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AI Pullback, Homebuilder Hope & the Next Big IPO 12/12/25
00:43:47
Broadcom, Oracle and Intel shares all lower this week as AI bubble fears continue. Homebuilder ETF XHB is underperforming the broader market, but one guest thinks 2026 will be a better year for housing. Plus, Elon Musk confirms that SpaceX will go public, which could be the largest IPO ever.
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You're listening to the Exchange. Here's today's show. Scott, thank you very much. It's day three and the tech slide. It's day two for fresh. Record highs elsewhere and it's day zero for AI regulation. Welcome to the Exchange. I'm Kelly Evans. The Dow S and P and the Russell all hitting fresh records this morning before giving up those gains. As you can see there as the trade continues to suffer, the NASDAQ's down one and a half percent. We've also seen a big reversal in commodities with silver down more than 4% after close closing at a record high yesterday. Gold losing all of its gains just about on the flat line right now as well. And yields continue to rise. The 10 year is now above 418 and that's pushing the spread higher. Could be a good sign. We're going to talk more about it. The difference between the twos and tens continuing to widen to 65 basis points right now. Rick Santelli will have more on that in just a bit. But let's begin with this. Rough week for the trade as earnings, geopolitics, credit fears are all underscoring the risks heading into 2026. Nvidia has essentially stalled out in December and is down 9% over the past month. Oracle is down 14% this week on the back of its earnings as insurance against its debt keeps rising. And then there's Broadcom, Wild ride for this name, up more than 3% initially when its results hit last night. Seventeen hours later, it's down almost 11%. So why the souring? Let's bring in Christina Parts Nevilles. She's looking at Broadcom more closely. Seema Modi is breaking down. What's going on with Oracle today. Jay Goldberg of Seaport Seaport is here to talk about the broader sector outlook. The only sell on Nvidia on the street, by the way. And Tim Seymour is here to trade it all. Welcome to all of you. Christina, kick us off here. Well, Broadcom posted a very strong quarter. That's why you saw the results higher right before the earnings call. AI revenue up 74% year over year, $73 billion backlog, which I'll get to in a second. But shares, as you said, are down almost 11%. And I'll put it down to three main reasons. First, margin pressure. While a revenue in the first quarter is expected to roughly double year over year, the second half of 2026 includes about $21 billion in lower margin rap. Ship rack shipments for anthropic full racks have lower margins than just custom AI chips because Broadcom is essentially packing up more expensive components like networking gear and memory that it just can't mark up as much. Second, that $73 billion AI backlog did beat street estimates, but missed some bull case whispers of over $80 billion. There's also a little bit of uncertainty about Open. Broadcom CEO Hock Tan said they're in a quote agreement, which sounds similar to Nvidia's deal with OpenAI, which Nvidia can essentially back out of if they want to. Either way, Broadcom isn't expecting meaningful OpenAI revenue until fiscal 2027. Third, and probably the biggest reason is just valuation. Broadcom trades at a historical premium compared to Nvidia. This gap is the widest it's been in a long time. Look at your screen 38 times versus 25 times Nvidia the stock as well. If you look on a two month basis, Broadcom up, it's come down dramatically because of the earnings. Up 11%. Nvidia down about 3 and a half percent due to the success from Google's Gemini model which uses Broadcom made tpu. So today could just be pure profit taking from investors who've had a long run. Or as Jeffrey puts it, folks looking for any reason to, quote, take exposure down. Kelly, a lot of different things you could point to, but that's a huge turn of sentiment really over the past 24 hours or so. Christina, we appreciate it. Thanks. Sima Modi is here. Talk about Oracle now. Reportedly delaying some data centers. Sima. And this has taken the stocks from mildly angry to really ticked off. Yeah, so much of this bet is really built on the timeline, right. Of these data Centers being developed and stood up in a timely manner. So any signs of delays is going to be taken by the market as something that they're going to focus on. This report essentially from Bloomberg says that Oracle is potentially delaying the completion of dates of sales some of the data centers that's standing up for OpenAI from 2027 to 2028. Citing labor and material shortages, Oracle is declining to comment. Now, the state of Oracle's deal with OpenAI has received a great level of interest from investors since second quarter earnings came out. In fact, CBC's David Faber asked OpenAI CEO Sam Altman yesterday about that deal and Altman responded by saying he's confident OpenAI can continue to drive the revenue growth to meet this compute ramp. He did add that we'll adjust our plans if necessary. If something happens, however, that is not what we expect. Now, Oracle is doubling down on its data center leases as shown in its 10Q which just came out yesterday. I spoke to one credit investor who said more data center leases, that's going to resurrect this whole topic of financing and the likelihood that Oracle will likely have to go to the debt market sooner than expected. The company basically acknowledged the fact that they need to do something on the financing front. On their earnings call, they said debt is an option. The estimate out there by the market was sometime before mid-2026. These data set central releases leases suggest it would have to happen earlier next year.
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C
Hmm.
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B
We were talking to an analyst about this yesterday who had put a sell call when he initiated on Oracle in the fall, which has panned out quite well. And he was just basically saying they shouldn't be so aggressive that, you know, because I said, look, they obviously feel like there's an existential need to move quickly here at a scale. And he said, you know, I'm not sure there is, and that maybe they're introducing the existential threat by going in this direction. Well, this pivot into cloud computing, it certainly raises the stakes here when you look at the competition that Oracle is facing from Metta, Amazon and Microsoft. So I bet the idea here is that they need to go big in order to stay competitive and be seen as someone that can continue to accept These orders from OpenAI and other players that are looking to build out cloud computing. So they got to go big to win, I guess they certainly, they seem to see it that way. Seema, thanks for now. We appreciate it. Sima Modi, let's get to our first guest now who does have a buy on Broadcom in spite of Everything that happened, in fact, he just upped his price target by $100 this morning and has the only sell on Nvidia. So he's not just a runaway bull here. Jay Goldberg is joining us from Seaport Global Securities. Jay, what's the story with Broadcom as far as you're concerned?
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C
I think this is a case of the super intelligent AI God gives and and then takes away. There's a lot of all these stocks are sort of wrapped up in the broader AI trade where there's not a lot of room for error. And I think if you look at Broadcom, just their numbers were really good, quarter is good, outlook was good. The problem is they're just, they weren't good enough. People are wanting more. There is fear about competition out there. I think all these fears are, are misplaced. I think Broadcom is probably one of the best run companies in semiconductors today. And I think, you know, there are people that are worried that they're losing share at Google, they're losing share in the market. I think the opposite is taking place. I think they're actually going to be a net share next year.
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And there seems to be some concerns about, you know, tell us more about the customer base, tell us more about, you know, where your exposures are. You over reliant on that and so forth. You're not worried about that?
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C
I'm much less worried about that than I am about what I'm seeing for a lot of the other players in this field. I think if you look at what was going on with Nvidia and sort of the basis of my sell rating on Nvidia is just they're heavily reliant on the Neo clouds and all of the financing complexities that you were just talking about earlier. That looks much riskier to me than Broadcom, whose focus has a small number of customers, which is their typical model historically. And these are all super well capitalized companies like Google and Microsoft and hopefully Amazon. So their, their customer base is very different and I think that leads to a much more viable, long term sustainable revenue stream.
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B
But you're worried that in video customers don't have deep enough pockets. I mean Oracle may be kind of the one that sticks out, but a lot of the rest of these are some of the most well capitalized companies in the world.
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C
Some of them are. But if you look through the whole chain of Neo cloud and data center deals that are taking place right now, there are a lot of players in that mix. There's a heavy, heavy reliance on debt and that's growing. There's a lot of debt offerings in the pipeline. That looks a lot more strained. That whole complex looks very strained to me. There's a lot of things that can fall apart in that. As opposed to Broadcom selling to Google or Broadcom selling to Microsoft, it's much more straightforward and sustainable.
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I appreciate the point of view and the pushback on kind of these narratives today. So finally then j as people are looking into next year and seeing it sputtering out broadly a little bit of the tech trade here and, and you see some who should do quite well like a Broadcom and understand why others like Nvidia, you might see face more of a challenge. But what do you think lies in store for the sector as a whole or even to put it more broadly for the trade as a whole?
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Look, I'm a techno optimist. I think I will be an important part of our lives. But any technology that is as big as AI could potentially be takes years to adopt. Right? We see that with the Internet, we saw that with the VCR, we saw that with PCs. Nothing goes in a straight line. And I think what will happen is probably next year the bloom will come off the rose, the trade will fall apart. There'll be a lot of pain and suffering in some sectors. But then from those ashes will emerge the real AI applications and the real new crop of interesting companies coming out of that.
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Maybe the difference, maybe the difference is that you see that happening next year and most people think there could be three to five years more of upside before it falls apart.
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C
Yeah, that's possible. That's possible. It's hard, it's hard to call. I think what, what sort of has made me much more cautious is this big surge of companies turning to debt. Right? There's a lot more risk. Debt is fantastic in the upcycle, but that just makes it much more painful in the down cycle. And so the risks are greater and sort of amplifies the pain.
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All right, Jay, really appreciate it. Thanks for joining us today. Jay Goldberg of Seaport so as that trade begins to stumble, other parts of the market are happy to pick up the slack right now. And thank goodness financials and industrials are hitting new highs. The mid caps are at a 52 week high. Silver was at highs earlier. The MSCI all country index hit some new records. That's for you, Tim. Will this continue into next year? Tim Seymour is the CIO of Seymour Asset Management and a CNBC legacy contributor.
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Hey Kelly.
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So thank goodness I came along when it did because the market in 2022 didn't look so hot, thank goodness. The rest of the market is now feeling better as the trade stumbles. Can it be that easy?
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Well, I think the other 493 are not only reaping some of the benefits of AI, but I think you have a dynamic here where you definitely are seeing EPS growth, you are seeing margin accretion as opposed to what we're all debating today, at least about Broadcom margin degradation. So the dynamic of rotation is great. I think it always is relative to where you're coming from. I think these are markets that are heavily overweight. At least a lot of large institutional and retail investors into AI and some parts of the tech trade. I think today's price action also is a function of. This is almost a 20% move in the semiconductors, the stocks, the SMH, whatever you're following from that intraday bounce back three weeks ago. This is a massive move and we're at all time highs. And so today feels kind of painful. And two leaders in Oracle and Broadcom have told you messages that are a little concerning. I don't think people should be running out the door here. I do think talking about international, talking about some of the trends, that it is about a valuation confidence that valuations are not extreme confidence that you see EPS growth confidence that, that the global dynamics in the economy that we at least know right now says the dollar could be a little weaker. Other central banks, if anything might be leaning into not only on pause but maybe hiking a little bit that global growth is okay.
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B
Yeah.
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And that's a decent setup for the other 493 and international.
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B
So you stick with it. You love the rotation, you lean into it.
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A
You lean into it. Because I also think that health care was overdone to the downside. I love banks here. I love the cyclicality that is there as long as, I mean the Fed told us this week and that's part of the reason also why I think the markets are pulling back a little bit. You've got two Fed presidents weighing in today, trying to tamp down some of that, that dovish Nessie. But, but I think banks, cyclicality, health care, industrials, I mean gm, airlines, these are places where the valuations are good and the story is good and the earnings profile is very good.
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What if people start to really panic or jump out of the trade? Or is it possible they're just taking profits on what has frankly been a very good year?
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Look, I'm hearing from investors, there are people that are nervous but I would just go back to where are we coming from? I mean, we've had a massive move and we've rallied substantially. Jumping out of windows. I think the dynamic here is that there's a lot of money that's been pushed into the trade that's somewhere out three years. What we've heard over the last couple of days is we don't really know what the margin profile is going to be. We don't really know if some of these customers. Jay talked about the debt profile. That's thrown a different light on even, you know, hyperscalers, you know, the Mag 7 that at least have suddenly been. They were free cash flow machines but suddenly they may not be. That means these things might trade at a different multiple. But I think if you're running too far away from Google and Metta and you know, I think even in video, I understand that that's the more central part of are their margins going lower? And if they are, then this stock might not be as cheap as it seems. Because right now in valuation.
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Right. It's like sometimes.
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Right. Yeah.
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C
So, yeah.
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Well, actually we have some more detail from Oracle. Sima Modi joining us with a statement from the company. Sema Kelly, we were just talking about the story. Oracle spokesperson is refuting the Bloomberg story that Oracle is delaying some of the centers it is developing for OpenAI. The spokesperson telling CNBC there have been no delays to any sites required to meet our contractual commitments and on and all milestones remain on track. We remain fully aligned with OpenAI and confident in our ability to execute against both our contractual commitments and future expansion plans. This is in regards to Oracle's $300 billion deal with Open Air. There was that so story earlier today that the company was delaying some of the standing up of data centers for Open Air. Again, Oracle coming out and saying that is wrong and that they remain fully aligned with Open Air. You are seeing the stock move here real time. In response to this commentary from Oracle, stock now off the lows of the session and down about 2.8%. We're going to stay on this story here. I would also bring up Oracle's credit default swaps that have been in a way loosely correlated to the performance of the stock. Kelly, you'll see that come down as well. Yeah, Seema, thank you very much. And Tim, a final word. I mean, is this a company in particular where you think people might move to the sidelines if they had to select one out of the trade?
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Well, I think a company that moves their capex from 5% of revenues to maybe 70% of revenues is part of the story here.
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That's a big move.
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I don't think you've priced in at the valuation here on Oracle. I think it's actually interesting because it's priced in X any AI Having said that, I think this is the epicenter of the debt story and I think you can be sidelined here. But I know that there's a lot of investors out there and I think repositioning into next year, especially a shakeout in this trade, there are many folks that do want to buy this dip. I don't think people are running too far away.
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All right, Tim, appreciate it very much. Glad you're here today. Tim Seymour, Coming up, the homebuilders are trying to avoid their first negative year since 2022, but we have some more worrisome signs in the housing market. We'll talk about them next. Plus, Elon Musk confirming reports that Space X is planning to go public next year. The company, last valued at $800 billion, has the potential to be the largest IPO ever, even bigger than Saudi Aramco. Will it get the animal spirits back in this market? That's ahead on the Exchange.
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No, look, actually we think 2026 is going to be a better year for housing. I think the underlying sort of, you know, building blocks are very much in place. Inventory has been right sized across most markets. The intent to buy is still very strong. Our survey work would suggest that mortgage rates are down, called 100 basis points, since the peak in January. Builder inflation on the input costs is declining or moderating. And we're trading at still time, you know, nine times forward earnings. So the setup still feels pretty good. And I think to some of Diana's points, I mean, I think what's really important to keep in mind is that home price appreciation since 2019 is up 56%. There's $35 trillion still of home equity built up in people's homes. So could we have seen a little bit of pullback the past couple of months? Maybe, but it's. We're not concerned about prices falling.
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You expect prices to keep falling?
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C
No, no. I think inventory is far too tight and underlying demand is, is far too strong.
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Why do you think they're falling at all right now? Why do you know, we hear this talk about how it's shifting to more of a buyer's market. Is that just a healthy development because it's been a seller's market for five years now, or how do you interpret that?
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Well, I think it goes back to the 56% appreciation that we've seen since 2019 as a starting point. However, keep in mind, this is A seasonally very slow time of year for, for the homebuilders. But I'm not going to blame it all on that. Consumer confidence is that global financial trough.
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You know, it's really bad.
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Yeah, it's really, it's really bad. So I think, you know, as we move into next year, the building blocks again are very much in place for things to work out. But we need confidence to improve. I think we're seeing signs of stabilization there and in fact, you know, just kind of the view of inflation is starting to get a little bit more tame from what we're hearing.
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Well, Gary Friedman last night on the RH call, I don't know if you caught this, said we're in the third year of the worst housing market in 50 years. You know, he always has a way of just very, you know, he puts a pin on it and that's what we're living through. And it's actually extraordinary if you had told someone three years ago that this was going to be the case, but that the homebuilders were going to rip in the meantime, you know, and that early on we understood they have an affordability advantage, they're buying down mortgages and so forth. What do you think allows for them to do better next year? And would you differentiate between them? Would you own them as a group or are there a couple of standouts?
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So I think what is has allowed them to perform and what will continue to allow them perform is what one thing what you just said is the ability to buy down rates. They can build smaller footprint homes. They can build a little further away from the city. They can limit, you know, floor plans and elevations, things that make the build process more efficient. Right. So they can, they can do things that the existing home market cannot. And I think that coupled with consumer confidence will help next year. Now what I think when we start to see a bit of a bottom, these stocks are going to really rip and I think they're all going to rip together.
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B
A bottom in what sense?
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C
A bottom in consumer confidence, really.
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So when we start to get better reports and you miss or whatever, you know, saying that sentiment is on the rise, that's the time to just to jump in.
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C
Look, we think so. I mean, I think that the stocks are at a valuation right now that is telling us that there's a lot of pessimism out there. And this is a very early cycle type sector. And so when we start to see a bottom in sight and when people believe that margins can sort of bottom out, that is when these stocks are going to take off.
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B
I was thinking, you know, the old fire acronym, financials, industrials, real estate. And I thought today, while we have financials at all time highs, industrials at all time highs, and if real estate can, you know, participate to that extent and kind of take a poll position into next year, then there you go, be on fire, so to speak. But you're saying it's possible?
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C
We think it's very likely.
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B
Huh. All right, John, thanks. Appreciate it.
- [24:59]
C
Thanks.
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B
Good to check in with you today. John Lavallo. Coming up, President Trump signing an executive order to establish a national AI regulation standard. What does it mean for the VC world and for our race with China? On that front, we'll dig in and ask Facebook's former chief security officer what he thinks it means for big Tech's ambitions. And as we head to break, here's another look at the market. The NASDAQ was down more than 2%, but it's paring those losses now down about 300 points. Still, the best relative performer is the dow, while the ten year has ticked up to 419. We're back after this.
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C
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B
I'm giving all the gifts this year with that extra 5% off when I use my Nordstrom credit card. Santa who join the Nordy Club at Nordstrom Rack to unlock our best deals. It's easy. Big gifts, big perks. That's why you rack the 10 year yield hovering just under 4.2% right now. But the real action has been in the steepening yield curve, especially since the Fed. The 210 spread is now at its biggest since 2022. 66 basis points. That post Covid inversion we went through never presaged an actual recession. So is this basically the all clear sign? Let's ask Rick Santelli. Rick, what do you make of this bullish positive sign heading into 2026?
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A
I think it's a mostly bullish positive sign, but there are some caveats. First of all, let's look at the two largest economies in North America. Canada's yield curve is virtually at the same timetable as ours. Theirs right now is hovering at 84 basis points and theirs is the steepest going all the way back to October of 21. So they're a little bit more than four years. We're a little bit less than four years at 66 basis points. The two things both countries share at this point is that their central banks have been on easing campaigns. 100 basis points in Canada for 2025 they helped pat at their last meeting. We're at 75 basis points for 2025. And it's unknown and unclear about what 2026 may hold. Large deficits are in common and growth are in common between these two large economies over a five year span. Canada recently announced that Mark Carney is going to have to issue more debt to pay for some of the programs. And in relation to the U.S. we also have sticky inflation and growth. Growth is a big deal. And I think that our economy specifically looks like it could have a resurgence. And I think all of those things are contributing to the steeper yield curves.
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B
All right, so you'll take it? It's a positive, Rick? I do.
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A
I think mostly it is a positive. But let's not ignore the sticky inflation. Listen, we had Austan Goolsbee on today and you know, he keeps underscoring this and there's this notion of, you know, Fed dot plots and their predictions would inflation may do. But the reality is all the predictions haven't necessarily been spot on. Now Canada's inflation isn't as sticky as ours. Their last reading was around 2.2. Their central bank's roughly 2% target as well. Ours is still about 100 basis points away. And the only silver lining to sticky inflation in the US is it doesn't seem to be accelerating. I know that there's a lot of political crosswinds, many point to tariffs, but ultimately that's not where I see the sticky inflation. It was prevalent long before Liberation Day and it's still there today.
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B
Yeah, I guess it's reassuring though because if, if, if inflation were a near term problem, the twos wouldn't be falling so much. I know they're following fed funds rate, but you know what I'm saying. So the market seems to be guessing that inflation is not going to be as much of a problem and that it's possibly looking ahead to stronger growth.
- [29:38]
A
Yeah, no, I think sticky inflation, better growth, more issuance, it really is a recipe for a steeper yield curve. And what's more, if we consider the fact that it's not only the two largest economies in North America. Now, let's look macro here. You're going to have France, you're going to have the UK you're going to have other countries in the eurozone, Japan. They all have issuance and deficit issues. So it's not only a North American dynamic, it's a global dynamic. And I wouldn't underestimate how it will reverberate around the globe.
- [30:08]
B
Fair. I don't want the long end going up because of too much global debt issuance. You want it going up because people are positive about the economy. I like unpacking it. Maybe we can bring back the whiteboard for the, for the next one. Rick, thank you very much. Rick Santelli.
- [30:20]
A
Absolutely.
- [30:21]
C
Thank you.
- [30:22]
B
Let's get to Bertha Coombs now for the CNBC news update. Hi, Bertha. Hi, Kelly. President Trump said last night that he is granting a pardon to Tina Peters. She's the former Colorado county clerk serving a nine year sentence for allowing unauthorized access to voting machines. Following the 2020 election. The only issue the president's pardon power only applies to federal crimes. Trump says Peters has been a relentless target of Democrats. However, he was prosecuted by an elected Republican district attorney. Washington state today under a state of emergency after experiencing catastrophic flooding. As much as 16 inches of rain falling in parts of the state. Nearly 100,000 people have been evacuated so far. And President Trump is expected to sign a bill awarding congressional gold medals to the 1980 Miracle on Ice US hockey team. He's hosting members of the team at the White House today. They defeated the heavily favored Soviet Union during the Cold War and went on to win gold at the Lake Placid Games. And they're called the Miracle on Ice Team because the legendary Al Michaels in the end of the game was saying, do you believe in miracles? I didn't realize that was him. That's cool.
- [31:37]
A
Yes.
- [31:38]
B
One of the great stories. Bertha. Thank you very much. Bertha Coombs. Coming up, a lackluster IPO to close out the week as Wellfront shares are about flat opening at its $14 IPO price. What is it telling us about investor appetite for IPOs? And could SpaceX change all of this next year? Stay with us. Welcome back. Just this hour, this wealthfront IPO opened didn't, it's okay. It opened at 14, it's below its opening price. It also priced there last night. IPOs in general have had a lackluster few months recently. But 2026 could spark some back into the market with what could be the mother of all IPOs, Space X. Tesla CEO Elon Musk confirming on X that Space X is gearing up for an IPO next year. While he confirmed that part, he shot down the reported valuation of $800 billion. Regardless, our next guest says this has the potential to be the largest IPO on ever, but warns it's not a guarantee, as we should know, from anything dealing with Musk. Let's bring in Dan Primak. He's the business editor at Axios. Dan, welcome. First of all, kudos on your call from January when I was asking if we'd have this IPO boom this year. And you know, I'm not so sure. We've had a number of listings, but I don't think anyone would call it a boom.
- [32:52]
A
No, look, I mean, bankers in November and December always like talking about next year being the big year for IPOs, or at least that's been true for the last three or four years now. And the real thing we haven't gotten this year is the massive, massive offering. I mean, we are going to get potentially a very big one next week with Medline, which is a hospital supplies company. It could be the largest IPO since Rivian in 2021. But yeah, it's been fairly lackluster, as you say. And even some of those companies that went public earlier in the year and had huge first day pops you showed on that chart, Circle Figma, they've obviously struggled a bit in the last few months.
- [33:24]
B
Why is that if we're supposed to believe that, you know, this is a broadening equity market, it's not just the AI trade. There's money to be made. It's even frothy, some would say. But it's that froth is not extending into the IPO space.
- [33:38]
A
A couple of reasons. I mean, one, you've got still an enormous amount of private capital, late stage private capital. And so if You're a founder. You don't necessarily need to go public for the reasons you used to, used to want to go public so that your employees could start to get paid. Well, you can do tenders now. Private, private equity firms, venture capital firms will give you money to do those tenders. I think that's kind of the thing that's holding it back. And there's not a compelling reason necessarily for them to go public.
- [34:04]
B
Okay, so then how do we think through the decision? So, for instance, Medline coming, what kind of signal is that? How, what kind of benchmark is it?
- [34:14]
A
I think it's actually really good. And actually I'm going to add wealth front into this too. Boring companies are able to go public and are going public, not, not, you know, rocket ship companies. And I don't mean that literally with SpaceX, you know, companies that you're expecting massive growth. Medline is a nice growing business. It provides all sorts of stuff to hospitals, not only in the US but globally. But look, it's a boring company. Wealthfront is a fairly boring company. And even though it's not performing well, it went out well, and it's not a company. There'd been a perception by some venture capitalists particularly they needed to have kind of these $1 billion annual revenue run rates to go public. Wealthfront doesn't have that. And it was still able to price the IPO and get out.
- [34:51]
B
So you're taking this as a sign that the IPO market is recovering from its crazy 2021, 2022. Then of course, it had kind of an IPO winter. Here it comes now it's coming back a little bit. So then now comes this mega, mega offering. If Space X goes public next year, can the market digest that?
- [35:10]
A
I think the market can digest it. And what's ironic about it is, and it's a little tricky because they're talking about the back half of next year. As you said, Musk, you know, who knows what Musk will do and where the markets will be at that point will obviously be around the midterms. What's interesting about those, the one, two big drivers of IPOs. One is venture capital investors, the limited partners in funds desperate for cash and desperate for liquidity and pushing for it. And obviously bankers pushing for fees. If you get a couple massive IPOs, and Space X would be the biggest, that maybe means you don't see as many other IPOs, because the fee stream is satisfied. The investors are satisfied because they've gotten all this money. They don't need to 20 to go out. They just need Space X.
- [35:50]
B
So what would you caution people as we will continue to get various reporting on how big it could be in biggest ever or not biggest ever and how much they're going to raise and how much. You know, what should we be listening for?
- [36:00]
A
I mean this is ultimately going to come down to how much. You know a couple of things about space x.1 we don't know all the financials on the debt side, etc. The real question is why is Space X doing it now? And that we haven't gotten a great answer for. You know, you hear well, investors want their money. That's been true for years with Space X. And to be honest, there's a pretty active secondary market for Space X shares. Space X has done tenders. If you're an investor who wants out of Space X, you've been able to get out of Space X for quite some time. We haven't yet heard from Musk or from or from Gwen. Shot well why they're doing it now. And until we hear that, I think that's going to impact. I think we need to hear that to then figure out how the Street's going to respond. Because the street doesn't quite know yet why it's buying in at the this moment.
- [36:41]
B
And just as we say goodbye, Dan, I mean do you think look at what's already happening with investment banking shares and merger activity. I mean it's clearly on the up. What does that mean for next year as well? Is this the year that we really start to see kind of every time we turn around there's a major deal and things like that? Are we getting frothy because there's more and more debt involved or where are we in what you might call the cycle?
- [37:01]
A
I mean on the M and A side we've definitely. I don't know about frothy, but it's definitely been a very busy year. Busier than I think it has felt. I believe LCG put out the other day. It's been this, this is the second busiest year for M and A ever in terms of dollars.
- [37:15]
C
Wow.
- [37:16]
A
Busiest year. And that's both global and in the us I don't feel like it's really felt that way, but that's where we're at.
- [37:22]
B
Yeah, no, agreed. Other than this kind of frenzy over Warner Brothers lately, it hasn't felt like it used to, but maybe it was.
- [37:28]
A
Warner Brothers was big because that pushed it us over the couple trillion dollar mark. So.
- [37:32]
C
Yeah.
- [37:33]
B
All right, Dan, bring in the knowledge. Thank you. Sir, appreciate it. Dan Primack from Axios. Still to come, a rough stretch for this stock, but getting some serious love on Wall street today in an otherwise down market. We'll tell you the name and why. Plus the president's AI executive order. There's one part of the story that's not being talked about and it's a bit of a head scratcher that's ahead. We've got markets moving lower this afternoon even after the Dow S and P and Russell hit all time intraday highs in earlier trading. But you can see the pressure there, especially in the nasdaq. The Dow and Russell still poised to end the week higher. And here are some of the movers we're watching this hour. Got to start with Lululemon up 10% after not just better than expected results for Q4, that was our mystery chart, by the way. They also announced that CEO Calvin McDonald does plan to step down in January. The stock getting at least six price target hikes today. Meantime, what a difference a day makes for revision. The stock was down 6% yesterday. We had that rather tough interview with RJ scoring, you know, kind of pressing him on what's happening with the self driving technology today. Bit of a rethink. Investors bidding up the stock. It's up 15%. And it's not just the big cap tech names that are seeing a sell off from the jitters either. Quick glance across the power space linked to the trade, we see quanta down 5%. Eaton, GE Vernova, which just had a strong day. Vertiv all moving lower. Coming up, the president just removed some major barriers to AI innovation. China reportedly also making a move to support its own industry. The global race kicking into another gear, but at what cost? A former Meta executive joins us next. President Trump signing an executive order last night blocking states from making their own AI regulations in favor of a national framework. The order is aimed at strengthening America's lead in AI as competition with China heats up. Let's get more details from Deirdre Bosa for today's tech check. Deirdre, hey. So Kelly, the president said it himself yesterday, China moves as one and he doesn't want our companies bogged down with 50 different approvals. So that is the thinking behind this EO and also what I keep hearing from investors and founders. The US Is better off competing with China than arguing about regulation. But there's also some nuance that may be getting lost here. Now, China's unified approach, it's not just about speed, it's also about control. Beijing has actually made AI safety a political priority. But that also means censorship and content control. For example, early versions of Baidu's Ernie Bot and sensetime Sense Chat, they had to clear regulatory requirements before going live. And then there's thousands of smaller AI apps that have been purged, like image generators and face swap tools. So China is regulating in ways that consolidates power, but also allows it to accelerate. So even as Washington really tries to streamline its own policy, China is building faster under these tighter rules, from new chip progress to Alibaba's Quinn, which is reportedly being used to train Meta's next model. Now, critics say that the risk for the US is that calling for national regulation can turn into no regulation at all. And the industry actually needs clear rules to build. So the real question now, Kelly, is whether this EO does clear the way for a coherent strategy or whether we, the industry, American Air spends the next few years in Congress trying to figure out these rules tied up while China regulates and builds at the same time. Did you say that Ali Alibaba was trading met his next model? What was that? That was according to a Bloomberg report, which the South China Morning Post was very quick to pick up on. Yes, there was a Bloomberg report out yesterday or the day before saying that Metta, its new upcoming model that's been reported on, is being trained on Quinn along with some other chat bots. But it uses this process of distillation, which is really, really interesting. That's essentially what Deep Sea did with its big breakthrough earlier this year. The irony, though, of an American lab now training on a Chinese model, that is really something. Yeah, I'm trying to think that through for a second. So these are not chips. These are. What is it trading on? It's a model. Okay, so, and I did, I should say that I reached out to Metta this morning and they had no comment on this. And this is a report again from Bloomberg. But what they would, what it says, what the report says, is that Meta's upcoming model AI model, which may be open, it may be closed, is training on Alibaba's AI models in the same way that Deep Sea trained on, you know, chat, GPT and versions of Gemini, etc. And American lab may be training its next model. And I'm glad you picked up on it, Kelly, because it seems to have gone under the radar. But I think it would be a very big deal if it's true. Also talk about it with my next guest, Deirdre. Thank you very much. Deirdre Bosa, Let's Discuss the impact these executive orders, that partnership, all of it could have on the future of AI. Alex Stamos as Chief Product Officer at Corridor and former Chief Security Officer Officer at Facebook. Alex, it's great to see you. I don't know if you'd have any comment on whether Meta is training off of this Chinese model.
- [42:38]
C
Yeah, I don't have any specific insight. I'm not at Meta anymore. What that's called is distillation. So when you're building a model, one of the ways you can train it is you could ask another model millions or billions of questions, take that output and then build your model to give similar kinds of output. That is widely believed and pretty much proven that this is how deep Seek jumped way ahead by doing this using OpenAI's models running in Microsoft's cloud. So it is not shocking that Facebook would be doing the same thing. It does indicate as you're talking about, that the Chinese have taken the lead in the open weight models. If you're looking for those open source models that you can modify as a company, it looks like right now the best models are coming from China.
- [43:24]
B
So yeah, I mean, or it almost sounds parasitic to me that Facebook would be saying I would just go trade on their models and do it cheaper. And then we're. I mean, the whole thing is a bit strange.
- [43:34]
C
This is becoming kind of frowned upon and seen as a little bit rude in the space, but it's also becoming a standard kind of competitive way to bootstrap your model, to base it upon the work somebody else has done. Again, it looks like this is how Deep Seek jumped ahead way far with their model. That made huge waves and as CNBC viewers know, caused real disruption to Nvidia. Stock price going up and down, up and down was that they trained it themselves. They did a lot of work themselves and not to take that away from them, but they also based it upon asking millions and millions of questions of OpenAI's model to see how it reacted. And so it looks like we're doing the same thing as Americans to now try to build upon the work the Chinese researchers.
- [44:17]
B
So what does that mean when we're trying to encourage our own AI regulation? We're fighting against China, but also trading off of their models. I mean, what do you think of the President's EO appropriate? Or do we need to let states kind of move ahead in certain areas in regulating the usage of AI?
- [44:35]
C
So from the lawyers I've talked to, there's a lot of question of whether or not this EO is legal. The president generally does not have the ability to change state law or to punish states for passing their own laws. This is why we have a constitution. We live in a republic where states are allowed to have their own laws. As a technologist, I absolutely agree that we should have a federal framework, but the federal framework should come from Congress. And as your reporter pointed out, the Chinese actually have extremely strict AI regulation. So the framing that there's no way to compete with China unless you have no regulation at all, I think is incorrect. My fear here is that the AI industry is heading towards the same kind of danger we had in social media a decade ago, where the social media companies push back, push back, push back against any possible regulatory framework and as a result ended up with there basically being no rules and now a huge amount of pushback from a number of democracies, including Australia, including Europe. And if the AI industry doesn't embrace some kind of reasonable set of safety and security controls here, we're going to see the same kind of downstream negative effects, Totally huge political pushback against the industry.
- [45:45]
B
You look how they're being sued already by families of those who have committed murders and others. But should they just. So what are the odds that it being so early on, how is Congress supposed to know how to begin to regulate this industry? I can understand your point. Regulate it, accept the regulation, avoid a major backlash. But that means Congress has to come up with that regulation now.
- [46:07]
C
They do. And I think what we need is we need a flexible set of rules that are applied as close as possible to the application of AI to the actual problem set. I think one of the problems, some of the state laws is that they focus on the fundamental models. But like an OpenAI model or anthropic model or one of the Chinese models doesn't mean a lot just by itself. It's just a tool that can be used for millions of different applications. What we really need is a risk based framework that looks at how we're using AI and then sets up reasonable guidelines to push for people to think about. So if you're using AI for medical purposes, if you're using AI to make decisions in the business that there are certain regulations that you have to follow and tests you have to do to make sure you're doing things appropriately.
- [46:51]
B
Yeah, so we gotta go. Alex, what's your favorite one to use right now or multiple ones?
- [46:57]
C
I'm using anthropic a lot. So I think Opus 4.5 is fantastic. And that's my favorite model these days. All right.
- [47:03]
B
I'll check him out. 20 bucks a month, maybe. I don't know. People are saying cloud AI.
- [47:07]
C
Yeah, for them.
- [47:07]
B
But yeah, got to try all of them.
- [47:09]
C
These guys, I mean, it's hard to tell because every week there's a new one.
- [47:12]
B
I know. It's kind of fun. Alex, really appreciate your time today. Thanks so much. Alex Stamos. And that's it for the Exchange. Dom Choo joins us for Power Lunch right after this break. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
- [47:32]
A
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