at a plateau for about six or five or six years.

12:56Then that plateau stepped up about 30, 40 percent, you know, after covid and you had volatility coming back into the world. and now it's stepped up another 30 percent in the last 18 months or so and you know if you look at the um you know the treasury data on say you know prime brokerage balances or or or repo balances they're all up like you know two or three fold from three or four years ago and i'm always kind of a little hesitant to chase the bright shiny object that everybody else seems to be chasing Then let me end by asking whether that leads you to think that things like Meta's Muse will or won't have a big impact on kind of that cheap source of funds.

13:45I don't think that will have any impact at all. The fact of the matter is that as of now, most people still want a relationship with a bank that has branches close to their office, close to their home. And that money, that service costs money to provide. You know, people want branches and ATMs all over town. Maybe 10 or 20 years from now, they won't want that. But as of now, they want that. And, you know, the banks have to charge for it. And so, you know, yes, it's nice to be able to charge for it with an implicit mechanism like lazy money. But, you know, if that were to theoretically go away, you know, then you'd have to put an explicit charge on it.

14:31You'd have to have higher minimums or a monthly fee or something. Yeah. And we've seen that, you know, happen time, you know, from here and there as companies mature or things like that. And they they get past, you know, and they have to figure out how to make those funds more permanent. Chris, appreciate it. I know you say boring. Stick with boring. Look at the alts. But you were right about a lot of those trends this quarter. Thanks for joining us. Appreciate it. Chris Gutowski of Oppenheimer. And by the way, don't miss our exclusive interview with Goldman CEO David Solomon right here tomorrow on The Exchange.

15:00Be around 1 p.m. Eastern. We look forward to hearing more from him. Coming up, mortgage rates dipping back below 7.5 % as the 10-year yield drops. What will it take to jumpstart the housing market? We'll ask Compass CEO Robert Refkin next. Plus, an exclusive interview with the head of Prime Video and Amazon MGM Studios, his take on streaming, the box office, and the media landscape in the wake of Paramount Skydance takeover of Warner Brothers' discovery. The Exchange is back after this. This is The Exchange on CNBC.

15:58It pays to discover. Terms apply. See discovery.com slash five for details. 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. Oh, 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 any time. Weren't agents supposed to take things off your plate? Building another to handle the others is a bit much.

16:42Don'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. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. Welcome back. Existing home sales posting an unexpected gain last month despite soaring mortgage rates. The average 30-year fixed rate just around 7.4%, close to a three-year high. But with buyers and sellers getting off the sidelines despite that, could the worst be over for the housing market?

17:21Let's ask Robert Reskin. He's the CEO and co-founder of Compass Real Estate. It's good to have you here. I appreciate it. Glad to be here. I don't think we can say, you know, be that excited about. But at least sales went up last month, which is shocking to me, given what was going on with rates. So what do you make of that? Well, after four months of sequential month-over-month declines, it did go up, which is great. We also saw that prices increased 1.3 percent year over year. Over the last 39 months, every month, the prices of homes went up year over year. Right, because it was starting to look like down might be the new.

17:58And we talked about this on the show with a few different people, how listing prices are down a little bit, which is not something you'd measure, right? What you're measuring is sales prices and all that. But, you know, like it's a barometer of how tight is the market, how much interest is there, how many offers are there. And certainly the COVID market feels like history now. Yeah, we're seeing pressure in price drops. So 43 % of all the homes on the market have a price drop on their listing, which is more than any September in over 10 years. Wow. However, we're seeing two incredible bright spots, San Francisco and New York.

18:30In New York, only 14 % of homes on the market have a price drop. In San Francisco, it's only 5%. And that's because New York is expecting record Wall Street bonuses, 40 % above what it was in its prior record. And in San Francisco, you have the AI boom as well as the IPO boom. Yeah, the little thing that is creating billionaires, it seems, every time you turn around, which makes sense. So is that – that's a really interesting stat that almost half of listings now have price cuts. I mean, that tells you the market has turned. Yes. Can you – I mean, this – a few years ago, there are probably people listening to this screaming and going, I wish that was the case when I was buying because they were competing against five different people to make an offer$80 ,000 or$100 ,000 over asking.

19:15So it does feel like that's now in the past. Yeah, and it has unintended consequences. Days on market is the killer of value. Price drop history is the killer of value. And when you have extended days on market or price drops on your listings, it leads to some sellers taking their homes off the market. So 6 % of the homes on the market last month were actually taken off the market because sellers don't want to look stale. Yeah, no, that's like killer, you know. Anyway, so we the other day I was saying we were checking with different realtors. We had Bess Friedman on the show. And I was actually asking her about the market broadly.

19:49She's the CEO of Brown Hair Stevens. And we started talking about private listings. And she said one's like what Compass does. You guys have a lot of these private listings are creating a real challenge for consumers. Take a quick listen to her take. But there is one company in particular, Compass, that bought Corcoran and Sotheby's, etc. They have a huge percentage of market share. And what they're doing is they're doing this thing called private listings, where they're keeping listings off of the marketplace, so to speak. And that creates a real challenge. If people can't see what's on the market and, you know, it's being hidden, what does that do for consumers?

20:25I mean, there's so many challenges with this. You're here to respond. What do you think? So as a real estate agent, you have a fiduciary duty to your seller to meet their needs, your duties to them. And you said so yourself. You said killer. Killer, days on market, price drop history. The killer of value. When you market your home as a private exclusive or as a coming soon, you get to put whatever you want in your listing. There's no days on market. There's no price drop history. Just like anything else we sell in your life. But when you give it to the real estate websites, to that system of the MLSs, they put these negative insights on your listing that make it look damaged unintentionally.

21:05But is it anti-competitive? How does MLS work, right? That's a great question. Is it anti-competitive? The MLSs, every single board member on the MLS is a direct competitor to us. And they are dictating how we can and cannot compete in the living room. They are dictating how our agents can and cannot serve their clients. They're dictating how our clients can and cannot market their homes. And so we believe that sellers have the right to choose, again, how they market their homes. And she mentioned that the president of the NAACP wrote a piece for Time magazine about the threat this poses to fair housing.

21:41So it does get into these questions of access and, you know, are you kind of cherry picking who can see what? But is there standing in that argument against the tactics that you guys or others would use? Because as she and others have acknowledged, a lot of real estate agents will do this. They'll get a private listing for a week or whatever before it goes. But if this really starts to fragment, is that a challenge to fair housing? Private listings, all it means is it's private from real estate websites. There's not a single form of advertising or marketing other than real estate websites that doesn't allow.

22:13So private exclusives can be marketed on Google. They can market on your social media. They can market in digital newsletters. There are signs in the yards that say privacy. So they are fully out there. They're just private from real estate websites that put these negative insights on your listings. But someone like me, if I were just surfing the net, I guess you would say in the olden days, yes, I might see it on social, but if I were looking for a certain zip code using one of, in my head, I would think, are kind of the platforms, then I wouldn't see it. But is that because you think it helps business for people to think, okay, well, I better go with Compass because they have more liquidity.

22:45They have more access to homes that I otherwise wouldn't have access to. I mean, if it goes in that direction and everybody goes in that direction, do you think that's maybe that's progress? Maybe that I don't know why MLS exists in the first place. Is it by law? I don't know why MLS exists in the first place. You said it, not me. They actually do have an important role to to of how you can share your listings with the brokerage community. It is an important marketing channel, but it's not the only marketing channel. And it's definitely not a channel that should tell you, dictate how you market outside the channel.

23:16Right now, they fine agents up to$15 ,000 if they market outside them less. And because of that complete control, they've been able to take the agents' listings, put all these negative insights on it, sell the data to over 900 financial institutions, including 20 federal agencies, 300 capital markets companies, 400 property managers, and 900 mortgage companies and banks. And they get kickbacks from these entities. So the home sellers listings are getting monetized in countless ways by the MLSs and real estate portals. And all we're giving the home seller is choice. You can still always market here.

23:51And 96 % of the homes that are pre-marketed as a private exclusive or are coming soon do go to the MLS. But you get to test price privately. The key benefit is this. When you can test price privately, then you can adjust price before you're going to the public sites. And if you take 1 ,000 listings, 1 ,000 listings that had not test price privately and you have a public price drop, and the other where they test price privately and they didn't have the public price drop, which one do you think would do better? Right. And it's the seller's home. Let them market their home like the home builders do.

24:23Well, the plot thickens, Robert. You are now pointing – this is a whole different line of inquiry, you know, as it relates to the MLS, and I don't think it's the last we'll hear about it. And if something needs to change, then you're the ones trying to shake things up and change that. Thank you for coming on to talk about it. Really appreciate it. Robert Refkin from Compass. Coming up, Apple holding its second launch event in less than five weeks under new CEO John Turnius, unveiling its new smart home hub featuring Siri AI. We'll look at what it means for Apple shares hitting an all-time high and trying to close above the$5 trillion mark for the first time.

24:54We're back after this.

25:00With the Discover Cashback card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to discover. Terms apply. See discover.com slash 5 for details. 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.

25:39You 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. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. This holiday, all plans, even unlimited, are just$15 a month. A holiday deal this good obviously deserves an enormously expensive holiday song, like all I want. Right. Okay, we can afford that. You know what? Forget the music budget. We're going to stick with whatever's in the public domain. Give it a try at mintmobile.com slash switch.

26:12Upfront payment of$45 for three months,$90 for six months, or$180 for a 12-month plan required. $15 per month equivalent. Taxes and fees extra. New customer offer for initial plan term only. Greater than 50 gigabytes may slow when network is busy. See terms. Welcome back. The conflict between the Saudi Arabia and the Houthis continues to escalate after this weekend's deadly attack on a Riyadh airport. Megan Casella is in Washington with the latest. Megan? Kelly, that's right. Rush strikes in the region have been reported today. A Saudi-backed coalition of forces carried out airstrikes in Yemen's capital.

26:42That's according to the Associated Press. Now, the AP says it wasn't yet clear what has been hit, but the attacks came after the Saudi coalition had asked civilians to evacuate the site of the Yemeni oil company and nearby storage areas. Before those strikes, a Houthi military spokesperson had warned that any attacks would be met with a firm and painful response in Riyadh. the Houthis have also called Saudi Aramco oil facilities legitimate targets and warned people to stay away. So oil facilities on both sides in the crosshairs here. Now, the question now is whether President Trump would direct U.S.

27:14forces to join Saudi Arabia in this fight against the Houthis. You'll remember, Kelly, the president said this weekend that he was looking at this possibility. He told reporters at the White House earlier today simply that the Houthis are behaving very badly. He later posted on True Social blaming the Houthis for purposefully, he says, trying to drive up oil prices ahead of the midterms. And he added, somebody should explain to them that I'm not running in the elections, but I'll be there after the elections and I will never forget. Something of a threat there directed at the Houthis, but he stopped short of saying whether the U.S.

27:46will get involved militarily on this front. Kelly? Megan, for now, thank you, Megan Casella. Let's get over to Seema Modi now for the CNBC News update. Seema? Kelly, here's what we're watching at this hour. Six Republican senators today signing on to a letter with Democrats urging the president to back out of his oil deal with Russia. The senators argue the deal is a, quote, gift to our adversary and a betrayal of our allies. President Trump defended the deal, arguing it will bring down prices. Analysts saying the amount of diesel being made available is equal to about 12 hours of global consumption.

28:17R.J. Mitty, the actor best known for playing Walter White Jr. alongside Bryan Cranston in Breaking Bad, has died. The actor, who suffered from cerebral palsy, was also an advocate for the rights of people with disabilities his publicist confirming the cause of death as suicide. He was just 34 years old. And Formula One is returning to the African continent for the first time since 1993. F1 executives announcing a 10-year agreement today in Rwanda that will begin in the early 2030s. A new track will be built over the next few years. Formula One calling it a landmark moment for the sport, which will now race on all six inhabited continents.

28:54Kelly, back to you. I like the emphasis on inhabited continents. It's okay for now. Antarctica next. Seema, thanks. Seema Modi. Coming up, the head of Prime Video and Amazon MGM, Mike Hopkins will join us exclusively on the back of Paramount Skydance's deal to buy Warner Brothers Discovery. His take on streaming, sports rights, the box office, microdramas, and more. That's next.

29:18We are positioned to win in every single vertical that we operate in. By combining Paramount and Warner Brothers, We have the greatest content engine with marquee intellectual property. That was Skydance Chairman and CEO David Ellison in his interview with David Faber Thursday. It's been a week since Paramount Skydance completed its takeover of Warner Brothers Discovery. The new company, simply called Skydance, and trading under the ticker SKYD, controls nearly a third of basic cable programming, along with HBO Max, Paramount Plus, Warner Brothers Studios, and more. It's the largest media deal since Amazon bought MGM Studios four years ago.

29:57What does it all mean for streaming sports in the box office? Joining us now is Mike Hopkins, the head of Prime Video and Amazon MGM Studios, along with our very own Julia Boorstin. Julia? Kelly, thanks so much. And Mike, thanks for having us here at your Amazon MGM Studios lot in Culver City. Thanks for being here. You have had a big fall when it comes to sports. Your Thursday night football ratings are up 11 percent over last year on Amazon Prime. And you're getting ready to launch the NBA on Prime Video next week. You're spending a combined three billion dollars every year between NBA and NFL rights.

30:35How is that paying off now? And what does that mean about what sports rights you're going to go after next? Yeah, it's a great question. You know, we're excited about the NBA, which tips off next week. We're steps away from our nerve center for the NBA studio here in Culver City. Last year was our first year of the NBA. It performed very well. About a million viewers per game for our 67 regular season games. Over six and a half million watched game seven of the Eastern semifinals. We have the Eastern Conference Finals this season, and we're really looking to just continue the momentum that we created last year with our fantastic talent and the new innovations we've brought to the broadcast.

31:15But in terms of live sports, you know, what we really like is that this aggregates big audiences. And that's our strategy is to have events that are bringing big audiences. It allows us to work more closely with advertising and advertisers or promotes other things on around Amazon, whether it's our retail business, other shows and movies. But it's just it's a great thing for us. And it drives a lot of prime value as well. So does that mean you're going to be going after NHL rights or more NFL rights when when the negotiations come up ahead of 2029? Yeah, we're opportunistic and we're very disciplined.

31:45You know, we have live sports all over the world. And in the UK, Germany, we have the Champions League. We have French Open in France. We've got Copa do Brazil in Latin America. And so we're looking for big events. And when we can do that in a responsible way, we'll do it. Let's talk about your movie studio, because Verity debuted at number one a week and a half ago at the box office. You're getting ready to launch I Play Rocky, which opens in November. And you said you're targeting 15 theatrical releases a year. And you want this theatrical business to be profitable, separate from Prime Video.

32:16We just mentioned Skydance. They're going to have over 30 theatrical releases a year. How do you think that's going to change the landscape and the theatrical business? Well, the theatrical business has rebounded quite a bit this year. We're nearly back to what was happening in 2019 in terms of global box office. And we see that continuing. For us, we really wanted to take control of our output. But, you know, several years ago when all the streaming services were launching, whether it was Disney Plus, Paramount Plus, etc., all the pay one movies essentially were going to the studio's own streaming service.

32:49And so we determined that, you know, through the acquisition of MGM, that it made a lot of sense for us to build our own theatrical slate. And we thought if we did it really well, we would end up having great movies with great talent attached to them, pre-marketed and ready for prime members. And so far, that strategy is playing off. You know, Project Hail Mary did$680 million in global box offices at the beginning of the year. You mentioned Verity. We're excited about the films that you mentioned, I Play Rocky, etc. But let's talk about the impact of this Skydance merger, the combination of Warner Brothers Discovery and Paramount.

33:21They're going to be merging their two streamers. Do you think that will pose more of a competitive threat to Prime Video? You know, I think what David's done is pretty remarkable to put these two companies together, and he's building a great management team. We're big partners with them across a number of fronts. They make shows for us, Reacher, Jack Ryan, Neely. We're also big partners on Paramount Plus and HBO Max. And we expect that to continue. We're here to help them. Part of our strategy is to have a one-stop shop within Prime Video for all your streaming needs. And that strategy is paying off for us and our partners.

33:53And we expect that to continue. Kelly? Mike, it's Kelly here again. It's great to have you on the show. We really appreciate it. I cheer for Prime Video because Kaylee Hartung is an old college friend. So, you know, I wish you guys nothing but the greatest success. I just wanted to ask about this new disruptor to the media category, which are the microdramas. As I read in The New York Times over the weekend that the only thing going on in Los Angeles right now seems to be production for this. What are your thoughts? Yeah, I think microdramas are an interesting category. something we're taking a hard look at, both in terms of, should we be producing our own across the world?

34:34It's a global phenomenon, and we operate in 240 countries. And so we see that as an opportunity, not only for our own first party, we call it first party operation, but also with our partners. I think there are a few really quickly growing subscription services that focus on micro dramas that we're looking to partner with. And so we see that as an opportunity. You know, we're trying to entertain people in whatever format they're interested in, whether it's micro dramas, fast channels, live sports, TV, movies, news. And so we're trying to be that one stop shop for everything. Also just curious what you think of Digger, the movie.

35:08I don't know if you've seen it. A lot of people say that you got to watch it to really understand the genius of it. You know, but it didn't do well week one. And then there are others saying we need more films like this that are taking a big chance and trying to do something different. And I'm just curious for your reaction. Yeah, I haven't seen the movie yet. I plan to. But I do applaud the effort. I think it's important to try and try new things, to take creative risks. Sometimes they pay off commercially. Sometimes they don't. But I think that's the lifeblood of our industry. Every every IP that's ever been created, somebody took a risk on.

35:43And so I applaud the team over there for making taking the shot. Well, in terms of taking risks, we're hearing increasingly about all the movie studios experimenting more with artificial intelligence. within the restrictions of what they could do with the guilds. Specifically, Netflix and Paramount are talking about how they're leaning into AI to cut costs. What is your AI strategy right now? We're building our tools for our creative partners. We're building tools to help them tell their stories more effectively, quicker. You can test things much more easily. When you think about what Walt Disney started to do with animation 100 years ago, it was about testing and learning and showing people the work before you actually commit to it.

36:24I think there's so many things we're going to be able to do, but what we're building is something that's centered around the creative process, putting tools in the hands of our showrunners and our directors so that they can create even more and more effectively. And just a final question on your ad business, because you're coming up on wrapping up year three of having an ad tier for Amazon Prime Video. Curious who you see as your biggest competition in the streaming ad space and also how you're seeing your ad business impact the rest of Amazon Prime. Well, I mean, we put advertising on in the beginning of 2024.

36:56That's really been a real helpful addition to us from a profit and loss perspective, but also a customer perspective. With that extra revenue, we're able to, as we said earlier this year, become a profitable part of Amazon. And we're taking a lot of that revenue and pouring it back into more content for customers. I've said before, I don't know that we would have done the NBA, for example, if we hadn't have made that decision. And it's just fueling our ability to tell even more stories for customers. Well, we'll be watching to see how that ad revenue enables you to bid for more sports rights down the line.

37:29Mike Hopkins, thanks so much for joining us. Thanks for being here. Thanks for having me. Kelly, back over to you. Julia and Mike, thank you so much. Really appreciate it. We've got a news alert on Qualcomm. Let's get back to Seema Modi with that story. Seema. Kelly, Qualcomm winning the jury verdict against Arm Holdings for a breach of architectural license agreement. The focus of this legal fight was around whether Arm Holdings tried to interfere with Qualcomm and steal with Meta. Qualcomm, in a statement to CNBC saying, We are gratified that the jury found Arm breached its longstanding architectural license agreement with Qualcomm, failed to honor its commitments and intentionally acted to disrupt Qualcomm's businesses.

38:03They add that together with Qualcomm's prior court victory, this outcome further exposes Arm's broader intentions to harm Qualcomm and its ecosystem. We are watching shares of Qualcomm move higher on this verdict ruling, and we did reach out to Arm Holdings for comment. It does mark the second legal fight between the two semiconductor firms. Kelly. Seema, thank you very much. Seema Modi. Coming up, cleanup in aisle three. Grocery stocks are on the move today as one suspends guidance and the other announces big layoffs. We've got the details next.

38:38Welcome back in a quick check on the markets. We still see the Russell, the small caps under the most pressure, down half a percent this hour. Well, the triple Q is, by the way, under some pressure as well. The S &P turning almost positive. It's down six. Kroger is cutting 3 ,000 corporate roles over the next three years as they expand their use of AI. The CEO telling employees that technology is reshaping what's possible, though shares down about 2%. Elsewhere in grocery, Albertsons is withdrawing its full year guidance and planning a business review to establish a turnaround plan after disappointing second quarter results.

39:09They recently named former HP and eBay CEO Meg Whitman to the newly established role of executive chair. She told analysts on the call that dramatic improvement is needed now and that Albertsons must move faster to change the trajectory of its business, although it's up 3 percent on that. Elsewhere, Johnson & Johnson is down 6 percent despite beating earnings estimates. The company says the war in the Middle East has hurt sales in the region, specifically Kuwait, Saudi Arabia and the UAE, where budgets are now being allocated toward defense. That has J &J for its worst day since April of 2025.

39:41Coming up, Apple once again trying to close above a five trillion dollar market cap as the company unveils its smart home lineup today. Just as Anthropic warns of AI model risk to connected devices and hackers found their way into supermarket refrigerators. We'll dig into all of that next.

40:02Welcome back. Apple hitting an all-time high today as the company unveils its biggest push yet into connected home devices. Mackenzie Sigalos has more in today's Tech Check. Mac? So, Kelly, this is Apple putting Siri AI at the center of its new smart home strategy, making the revamped assistant essentially the operating system across a fresh lineup of devices. It is also the first entirely new product category unveiled under CEO John Ternus, making this an early test of how he leads Apple beyond the iPhone, even though these products were in development well before he took over. Now, today's hardware includes HomeView, which is a 7-inch smart display starting at$299, plus a new HomePod mini and Apple TV.

40:45HomeView, it can recognize different people in the household and then personalize what each person sees based on their messages, photos, and calendars. Apple's also extending the new home ecosystem through these third-party locks, doorbells, thermostats, and cameras from companies including LG. Now, the challenge, of course, is that Apple's coming into a category where it's historically been a very small player. Among recent smart speaker buyers, more than half chose Amazon. But that sub -$300 starting price for HomeView is relatively aggressive for Apple and suggests that the larger goal here may be getting this into as many households as possible, even if it means tighter margins.

41:22And that said, this strategy only works if Siri AI can actually carry the experience making this home launch one of its first major pressure tests outside of the iPhone for Siri AI. Kelly, I wonder if it would cannibalize the iPad at all, because I see how that lady was using it, which is kind of how we use iPads in our house. But more broadly, this comes as more of these Internet connected devices are being hacked. I mean, look at Anthropic warning about models hacking any connected devices. is the French supermarket refrigerators that hit 100 degrees. They could have started fires. I mean, and I don't know if you know any more about that story, Mackenzie, but increasingly, to me, it seems the biggest way to be safe is to get off the internet to the extent that's possible.

42:04Well, and the home device category has always been subject to these privacy concerns. And then Anthropic comes out with this new report. And in it, they actually use Gemma, which is Google's open source model, to breach these internet connected home devices. They did it with Android TVs. They're also talking about smart ovens. You brought up the example of European refrigerators being hacked and bringing the temperature down across these devices. And that's a standing concern here that they are more vulnerable. And part of what was so concerning about Anthropics findings is the fact that they weren't reliant on any sort of centralized compute.

42:37They were able to replicate themselves across these devices. You're kind of like offline. There is no kill switch in this context. And that might actually be where Apple has some sort of competitive advantage. They've always prided themselves on this privacy promise. And even in the context of this relationship with LG, these smart devices, they're end-to-end encrypted. So not even Apple has access to that data. All right, Mackenzie, for now, thanks. Mackenzie Sigalos. Apple shares, meanwhile, have outperformed its MAG7 peers this year, although our next guest is cautious. Craig Moffitt of Moffitt Nathanson has a neutral rating with a 304 price target.

43:10Craig, it's good to see you again. Are you excited about the smart home category? Well, I think there's a lot going on with Apple. You've got the release of the Duo and the iPhone 18. The smartphone category, I mean, the smart home category, I think it's a nice entry. It hasn't been a particularly large category up to now. Apple's obviously hoping that their entry can make it into a bigger category. But they're a little bit late to the game here, right? I mean, the rest of the industry has started not with the hub and the differentiation is not from the intelligence of, say, your Alexa or what is now the HomePod.

43:56You start with thermostats. You start with a ring doorbell. You start with cameras on your home and that sort of thing. And a lot of those are already reasonably well entrenched in at least in higher end homes. So I don't think they're going into this expecting that this is going to be a the next iPhone, but it could be eventually a meaningful addition to the product lineup. Speaking of the iPhone, Bank of America notes today that its lead times for the Pro and Pro Max are at just nine and 15 days below last year's 13 and 20. You might have thought the shares would trade down on that. Does iPhone news matter anymore?

44:31more? Yeah, it still matters, right? It's still the most important part of the story. And I've been a little surprised. And frankly, I'm pleased that Apple has been resilient in the face of a number of reports lately that suggest that the iPhone 18 Pro and the Pro Max, they haven't released the mainstream model, but the higher end models are probably not selling at quite the pace of the prior year, that's likely a reflection of price elasticity, right? We did some work using in partnership with our friends at Navi, a company that tracks promotionality in wireless, and the wireless carriers aren't subsidizing the new iPhones to the extent that they have in the past.

45:19So you're seeing a little bit less oomph from the carriers trying to push these things out. And remember, for Apple, the biggest product competitor you have is not the Android. The biggest competitor you have is the iPhone that you already have from two or three years ago. What you're really trying to convince somebody to do is upgrade their phone sooner than they otherwise would. And I think the early data says with the higher prices this time around and with a little bit less generosity from the carriers to subsidize it, that it's just not happening at quite the same pace. A$5 trillion company today, all of that notwithstanding.

46:01They've done a lot of share buybacks, a lot of so-called financial engineering in the past. What does the future look like for Apple? $6 trillion? $7 trillion next? Sky's the limit? it? Well, it's already trading at north of 30 times earnings. So to get to those kinds of numbers, you'd need to see really rapid earnings growth. I mean, the challenge for Apple, I think, and particularly relative to its MAG7 peers, is that its earnings growth is much, much slower than its peer cohort, and its multiple is much, much higher. So what you're betting, a lot of the valuation bump that you've gotten over the last couple of years has not been from faster earnings growth.

46:42It's been that the market keeps giving it a higher and higher multiple. That can't grow to the sky, right? And so the challenge will be, does any of this really change the growth trajectory to the point where the valuation starts to look a little more appealing? Right. Or the valuation changes significantly, I guess. Craig, really appreciate it. Well, you hope not, right? Right. That's the only option I think left at this point. Craig Moffitt, appreciate it. And that's it for us. Thank you for watching The Exchange. I'll join Brian Sullivan for Power Lunch right after this break. You've been listening to The Exchange.

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