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[00:00]
Contessa Brewer
The board recommends approving regarding that seat on the committee.
[00:02]
Stephanie Link
We're promoting quarterly earnings.
[00:04]
Vanguard Marketing
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Mike Santoli
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Jim Lebenthal
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[01:01]
Jim Lebenthal
I'm Scott Wapner and you're listening to CNBC's Halftime Report. The podcast the most profitable hour of the trading day.
[01:09]
Rob
We record this live weekdays at 12 Eastern. Listen in.
[01:17]
Mike Santoli
And welcome to the Halftime Report. I'm Mike Santole in for Scott Wapner. Today the tech trade front and center this hour as we track major moves from Apple and Amazon. The investment committee is standing by to break it all down. Joining me for the hour, Jim labenthal, Amy Raskin, Rob and Stephanie Link. Great to see you all. Let's get a quick check on the markets actually started a good deal higher today on The S&P 500 more than 1/2 of 1% higher did go negative. Now we're rebuilding a little bit. Modest moves 7450ish on the Dow Jones industrial small caps continue to underperform. It's a bit of a mega cap led day to the upside. Amazon in particular surging following Its earnings up 14% of course follows yesterday's 15% gain in Microsoft. So clearly guys, we have a lot of these spring loaded stocks. There were doubts surrounding many of them. We'll talk about, you know, Apple down the road pulling the other direction on its reaction. But talk about Amazon. And Jim, you want to get us started about what was clarified, if anything, about the underlying story and whether it's going to have legs?
[02:24]
Jim Lebenthal
Yeah, I mean I'm going to, I'm going to simplify this and leave room for the rest of my colleagues to join in here. But there's two things really. First off, the growth in Amazon Web Services 30, a touch below Microsoft Azure at 43% reported yesterday or the night before that. Nonetheless, these are breathtaking numbers and every sign is that those numbers are going to continue in the quarters to come. So that's number one top line growth at Amazon Web Services. The second thing is overall path to profitability. One of the key data points that I took away from last night's call is that on average it takes less than three years for the investment by Amazon in one of its data centers to pay off. That's a very short time frame, especially compared to the depreciable lifetimes of these data centers, which are 30 years. And maybe people are going to say they're not going to last that long. Regardless, the path to recover that cost is less than three years and that's the path that we're looking for. The profitability at Azure was of course terrific and these are in contrast to say a Metta and I don't want to pick on Meta, that's not my point, but where the path is less clear to profitability. So I really think it's just that simple. I'm not going to make it harder than that.
[03:34]
Mike Santoli
I mean other simple piece of this, Amy, was that Amazon was almost literally dead flat for a year before going in.
[03:41]
Amy Raskin
Microsoft was down for the year. So you're seeing this rotational narrative in AI and it's the losers are now beat expectations that had been beaten down and the winners missed expectations that got too high. I actually don't think this quarter answers a lot of the long term questions with regard to the profitability of AI. Yes, we know AI is generating a lot of data, but still it's not. It's being financed through equity offerings, circular deals and debt offerings. It's not being financed through a revenue yet. So I don't think we really have the ultimate answer. I think we're going to continue these circular narratives for the next quarter and there will be at some point that people will be worried that Amazon spending too much money and Apple will get the benefit of the doubt for not spending the money. And we're just going to keep on this loop. It is. Amazon had a great quarter, obviously cloud growth, they're the leader in cloud. The cloud growth was amazing. I expect that to continue. But I don't think it answered the long term questions and I don't think we're going to get answers to those long term questions anytime soon.
[04:43]
Mike Santoli
It's somewhat familiar, Rob, in the Sense of, for Amazon's entire history, it's unlike some of the other competitors, has had this pattern of hey, we're in investment mode. Long term it's going to be fine, but for now we're going to take some financial pain. The other piece of it though, just market wise, is just enormous percentage moves in multitrillion dollar market cap companies, which, I don't know, does it tell us something about the underlying kind of jumpiness of the market or fickle positioning or, you know, these are, these are not great charts necessarily the ones where they're now getting the benefit of some of this buying.
[05:20]
Rob
Well, what's interesting is I think it was a story of clarity. Those that provided a lot of clarity on how they're in a monetized AI and provided that path, those stocks did well. Those that were a little murky on that we're continuing to spend, the stocks had a more difficult time. I think you can look across the board, all these earnings are really, really good. Right. And you know, Andy Jassy helped quiet the, you know, capital intensity monetization questions yesterday. I thought he did a great job there highlighting the surging backlog, attractive ROI that they're already seeing in their businesses. And the long term growth potential was clearly outlined. So you had a stock that lagged and ultimately what ended up happening, you're playing catch up because of the vision. Yeah, the clear articulation of the vision, which obviously matter, didn't do as great a job of and frankly maybe our new Fed chair didn't either.
[06:17]
Mike Santoli
Yeah.
[06:17]
Rob
So those are things that I think the market is looking for right now is more clarity.
[06:23]
Mike Santoli
Ultimately, Steph, a lot of these equate, a lot of the calculus comes down to do you trust a given CEO to be a good steward of capital as they go through this kind of headlong investment process? Presumably Jassy and Amazon have kind of gotten the benefit of the doubt on that to some degree. On the other hand, these backlogs that all these companies are touting it is contingent on financing down the road. Right. The money's not in the bank to actually pay for all of it.
[06:55]
Stephanie Link
Well, first and foremost, Amazon's quarter was spectacular. Like everyone is talking about, they saw acceleration across every business line. U.S. retail, advertising and profitability hit a record high with operating margins at 13.7% and why we all care about us and we talk a lot about it because it's 60% of operating income at the company and expanding at a rapid pace. And so we better see better growth. Right? So they at 37% saw acceleration. The question is can to your point and your question, can they continue to see this acceleration? They have doubled capacity and I think the visibility is strong because it's not just the backlog of 496 billion for us, but it's other parts of their businesses as well. If you add trainium to in terms of commitments, that's another $225 billion. If it works and they can convert, you'll see at least 25% growth for the next five years. Yeah, it does depend on financing. And I think Andy Jassy would say spend more than he's already spending just given that he's already starting to see these ROI come through. I think he's measured, but he did a very good job in terms of explaining why they're spending as much as they are. But you saw rois at was Azure and Google Cloud. They are absolutely the winners. I don't care what the stocks have done up until this point. There's a lot of momentum here and even if you cut the backlogs in half, you're still going to see outsized growth and market share gains. And I think that this gives me so much more confidence in the whole AI food chain narrative because all this spending, I mean, we thought 800 billion at the beginning of the year. This is going to be like 900, 950 billion this year and it's probably going to grow to 1.6 trillion, Mike, next year. That's way more than people think they're not putting the brakes on. But if you can see the returns, I think the market gives the benefit of the doubt versus Metta, as Rob mentioned. They don't get the benefit of the doubt.
[09:16]
Jim Lebenthal
So. So just a little bit further and stuff. I love the way you set that up because you started with, hey, of course we're talking about us because of its profitability and growth profile. But let's not forget that the Overall company grew 20% revenue year over year. That's about 35 billion just in the quarter. Extra $35 billion of sales obviously annualize that, you get to 140 billion. That's a big number. That's why the stock can add so much market cap in a day like it does today. And I think another important detail is they are talking about building their own large language model. Now, one of the stocks that's done extremely well, we know, over the last year, year and a half, is Alphabet Google.
[09:56]
Mike Santoli
Why?
[09:57]
Jim Lebenthal
Because it's been a triple threat. Right. It's got the web services of its own. It's got, it's designing its own chips and it has Gemini. Amazon is now talking about putting the third part of that stool into place. It already has the chips, it already has web services. Now it's talking about, about a large language model. So these are the sort of under the hood things that once we get through the numbers and look at, I think are a reason why Amazon and Google are definitely the leaders right now. Microsoft looking pretty good. Obviously they don't quite quite have the large language model. They've kind of co opted that with Open Air and other things. Nonetheless, that might be the less least important of the three legs of the school.
[10:37]
Mike Santoli
I don't know. It doesn't seem as if the market right now is thinking that the overall pie is growing and we need more players in there because we don't.
[10:47]
Rob
That's why it's an art. That's why it's an arms race right now. So that's why you're saying and you're not going to see the spending slow. I think, I think this is a disjointed notion that the financing is not going to be there. If you start to see operating leverage from this, it will be there. You know, you talk to any of the private credit players while they're largely exposed, like a 10 year, they're going to be there to finance these things. And these guys have told you we don't care what the market is saying about this spending. We're going to be measured, we're going to be more clear, but we do not care. We need to spend to win. And by the way, who's to say that Metta at some point isn't going to decide to sell Compute, monetize Compute when they're trading at 15 times, you got, you got Amazon right Now trading at 20 to 21 times down from a 10 year average of 50. Yeah, I mean, come on, staff, it
[11:41]
Mike Santoli
said, you said it kind of reinforced your faith in the food chain hardware trade. You know, obviously that has just been massively whipsawed. And you look at Micron, we thought yesterday kind of the fever broke. We had these forced liquidations. That trade was right in the crosshairs of it massive rally yesterday. You know, Micron is going to pace for a 10% weekly loss. It's like 100 bucks off the intraday high. I just wonder, you know, kind of what settles things down, if anything. Because what we did see is those highs were printed on lots of leverage and momentum and crowding and now we have to figure out what the real levels are.
[12:20]
Stephanie Link
Oh yeah, sure. I mean, and I don't know if we're out of the woods, but I am confident in this, the whole capex numbers and like I said, if you, if you think we're going from 900 billion to 1.6 trillion, you know, we're going to have ups and downs in a variety of different sectors, but the capital is there, the spend is there, and therefore the, there's so many different industries that benefit. It's not just semiconductors as well Mike, as you very well know across the board in industrials, they were rock stars. Look at Quantum Services yesterday and ge, Renova and Eaton today, a lot of different industrials that are doing really well, even Bolero, Sherwin Williams. I mean there's, there's so many companies out there and sectors that are benefiting from all of this. Capex semiconductors are part of that, there's no question. And Micron is very volatile. But I do think they have $100 billion in commitments to between now and 2030 and those are take or pay, Right? So they got to take them or they have to pay anyway. So the point being is that's visibility. They have 22 billion in cash upfront now and they have pricing power because we're a short compute, we're short memory, we're short everything for that matter. And so I think what I was looking for, validation in these quarters from the hyperscalers was yeah, the commitment to spend because I would be more nervous about a lot more things if we saw a cut in capex. So while we weren't really happy with all of this spend up until now because we weren't seeing roi. Well, by the way, now we're starting to see roi, so we should feel better overall.
[13:55]
Mike Santoli
Amy, you don't think the financing ultimately
[13:57]
Amy Raskin
will be there for 1.6 trillion of financing? I mean the cash flows are going negative, the 10 years going, interest rates are going up, they're having a harder time every time they do secondary coming to the equity markets or they're a little less bid. So it might be there, but it's going to be more expensive, which makes the return hurdles more and the more people that get into the fray, the lower the overall returns are for everybody.
[14:21]
Jim Lebenthal
So it's a good point. The jury's out.
[14:23]
Amy Raskin
We're going to have to wait to find out.
[14:26]
Jim Lebenthal
But I think there's a big technicality that's being overlooked here and I could, I didn't watch the show yesterday. So maybe we covered it then. There are margin calls all over the place.
[14:34]
Mike Santoli
Oh, that's what we were saying about the forced liquidation.
[14:37]
Jim Lebenthal
Yeah. I think two weeks ago you had 1.2 million Korean retail counts liquidated. Yesterday or the day before, you had situational awareness, basically punting its equity portfolio.
[14:46]
Mike Santoli
The story yesterday was, they're out now we're safe.
[14:50]
Jim Lebenthal
Well, yeah. Or who's next? Yeah, I mean, that's the question. I mean, I don't think we stop there, but this is something that will pass. And by the way, we don't know what Citadel is doing with the portfolio that it bought. If I were Citadel, I would hang on to it. I mean, Amy, maybe if you're feeling a little bit more suspect about the financing, maybe you wouldn't. That's okay. Neither one of us are. Ken Griffin, they're doing any every which
[15:11]
Mike Santoli
thing you can imagine with that portfolio. They're hedging part of it, they're selling part of it. They're piece of part of it.
[15:16]
Amy Raskin
Right.
[15:16]
Mike Santoli
It doesn't, you know, but if you
[15:18]
Jim Lebenthal
look at, if you look at Micron, notwithstanding the suspicions that you're voicing, okay, Roughly six times forward earnings next year has a free cash flow. Let me just finish it. I know there's questions. Next year's free cash flow Yield is about 14%. And in December, they reach the anniversary of the Chips act, after which they can start buying back shares. I mean, they can buy back a meaningful number of shares with that free cash flow. So I look, of course there's going to be some questions about whether those contracts are rock solid. Okay. Those are reasonable questions, but I think it's unreasonable. The valuation that we're seeing at Micron, and I try to explain it. You can explain it by questions about the financing, that's fine. I explain it by questions about who else is delevering.
[15:59]
Amy Raskin
I'm not commenting on Micron or I'm just saying there the market is now discounting a very, very, very large AI spend in perpetuity.
[16:09]
Rob
I don't think 30. At least 30.
[16:12]
Amy Raskin
And maybe it happens, maybe it happens more slowly. I think at some point people are going to say, overall, I need returns on this. I think the cloud guys get the returns.
[16:21]
Stephanie Link
They're.
[16:22]
Amy Raskin
That's where all the data is. But, you know, whether everybody can get the returns. We're see, we saw Space X, you know, sort of there are more doubts than there were a few weeks ago. You're going to have anthropic come to the market in the Next month and a half or so, I think there's going to be a lot of questions about what they're spending and what their revenues are. We'll get more numbers. Open Air has now said they're not going to come to 2027. You know, so I do think there's a lot of more, there are a lot more cards to unfold. But we do have to acknowledge that the financing environment is getting harder.
[16:52]
Mike Santoli
Staff, you were going to weigh in. Sorry, Steph.
[16:54]
Rob
No, you
[16:57]
Stephanie Link
well know that. I mean, there are winners and there are losers and the companies that are profitable are going to make more, more money, generate free cash flow. And yeah, they're going to spend the free cash flow, but it's not like they're not getting free cash flow because they're starting to see the returns. So we're going around and around in a circle and there are winners and they're going to be certainly losers. But I think the companies that just reported this week, Alphabet and Microsoft and Amazon are in the catbird seat because we are seeing not only record growth, but record profitability. That's the most important thing because that generates free cash flow and they can use that. So maybe they don't have to do as much financing. And that's a really important point.
[17:42]
Mike Santoli
Well, I think it's, I mean it gets pretty complex, but the financing, a lot of it's happening on the project level. And so the economics you're talking about, if you're putting up money for this box in the desert is the rent. It's not like, oh, the magical network effects of AI, what it's going to give Microsoft and open AI. But Rob, what you were going to say.
[17:59]
Rob
I was just going to say that these businesses, we haven't derated the story. This is not because of a growth scare. This is a positioning unwind. We got way overbought, massively overbought. And a lot of the structure that has underpinned these businesses from an earnings standpoint, from an investment standpoint is maintained with risk. But give me those risks all day because that's what causes markets to climb, is the slow removal of negatives and uncertainties is what allows markets to. Markets to climb walls.
[18:36]
Mike Santoli
I agree with that. But here's what's always funny about that is it's only positioning on the downside, right? Maybe the last 40% to the upside was just people re levering and super torque positioning and a stampede into momentum. Mike, it wasn't like the fundamentals drive.
[18:52]
Jim Lebenthal
I think that's where we were in late May. Right. Remember we were in the storm of parabolas. We were all talking about it and I think we were talking about positioning that I think think literally every one of us on the desk said hey, now is a good time to check your position sizing.
[19:05]
Rob
But something chase something without price momentum. The answer is no. So of course that happens.
[19:12]
Jim Lebenthal
But a little more on this. Look, here's in case I'm not clear. I think this is more about technicalities of the market than that we are at peak spending or the market is really worried about peak spending. And I just want to give a little more to that because you mentioned SpaceX index. Let's not forget there's been a ton of supply of stock to the market over the last month and a half. I mean there is a digestion period that goes on. Let's also not forget that we're entering entering August, a traditionally low liquidity time in the market. A time of the year when you get this sort of volatility. So I think this is far more about market structure and tactics than it is about the fundamentals of the we'll
[19:52]
Mike Santoli
have to hear the kind of 180 degree other version of all of this. We'll talk about Apple a little bit at some point. But up next we want to get to the great rate debate. Treasury yields breaking out in a big way this week. How the committee is playing it. That's next after this break.
[20:09]
Contessa Brewer
The board recommends approving regarding that seat
[20:11]
Oliver Renick
on the committee we're most quarterly earnings
[20:13]
Vanguard Marketing
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Jim Lebenthal
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[21:09]
Amy Raskin
What made you confident that you could
[21:12]
Stephanie Link
do something that hadn't been done before.
[21:14]
Contessa Brewer
I have no fear of failure.
[21:16]
Julia Boorstin
Trailblazing women, changing the game One of
[21:19]
Contessa Brewer
my favorite pieces of advice Think about
[21:21]
Stephanie Link
what your boss's boss needs.
[21:23]
Amy Raskin
Leadership can look in many, many different forms.
[21:26]
Contessa Brewer
It really does come down to just trusting yourself.
[21:28]
Julia Boorstin
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[21:30]
Stephanie Link
think big to accomplish big things.
[21:32]
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[21:57]
Mike Santoli
We are back on halftime and continue to follow this big back up in yields. Oliver Renick tracking the action live from CBO Global Markets in Chicago. Oliver hey guys.
[22:08]
Oliver Renick
Bond market options flows are definitely more bearish than earlier in the week when traders were loading up on TLT he calls before the Fed decision. Maybe those bullish treasury buyers didn't realize that no hike would mean higher yields. But based on options trading today in the ten year futures, more pain for bond bulls might be in store. Traders bought more than seven times as many puts as calls. And with the 10 year yield highest since January 2025, those puts are working. Looking at TLT, the top five contracts by volume right now are all pushed puts and the most actively bought is the 75 strike expiring in June next year. That's a trade that needs the long term Treasury ETF to slide another 10%. Oh, and by the way, in the Corporate Bond ETF LCD, 121,000 total options traded today 120,000 were puts.
[23:02]
Mike Santoli
Interesting. TLT of course is Treasuries 20 years and longer in in maturity. So that's where the action has been. Oliver, you mentioned that, you know, going into the Fed meeting it was, it was all about calls. So playing the upside in the etf, which means downside in yields. I mean, I guess we have to be on alert for the idea that this put frenzy is another contrary signal.
[23:25]
Oliver Renick
You know, Mike, it's interesting because it really depends on whether or not traders see this is what I've been calling the bizarro bond world that's really been going on since the late 2024 when yields and interest rate decisions actually move inversely to one another. Since Powell started cutting in the back half of 24, yields went up during that period. So perhaps we're still in that situation where it gets very tricky. If you're buying calls thinking that this was actually going to lean dovish and yields would come down, you were wrong. But you got the dovish part arguably, right?
[23:53]
Mike Santoli
That's right, exactly. Yeah. The relationships shift around. Oliver. Thank you very much. I mean, is anybody tempted here to say, look, the market's giving you highest real inflation adjusted treasury yields in a long time? Yes, you are.
[24:07]
Rob
Yeah. I mean, I think this is just getting used to a new commuter or little communication style from the new Fed chair. We're having a zoo steepening right now where short term yields are falling, long term yields are rising. That indicates diminishing confidence in bed credibility. I think it's tough to make that judgment after one meeting.
[24:30]
Mike Santoli
Well, it's two meetings and after the first meeting you had a flattening and everybody said he established credibility.
[24:36]
Rob
So but that being said, it's early. It's early and he's trying to let the bond market do some of the work for him. And rest assured that this guy has not gone stupid. He didn't get the stage seat for that. For that reason. You only had three dissenters on the surface. This would have been a, a benign meeting had there been more communication with it. So you have a market that's adjusting to a new style. I think now, I think there's some of the inflationary pressures are real, many may be transitory. Right, right. And so this story is yet to be written in so far. Any time you had these pickup inside yields, it's paid to take it.
[25:17]
Mike Santoli
But here's the thing, I mean, because if you're going to let the market kind of figure it out and then signal the Fed on what to do or whatever that might look like really from the beginning, his idea, Kevin Warsh's idea of a less transparent Fed is based on a premise that a transparent Fed has muted volatility in the markets. It's been too predictable and therefore markets have done better than they otherwise wise would have because of a big balance sheet in a transparent Fed. So by definition, if he wants to change all that, he wants more fixed income volatility and maybe markets don't maybe do as well. Amy?
[25:52]
Amy Raskin
Yeah, no, I'm really worried about yields moving up. I think this is something to be concerned about. If you look at the graphs like yield equity port matrix, we're in red territory, we're in dangerous territory. Equities where higher yields will impinge on equity on equities. So it hasn't happened yet. I still, if I think if yields keep going up, I do think it will happen and I think we're at risk. I don't from an equity perspective, this transparency and what you know, leading the market in the Fed, I don't think it changes any equity investors. You know, way of investing. Certainly I don't look at it for fixed income. I think it's a different story. But I do think the relationship between fixed income and equities is very important and it's broken down and we'll see if that reverts.
[26:42]
Jim Lebenthal
So there's this concern that there was a huge contradiction in the press conference of inflation's a problem but the Fed did not raise rates.
[26:50]
Amy Raskin
Not only that, inflation's a choice, he said, so he's basically choosing.
[26:54]
Jim Lebenthal
Good, good point. Let me just continue where I'm going, which is to say what did the market really want? Did they want Chairman Warsh to say, oh, I voted in the minority to raise rates and I got voted down? No, I mean that counterfactual is worth thinking about. Like what would that have done to the yield market had we had a dissenting Fed chair?
[27:16]
Mike Santoli
We should go now.
[27:17]
Amy Raskin
They would have.
[27:17]
Mike Santoli
It's a majority going.
[27:18]
Amy Raskin
They would have gone.
[27:19]
Jim Lebenthal
No, my point is, is that that's not, absolutely not what I'm proposing is what I'm saying.
[27:24]
Mike Santoli
It would have been that like the
[27:26]
Jim Lebenthal
chair said, we go now with me. Yeah, the majority disagree.
[27:31]
Mike Santoli
Yeah, the majority. I get a tightening bias going in the dots last, last quarter.
[27:35]
Jim Lebenthal
I get your point but I just, I'm saying I don't think that's a complex.
[27:39]
Mike Santoli
I agree with you that I don't think the market would have preferred a hike and by the way was a 2/3 chance it wasn't going to be a hike. So it wasn't really the decision.
[27:47]
Amy Raskin
The 10 year would have preferred a hike. Yeah, maybe I don't think the equity market would have preferred a hike. You got the big swoosh up the day after. But I think the 10 year would be lower if we hiked.
[27:55]
Mike Santoli
Oh, that's certainly fair that with the
[27:57]
Rob
pattern markets would be down thousand.
[27:59]
Mike Santoli
Yeah.
[28:00]
Amy Raskin
I mean we would look like the
[28:02]
Jim Lebenthal
UK gilt market had we had a dissenting Fed.
[28:05]
Mike Santoli
No, but again, I don't know that it really would have been Fed but because that's the chair's job, like right. Former majority.
[28:12]
Jim Lebenthal
I don't know it would have been a failure of that.
[28:15]
Rob
I don't think the markets would have celebrated his attempting to get credibility with the rate hike in that meeting.
[28:22]
Mike Santoli
Fair enough. We'll see if 5 5% is in cipher. The 10 coming up. The Apple Aftermath shares tumbling its memory prices way on guidance. We'll get the committee's take next.
[28:36]
Amy Raskin
What made you confident that you could
[28:38]
Stephanie Link
do something that hadn't been done before?
[28:40]
Contessa Brewer
I have no fear of failure.
[28:42]
Julia Boorstin
Trailblazing women, Changing the game One of
[28:45]
Contessa Brewer
my favorite pieces of advice Think about
[28:47]
Stephanie Link
what your boss's boss needs.
[28:50]
Amy Raskin
Leadership can look in many, many different forms.
[28:52]
Contessa Brewer
It really does come down to just trusting yourself.
[28:54]
Stephanie Link
Life is short and you just gotta think big to accomplish big things.
[28:58]
Julia Boorstin
Julia Boorstin hosts CNBC Changemakers and Power Players. New episodes every Tuesday, wherever you get your podcast.
[29:22]
Contessa Brewer
Welcome back to the Halftime Report. I'm Contessa Brewer with your CNBC News update. A new report says China's military tapped USAI models to train its defense systems. A Reuters review of more than 80 Chinese academic papers and patents showed researchers tied to the People's Liberation army and other military institutions. Institutions use the powerful American AI models to train their own more specialized systems. The practice, known as model distillation, is widely used across the AI industry. But of course, China and the US Are fierce competitors in the air race. The Pentagon reportedly is considering eliminating tenure for civilian instructors at military academies and overhauling the curriculum, according to CBS News. Top officials have not yet approved that plan, but it would apply to all service academies and other institutions such as the army and Navy war colleges if it eventually is implemented. And Tony Romo has been put on leave until further notice, CBS Sports said in an announcement this morning. A week ago, the retired Cowboys quarterback and current NFL analyst was arrested near Milwaukee on suspicion of drunk driving. Romo has yet to to address the incident. That's the news for now, Mike. I'll send it back to you, Contessa.
[30:37]
Mike Santoli
Thank you. Well, President Trump just wrapped up his cabinet meeting. Let's get to Eamon Jabbers in Washington with the details.
[30:43]
Jim Lebenthal
Mike.
[30:44]
Oliver Renick
That's right.
[30:44]
Eamon Javers
It was a rare look for TV cameras inside Camp David, the presidential retreat. This was the first ever live televised cabinet meeting inside Camp David. The president had a lot to say on a variety of topics, including some bellicose comments on Iran suggesting that while he is negotiating, he said, we just want to win. We'll be hitting them very hard. The president said so signaling ongoing confrontation with Iran. No sign of a let up there on Ukraine. Interestingly, we heard these comments from President Zelensky of Ukraine, where he came out of his meeting earlier this week suggesting that maybe there had been some agreement with the president on licensing Patriot missile technology for the Ukrainians to build those missiles in Ukraine themselves. The president here said, no, not so fast. Not agreed to license that Patriot missile technology. The president expressing concerns about technology proliferation and saying that's something that the United States wants to keep a hold of is that the secrets to the Patriot missile construction and technology. On the Minnesota cyber attack, we have a US Official now saying that the US Official believes that it was probably Iran conducting the cyber attack into water facilities in Minnesota. The president, however, said at this cabinet meeting he disagrees with that. He says he doesn't believe it was Iran. Said Iran should be so lucky, said they have other problems. They're not focused on Minnesota. He blamed the Minnesota cyber attack on Minnesota and its governor there. And finally on FIFA. Mike, the president said he has not spoken to Gianni Infantino on that multi billion dollar private equity investment plan that's turned the world of global soccer upside down. So president saying he had no involvement there. Back over to you.
[32:27]
Mike Santoli
All right. Cover a lot. Eamon, thank you very much. Let's turn out to Apple really the other huge story of the day. It's actually pulling as much out of the S&P 500 as Amazon's gain is contributing. Jim, you lightened up ahead of the numbers.
[32:42]
Jim Lebenthal
I did. I sold about half of my position yesterday. I actually let the team know here. So I don't want anybody thinking like hey, I'm back dating and trade here. Sometimes I get it right. And on this one I just thought we were priced for perfection. It had had a tremendous run. We all know that. Trading still in the mid-30s on a forward multiple. To me, who's owned this stock Since I think 2010, I know that's rich. And finally we had Qualcomm report a couple of days earlier it wasn't a great look for the smartphone market. So you know, what did we get from Apple? We got supply constraints. We got price increase increases on their raw materials, that is chips from the likes of Qualcomm. It just seemed like a good time to lighten up. And so that's what I did. I still have now half the market weight in the, in the, in the name and I'll keep that for the foreseeable future.
[33:29]
Mike Santoli
Market weight is like what, seven, six,
[33:31]
Jim Lebenthal
six and a half percent.
[33:33]
Mike Santoli
Rob you as well.
[33:35]
Rob
We sold a bunch of it on Wednesday. Kind of going into the number story of rich valuation, quality, quality business. We went to neutral to the market. We really never been underweight Apple. It's really hard when a company has that free cash flow generation, the ecosystem, the product cycle upgrades. And it has these blasts when you don't expect them to have blast because it has an unbelievable management team. So we went to neutral.
[34:04]
Mike Santoli
It's funny Amy, every time Apple seems like the obvious, like why would I ever have doubted that this could lead the market and because it's defense and also participating in the big tech trends, maybe it is time to question, you know, whether it's over owned.
[34:19]
Amy Raskin
Well, it certainly had, has had a great run. So any pullback here is, is normal. I don't think they're losing their moat in the smartphone market. I do. You know, obviously supply issues and price increases are going to dampen demand. But I will say their incoming CEO John Ternus was a pen engineering grad, which I'm an engineering grad. So I fully believe in the future of the company.
[34:43]
Mike Santoli
All right, well I'm sure that's pretty commonly held view among the alumni community. Maybe that's a big bonus. Steph, at some point does this pull you in? Is it entice you on a valuation or fundamental basis?
[34:58]
Stephanie Link
No, not really. Not at 32 times forward estimates which is actually close to a peak and we just don't know when gross margins are going to trough. It's next quarter is it the quarter thereafter and services is slowing and that's troubling as well because that's higher margin business. But overall, I mean the quarter was fine. It's just, it's a rich stock, a lot of high expectations. It's just not cheap enough for me. Has to has to correct further for me to even take a look at it.
[35:26]
Mike Santoli
Is there anything that for Turnus for example, guys like that you would put top of his list in terms of course correction, setting priorities or is it just kind of grab the baton and business as usual?
[35:39]
Jim Lebenthal
I take the latter. I mean I think the parlor game that has gone on for years, Mike, is should Apple buy another company? And I've always hated that. I mean you may remember, remember when they were supposed to buy Fitbit, they were supposed to buy Disney and as I said, it was a part of the particular game. I hope he doesn't go down that route. If he did, I mean maybe the thing he does is buy a chip company just to control that part of the supply chain. But again, to be clear for everybody listening, I hope he doesn't do that. I hope it's business as usual.
[36:04]
Amy Raskin
Yeah, I don't think he will. I think he is a no nonsense hardware guy who's going to continue to focus on making sure they have the best hardware and hardware software integration out there.
[36:15]
Mike Santoli
Obviously a huge Mac correct quarter, we didn't cite that, but that was a big piece of it all. Right, up next, more trades from the committee. Stephanie, Rob and Amy have all been Making moves. We'll break down their latest trades next. Welcome back. Let's get to some more committee moves. We're going to start with Steph. And Steph, you bought more Starbucks. Why is that?
[36:49]
Stephanie Link
Yeah, I mean, I started buying this in January, so I've had a nice gain. But I think we're at the operating margin inflection point at this company and at the same time, same store sales are accelerating. So the Green Apron program is working. They have better either have easing coffee costs, they have cost savings that they're seeing. They had some benefits from tariffs and all that stuff, but. But a comp of 7.9% and North America of 8.1%. North America is about 80% of their revenue, so we care mostly about that. But the operating margin is what really piqued my interest and why I bought more. At 14.4%, it beat by 240 basis points. And I would simply say the peak, the last peak in operating margins in North America was in the third quarter of 2021 at 20.4%. So if we go from 14% to 20% over the next couple of years, I think it's a shoo in that they can do something like $6 in earnings power.
[37:42]
Mike Santoli
I mean, the revival does seem to be building here. Is anybody else taking a look now?
[37:48]
Jim Lebenthal
Too rich for my blood. Although I will say, as a consumer, Steph, I think the experience has been really, really improved since Mr. Nichols took over.
[37:57]
Mike Santoli
You like what they write on your cups and everything?
[37:59]
Jim Lebenthal
Just look, they're just nicer. Okay. It was getting really kind of, kind of petty, the interactions with the baristas and they're just, they're kinder now.
[38:07]
Mike Santoli
Well, see what happens now that you say you don't want to buy the stock and you rob SK Hynix. I mean, what, you like the Com Steady stories? Is that what.
[38:16]
Rob
That's it? No, what we liked is this is at the epicenter of the air unwind, specifically related to memory. It was down 50% from its highs in our international portfolio. We wanted to build a position in that alongside of tsmc. And high bandwidth memory is one of the highest value added parts of that segment. The volatility might not be completely over. There's a lot of underlying structural uniqueness to the way people buy these names, whether it be through levered ETFs or hedge funds with leverage that may or may not be under unwinding still. Right. But we thought that rerating was enough to get us interested again.
[38:57]
Mike Santoli
Staff, does your enthusiasm about the Memory story extend to South Korea in this way?
[39:05]
Stephanie Link
Well, look, I own a little bit of Micron but I own a lot a bit of Nvidia and Broadcom which are much less volatile and they're going to play and they're going to win as well. So I'm going to hold on to a very small position in Micron for now.
[39:17]
Mike Santoli
We got some energy earnings today. Exxon and Chevron. Amy, you've been moving things around on the energy.
[39:22]
Amy Raskin
Yeah, we're very overweight energy. We continue to really like the sector. We trimmed a little bit sort of at the height of the Iran war conflict and energy getting really high. We bought some that trim back recently. I just think if we would look at inventory levels are getting really low. If we get any weakness in energy prices, prices I do think it will get bid and you'll get oil. Every government around the world increasing their inventories and replenishing. So I think there's a floor under the commodity and the stocks.
[39:53]
Mike Santoli
All right, we do want to get to a news alert on XP Semiconductors. Let's get to Christina Bruxnevellis for that. Christine?
[40:00]
Christina Bruxnevellis
Yeah. The Financial Times right now is reporting that NXP Semiconductors is in talks to inquire Ambarella and they're citing people familiar with the matter. The report says discussions are ongoing right now, but warns this deal is not a guarantee. Ambarella, for those that don't know, designs low powered vision processors. So chips that really help cameras understand what they're seeing. Its chips are used in advanced driver assistance systems, so autonomous vehicles, security cameras, robotics, etc. And so the fit seems to be relatively clear because NXP is already one of the biggest suppliers of auto chips out there. You add an Barella to the mix, it would just give us give it more of the compute needed for camera based AI, allowing it specifically to sell a broader platform to automakers just as vehicles become even more softer defined. We know that everybody from Nvidia to Qualcomm are competing in this space and so that is why you're seeing Ambarella up 18%. Just reached out to NXP. No answer because I just reached out moments ago. But that's why you're seeing such a stock reaction.
[41:01]
Mike Santoli
All right. Yeah, amber, about a $4 billion market cap and xp around 59 stocks reacting for sure. Thank you, Christina. The setup is straight ahead. Welcome back. Let's get the set up on some key committee names reporting next week. Ebay comes out Wednesday. Jim, you own it and at first I got to get a, an apology and a clarification out of the way. So we talked about ebay. It was a final trade of yours on Monday. And you mentioned the Gamestop offer, which is still on the table. And I said, oh, there's also a rival bid for, from Stripe and private equity. Because in my brain, which is, you know, 20, 20 years out of date, eBay and PayPal are still the same company. So PayPal got the bid, eBay didn't. But talk about what we're looking for with ebay.
[41:59]
Jim Lebenthal
Yeah, no problem, Mike. I didn't go back and look at exactly how bad my deer in the headlights there was, but it was clearly
[42:05]
Mike Santoli
that the other guys ridiculed you. They need to apologize you after, but go ahead.
[42:10]
Jim Lebenthal
All right, so listen, I like the stock and going back to what we said on Monday, I think the GameStop offer has some potential. Potential, Obviously there's a lot of doubt, but I think it has some potential. And if it doesn't come through, we've got a strong consumer that is gravitating more and more to ebay. You've got an attractive valuation, you've got share buybacks going on.
[42:30]
Rob
So I like the name and a focus on high margin, high ticket items, which is, which is a strategic focus. And if they deliver on that, I think shareholders will like.
[42:40]
Jim Lebenthal
Absolutely. Including collectibles, by way a relatively new
[42:44]
Mike Santoli
category for them as well as, as we were talking earlier, tickets to the Odyssey and Imax on ebay as well. So other stuff for next week, I mean, I'm just going to pick one out for you, Amy. What? EOC Resources or eog?
[43:01]
Stephanie Link
Eog.
[43:02]
Amy Raskin
I mean, we like the energy space. I think it's going to be a, you know, a good quarter. Obviously they'll get a lot of questions on oil prices and Iran, but we like the long term setup. Not, not the cheapest of the energy names, but still around 10 times earnings.
[43:17]
Mike Santoli
It's going to be interesting on, on energy. You know, I was looking Exxon before the Ukraine invasion. The stock was lower than it had. It was from like 2006 or something, like everyone. So there's kind of a different sense of whether in fact we're in a new range here.
[43:32]
Amy Raskin
I think we are. I actually do. I think everybody was so worried about this glutton oil. You know, hydrocarbons are still a really efficient way of getting energy. And, and I think a lot of this has been taken offline. And so I like the setup for oil.
[43:48]
Mike Santoli
All right, we have one more move from Stephanie, to get to, we're going to get details on that trade. Market grinding higher from a little bit of a morning dip. S and P up half a percent. Let's get to one more move. Stephanie, you bought more vertif on this pullback.
[44:20]
Stephanie Link
Yeah, I mean, the stock, they reported a very good number and the stock fell 17% on the day. This is for a company that beat earnings. They raised guidance, they raised organic guidance in the second half of the year and their backlog increased from from 15 billion last year to 20 billion currently. And I think that this is a company that is the market leader with incremental 30% margins between now and 2028. They're doing great in terms of cost cuts. They have pricing power. And the whole reason the stock was down because they only grew organic growth 18% versus 24% expected. But again, as I mentioned, they did raise organic growth for the back half of the year. This is a conversion problem, not a demand problem. And I only feel better after hearing again from the hyperscalers and all the investment spend that they're going to continue to do. These guys are a huge beneficiary of it and a great management team.
[45:17]
Rob
Yeah.
[45:18]
Mike Santoli
As we're looking, still stock up 52% year to date. Kind of a key player in the huge backlog trade. Thank you, staff. Final trades are up next. We are back with final trades. Steph, get us started.
[45:37]
Stephanie Link
Sure. Target is trading at 17 times earnings and the turnaround is definitely working. Comps are running at 5.6%. Traffic is the most important thing for this company and it grew four and a half percent last quarter. I think that bodes well for the upcoming quarter.
[45:51]
Mike Santoli
All right, Rob, Monolithic power. Something what the people that work for you think you like or we don't
[45:59]
Rob
have time to get into. We do have a power regulation continues to be an important part of the story. They're a little expensive, but obviously with this turnaround, they're also turning around 9% today.
[46:11]
Mike Santoli
SLB.
[46:12]
Amy Raskin
Yeah, continuing with the energy theme. We think there's going to be a lot more exploration coming out of these
[46:17]
Mike Santoli
wars, including on the war water.
[46:19]
Jim Lebenthal
Exactly. Transocean deep water. We'll get an update next week in earnings call about their merger with Valeris. That'll be interesting.
[46:26]
Mike Santoli
Oh, there you go. All right. Energy theme. Well, it does it for halftime. Thanks to you all. The exchange starts right now.
[46:34]
Rob
You've been listening to CNBC's Halftime Report,
[46:36]
Jim Lebenthal
the podcast you can always catch us
[46:39]
Rob
live weekdays at 12 Eastern only on CNBC.
[46:45]
Julia Boorstin
All opinions expressed by the Halftime Report participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates and may have been previously disseminated by them on television, radio, Internet or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion. Such opinions are based upon information the half time report participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy and it should not be relied upon as such. To view the full Halftime Report disclaimer Please please visit cnbc.com halftime reportdisclaimer what
[47:20]
Amy Raskin
made you confident that you could do
[47:22]
Stephanie Link
something that hadn't been done before?
[47:24]
Contessa Brewer
I have no fear of failure.
[47:26]
Julia Boorstin
Trailblazing women, Changing the game One of
[47:28]
Contessa Brewer
my favorite pieces of advice Think about
[47:31]
Stephanie Link
what your boss's boss needs.
[47:33]
Amy Raskin
Leadership can look in many, many different forms.
[47:36]
Contessa Brewer
It really does come down to just trusting yourself.
[47:38]
Julia Boorstin
Life is short and you just gotta
[47:39]
Stephanie Link
think big to accomplish big things.
[47:42]
Julia Boorstin
Julia Boorstin Hosts CNBC Change Makers and Power Players New episodes every Tuesday. Wherever you get your podcasts.

Summary6 min read

CNBC Halftime Report – Mega-Cap Earnings Aftermath (July 31, 2026)

Host: Mike Santoli (in for Scott Wapner)
Guests: Jim Lebenthal, Amy Raskin, Rob, Stephanie Link

Episode Overview

The July 31, 2026 episode of CNBC’s Halftime Report puts mega-cap tech earnings and their impact on markets front and center. With Amazon and Microsoft delivering strong results and Apple trending down, the investment committee dives into what’s been clarified – and what’s still uncertain – about profitability, AI spending, and the path ahead for the major players. The panel also discusses the jump in treasury yields, market structure volatility, sector moves in tech, energy, and consumer, and where they see opportunity and risk as the mega-cap “arms race” continues.

Key Discussion Points & Insights

1. Mega-Cap Tech Earnings: Amazon, Microsoft & Apple

Amazon's Standout Quarter (01:16–09:56)

AWS Acceleration: Amazon Web Services posted ~30% growth, just under Microsoft Azure’s 43% (02:23). Both are “breathtaking numbers... every sign is that those numbers are going to continue” – Jim Lebenthal (02:28).
Path to Profitability: Amazon’s data center investments pay off in under three years, “a very short timeframe” given their 30-year depreciable lives (02:53).
AI Hype vs. Reality: While there’s excitement about AI demand, much is “financed through equity offerings, circular deals, and debt... not being financed through revenue yet” – Amy Raskin (03:41).
Market Reactions: The sharp moves in trillion-dollar stocks reflect “the jumpiness of the market or fickle positioning” – Mike Santoli (04:42).
Success Factors: Stocks rewarded for clarity on how to monetize AI; Andy Jassy “helped quiet the, you know, capital intensity monetization questions” – Rob (05:19).

Apple’s Earnings Disappointment (32:27–36:15)

Pullback after Perfection Pricing: Both Jim and Rob trimmed Apple holdings ahead of earnings, citing “priced for perfection” and rich valuations (32:42, 33:34).
Hazards Ahead: Supply constraints and rising input prices cited as headwinds (32:42).
Long-Term Faith: Despite the dip, “I don't think they're losing their moat in the smartphone market.” Amy (34:19).
Not a Buy at These Levels: “Not at 32 times forward estimates... has to correct further for me to even take a look at it.” – Stephanie (34:57).

Microsoft & The Broader AI Narrative

Strong earnings and AI leadership continue; “Azure profitability... terrific” and MSFT’s “co-opted” LLMs, but “maybe the least important” of the triple tech threats (09:41).

2. AI Spending, Financing & Market Positioning

Arms Race and Monetization

Rob: “It's an arms race right now... you’re not going to see the spending slow.” (10:47)
Data center, chip, and model spending is expected to accelerate, possibly from ~$900 billion to $1.6 trillion next year – Stephanie (09:16).
Market Leaders: “Alphabet, Microsoft, and Amazon are in the catbird seat... record growth, record profitability... They generate free cash flow and can use that. So maybe they don't have to do as much financing.” – Stephanie (16:56).

Financing Challenges & Risks

Credit gets Tighter: “The financing environment is getting harder... it's going to be more expensive, which makes the return hurdles [higher]...” – Amy (13:54).
Skepticism Mounts: Markets are now “discounting a very, very, very large AI spend in perpetuity.” – Amy (15:59).
Winners & Losers: Capital discipline, trust in CEOs (esp. Jassy/Amazon), and project-level economics are key in a “winner-take-most” market (06:23–17:58).

Market Structure & Technical Factors

Recent volatility attributed more to positioning unwind, forced liquidations, and August seasonality than fundamental shifts (15:15–19:52).
Leverage and “whipsawed” capex hardware names (Micron, Hynix) spotlighted (11:41–13:54).

3. The Great Rate Debate: Rising Treasury Yields (22:07–28:22)

Bearish Options Action: Put-buying surge in TLT and 10-year futures indicates bearishness on longer-term Treasuries – Oliver Renick (22:08).
Fed Communication Style: Diminished confidence in new Fed chair’s credibility as yield curve “zoo steepening” emerges – Rob (24:07).
Equity Market Risks: “If yields keep going up, I do think it will happen and I think we're at risk. The relationship between fixed income and equities has broken down.” – Amy (25:51).
No Easy Answers: Panel debates whether a rate hike would have prevented the move in 10-year yields or destabilized the market more (26:41–28:14).

4. Committee Portfolio Moves & Sector Highlights

Tech/AI Hardware (38:06–39:04)

SK Hynix: Rob added after a 50% drop, “at the epicenter of the air unwind... high bandwidth memory is one of the highest value-added parts” (38:16).
Micron: Stephanie is holding small; prefers Nvidia and Broadcom for less volatility (39:04).

Energy (39:16–43:32)

Overweight: “Inventory levels are getting really low... if we get any weakness in energy prices... governments will be buying. There’s a floor under the commodity.” – Amy (39:22).
Energy Names: EOG, Exxon, Chevron discussed—as is the changing structure of the oil market since pre-Ukraine invasion (43:01).

Consumer

Starbucks: Steph increased position; noted margin inflection and accelerating same-store sales (36:48).
Target: Featured in final trades; strong comps, traffic growth (45:36).

Industrials & Capex Suppliers

Strong spending trends benefit industrials and hardware suppliers (Quantum, GE, Eaton, Vertiv), with Vertiv highlighted after pullback despite raised guidance (44:19).

Notable Quotes & Memorable Moments

Jim Lebenthal on Amazon’s AWS Payback:
“On average it takes less than three years for the investment by Amazon in one of its data centers to pay off. That's a very short timeframe...” (02:53)
Amy Raskin on AI Skepticism:
“It's not being financed through revenue yet. So I don't think we really have the ultimate answer. I think we're going to continue these circular narratives...” (03:41)
Stephanie Link on Capex Outlook:
“All this spending... beginning of the year, this is going to be like 900, 950 billion this year and it's probably going to grow to 1.6 trillion, Mike, next year. That's way more than people think...” (09:16)
Rob on the AI Investment “Arms Race”:
“They have told you we don’t care what the market is saying about this spending. We're going to be measured... but we do not care. We need to spend to win.” (10:47)
Amy on Financing Risks:
“The financing environment is getting harder. It might be there, but it's going to be more expensive...” (13:54)
Stephanie Link on the Mega-cap Food Chain:
“Maybe they don't have to do as much financing. And that's a really important point.” (16:56)
Jim Lebenthal on Market Volatility:
“I think this is more about technicalities of the market than that we are at peak spending or the market is really worried about peak spending.” (19:11)
Amy Raskin on Apple’s Future:
“I will say their incoming CEO John Ternus was a Penn engineering grad, which I'm an engineering grad. So I fully believe in the future of the company.” (34:43)

Timestamps for Important Segments

Amazon Earnings & AI Discussion: 01:16–10:47
Market Volatility & Positioning: 11:41–19:52
The Great Rate Debate: 22:07–28:22
Apple Earnings Reaction: 32:27–36:15
Starbucks, SK Hynix, Energy Moves: 36:48–43:32
Final Trades: 45:36–End

Episode Takeaways

Clarity on AI Monetization is King: Clear explanations of AI investment ROI (Amazon, Microsoft) are rewarded even if uncertainties in ultimate profitability remain.
Market Still in Mega-cap Arms Race: Spending, R&D, and capex at record levels will likely persist, with scale players having distinct advantages.
Risks Mount as Financing Tightens: Higher rates and a more expensive financing environment add hurdles, but leaders with strong free cash flow (Amazon, Alphabet, MSFT) are best buffered.
Apple Remains a Bellwether—But Expensive: Despite superb execution, cautious panelists cite concerns over valuation and growth headwinds.
Be Selective on Hardware/Capex Plays: Hardware names endure volatility; however, those with strong backlogs, such as Vertiv, offer opportunities.
Energy a Relative Safe Haven: Structural inventory tightness and replenishing trends provide support.
Markets Are Technical, Not Just Fundamental: Recent whipsaws seen as more about leverage, liquidity, and positioning than a shift in core growth stories.

This episode is essential listening for investors trying to parse out what the flood of mega-cap earnings really means for the AI trade, market positioning, and the next leg in large-cap leadership.

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Transcript188 lines

[00:00]
Contessa Brewer
The board recommends approving regarding that seat on the committee.
[00:02]
Stephanie Link
We're promoting quarterly earnings.
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[01:01]
Jim Lebenthal
I'm Scott Wapner and you're listening to CNBC's Halftime Report. The podcast the most profitable hour of the trading day.
[01:09]
Rob
We record this live weekdays at 12 Eastern. Listen in.
[01:17]
Mike Santoli
And welcome to the Halftime Report. I'm Mike Santole in for Scott Wapner. Today the tech trade front and center this hour as we track major moves from Apple and Amazon. The investment committee is standing by to break it all down. Joining me for the hour, Jim labenthal, Amy Raskin, Rob and Stephanie Link. Great to see you all. Let's get a quick check on the markets actually started a good deal higher today on The S&P 500 more than 1/2 of 1% higher did go negative. Now we're rebuilding a little bit. Modest moves 7450ish on the Dow Jones industrial small caps continue to underperform. It's a bit of a mega cap led day to the upside. Amazon in particular surging following Its earnings up 14% of course follows yesterday's 15% gain in Microsoft. So clearly guys, we have a lot of these spring loaded stocks. There were doubts surrounding many of them. We'll talk about, you know, Apple down the road pulling the other direction on its reaction. But talk about Amazon. And Jim, you want to get us started about what was clarified, if anything, about the underlying story and whether it's going to have legs?
[02:24]
Jim Lebenthal
Yeah, I mean I'm going to, I'm going to simplify this and leave room for the rest of my colleagues to join in here. But there's two things really. First off, the growth in Amazon Web Services 30, a touch below Microsoft Azure at 43% reported yesterday or the night before that. Nonetheless, these are breathtaking numbers and every sign is that those numbers are going to continue in the quarters to come. So that's number one top line growth at Amazon Web Services. The second thing is overall path to profitability. One of the key data points that I took away from last night's call is that on average it takes less than three years for the investment by Amazon in one of its data centers to pay off. That's a very short time frame, especially compared to the depreciable lifetimes of these data centers, which are 30 years. And maybe people are going to say they're not going to last that long. Regardless, the path to recover that cost is less than three years and that's the path that we're looking for. The profitability at Azure was of course terrific and these are in contrast to say a Metta and I don't want to pick on Meta, that's not my point, but where the path is less clear to profitability. So I really think it's just that simple. I'm not going to make it harder than that.
[03:34]
Mike Santoli
I mean other simple piece of this, Amy, was that Amazon was almost literally dead flat for a year before going in.
[03:41]
Amy Raskin
Microsoft was down for the year. So you're seeing this rotational narrative in AI and it's the losers are now beat expectations that had been beaten down and the winners missed expectations that got too high. I actually don't think this quarter answers a lot of the long term questions with regard to the profitability of AI. Yes, we know AI is generating a lot of data, but still it's not. It's being financed through equity offerings, circular deals and debt offerings. It's not being financed through a revenue yet. So I don't think we really have the ultimate answer. I think we're going to continue these circular narratives for the next quarter and there will be at some point that people will be worried that Amazon spending too much money and Apple will get the benefit of the doubt for not spending the money. And we're just going to keep on this loop. It is. Amazon had a great quarter, obviously cloud growth, they're the leader in cloud. The cloud growth was amazing. I expect that to continue. But I don't think it answered the long term questions and I don't think we're going to get answers to those long term questions anytime soon.
[04:43]
Mike Santoli
It's somewhat familiar, Rob, in the Sense of, for Amazon's entire history, it's unlike some of the other competitors, has had this pattern of hey, we're in investment mode. Long term it's going to be fine, but for now we're going to take some financial pain. The other piece of it though, just market wise, is just enormous percentage moves in multitrillion dollar market cap companies, which, I don't know, does it tell us something about the underlying kind of jumpiness of the market or fickle positioning or, you know, these are, these are not great charts necessarily the ones where they're now getting the benefit of some of this buying.
[05:20]
Rob
Well, what's interesting is I think it was a story of clarity. Those that provided a lot of clarity on how they're in a monetized AI and provided that path, those stocks did well. Those that were a little murky on that we're continuing to spend, the stocks had a more difficult time. I think you can look across the board, all these earnings are really, really good. Right. And you know, Andy Jassy helped quiet the, you know, capital intensity monetization questions yesterday. I thought he did a great job there highlighting the surging backlog, attractive ROI that they're already seeing in their businesses. And the long term growth potential was clearly outlined. So you had a stock that lagged and ultimately what ended up happening, you're playing catch up because of the vision. Yeah, the clear articulation of the vision, which obviously matter, didn't do as great a job of and frankly maybe our new Fed chair didn't either.
[06:17]
Mike Santoli
Yeah.
[06:17]
Rob
So those are things that I think the market is looking for right now is more clarity.
[06:23]
Mike Santoli
Ultimately, Steph, a lot of these equate, a lot of the calculus comes down to do you trust a given CEO to be a good steward of capital as they go through this kind of headlong investment process? Presumably Jassy and Amazon have kind of gotten the benefit of the doubt on that to some degree. On the other hand, these backlogs that all these companies are touting it is contingent on financing down the road. Right. The money's not in the bank to actually pay for all of it.
[06:55]
Stephanie Link
Well, first and foremost, Amazon's quarter was spectacular. Like everyone is talking about, they saw acceleration across every business line. U.S. retail, advertising and profitability hit a record high with operating margins at 13.7% and why we all care about us and we talk a lot about it because it's 60% of operating income at the company and expanding at a rapid pace. And so we better see better growth. Right? So they at 37% saw acceleration. The question is can to your point and your question, can they continue to see this acceleration? They have doubled capacity and I think the visibility is strong because it's not just the backlog of 496 billion for us, but it's other parts of their businesses as well. If you add trainium to in terms of commitments, that's another $225 billion. If it works and they can convert, you'll see at least 25% growth for the next five years. Yeah, it does depend on financing. And I think Andy Jassy would say spend more than he's already spending just given that he's already starting to see these ROI come through. I think he's measured, but he did a very good job in terms of explaining why they're spending as much as they are. But you saw rois at was Azure and Google Cloud. They are absolutely the winners. I don't care what the stocks have done up until this point. There's a lot of momentum here and even if you cut the backlogs in half, you're still going to see outsized growth and market share gains. And I think that this gives me so much more confidence in the whole AI food chain narrative because all this spending, I mean, we thought 800 billion at the beginning of the year. This is going to be like 900, 950 billion this year and it's probably going to grow to 1.6 trillion, Mike, next year. That's way more than people think they're not putting the brakes on. But if you can see the returns, I think the market gives the benefit of the doubt versus Metta, as Rob mentioned. They don't get the benefit of the doubt.
[09:16]
Jim Lebenthal
So. So just a little bit further and stuff. I love the way you set that up because you started with, hey, of course we're talking about us because of its profitability and growth profile. But let's not forget that the Overall company grew 20% revenue year over year. That's about 35 billion just in the quarter. Extra $35 billion of sales obviously annualize that, you get to 140 billion. That's a big number. That's why the stock can add so much market cap in a day like it does today. And I think another important detail is they are talking about building their own large language model. Now, one of the stocks that's done extremely well, we know, over the last year, year and a half, is Alphabet Google.
[09:56]
Mike Santoli
Why?
[09:57]
Jim Lebenthal
Because it's been a triple threat. Right. It's got the web services of its own. It's got, it's designing its own chips and it has Gemini. Amazon is now talking about putting the third part of that stool into place. It already has the chips, it already has web services. Now it's talking about, about a large language model. So these are the sort of under the hood things that once we get through the numbers and look at, I think are a reason why Amazon and Google are definitely the leaders right now. Microsoft looking pretty good. Obviously they don't quite quite have the large language model. They've kind of co opted that with Open Air and other things. Nonetheless, that might be the less least important of the three legs of the school.
[10:37]
Mike Santoli
I don't know. It doesn't seem as if the market right now is thinking that the overall pie is growing and we need more players in there because we don't.
[10:47]
Rob
That's why it's an art. That's why it's an arms race right now. So that's why you're saying and you're not going to see the spending slow. I think, I think this is a disjointed notion that the financing is not going to be there. If you start to see operating leverage from this, it will be there. You know, you talk to any of the private credit players while they're largely exposed, like a 10 year, they're going to be there to finance these things. And these guys have told you we don't care what the market is saying about this spending. We're going to be measured, we're going to be more clear, but we do not care. We need to spend to win. And by the way, who's to say that Metta at some point isn't going to decide to sell Compute, monetize Compute when they're trading at 15 times, you got, you got Amazon right Now trading at 20 to 21 times down from a 10 year average of 50. Yeah, I mean, come on, staff, it
[11:41]
Mike Santoli
said, you said it kind of reinforced your faith in the food chain hardware trade. You know, obviously that has just been massively whipsawed. And you look at Micron, we thought yesterday kind of the fever broke. We had these forced liquidations. That trade was right in the crosshairs of it massive rally yesterday. You know, Micron is going to pace for a 10% weekly loss. It's like 100 bucks off the intraday high. I just wonder, you know, kind of what settles things down, if anything. Because what we did see is those highs were printed on lots of leverage and momentum and crowding and now we have to figure out what the real levels are.
[12:20]
Stephanie Link
Oh yeah, sure. I mean, and I don't know if we're out of the woods, but I am confident in this, the whole capex numbers and like I said, if you, if you think we're going from 900 billion to 1.6 trillion, you know, we're going to have ups and downs in a variety of different sectors, but the capital is there, the spend is there, and therefore the, there's so many different industries that benefit. It's not just semiconductors as well Mike, as you very well know across the board in industrials, they were rock stars. Look at Quantum Services yesterday and ge, Renova and Eaton today, a lot of different industrials that are doing really well, even Bolero, Sherwin Williams. I mean there's, there's so many companies out there and sectors that are benefiting from all of this. Capex semiconductors are part of that, there's no question. And Micron is very volatile. But I do think they have $100 billion in commitments to between now and 2030 and those are take or pay, Right? So they got to take them or they have to pay anyway. So the point being is that's visibility. They have 22 billion in cash upfront now and they have pricing power because we're a short compute, we're short memory, we're short everything for that matter. And so I think what I was looking for, validation in these quarters from the hyperscalers was yeah, the commitment to spend because I would be more nervous about a lot more things if we saw a cut in capex. So while we weren't really happy with all of this spend up until now because we weren't seeing roi. Well, by the way, now we're starting to see roi, so we should feel better overall.
[13:55]
Mike Santoli
Amy, you don't think the financing ultimately
[13:57]
Amy Raskin
will be there for 1.6 trillion of financing? I mean the cash flows are going negative, the 10 years going, interest rates are going up, they're having a harder time every time they do secondary coming to the equity markets or they're a little less bid. So it might be there, but it's going to be more expensive, which makes the return hurdles more and the more people that get into the fray, the lower the overall returns are for everybody.
[14:21]
Jim Lebenthal
So it's a good point. The jury's out.
[14:23]
Amy Raskin
We're going to have to wait to find out.
[14:26]
Jim Lebenthal
But I think there's a big technicality that's being overlooked here and I could, I didn't watch the show yesterday. So maybe we covered it then. There are margin calls all over the place.
[14:34]
Mike Santoli
Oh, that's what we were saying about the forced liquidation.
[14:37]
Jim Lebenthal
Yeah. I think two weeks ago you had 1.2 million Korean retail counts liquidated. Yesterday or the day before, you had situational awareness, basically punting its equity portfolio.
[14:46]
Mike Santoli
The story yesterday was, they're out now we're safe.
[14:50]
Jim Lebenthal
Well, yeah. Or who's next? Yeah, I mean, that's the question. I mean, I don't think we stop there, but this is something that will pass. And by the way, we don't know what Citadel is doing with the portfolio that it bought. If I were Citadel, I would hang on to it. I mean, Amy, maybe if you're feeling a little bit more suspect about the financing, maybe you wouldn't. That's okay. Neither one of us are. Ken Griffin, they're doing any every which
[15:11]
Mike Santoli
thing you can imagine with that portfolio. They're hedging part of it, they're selling part of it. They're piece of part of it.
[15:16]
Amy Raskin
Right.
[15:16]
Mike Santoli
It doesn't, you know, but if you
[15:18]
Jim Lebenthal
look at, if you look at Micron, notwithstanding the suspicions that you're voicing, okay, Roughly six times forward earnings next year has a free cash flow. Let me just finish it. I know there's questions. Next year's free cash flow Yield is about 14%. And in December, they reach the anniversary of the Chips act, after which they can start buying back shares. I mean, they can buy back a meaningful number of shares with that free cash flow. So I look, of course there's going to be some questions about whether those contracts are rock solid. Okay. Those are reasonable questions, but I think it's unreasonable. The valuation that we're seeing at Micron, and I try to explain it. You can explain it by questions about the financing, that's fine. I explain it by questions about who else is delevering.
[15:59]
Amy Raskin
I'm not commenting on Micron or I'm just saying there the market is now discounting a very, very, very large AI spend in perpetuity.
[16:09]
Rob
I don't think 30. At least 30.
[16:12]
Amy Raskin
And maybe it happens, maybe it happens more slowly. I think at some point people are going to say, overall, I need returns on this. I think the cloud guys get the returns.
[16:21]
Stephanie Link
They're.
[16:22]
Amy Raskin
That's where all the data is. But, you know, whether everybody can get the returns. We're see, we saw Space X, you know, sort of there are more doubts than there were a few weeks ago. You're going to have anthropic come to the market in the Next month and a half or so, I think there's going to be a lot of questions about what they're spending and what their revenues are. We'll get more numbers. Open Air has now said they're not going to come to 2027. You know, so I do think there's a lot of more, there are a lot more cards to unfold. But we do have to acknowledge that the financing environment is getting harder.
[16:52]
Mike Santoli
Staff, you were going to weigh in. Sorry, Steph.
[16:54]
Rob
No, you
[16:57]
Stephanie Link
well know that. I mean, there are winners and there are losers and the companies that are profitable are going to make more, more money, generate free cash flow. And yeah, they're going to spend the free cash flow, but it's not like they're not getting free cash flow because they're starting to see the returns. So we're going around and around in a circle and there are winners and they're going to be certainly losers. But I think the companies that just reported this week, Alphabet and Microsoft and Amazon are in the catbird seat because we are seeing not only record growth, but record profitability. That's the most important thing because that generates free cash flow and they can use that. So maybe they don't have to do as much financing. And that's a really important point.
[17:42]
Mike Santoli
Well, I think it's, I mean it gets pretty complex, but the financing, a lot of it's happening on the project level. And so the economics you're talking about, if you're putting up money for this box in the desert is the rent. It's not like, oh, the magical network effects of AI, what it's going to give Microsoft and open AI. But Rob, what you were going to say.
[17:59]
Rob
I was just going to say that these businesses, we haven't derated the story. This is not because of a growth scare. This is a positioning unwind. We got way overbought, massively overbought. And a lot of the structure that has underpinned these businesses from an earnings standpoint, from an investment standpoint is maintained with risk. But give me those risks all day because that's what causes markets to climb, is the slow removal of negatives and uncertainties is what allows markets to. Markets to climb walls.
[18:36]
Mike Santoli
I agree with that. But here's what's always funny about that is it's only positioning on the downside, right? Maybe the last 40% to the upside was just people re levering and super torque positioning and a stampede into momentum. Mike, it wasn't like the fundamentals drive.
[18:52]
Jim Lebenthal
I think that's where we were in late May. Right. Remember we were in the storm of parabolas. We were all talking about it and I think we were talking about positioning that I think think literally every one of us on the desk said hey, now is a good time to check your position sizing.
[19:05]
Rob
But something chase something without price momentum. The answer is no. So of course that happens.
[19:12]
Jim Lebenthal
But a little more on this. Look, here's in case I'm not clear. I think this is more about technicalities of the market than that we are at peak spending or the market is really worried about peak spending. And I just want to give a little more to that because you mentioned SpaceX index. Let's not forget there's been a ton of supply of stock to the market over the last month and a half. I mean there is a digestion period that goes on. Let's also not forget that we're entering entering August, a traditionally low liquidity time in the market. A time of the year when you get this sort of volatility. So I think this is far more about market structure and tactics than it is about the fundamentals of the we'll
[19:52]
Mike Santoli
have to hear the kind of 180 degree other version of all of this. We'll talk about Apple a little bit at some point. But up next we want to get to the great rate debate. Treasury yields breaking out in a big way this week. How the committee is playing it. That's next after this break.
[20:09]
Contessa Brewer
The board recommends approving regarding that seat
[20:11]
Oliver Renick
on the committee we're most quarterly earnings
[20:13]
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[20:40]
Jim Lebenthal
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[21:09]
Amy Raskin
What made you confident that you could
[21:12]
Stephanie Link
do something that hadn't been done before.
[21:14]
Contessa Brewer
I have no fear of failure.
[21:16]
Julia Boorstin
Trailblazing women, changing the game One of
[21:19]
Contessa Brewer
my favorite pieces of advice Think about
[21:21]
Stephanie Link
what your boss's boss needs.
[21:23]
Amy Raskin
Leadership can look in many, many different forms.
[21:26]
Contessa Brewer
It really does come down to just trusting yourself.
[21:28]
Julia Boorstin
Life is short and you just gotta
[21:30]
Stephanie Link
think big to accomplish big things.
[21:32]
Julia Boorstin
Julia Boorstin Hosts CNBC Change Makers and Power Players New episodes every Tuesday. Wherever you get your podcasts,
[21:57]
Mike Santoli
We are back on halftime and continue to follow this big back up in yields. Oliver Renick tracking the action live from CBO Global Markets in Chicago. Oliver hey guys.
[22:08]
Oliver Renick
Bond market options flows are definitely more bearish than earlier in the week when traders were loading up on TLT he calls before the Fed decision. Maybe those bullish treasury buyers didn't realize that no hike would mean higher yields. But based on options trading today in the ten year futures, more pain for bond bulls might be in store. Traders bought more than seven times as many puts as calls. And with the 10 year yield highest since January 2025, those puts are working. Looking at TLT, the top five contracts by volume right now are all pushed puts and the most actively bought is the 75 strike expiring in June next year. That's a trade that needs the long term Treasury ETF to slide another 10%. Oh, and by the way, in the Corporate Bond ETF LCD, 121,000 total options traded today 120,000 were puts.
[23:02]
Mike Santoli
Interesting. TLT of course is Treasuries 20 years and longer in in maturity. So that's where the action has been. Oliver, you mentioned that, you know, going into the Fed meeting it was, it was all about calls. So playing the upside in the etf, which means downside in yields. I mean, I guess we have to be on alert for the idea that this put frenzy is another contrary signal.
[23:25]
Oliver Renick
You know, Mike, it's interesting because it really depends on whether or not traders see this is what I've been calling the bizarro bond world that's really been going on since the late 2024 when yields and interest rate decisions actually move inversely to one another. Since Powell started cutting in the back half of 24, yields went up during that period. So perhaps we're still in that situation where it gets very tricky. If you're buying calls thinking that this was actually going to lean dovish and yields would come down, you were wrong. But you got the dovish part arguably, right?
[23:53]
Mike Santoli
That's right, exactly. Yeah. The relationships shift around. Oliver. Thank you very much. I mean, is anybody tempted here to say, look, the market's giving you highest real inflation adjusted treasury yields in a long time? Yes, you are.
[24:07]
Rob
Yeah. I mean, I think this is just getting used to a new commuter or little communication style from the new Fed chair. We're having a zoo steepening right now where short term yields are falling, long term yields are rising. That indicates diminishing confidence in bed credibility. I think it's tough to make that judgment after one meeting.
[24:30]
Mike Santoli
Well, it's two meetings and after the first meeting you had a flattening and everybody said he established credibility.
[24:36]
Rob
So but that being said, it's early. It's early and he's trying to let the bond market do some of the work for him. And rest assured that this guy has not gone stupid. He didn't get the stage seat for that. For that reason. You only had three dissenters on the surface. This would have been a, a benign meeting had there been more communication with it. So you have a market that's adjusting to a new style. I think now, I think there's some of the inflationary pressures are real, many may be transitory. Right, right. And so this story is yet to be written in so far. Any time you had these pickup inside yields, it's paid to take it.
[25:17]
Mike Santoli
But here's the thing, I mean, because if you're going to let the market kind of figure it out and then signal the Fed on what to do or whatever that might look like really from the beginning, his idea, Kevin Warsh's idea of a less transparent Fed is based on a premise that a transparent Fed has muted volatility in the markets. It's been too predictable and therefore markets have done better than they otherwise wise would have because of a big balance sheet in a transparent Fed. So by definition, if he wants to change all that, he wants more fixed income volatility and maybe markets don't maybe do as well. Amy?
[25:52]
Amy Raskin
Yeah, no, I'm really worried about yields moving up. I think this is something to be concerned about. If you look at the graphs like yield equity port matrix, we're in red territory, we're in dangerous territory. Equities where higher yields will impinge on equity on equities. So it hasn't happened yet. I still, if I think if yields keep going up, I do think it will happen and I think we're at risk. I don't from an equity perspective, this transparency and what you know, leading the market in the Fed, I don't think it changes any equity investors. You know, way of investing. Certainly I don't look at it for fixed income. I think it's a different story. But I do think the relationship between fixed income and equities is very important and it's broken down and we'll see if that reverts.
[26:42]
Jim Lebenthal
So there's this concern that there was a huge contradiction in the press conference of inflation's a problem but the Fed did not raise rates.
[26:50]
Amy Raskin
Not only that, inflation's a choice, he said, so he's basically choosing.
[26:54]
Jim Lebenthal
Good, good point. Let me just continue where I'm going, which is to say what did the market really want? Did they want Chairman Warsh to say, oh, I voted in the minority to raise rates and I got voted down? No, I mean that counterfactual is worth thinking about. Like what would that have done to the yield market had we had a dissenting Fed chair?
[27:16]
Mike Santoli
We should go now.
[27:17]
Amy Raskin
They would have.
[27:17]
Mike Santoli
It's a majority going.
[27:18]
Amy Raskin
They would have gone.
[27:19]
Jim Lebenthal
No, my point is, is that that's not, absolutely not what I'm proposing is what I'm saying.
[27:24]
Mike Santoli
It would have been that like the
[27:26]
Jim Lebenthal
chair said, we go now with me. Yeah, the majority disagree.
[27:31]
Mike Santoli
Yeah, the majority. I get a tightening bias going in the dots last, last quarter.
[27:35]
Jim Lebenthal
I get your point but I just, I'm saying I don't think that's a complex.
[27:39]
Mike Santoli
I agree with you that I don't think the market would have preferred a hike and by the way was a 2/3 chance it wasn't going to be a hike. So it wasn't really the decision.
[27:47]
Amy Raskin
The 10 year would have preferred a hike. Yeah, maybe I don't think the equity market would have preferred a hike. You got the big swoosh up the day after. But I think the 10 year would be lower if we hiked.
[27:55]
Mike Santoli
Oh, that's certainly fair that with the
[27:57]
Rob
pattern markets would be down thousand.
[27:59]
Mike Santoli
Yeah.
[28:00]
Amy Raskin
I mean we would look like the
[28:02]
Jim Lebenthal
UK gilt market had we had a dissenting Fed.
[28:05]
Mike Santoli
No, but again, I don't know that it really would have been Fed but because that's the chair's job, like right. Former majority.
[28:12]
Jim Lebenthal
I don't know it would have been a failure of that.
[28:15]
Rob
I don't think the markets would have celebrated his attempting to get credibility with the rate hike in that meeting.
[28:22]
Mike Santoli
Fair enough. We'll see if 5 5% is in cipher. The 10 coming up. The Apple Aftermath shares tumbling its memory prices way on guidance. We'll get the committee's take next.
[28:36]
Amy Raskin
What made you confident that you could
[28:38]
Stephanie Link
do something that hadn't been done before?
[28:40]
Contessa Brewer
I have no fear of failure.
[28:42]
Julia Boorstin
Trailblazing women, Changing the game One of
[28:45]
Contessa Brewer
my favorite pieces of advice Think about
[28:47]
Stephanie Link
what your boss's boss needs.
[28:50]
Amy Raskin
Leadership can look in many, many different forms.
[28:52]
Contessa Brewer
It really does come down to just trusting yourself.
[28:54]
Stephanie Link
Life is short and you just gotta think big to accomplish big things.
[28:58]
Julia Boorstin
Julia Boorstin hosts CNBC Changemakers and Power Players. New episodes every Tuesday, wherever you get your podcast.
[29:22]
Contessa Brewer
Welcome back to the Halftime Report. I'm Contessa Brewer with your CNBC News update. A new report says China's military tapped USAI models to train its defense systems. A Reuters review of more than 80 Chinese academic papers and patents showed researchers tied to the People's Liberation army and other military institutions. Institutions use the powerful American AI models to train their own more specialized systems. The practice, known as model distillation, is widely used across the AI industry. But of course, China and the US Are fierce competitors in the air race. The Pentagon reportedly is considering eliminating tenure for civilian instructors at military academies and overhauling the curriculum, according to CBS News. Top officials have not yet approved that plan, but it would apply to all service academies and other institutions such as the army and Navy war colleges if it eventually is implemented. And Tony Romo has been put on leave until further notice, CBS Sports said in an announcement this morning. A week ago, the retired Cowboys quarterback and current NFL analyst was arrested near Milwaukee on suspicion of drunk driving. Romo has yet to to address the incident. That's the news for now, Mike. I'll send it back to you, Contessa.
[30:37]
Mike Santoli
Thank you. Well, President Trump just wrapped up his cabinet meeting. Let's get to Eamon Jabbers in Washington with the details.
[30:43]
Jim Lebenthal
Mike.
[30:44]
Oliver Renick
That's right.
[30:44]
Eamon Javers
It was a rare look for TV cameras inside Camp David, the presidential retreat. This was the first ever live televised cabinet meeting inside Camp David. The president had a lot to say on a variety of topics, including some bellicose comments on Iran suggesting that while he is negotiating, he said, we just want to win. We'll be hitting them very hard. The president said so signaling ongoing confrontation with Iran. No sign of a let up there on Ukraine. Interestingly, we heard these comments from President Zelensky of Ukraine, where he came out of his meeting earlier this week suggesting that maybe there had been some agreement with the president on licensing Patriot missile technology for the Ukrainians to build those missiles in Ukraine themselves. The president here said, no, not so fast. Not agreed to license that Patriot missile technology. The president expressing concerns about technology proliferation and saying that's something that the United States wants to keep a hold of is that the secrets to the Patriot missile construction and technology. On the Minnesota cyber attack, we have a US Official now saying that the US Official believes that it was probably Iran conducting the cyber attack into water facilities in Minnesota. The president, however, said at this cabinet meeting he disagrees with that. He says he doesn't believe it was Iran. Said Iran should be so lucky, said they have other problems. They're not focused on Minnesota. He blamed the Minnesota cyber attack on Minnesota and its governor there. And finally on FIFA. Mike, the president said he has not spoken to Gianni Infantino on that multi billion dollar private equity investment plan that's turned the world of global soccer upside down. So president saying he had no involvement there. Back over to you.
[32:27]
Mike Santoli
All right. Cover a lot. Eamon, thank you very much. Let's turn out to Apple really the other huge story of the day. It's actually pulling as much out of the S&P 500 as Amazon's gain is contributing. Jim, you lightened up ahead of the numbers.
[32:42]
Jim Lebenthal
I did. I sold about half of my position yesterday. I actually let the team know here. So I don't want anybody thinking like hey, I'm back dating and trade here. Sometimes I get it right. And on this one I just thought we were priced for perfection. It had had a tremendous run. We all know that. Trading still in the mid-30s on a forward multiple. To me, who's owned this stock Since I think 2010, I know that's rich. And finally we had Qualcomm report a couple of days earlier it wasn't a great look for the smartphone market. So you know, what did we get from Apple? We got supply constraints. We got price increase increases on their raw materials, that is chips from the likes of Qualcomm. It just seemed like a good time to lighten up. And so that's what I did. I still have now half the market weight in the, in the, in the name and I'll keep that for the foreseeable future.
[33:29]
Mike Santoli
Market weight is like what, seven, six,
[33:31]
Jim Lebenthal
six and a half percent.
[33:33]
Mike Santoli
Rob you as well.
[33:35]
Rob
We sold a bunch of it on Wednesday. Kind of going into the number story of rich valuation, quality, quality business. We went to neutral to the market. We really never been underweight Apple. It's really hard when a company has that free cash flow generation, the ecosystem, the product cycle upgrades. And it has these blasts when you don't expect them to have blast because it has an unbelievable management team. So we went to neutral.
[34:04]
Mike Santoli
It's funny Amy, every time Apple seems like the obvious, like why would I ever have doubted that this could lead the market and because it's defense and also participating in the big tech trends, maybe it is time to question, you know, whether it's over owned.
[34:19]
Amy Raskin
Well, it certainly had, has had a great run. So any pullback here is, is normal. I don't think they're losing their moat in the smartphone market. I do. You know, obviously supply issues and price increases are going to dampen demand. But I will say their incoming CEO John Ternus was a pen engineering grad, which I'm an engineering grad. So I fully believe in the future of the company.
[34:43]
Mike Santoli
All right, well I'm sure that's pretty commonly held view among the alumni community. Maybe that's a big bonus. Steph, at some point does this pull you in? Is it entice you on a valuation or fundamental basis?
[34:58]
Stephanie Link
No, not really. Not at 32 times forward estimates which is actually close to a peak and we just don't know when gross margins are going to trough. It's next quarter is it the quarter thereafter and services is slowing and that's troubling as well because that's higher margin business. But overall, I mean the quarter was fine. It's just, it's a rich stock, a lot of high expectations. It's just not cheap enough for me. Has to has to correct further for me to even take a look at it.
[35:26]
Mike Santoli
Is there anything that for Turnus for example, guys like that you would put top of his list in terms of course correction, setting priorities or is it just kind of grab the baton and business as usual?
[35:39]
Jim Lebenthal
I take the latter. I mean I think the parlor game that has gone on for years, Mike, is should Apple buy another company? And I've always hated that. I mean you may remember, remember when they were supposed to buy Fitbit, they were supposed to buy Disney and as I said, it was a part of the particular game. I hope he doesn't go down that route. If he did, I mean maybe the thing he does is buy a chip company just to control that part of the supply chain. But again, to be clear for everybody listening, I hope he doesn't do that. I hope it's business as usual.
[36:04]
Amy Raskin
Yeah, I don't think he will. I think he is a no nonsense hardware guy who's going to continue to focus on making sure they have the best hardware and hardware software integration out there.
[36:15]
Mike Santoli
Obviously a huge Mac correct quarter, we didn't cite that, but that was a big piece of it all. Right, up next, more trades from the committee. Stephanie, Rob and Amy have all been Making moves. We'll break down their latest trades next. Welcome back. Let's get to some more committee moves. We're going to start with Steph. And Steph, you bought more Starbucks. Why is that?
[36:49]
Stephanie Link
Yeah, I mean, I started buying this in January, so I've had a nice gain. But I think we're at the operating margin inflection point at this company and at the same time, same store sales are accelerating. So the Green Apron program is working. They have better either have easing coffee costs, they have cost savings that they're seeing. They had some benefits from tariffs and all that stuff, but. But a comp of 7.9% and North America of 8.1%. North America is about 80% of their revenue, so we care mostly about that. But the operating margin is what really piqued my interest and why I bought more. At 14.4%, it beat by 240 basis points. And I would simply say the peak, the last peak in operating margins in North America was in the third quarter of 2021 at 20.4%. So if we go from 14% to 20% over the next couple of years, I think it's a shoo in that they can do something like $6 in earnings power.
[37:42]
Mike Santoli
I mean, the revival does seem to be building here. Is anybody else taking a look now?
[37:48]
Jim Lebenthal
Too rich for my blood. Although I will say, as a consumer, Steph, I think the experience has been really, really improved since Mr. Nichols took over.
[37:57]
Mike Santoli
You like what they write on your cups and everything?
[37:59]
Jim Lebenthal
Just look, they're just nicer. Okay. It was getting really kind of, kind of petty, the interactions with the baristas and they're just, they're kinder now.
[38:07]
Mike Santoli
Well, see what happens now that you say you don't want to buy the stock and you rob SK Hynix. I mean, what, you like the Com Steady stories? Is that what.
[38:16]
Rob
That's it? No, what we liked is this is at the epicenter of the air unwind, specifically related to memory. It was down 50% from its highs in our international portfolio. We wanted to build a position in that alongside of tsmc. And high bandwidth memory is one of the highest value added parts of that segment. The volatility might not be completely over. There's a lot of underlying structural uniqueness to the way people buy these names, whether it be through levered ETFs or hedge funds with leverage that may or may not be under unwinding still. Right. But we thought that rerating was enough to get us interested again.
[38:57]
Mike Santoli
Staff, does your enthusiasm about the Memory story extend to South Korea in this way?
[39:05]
Stephanie Link
Well, look, I own a little bit of Micron but I own a lot a bit of Nvidia and Broadcom which are much less volatile and they're going to play and they're going to win as well. So I'm going to hold on to a very small position in Micron for now.
[39:17]
Mike Santoli
We got some energy earnings today. Exxon and Chevron. Amy, you've been moving things around on the energy.
[39:22]
Amy Raskin
Yeah, we're very overweight energy. We continue to really like the sector. We trimmed a little bit sort of at the height of the Iran war conflict and energy getting really high. We bought some that trim back recently. I just think if we would look at inventory levels are getting really low. If we get any weakness in energy prices, prices I do think it will get bid and you'll get oil. Every government around the world increasing their inventories and replenishing. So I think there's a floor under the commodity and the stocks.
[39:53]
Mike Santoli
All right, we do want to get to a news alert on XP Semiconductors. Let's get to Christina Bruxnevellis for that. Christine?
[40:00]
Christina Bruxnevellis
Yeah. The Financial Times right now is reporting that NXP Semiconductors is in talks to inquire Ambarella and they're citing people familiar with the matter. The report says discussions are ongoing right now, but warns this deal is not a guarantee. Ambarella, for those that don't know, designs low powered vision processors. So chips that really help cameras understand what they're seeing. Its chips are used in advanced driver assistance systems, so autonomous vehicles, security cameras, robotics, etc. And so the fit seems to be relatively clear because NXP is already one of the biggest suppliers of auto chips out there. You add an Barella to the mix, it would just give us give it more of the compute needed for camera based AI, allowing it specifically to sell a broader platform to automakers just as vehicles become even more softer defined. We know that everybody from Nvidia to Qualcomm are competing in this space and so that is why you're seeing Ambarella up 18%. Just reached out to NXP. No answer because I just reached out moments ago. But that's why you're seeing such a stock reaction.
[41:01]
Mike Santoli
All right. Yeah, amber, about a $4 billion market cap and xp around 59 stocks reacting for sure. Thank you, Christina. The setup is straight ahead. Welcome back. Let's get the set up on some key committee names reporting next week. Ebay comes out Wednesday. Jim, you own it and at first I got to get a, an apology and a clarification out of the way. So we talked about ebay. It was a final trade of yours on Monday. And you mentioned the Gamestop offer, which is still on the table. And I said, oh, there's also a rival bid for, from Stripe and private equity. Because in my brain, which is, you know, 20, 20 years out of date, eBay and PayPal are still the same company. So PayPal got the bid, eBay didn't. But talk about what we're looking for with ebay.
[41:59]
Jim Lebenthal
Yeah, no problem, Mike. I didn't go back and look at exactly how bad my deer in the headlights there was, but it was clearly
[42:05]
Mike Santoli
that the other guys ridiculed you. They need to apologize you after, but go ahead.
[42:10]
Jim Lebenthal
All right, so listen, I like the stock and going back to what we said on Monday, I think the GameStop offer has some potential. Potential, Obviously there's a lot of doubt, but I think it has some potential. And if it doesn't come through, we've got a strong consumer that is gravitating more and more to ebay. You've got an attractive valuation, you've got share buybacks going on.
[42:30]
Rob
So I like the name and a focus on high margin, high ticket items, which is, which is a strategic focus. And if they deliver on that, I think shareholders will like.
[42:40]
Jim Lebenthal
Absolutely. Including collectibles, by way a relatively new
[42:44]
Mike Santoli
category for them as well as, as we were talking earlier, tickets to the Odyssey and Imax on ebay as well. So other stuff for next week, I mean, I'm just going to pick one out for you, Amy. What? EOC Resources or eog?
[43:01]
Stephanie Link
Eog.
[43:02]
Amy Raskin
I mean, we like the energy space. I think it's going to be a, you know, a good quarter. Obviously they'll get a lot of questions on oil prices and Iran, but we like the long term setup. Not, not the cheapest of the energy names, but still around 10 times earnings.
[43:17]
Mike Santoli
It's going to be interesting on, on energy. You know, I was looking Exxon before the Ukraine invasion. The stock was lower than it had. It was from like 2006 or something, like everyone. So there's kind of a different sense of whether in fact we're in a new range here.
[43:32]
Amy Raskin
I think we are. I actually do. I think everybody was so worried about this glutton oil. You know, hydrocarbons are still a really efficient way of getting energy. And, and I think a lot of this has been taken offline. And so I like the setup for oil.
[43:48]
Mike Santoli
All right, we have one more move from Stephanie, to get to, we're going to get details on that trade. Market grinding higher from a little bit of a morning dip. S and P up half a percent. Let's get to one more move. Stephanie, you bought more vertif on this pullback.
[44:20]
Stephanie Link
Yeah, I mean, the stock, they reported a very good number and the stock fell 17% on the day. This is for a company that beat earnings. They raised guidance, they raised organic guidance in the second half of the year and their backlog increased from from 15 billion last year to 20 billion currently. And I think that this is a company that is the market leader with incremental 30% margins between now and 2028. They're doing great in terms of cost cuts. They have pricing power. And the whole reason the stock was down because they only grew organic growth 18% versus 24% expected. But again, as I mentioned, they did raise organic growth for the back half of the year. This is a conversion problem, not a demand problem. And I only feel better after hearing again from the hyperscalers and all the investment spend that they're going to continue to do. These guys are a huge beneficiary of it and a great management team.
[45:17]
Rob
Yeah.
[45:18]
Mike Santoli
As we're looking, still stock up 52% year to date. Kind of a key player in the huge backlog trade. Thank you, staff. Final trades are up next. We are back with final trades. Steph, get us started.
[45:37]
Stephanie Link
Sure. Target is trading at 17 times earnings and the turnaround is definitely working. Comps are running at 5.6%. Traffic is the most important thing for this company and it grew four and a half percent last quarter. I think that bodes well for the upcoming quarter.
[45:51]
Mike Santoli
All right, Rob, Monolithic power. Something what the people that work for you think you like or we don't
[45:59]
Rob
have time to get into. We do have a power regulation continues to be an important part of the story. They're a little expensive, but obviously with this turnaround, they're also turning around 9% today.
[46:11]
Mike Santoli
SLB.
[46:12]
Amy Raskin
Yeah, continuing with the energy theme. We think there's going to be a lot more exploration coming out of these
[46:17]
Mike Santoli
wars, including on the war water.
[46:19]
Jim Lebenthal
Exactly. Transocean deep water. We'll get an update next week in earnings call about their merger with Valeris. That'll be interesting.
[46:26]
Mike Santoli
Oh, there you go. All right. Energy theme. Well, it does it for halftime. Thanks to you all. The exchange starts right now.
[46:34]
Rob
You've been listening to CNBC's Halftime Report,
[46:36]
Jim Lebenthal
the podcast you can always catch us
[46:39]
Rob
live weekdays at 12 Eastern only on CNBC.
[46:45]
Julia Boorstin
All opinions expressed by the Halftime Report participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates and may have been previously disseminated by them on television, radio, Internet or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion. Such opinions are based upon information the half time report participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy and it should not be relied upon as such. To view the full Halftime Report disclaimer Please please visit cnbc.com halftime reportdisclaimer what
[47:20]
Amy Raskin
made you confident that you could do
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Stephanie Link
something that hadn't been done before?
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Contessa Brewer
I have no fear of failure.
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Julia Boorstin
Trailblazing women, Changing the game One of
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Contessa Brewer
my favorite pieces of advice Think about
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Stephanie Link
what your boss's boss needs.
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Amy Raskin
Leadership can look in many, many different forms.
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Contessa Brewer
It really does come down to just trusting yourself.
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Life is short and you just gotta
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Stephanie Link
think big to accomplish big things.
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Julia Boorstin
Julia Boorstin Hosts CNBC Change Makers and Power Players New episodes every Tuesday. Wherever you get your podcasts.