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Commercial Narrator
A KFC tale in the pursuit of flavor. The Colonel made his $10 Tuesday bucket so full with eight pieces of juicy crispy chicken or tenders that it might just last you till Wednesday if you've got that kind of self control. I mean some people want leftovers, others are more into right nowers. The Colonel lived so we could chicken 10 bucks 8 pieces. One big deal with KFC$10 Tuesdays prices.
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John Croteau
And participation may vary. Taxes, tips and fees.
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Ann Barry
The heart of where medical devices meets AI is Medtronic. We unpack the latest from today's earnings and how the giant is soon giving birth to a public spin out consumers. They're spending less on Cheerios, on Goldfish crackers and on chips. We survey the trends that are taking a bite out of General Mills and Campbell's share prices and travel a favorite topic on this show and proving also to be an activist fund darling. This Valentine's weekend we break down the commotion at NCLH and trip for Tuesday, February 17th through Markets Daily. And I'm Ann Barry. More market details to come. But first, trading resumed today after a long weekend where lots of people enjoyed the pursuit of travel, including in more ways than one for a set of investors we've been following closely. And that's activist hedge funds who buy up stakes in public companies in order to push management teams and boards for changes in their operations. They may not always get what they want, these activist hedge funds, but for the most part, activists do take big enough stakes and make loud enough noise at least to be listened to. Which is why when we spot thoughtful examples of activist movement, we like to flag it for everyone else too. Well, two major activist funds had their latest moves unveiled in the last 48 hours on two public ends of the travel stock spectrum. Now the most asset intensive end. That's big spending cruise operators that invest hundreds of millions of dollars to build the latest ships. Elliot Investment Management was reported yesterday to have built a 10% stake in Norwegian Cruise Line right as the company's CEO stepped down last Thursday to be replaced by a board member with no other cruise line experience and who instead has been at the helm of subway restaurants. While by number of passengers, Norwegian is the fourth largest cruise line in the world. That's after Royal Caribbean Carnival and msc. But despite the Vorac demand for cruise vacations, the industry has been enjoying post pandemic. Norwegian stock price is one of the worst performers in the S&P 500 and was down about 20% over the past year prior to today. That's compared to up more than 20% for both big rivals Carnival and Royal Caribbean. Now, despite spending over $7 billion in capex over the past five years, Norwegian's growth in yields, which is an important industry measure that reflects passenger spend, has lagged its competitors, leaving its cap roughly flat from the time that post pandemic revenge travel was actually unleashing at first. Well, according to a report from the Wall Street Journal, Elliott believes Norwegian can reclaim lost ground by adding to its private island portfolio. It's a strategy that has worked for its biggest competitors by attracting new passengers who want hybrid land and ship based vacations. Well, there's lots going on clearly at Norwegian in the cruise industry and then on the other end, at the asset light end of the travel spectrum, there's more going on too. And that's because the investor Starboard Value has been reported again by the Wall Street Journal to be moving to take control of the board of TripAdvisor. That's the platform I think we've all used it known for allowing travelers to share their hotel and experiences in reviews left online. And the company also owns Viator, which is the activity booking website and software, and the fork which is used for restaurant reservations. Well, back in July, Starboard was known to hold about $160 million stake in TripAdvisor, which today has a market cap of about 1.2 billion billion. But its planned push to nominate a majority of directors to the company's board is a new and aggressive step to get real change underway. Now, Starboard has requested that the company consider selling the fork as well as the actual TripAdvisor namesake review site wants it to go all in on Viator instead. But neither move has yet been seen to get any traction. Well, the moment that Starboard is choosing to make its recommendation more forcefully seems to be now. And it's not an accident because. Because Starboard is pushing just as software stocks like TripAdvisor have been hammered by the threat of AI. And you add on top of the fact, the fact that TripAdvisor missed its earnings expectations just last week. Well, all of this caught our eye not only because these are case studies in how activists work, picking moments like CEO turmoil and earnings misses to double down on their activism, but also because the threat of travel is one we talk about a lot on this show. So Elliot Management and Starboard clearly share our view that consumers consumer demand for experiences is ripe for optimization, whether in cruising at Norwegian or in touring through Viator. Getting there though, getting to optimize that demand really comes down to the art of execution. And that's what these activists are pushing for. Norwegian Cruise line that's ticket NCLH up around 13 today. TripAdvisor ticket trip up around 12 also signs that the market likes it when these activists rattle their sabers and force management teams to make some change. Fascinating. To see how this pans out. We're going to keep on watching. Well, coming up, Medtronic is one healthcare company you may not have been paying much attention to, but it increasingly sits at the intersection of AI and medical devices. So we sweep through the latest from the $124 billion market cap giant. Plus big food stocks were on the way. Today we break down why. But first a word from our sponsor, Charles Schwab. 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John Croteau
Uncover new opportunities with up to the minute market news and insights. ThinkOrSwim is available on desktop, web and mobile to meet you where you are. So you never miss a thing. It's built by the trading obsessed to help you trade brilliantly. Learn more@schwab.com trading well, lots of big.
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Ann Barry
Names are reporting earnings this week, but there's one that we wanted a shine a light on in the healthcare sector by covering today's earnings from an OG medical devices giant and that is Medtronic. Well, the company's been around for a while and it has its roots in cardiac care and it continues to focus on the heart, but is also expanding into robotic surgery and application of AI. We're going to come back to that in just a moment. Well, the company is a big one and it's not just their market cap. So here's a few stats from their website. It has nearly 100,000 employees, which includes over 13,000 scientists and engineers located in a whopping more than 150 countries. So John, give us a whiz through today's earnings and let's dig into what on earth has been going on in this one because it's actually been a lot.
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John Croteau
Yeah, absolutely. Medtronic ticker MDT on the New York Stock Exchange market cap of $123 billion shares were down over 3% this morning after earnings revenue of $9 billion was up 8.7% year over year, which beat expectations. Adjusted earnings per share of about $0.89 was in line with expectations the company reiterated its fiscal year 26 organic revenue growth and EPS guidance which didn't thrill the markets.
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Ann Barry
Yeah, meeting expectations like flat as the new down at the moment. So the market was indeed wanting more. And there's actually I think a reason for that John. And I've seen in businesses like this one which are pretty diversified in moments like this the market says by virtue of your diversification you've got lots of options, there's lots of different ways you could perhaps do better than we thought you might. And here's a sort of quick tick through Medtronic's diversity of operations because it's pretty broad, it's got four divisions. Let's start with cardiovascular. Had a three and a half billion dollar quarter stand out in terms of organic revenue growth was up 11 year over year. And a particular whopper in there was the cardiac ablation solutions piece of the business which grew 80%. That's as a result of some real product Innov Innovation Treats afib for example. So that's arrhythmias, so heart irregularities. That product was rolled out in 2024 and clearly the take up has been extremely successful. Now this is the division that if you go back in Medtronics history, this is where it all started, right? This is what made the company. And Medtronic developed the first wearable battery operated pacemaker in the 1950s which was just such a game changer for folks who were dealing with irregularities in their heart rate, in their heartbeat. A huge pedigree here. Well three of the other divisions, there's a neuroscience division which grew 2 and a half percent organically year over year. A medical surgical division, $2.2 billion of revenue, 2.7% organic growth year over year. And then pay attention to this one. A diabetes business which produces products like insulin pumps and continuous glucose monitors which saw 8.3% organic growth year over year. And diabetes is a terrible, terrible thing to say, but diabetes has been pretty big business at for sort of American companies in recent decades just with the penetration with the rate of diabetes diagnosis just having gone up a lot actually in sort of the last 20 years or so.
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John Croteau
Exactly. And last year Medtronic announced it's going to spin off that diabetes business in an independently traded company called Minimed. And like you mentioned, those three other divisions are hospital focused. Mini Med would be dedicated to consumer focused company. That's what the press release said a couple months ago that I read. But today the CFO of Medtronic said quote, diabetes has a lower gross margin rate than the rest of the business. And so once that business goes away, it'll give us a natural lift from a gross margin perspective. So it's another way of looking at the spinoff is lifting the margins. And S1 has been filed, but no IPO date has been set. It's expected probably in the next few months. And Mini Med will be based in California. And it makes me think of Austin Powers every time. Today I saw minimed. Mini Med.
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Ann Barry
Because you're thinking of Mini Me, which is the Austin Powers. The famous. The punchline. Yes, the tagline of Austin Powers. Yes. I can't, I'm like losing my train of thought now because all I can think of, I have this image of Mike Myers in my head doing his impersonation of the jet, you know. Anyway, there we go. Immersed in English culture over here. Well, just in terms of what's going on with the rest of the business. So yes, Medtronic or spin off Mini Med, that consumer facing business going out on its own. So in terms of the rest of its business, let's look at what might happen next. Now M A has been at the heart of Medtronics inorganic growth which has been substantial over the last couple of years. Now earnings per share, as you said, John, were $0.89 down from just over a dollar this time last year, driven by a total dollar decline of $150 million. And the company said that was owing to new investments and continued research and development spend, which you would actually think is a good thing. It means you're investing today, which may give you a hit to earnings today. But you're doing it to make sure your growth continues in the future. And it's interesting to see where that growth hope is coming from for Medtronic. And it's clearly going all in on its cardiovascular portfolio. Earlier this month the company said it would exercise an option that it had to acquire the privately held business Cathworks for about half a billion dollars. And this is a pretty interesting one, John, because Cathworks is a digital health company. And what it does is it takes routine 2D angiograms and it turns it into like full 3D models so that those reading these images can actually see much more holistically what is going on with the state of the heart and any threats of coronary artery disease without having to do lots of invasive procedures or using drugs to induce stress and to get readings from that stress induced state. So this is a pretty interesting example of where you've got Medtronic taking the cash that's Coming from lots of longer term products and reinvesting in something more cutting edge to expand its portfolio.
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John Croteau
And if some. As someone who lives in a family with a history of heart disease, I've had one of those stress tests.
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Ann Barry
Have you?
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John Croteau
Yeah. And it's interesting to see the, the potential progress into less invasive procedures for heart problems.
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Ann Barry
This might be a personal. But what happens in that stress test? So do you take drugs and what happens exactly?
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John Croteau
It's partially a drug and then also it's on a, on a treadmill.
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Ann Barry
Oh really? Yeah.
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John Croteau
So you're hooked up and you're actively on a treadmill. So obviously that's not invasive. But I'm familiar with afib, there's not always solutions for that. And so you mentioned that they're the new AFIB product, that they have the procedure also less invasive, it can target certain cells without bothering other tissue.
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Ann Barry
Interesting. Well, they're not stopping here. In January, Medtronic also announced its intention to buy up to $90 million worth of shares in Antares Technologies, which makes devices to treat heart valve diseases. So that's not just diagnostics, that's actually moving into treatment. But despite that, it looks as though the market, to your point, they weren't, it wasn't inspired by the fact that there was a sort of incremental news to notch this up further. And, and this is a really interesting one, John. So I bought into this two or three years ago and at the time I did my thesis was the following and it was sort of simple but hasn't quite panned out yet. And my theory was the following. And just remember ChatGPT had just taken the world by storm and it was very clear that there was going to be increasing spend by the hyperscalers to make sure that AI could be adopted. And the part there were two areas I thought were being under inspected and those were big hardware players, players that owned the space in terms of medical devices. The other one I looked at was agricultural equipment. So I bought John Deere at the same time. And my thinking was these are industries, these are totally dominant players into really important sectors. And at some point if their equipment is going to be able to use all of this amazing AI and can actually deal with these software upgrades in order to make that possible, the hardware itself is going to have to be upgraded, the chips are going to have to be upgraded, so there's going to be a replacement cycle, I think where hospitals are going to have to replace their outdated machinery and get the new good stuff in. And so my thesis, when I bought Medtronic two or three years ago was that will come and that will create huge demand for Medtronics devices. And as a result, at some point we'll see a pop. It hasn't happened yet. It hasn't happened yet. So I'm a disappointed shareholder as of now.
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John Croteau
But I was looking at the report that came out today and there were a few highlights right on the first page that Medtronic came out with. They secured us FDA clearance for Hugo, a robotic assisted surgery robot and secured us FDA clearance for Stealth Axis, a surgical system for spinal procedures. And these are robotic AI infused surgical options for the future. And trying to address. I saw this today, JP Morgan analyst that has the stock as a hold said in, in their coverage, what's next? So we're seeing what's next. There's FDA approvals, but you have to wait to see how these are tested and adopted and rolled out.
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Ann Barry
Yeah. And the five year share price, look, it's down 25% off its pandemic peak. So again, just in terms of my own experience, I thought was, but I thought I was buying a dip. And it hasn't seen the resurgence upwards yet. It's been sort of flat to slightly down. But that next big catalyst we will see by virtue again of spinning out Mini Med, the Austin Powers inspired name over there. We'll see whether it basically means that Medtronic gets down to business and really focuses on what could be next for the AI focused applications. There's also one thing that we wanted to just dig into a little bit here because it's an interesting quirk of corporate finance and that's a, that sits in the history of Medtronic. We will see it again, I'm sure. But this is an interesting case study just to bring it to everyone's attention. So Medtronic was founded over 75 years ago and it's based operationally in Minnesota. Right. It's like a good American business in the Midwest. It's got, you know, great origins here. But 10 years ago the company made a pretty strategic move in terms of expanding its footprint overseas.
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John Croteau
Right. They bought Covidian, which was legally based in Ireland. And as part of the deal, Medtronics headquarters and ostensibly for tax purposes was shifted to Ireland. And so even though its main operations, its executive leadership team continues to be based in the United States. This $43 billion deal brought Medtronics to Ireland. And I was looking at the investor shareholder report today and it came out of Galway, Ireland.
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Ann Barry
Yeah, I mean this is really, this is Something I'm not going to nerd out for a minute. This is something called tax inversion. Inversion, which is basically Ireland at least at the time that this deal was done, had a lower corporate tax rate from than the United States. And so as part of this deal one of the benefits was Medtronic saying we're going to buy you obviously there's going to be operating efficiencies. There were big synergy numbers expected at the but they also said look, by basically changing where we are technically resident that means we get to pay a lower corporate tax rate. So that's, that's something when you, you will see in the news sometimes talks about lots of countries sort of banding together trying to get to a lowest common corporate tax rate so that no one is sort of able to get around the system and end up being the country that attracts the official headquarters. Literally most favored nation, literally favorite nation. Well the share price finished down nearly 3% today. The stock up 4 1/2% year over year. So something we're going to keep on watching again I do think it's worth keeping an eye with. AI seems to be hammering software stocks. On the one hand, it's lifting up others like Meta on the other, trying to find places to play that may not seem completely AI focused at the moment. Hanging on in there. I'm not selling. Waiting to see if this one can get that catalyst. Well, let's take a break and when we come back we take a spin through the headlines that are moving the markets today. Producer John, I want to set you up.
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John Croteau
All right. Well I'm not on the market but either way I don't know if I trust you in that department.
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Ann Barry
Oh yeah, well would you trust a matchmaker who uses AI to comb through a database of people who meet all of your criteria?
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John Croteau
Actually yeah, that sounds great.
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Ann Barry
Well that's what sitch matchmaking does. It was designed specifically for the high intent data out there such as detailed onboarding gets to know exactly what you're looking for and your non negotiable.
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John Croteau
Okay, well my non negotiables include being a good pet parent and having an up to date will and testament specific.
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Ann Barry
But yes, their matchmaker will help ease you into conversations to avoid ghosting and actually set you up. Skip the waitlist@joinsitch.com morning brew that's joinsitch.com morning brew.
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Commercial Narrator
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Ann Barry
Well, it's 4pm on the east Coast. There it is, the closing bell. The markets are wrapping up for the day. We don't have a ticket to tape, so I'll throw it over to our human ticker, our producer, John.
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John Croteau
That's right, The S&P 500, the NASDAQ and the Dow all finished up nearly tenth of a percent today.
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Ann Barry
Well, there was one update that we were watching out for because it started as the murmurs about this I'd come out over the weekend. So it all lies on it today. And that was an update in the saga, and it really is at this point a saga over the purchase of Warner Brothers Discovery. So Paramount Sky Dance, which has been battling with Netflix to try to win Warner Brothers, Paramount Skydance is getting, getting seven days to come up with a quote, best and final offer thanks to Netflix giving Warner Brothers a waiver. So seven days to go and figure out whether a deal with Paramount is something that might make sense for that particular company. And this is sort of, it's not crazy unusual, but it's unusual enough it was worth talking a little bit about what's going on.
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John Croteau
And in the meantime, the war of words has been very interesting. Netflix said, quote, we recognize the ongoing distraction for WD shareholders and the broader entertainment industry caused by Paramount's antics.
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Ann Barry
Antics, yes. Sharp use. That was a slap on the wrist with the way. Antics.
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John Croteau
All right. And this has gone from a merger moment to a melodramatic merger marathon.
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Ann Barry
Yeah, this one's really interesting. So again, Netflix is saying, okay, you guys, Paramount, Warner Brothers, you've got seven days. What? You know Paramount, you've been wooing Warner Brothers. Show us what you got. Right. Put to bed the concerns that have been out there. Warner Brothers has told you that your bid is insufficient. Now's your seven days. We're going to be generous or pragmatic. I'll come back in a moment. Go figure out, show folks the money and show them deal certainty in order to get this done. So Netflix giving Warner again permission to temporarily re engage in takeover talks with Paramount while still pursuing its own 72 billion dollar merger with the company. So the streaming giant seems to be banking on this window, just putting to bed once and for all any doubts that might be out there. Any deficiencies that could be perhaps explained away or basically a light shone on. They want to get this ambiguity over before a scheduled March 20 shareholder vote. And there's also, I was talking to some folks in the mergers and acquisitions advisory world today saying, is this like a throwing down the gauntlet? Show us the money movement? How aggressive is this? And actually one person came back and said it's actually probably quite smart by Netflix and by Warner Brothers because it means if shareholders at some point want to turn around and sue and say that you weren't giving the Paramount bid sufficient consideration, this kind of move, giving them the seven days can actually perhaps be a bit of a CYA down the road. So that was a perspective I hadn't thought of. I thought that was pretty interesting. Well, shares in Warner Brothers discovery were up 3 1/2% today. Shows that the market does like a bidding war to get that stock price moving. And it's just about a dollar short right now of the 30 bucks a share that Paramount had initially offered. Look, we're not, we don't want to belabor this deal because we know some folks have said, look, we're just bored of hearing about it. But there are moments like this where the drama continues to unfold.
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John Croteau
Absolutely. And moving over to food, shares in General Mills ticker GIS were down 8% today after the company lowered its fiscal 2026 sales outlook. CEO Jeff Hammering said cereal snacks and dog food were seeing the biggest hits from the shakier consumer environment, fueled by higher inflation and reductions in food aid benefits. And about those food aid benefits and changes to federal policy last year allowed states to alter what products products are eligible for purchase through SNAP. So far, 18 states have added restrictions on soda and processed or what some people consider junk foods.
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Ann Barry
Yeah, it's very hold on to that thought on the federal position versus the state position because that's going to be a thread coming up to the end of the show. Just a reminder, in December, General Mills said it had lowered prices across roughly two thirds of its North American retail business in the face of shaky consumer sentiment, something that folks continue to watch. Earlier this month, Pepsi lowered the cost of its chips. It did a turnaround on its pricing strategy and said that Filets, Doritos and Cheetos it was going to cut prices by up to 15%. So something very meaningful going on here, particularly in this K shaped economy that we keep on talking about, with those with lower incomes really feeling the heat from inflation still and the food companies really having to adjust to try to meet them. Where Their budgets are.
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John Croteau
That's right. Another snack company with a snack food portfolio, Campbell's, the maker of Goldfish crackers, saw its shares down 7% today.
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Ann Barry
And we think it was again on that same issue where the snap benefits is going to impact the take up of their products. Well, finally an update on policy around prediction markets which we've been sort of tiptoeing around in the run up to this one.
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John Croteau
Absolutely. Last week with the super bowl, we surveyed multiple companies that are getting involved in prediction markets like sports gambling apps DraftKings and FanDuel's parent flutter along with fintech companies like Robinhood. Well, the question we keep hearing is, is how are these markets legal and excused from state to state gambling regulations? Well, today the Commodity Futures Trading Commission filed an amicus brief in federal court to assert its federal authority over prediction market enforcement and regulation.
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Ann Barry
Well, there was a Wall Street Journal op ed yesterday and the CFTC Chairman Michael Selig wrote, quote, the CFTC will no longer sit idly by while overzealous states, state governments undermine the agency's exclusive jurisdiction over these markets by seeking to establish statewide prohibitions. So this has become a political issue, which is basically the CFTC saying as a federal agency we remain oversight even if the states are pushing back. Now, this has created some division amongst the Republicans in the GOP. So for one example, President Trump's son, Donald Trump Jr. Has invested in Polymarket through his venture capital firm. He's known to be a strategic advisor. Kalshi. So there you've got a representative of the party who's sort of all in clearly. But you've got other members of the GOP that have pushed back on Seligman's announcement, including one we couldn't help but shine a light on from the government of Utah, Spencer Cox. John, there's a post on X. Read the quote for us if you don't mind, because you'll deliver it better than I do.
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John Croteau
Yes, you found this one and it's great. And the quote is Mike. And that's Selig, the commissioner. I appreciate you attempting this with a straight face, but I don't remember the CFTC having authority over the, quote, derivative market of LeBron James rebounds.
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Ann Barry
So there you go, Governor of Utah dropping the mic on this one. But very interesting to see how this is going to continue to unfold because we have seen, as John said up at the top, we've seen the share prices of FanDuel and DraftKings dropping in the wake of the onslaught of competition coming from prediction markets, players and how that spread to fintechs. So the the actual ruling here is going to be pretty important. Well, I have my tea brewing to caffeinate for Palo Alto Networks earnings because the cybersecurity giant is teed up to have a lot to say on the impact. Positive perhaps, but maybe also the negative impact caused by AI to its markets and its operations. Now, we've talked a lot on this show about which way AI can either hurt or help certain sectors in the software and adjacent technologies. And so this is one we're all eyes on, plus all ears because the CEO is expected to make comments on where quantum computing is going. So all of that we've got our eyes on on for tomorrow's show. That's it for today's Brew Markets Daily.
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John Croteau
Brew Markets Daily is hosted by Anne Barry and produced by John Croteau, Tarka Delatif, and Emily Millard. Our technical director is Uchena Waugh, Jim Orzo is our audio engineer and the president of Morning Brew Inc. Is Devin Emery. If you have any feedback or company you'd like us to COVID leave a comment or send an email to brewmarketshoworningbrew.com.
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Ann Barry
Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.