← The Exchange
The Exchange
AI vs. Rates, Rufus Rules & No Bottom for Bitcoin 12/3/25
00:49:02
Fresh AI concerns getting trumped by weak jobs data fueling rate cut hopes. Two top stock picks with one common denominator. Plus, why the bottom for Bitcoin may not be in, and a pullback is a buying opportunity.
Loading summary
Transcript195 lines
- [00:01]
A
Introducing Fidelity Trader plus, the next generation of advanced trading from Fidelity. Customize your tools and charts and access.
- [00:08]
B
Them seamlessly across desktop, web and mobile.
- [00:11]
A
For faster trades anywhere you go, try the all new Fidelity Trader Plus. Learn more about our most powerful trading platform yet@fidelity.com TraderPlus investing involves risk, including risk of loss. Fidelity Brokerage Services, llc Member NYSE SIPC the heaviest metal credit card of all time, rumored to be one of only.
- [00:35]
B
18 in existence, plated with the very.
- [00:38]
A
Same tungsten that forged the international space.
- [00:41]
B
Station.
- [00:44]
A
And wielded at business dinners like a samurai sword.
- [00:50]
It's a classic corporate power move, but the real power move having end to end visibility on your most critical shipments. FedEx the new power move. You're listening to the Exchange. Here's today's show.
- [01:07]
Thank you very much, Dom. So what matters more to the markets? I think we're finding out today whether it's AI or lower rates or maybe a little bit of both. Welcome to the Exchange. I'm Kelly Evans. And stocks are mostly higher right now. The Dow is still up 3/4 of a percent. So it's actually leading the way today as the NASDAQ has been under pressure following these Microsoft headlines. Now the company this hour is pushing back on the report that they're lowering their sales quotas for AI products. Get into it some nuance here by the way. Microsoft shares off the lows down 1.4%. Here we go as well, a big miss on the jobs front with the private sector shedding the most since March of 2023. ADP tells us this morning most of these cuts also coming from small businesses. Probabilities for a rate cut, flip side of this coin, right now they're at 85%. So pretty much a slam dunk guarantee. This also has the 10 year falling below 4.1% today. Keep an eye on what's been going on meantime in the metal complex. Some are calling it a bit of a supply squee, but typically it's a good sign when copper is breaking out, which is up 3% today to right around all time high, all time highs in fact. Same for silver as well for what it's worth. Let's begin with the markets though in this story about tech lagging as Microsoft is pushing back on a report from the information that they're lowering sales quotas for their AI products. That headline around 9am this morning sent the stock lower, took the whole NASDAQ down and it's still feeding into some lingering concerns around the buildout and Demand and the Mag7's outsized impact on this market while the weak jobs data is adding expectations for a rate cut next week. So which one dominates the investment landscape right now? I or lower rates? Joining us to discuss is Andres Garcia Amaya. He's the CEO at Zoe Financial and Michael San Satera is the CEO at Sylvan Capital Management. Welcome to you both. Andres, take it away. I mean does the price action. It is not so much about the nuance of the Microsoft stories. No, no, no. We've lowered our growth target, not our sales quotas. Nevertheless, the markets obviously remains highly concerned about the demand narrative between those two.
- [03:06]
C
I think the AI story is more important because it's tied to earnings, especially for some of these large technology companies. Let's put it this way. If The Fed lowers 25 basis points and stops but the top seven technology companies continue to blow out earnings, I think the rally continues. It wouldn't work the other way. If earnings stop working and the Fed were to cut 50 basis points. I don't think that would be enough to continue continue the rally.
- [03:33]
A
Well, probably because it would just tell people this is a literal slowdown. Right. You don't want that. You want the kind of COVID unwind the late. Do you think that's what's going on with the labor market, Michael? Is that we're still unwinding some of the COVID excess hiring and there's other.
- [03:44]
D
Things I think the labor market is struggling to differentiate between maybe some tail. Tail end of COVID but probably more. More short term has been the change in immigration policy. So I think, I think as you see immigration policy solidify a little bit and we get a better arms around exactly who we are and aren't letting into the country. You might see a little more clarity there. But again the ADP data is kind of notoriously not quite right. So it's a little bit. I'm not. Not particularly worried about it at this.
- [04:12]
A
Fair enough. But I think you're right. There's been questions about outmigration. You could throw tariffs into the mix. We've had the government job cuts and the shutdown that was then kind of weighing on on things some argue AI itself, you know, is what's going on here. So do you sense I know a lot of your investments are these big tech players. Do you have any concern about holding on to the Microsoft's and the mega caps here?
- [04:33]
D
No. I think you're going to have these windows where there's fear. Fear in the market is actually healthy. It keeps the Valuations from going crazy. Right now. The strength of the capex in these players, the strength of the demand for chipsets is off the charts. And what we've seen is the commitment from the hyperscalers in particular. We saw this, this commitment before when they were building cloud computing in 2006. We saw it in the Internet in the 90s. They're not going to stop spending. The return on invested capital is coming. If it takes years, it takes years and it typically does to really get profitable, they're fine with it. So this is a longer term trend. You're going to have little moments where the stocks get frightening and people get scared. But. But no, no ultimate change to where they sit.
- [05:14]
A
But Andres, it sounds like you have a little bit more concern about maybe that do you, about valuations with some of these major platforms or no, about the story is that, you know, helps you sleep at night or.
- [05:24]
C
No, I think the higher valuation just creates less room for error. I do believe that if earnings continue to deliver, there's not as much of a concern there. The bigger concern is if they stop performing from an earnings perspective. Having said all that, I wouldn't look at next year and say, well, in that case, should we see, you know, 4% returns? The reality of is when you look at history, the last two times we had kind of a revolutionary technology, personal computers in the early 80s and then the late 90s, the party was five years long and it was not one year up to. And then it was. All of those years were up more than 10%.
- [06:04]
A
Crazy.
- [06:04]
C
So next year would be the fourth year of this. So we're more like in the middle innings of this. If it is and you're.
- [06:10]
A
This to you is the bull market that started, you know, 2022 after that reset and as ChatGPT came on the scene.
- [06:17]
C
Yeah, I think the ChatGPT changed the whole game because all of a sudden there's now a demand for this new thing and all of these companies are actually demand. They're not demand constrained, they're supply constrained, which tells you it could go on for longer.
- [06:29]
A
Yeah. And you also think, you know, there's a little bit of this year four of the bull market thing in general where it's usually not a time to bet against it.
- [06:37]
C
Right. If anything, these, these cycles end in a melt up. Right. Everyone talks about the markets are driven by either fear or greed, but there's a missing component which is envy. And at the end of these rallies you get people that have been sitting on the sidelines and saying, okay, now I can't miss it. So there could still be that part of the cycle.
- [06:58]
A
What would you add, Michael?
- [06:59]
D
Yeah, I would say that's, that's spot on there. The longer it goes, the harder it is to ignore. And there's still lots of investors ignoring it. Retail has been excited and that's been clear. But there's lots of institutional investors that are still not sure, not certain, and they're woefully behind their indexes. Right. You can see 1000, 2000 basis points under performance of some fantastic money managers that are just decidedly out of favor with the way the market's behaving. And if that continues another year, another year after you do ultimately get capitulation and that melt up that he's talking about, that happens, that happens on the institutional level. And that's usually the bell ring, right?
- [07:37]
A
And we're not there yet. And I think there's a couple of part things to unpack here. One is the psychology of it, you know, another is kind of the, the trend following nature of it. And then the third and the most important one, as Andres mentioned, is the actual earnings underpinning all of this. And so to you, and I know you follow these especially the big tech companies closely, you think that's solid, that, that all the investment now there's going to be enough future revenue to generate enough solid earnings to justify again multiples that are not crazy. But valuations and sizes for these companies are already large.
- [08:07]
D
Sure, 2026 is largely understood, I think from an earnings perspective of the largest mega cap hyperscalers, the growth rate will probably be still in that 15, 16% range. It's decelerated a little bit from two years ago, three years ago, but it will be sequentially relatively flat and in fact actually could increase as some ROI begins to show up at those companies specifically. So as long as that continues, and that's what we've seen for the last few years, which frustrating for so many investors, is that mega cap are carrying the market and everyone wants that to end desperately except for us. Your goal is, your goal is to understand that if that continues mathematically, the earnings keep coming, they will continue to garner revenue, earnings, free cash flow and therefore price appreciation.
- [08:52]
A
Quick final thought from you both, Michael, to you first. On any Microsoft specific concerns, do you. Look, everyone knows that Copilot is not chatgpt, right? Does it matter? Especially if all their money, as you know, Steve Kobach has been talking about for a long time, their money is coming from kind of the back end of this More so than the consumer product, right?
- [09:11]
D
Yeah. And not worried about any sort of short term news blip about what salespeople are doing. Microsoft's a company that's had a pretty focused salesforce on the whole AI movement and you're going to see tweaks in between, you know, any particular product, any particular pricing at any time. And that's no reason to get nervous or even off the train.
- [09:31]
A
Finally then, Andres, just to broaden it out, if we can feel kind of comfortable about where earnings growth is coming in for the big cap tech players, what about the rest of the market? Should we also expect this broadening as we get lower rates? And we'll talk about this more next week, but even some signs that we could get some consumer help early next year?
- [09:48]
C
Yeah. I think the sleeper here is international stocks if you want to remain risk on with equity. IFA is up more than 30% this year. Emerging markets up more than 30% this year. And that cycle is just beginning of emerging markets and internationally outperforming the U.S.
- [10:07]
A
It'S not just a one year quirk.
- [10:09]
C
Well, usually these things go in cycles. Right. And the dollar is weakening which helps those stocks. And we don't know when the party will end. But if it does end, those markets tend to outperform the U.S. even when it does end. Yes. So it's a good way to diversify if you're already super long. Nvidia Pretty much anyone owns the market, right. There could be some diversification while still owning equities.
- [10:33]
A
Talk more about this next time. Gentlemen, for now, thanks. Appreciate it. Andres Garcia, Maya and Michael Sense, Sansa Terra Elsewhere, crypto In the crypto world, I should say Bitcoin is holding on to its gains today. Still right around the 92,000 level as it touched about 85 last week. It's at 93 and change now. And our next guest says the move could still be to the downside, but if it does, it'll be a great buying opportunity. Let's bring in Jeff Kilberg. He's KKM Financial's founder and CEO and a CNBC contributor. Jeff, it's great to see you again. Welcome Kelly.
- [11:02]
E
On behalf of the mill of the country, it's good to see you back. Welcome back.
- [11:05]
A
Thank you. Do you want to pick up on anything you just heard before we dive into the bitcoin layer here?
- [11:11]
E
Well, I think it's interesting talking more about international, but I think international has played a part in a portfolio. But I really see the broadening of The S&P 500 equity market outside of the MAG7. The rotation inside max 7. I think that's going to be the more of the major theme going forward as we see interest rates move down. So I'm optimistic on equities. I think we see the Santa Claus rally here in the month of December. So I am optimistic. But I think there's me more broadening. It's not going to be the usual suspects per usual.
- [11:36]
A
Okay, so is that why you're worried about bitcoin possibly taking another leg lower here? And again, you're someone who owns it and I think is long term bullish, if. Correct me if I'm wrong.
- [11:46]
E
Correct.
- [11:47]
A
Describe what you think is going on here.
- [11:49]
E
I think saying equities in crypto in the same sentence is not 2025 nor it's going to be 2026. We saw a decoupling. That lack of correlation happened back in April when we saw the NASDAQ 100 and crypto, specifically bitcoin really decoupled from each other. So I am cautiously optimistic. But I didn't like the fact that we didn't see this pullback, which is completely healthy. Let's remember Kelly, I go back to 2017. That's when the CME Group started trading bitcoin futures. So if you look from 2017 until now, there's been about 20 different pullbacks of 25% or more. We just endured a 30% pullback. We've actually seen three pullbacks of 50% or more since the futures started trading. So I don't think this is unusual. The acute volatility is sensational. But I think the fact that we didn't go back and fill down that April low of 76,000, that's why I think the market wants to go. But at the end of the day, Kelly, there's so many new organic buyers. Look what Vanguard just did. They opened up the faucet to many more buyers. J.P. morgan, there's a lot of new players and products in the accessibility. Look at I Bet. I Bet has had $32 billion in inflows just in this year. So these new buyers, it's very different than the stock market. If you think about Kelly, on a stock, there's a sell analyst, there's a buyer analyst. There's always different ratings. Not really in crypto, if you don't like crypto, you just don't participate. So it's kind of a different animal.
- [13:05]
A
Yeah, I saw Larry Fink saying today that, you know, the more he traveled country and talk to people, the more he saw the use case for crypto. I would say I understand the use case outside of the US But I almost feel like the more that I talk to people, the less convicted I am that bitcoin should have any fundamental price value. It's kind of just a community thing like you described and that's the head scratcher.
- [13:28]
E
So when you saw it up 125,000, you were getting an Uber rides and you're talking about buying crypto. So that is that kind of moment in time. And now the people who just bought there and seen a 30% drawdown of are they going to take that tax loss harvest before the end of the year? Are they going to have the appetite moving forward? But I do know a lot of the advisors I support, they're trying to really understand what is that crypto exposure, not just necessarily bitcoin, but what is that crypto exposure moving forward? Is it 1%, 2%? It's kind of like when people are dipping their toes into commodities. Look at gold and silver, obviously completely different.
- [13:57]
A
I was just going to ask you, just going to ask.
- [14:00]
E
That's the more tangible component and that's where we talk to a lot of our folks. We've owned gold, we've owned silver and has been very tactical. But this is a conversation which is very different than bitcoin, which I know is the new modern day version of gold.
- [14:13]
A
Well, you know, to those who like it, I guess the final then. So for 2026 it sounds like you're saying, you know, Santa Claus rally, market broadening doesn't necessarily mean crypto participates. What's the rest of the, of the narrative for you? The sort of the 30,000 foot story.
- [14:30]
E
I think the 30,000 foot story that interest rates are coming down immaterial. Yes. I'm actually going to be out visiting with you on set next week for Fed Day. So yes, we are int anticipating the fed to have 25 bips. But moving forward, rates are coming down. If you look at the two year note, that's kind of the precursor, the predicting component of where the Feds should be. And I think the overarching theme of interest rates coming down, that's going to be supportive of equities. We haven't seen the 10 year really spend much time under 4%. So if we get down to three and a half percent, Kelly, that's going to incentivize, it's going to help homebuyers. I think it helps a lot of the laggards in the market. I think it helps the financial. I think it helps all the sectors that we've been talking about that have been dispersed from obviously technology and utilities. That's where we see it. But it's interest rates, interest rates, interest rates.
- [15:11]
A
Three and a half percent would be amazing. I think you're exactly right to pound the table about that. And we'll see you next week.
- [15:17]
E
All right, Kelly, thank you.
- [15:18]
A
Thank you, Jeff. Jeff Kilberg, KKM still to come, Wall street is preparing for a record setting surge of corporate bond sales next year. And it's already been a busy December. And the reason is because all roads, of course, lead back to AI. We've got the details and what it means for the fixed income market Next plus BOX CEO Aaron Levy will join us on the heels of their third quarter results of strong guidance pushing shares back into positive territory for the year. Boxes of 5%. Today we're also going to ask him about this Microsoft story and demand for AI. The exchange is back after this.
- [15:52]
B
This is the exchange on cnbc.
- [16:00]
A
Clorox Toilet Wand it's all in one. Clorox Toilet Wand it's all in one. Hey, what does all in one? The Caddy, the wand, the preloaded pad. There's a cleaner in there inside the pad. So Clorox Toilet Wand is all I need to clean a toilet.
- [16:26]
Revolution. Clorox Clean feels good. Use as directed.
- [16:30]
B
Ever spend $200 on a fragrance only to realize you hate it? Micro Perfumes fixes that. Now you can try luxury scents without the luxury price. Pick from real designer fragrances like Dior, Tom Ford and Creed. It's the real deal. Authentic scents starting at just a few bucks. They come in sleek, travel sprays, ship fast and there's no subscription required. Why gamble on a full bottle? Go to microperfumes.com podcast for up to 60% off. That's microperfumes.com podcast for up to 60% off. This segment is brought to you by Gelt. If you're a business owner wondering whether your CPA is just filing forms instead of helping you use strategically, GHELT was built for you. Their expert CPAs and innovative AI tools help optimize entity structure, deductions and retirement contributions with proactive year round tax planning. SiriusXM listeners receive 10% off their first year of service when they sign up.
- [17:24]
A
Visit joingelt.com to schedule a discovery call. That's joing E-L-T.com joingelt.com welcome back to the exchange. Wells Fargo is initiating coverage of Oracle at an overweight with everything going on right now. They do warn of the risks, including their significant debt load. And they say Oracle will need to issue new debt for its build out and could double to $180 billion by fiscal 2029. That's what my next guest is worried about. He says the massive capex required for Big Tech to grow their AI capabilities has completely upended their financing strategies. Let's bring in Guy Laba. He's the chief fixed income strategist at Janney Montgomery Scott. Guy, it's great to see you.
- [18:04]
F
Hi Kelly, how are you?
- [18:05]
B
Good.
- [18:06]
A
So start me off here. When you see headlines, you know the talk about the need for raising more debt or the high debt load some of these companies already have, what does it make you think?
- [18:16]
F
Yeah, so there's been this tremendous story arc that really dates back a couple of years. A lot of what the so called hyperscalers have relied more heavily, not where they used to get their money, which was essentially their own balance sheet and cash flow, but in borrowing. And a lot of that was opaque and a little bit behind the scenes in the private credit and bank lending markets. But really in the last six weeks or so, it's gotten a jump forward into the public debt markets where we had a series of large bond issuances that were used to fund these giant data center expansions. I know we like to talk about AI here as sort of like a little chat bot or a productivity tool, but the reality is the physical infrastructure which goes into creating this stuff is utterly massive, almost in a scale we haven't seen.
- [19:00]
A
Right. And so is that you're the fixed income guy. Would you run away from all this debt and keep it, you know, at arm's length or is this, how significant is it, how significantly is it going to change fixed income market?
- [19:13]
F
So our best guess is that over the course of the next couple of years or so, round numbers, the growth of the investment grade corporate bond markets is going to accelerate by about 15 to 20%. That doesn't mean the markets are going to get that large. It means the pace at which they grow is going to get that large. And what that means also is that it's going to be a little bit challenging to finance all this new issuance and on the margin it's going to crowd out or cause other sources of financing to become a little bit more expensive. Now, I would run away from it outright, but I think at least for our clients here at Janney, there's probably better ways to get exposure to the theme and the data center. The Tech team. The investment grade corporate bond markets are probably not the ideal place for.
- [19:54]
A
That said, I mean, who wouldn't feel comfortable lending to, I don't know what the terms are for Microsoft? I mean, maybe you think twice about Oracle, I don't know. But do you really think any of these companies aren't going to be able to meet their obligations? I mean really, when's the last time we had a high profile, you know, bond default by one, by a company of this market cap or of this size? Probably been 20 years or some idiosyncratic situation.
- [20:15]
F
Absolutely. And I'm not here to suggest that the highly, highly rated names among these companies are going to walk away five years from now. Not being able to pay their debt loads is far from that. Really the effects are a little bit more marginal. Right. And so what I'm arguing is that with an extra 100 or 150 or $200 billion of net debt issuance, essentially the supply and demand demand dynamics of the investment grade corporate market get much more heavily skewed in terms of supply and that causes funding cross across all issuers to get a little bit more expensive.
- [20:48]
A
Yeah.
- [20:48]
F
How much are we Talking about here? 15 to 20 basis points is not massive, but it's enough for the investment grade corporate bond markets to perform significantly less well in the new year than they have in this past.
- [20:57]
A
And that'll be a curious one to watch. Again, they're kind of helped out by the fact that now maybe we have treasury rates coming down a little bit, giving people some breathing room. You say look, if you want exposure to, I go with equities, even go with private credit, which I thought was interesting because I'm not sure, you know, I maybe feel about some of the underwriting standards there as opposed to these IG bonds, but maybe for a different kind of investor those would just, they'd feel a little bit more comfortable going that route.
- [21:22]
F
Yeah, and absolutely. And I mean this from a portfolio construction standpoint, not an absolute, you must own this or you shouldn't own that standpoint. But if you sort of look at the long run opportunities within the expansion, really those opportunities are what we describe as right tail, right there that growth grows faster than. And you're able to achieve some of that in an investment portfolio by investing in the cash flows and the equities. Whereas in the investment grade bond market we're kind of worried about those left tail risks and that's just not the right place to be able to pay, participate in the revolution.
- [21:53]
A
Before you go guy, I should say and well, obviously this all will become much more talking point next year. But we just had Jeff Kilberg on who said, you know, when I asked him about why he's so bullish next year, he said it's rates, rates, rates and rates that lower interest rates are just such an important theme right now. And he said, imagine if the ten year goes to three and a half percent. And I was wondering how likely you think it is that we could see a development like that where we're excited enough for it to go below 4%. But could 3 1/2% become a realistic part of the conversation in the near term?
- [22:24]
F
Yeah, absolutely. My team and I were actually just finished putting the final touches, crossing the T's dotting the eyes on our 2026 outlook just before I joined you this afternoon. And that's the lower end of our expected trading range in the 10 year. I don't think we end the year there, but it might get pretty close.
- [22:41]
A
Wow. I'll leave it on that note. Guy, thanks so much. Appreciate having you today. Gila Boss with Janney Montgomery Scott. Coming up, one tech company that's satisfying its debt obligations. That's box. We'll talk to CEO Aaron Levy about everything going on in the tech world right now. About that. Stocks up 5% today, plus American Eagle up 15% after beating on earnings and raising guidance. And we'll look at how that Sydney Sweeney campaign drove sales and what it says about the rest of the retail landscape. We're back with more after this.
- [23:13]
The heaviest metal credit card of all time, rumored to be one of only.
- [23:18]
B
18 in existence, plated with the very.
- [23:21]
A
Same tungsten that forged the international space station.
- [23:26]
And wielded at business dinners like a samurai sword.
- [23:32]
It's a classic corporate power move. But the real power move, having end to end visibility on your most critical shipments. FedEx, the new power move at Capella University. Learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the course room to the workplace. A different future is closer than you think with Capella University. Learn more at Capella.
- [23:57]
B
Eduardo, you know that feeling, that nagging sense that something in your life isn't working? Maybe it's your job. It doesn't excite you anymore. Maybe it's your routine. Every day feels the same. Maybe it's your goals. They always seem out of reach. Instead of making a change, you tell yourself, I'll figure it out later. Stop waiting. Start making progress with Strawberry Me coaching Strawberry Me isn't therapy. And it's not just advice. It's a success strategy for your future that helps you set clear goals, build a real roadmap and follow through. Because let's be honest, knowing what to do and doing it are two different things. Strawberry Me matches you with a certified coach who helps you tackle career changes and big life decisions. If you're stuck, this is how you move forward. Go to Strawberry Me coaching and get 50% off your first coaching session. That's Strawberry Me coaching.
- [24:57]
A
Welcome back. With stocks holding onto a rally, especially in the Dow which is up 358points, NASDAQ hanging onto a gain despite those Microsoft headwinds we were discussing in the 10 year 406. Here are some of the other movers. We have Apple at an all time high and that of course would help the Nasdaq as well. It turned lower but this is by the way, if we manage to end the day in the green, the first eight day rally Apple might see since early May and it's to up 7% in this past week or so period of time. As for some of the other names hitting all time highs, we've got Fox, General Motors, Marriott and Walmart. And on the other hand, Alexandria Real Estate. Alexandria Real Estate, Alexandria Real Estate Equity, she said the worst name in the S and p today, it's down 8%. And you probably saw this news earlier. They slashed the dividend by nearly half. They're going to pay $0.72 a share every quarter versus 32 versus $1.32. And the stock has now lost half of its value of value since January at a time when interest rates have been falling, not rising. This is definitely one that's going to be painful for investors. Let's get to Mackenzie Seagallos now for the CNBC news update. Hi Mackenzie.
- [25:57]
G
Hey Kelly. The House Oversight Committee says that it's received new materials from major financial institutions as part of its probe into Jeffrey Epstein. That's according to Politico. Democrats on the committee say the material from JPMorgan Chase and Deutsche bank will be released to the public in the days ahead after review. Meanwhile, Epstein's longtime accomplice Ghislaine Maxwell plans to file a petition to be released from prison. That's according to a filing in Manhattan federal court first reported by the New York Times. According to the Times, the letter doesn't offer details about the grounds she cites for release. Maxwell is currently serving a 20 year sentence for sex trafficking. House Judiciary Chairman Jim Jordan subpoenaed former special counsel Jackson Smith today requiring him to appear for a deposition on December 17 over his investigation into President Trump. Jordan also included a demand for all documents and communications from Smith's time on the job. No comment from Smith yet, but he.
- [26:51]
H
Has already offered to publicly testify before.
- [26:53]
G
The House and Senate. Back to you, Kelly.
- [26:56]
A
All right, Mackenzie, thank you so much. Coming up, Box shares are higher after a revenue beat and strong guidance with management saying customers, customers. AI adoption has surpassed expectations. CEO Aaron Levy joins us to discuss next.
- [27:14]
Welcome back to the Exchange. Shares of Box are jumping nearly 6% today after their Q3 results. Revenue was up 9% year on year. Billings growth up 12. Here to discuss his box CEO Aaron Levy. Aaron, a pleasure to have you, especially with all the news flow today. Welcome.
- [27:28]
B
Yeah, thanks for having me on.
- [27:29]
A
I know you want to talk about the company specifically. I know you guys have seen a lot of AI adoption. I don't know if you'd want to speak to your reaction to this Microsoft story about whether or not there's been slower take up perhaps of its AI products with consumers.
- [27:43]
B
Well, I think what we're seeing generally across the industry is pretty widespread adoption. If you look at the growth of things like OpenAI, Claude, Gemini certainly most recently has had a breakthrough grok through the X platform. And so I think there's pretty widespread AI adoption. And certainly what we've seen within our own context and within our customer base is increasing AI adoption really for applied use cases. And so I think what really matters is do you have use cases where AI can help transform workflows or augment how people work in a way that drives increased productivity, efficiency or even revenue gains. And that's, that's what our platform has been delivering. So no comment specifically on what, what, what Microsoft is seeing, but they've been a great partner and we continue to work with many of the other players out there.
- [28:29]
A
But in other words, you know, this isn't a passing fad. You think like this is fundamentally changing workflow. I mean, I, listen, I agree with you. I'm just trying to play devil's advocate here. I use it obsessively. But I'd love to hear more about on the corporate piece of this too, what the demand is like. And if you think it's going to be true for years to come that we remain in a supply constrained environment for this technology.
- [28:50]
B
Yeah, this is a tectonic shift in how we are going to work in the future because effectively what you have is near unlimited intelligence at your disposal for any task that you want inside an organization. Now There's a big caveat, which is that intelligence really has to be applied in a particular area or task. It can't be a sort of widespread intelligence, maybe in the way that the sci fi people would have predicted five or 10 years ago. It's really about task specific automation. So in our organization, you know, when we work with customers, we have 120,000 customers. And what they do is they store their most important data in the box platform. That data might be contracts or invoices or research documents or FDA drug trial in clinical trial information. And inside of all of that information are critical insights. And so what companies want to be able to do is have AI agents answer questions about that data, extract intelligence from those documents so they can automate workflows or get analytics on them, and then ultimately be able to augment their own productivity. So that's driving sort of unquestionable results for customers that have implemented the technology and the solution. We are still very early, but this is a shift that is, is effectively unstoppable simply because of the productivity gains that customers get when they, when they deploy AI at scale.
- [30:05]
A
Yeah. So I appreciate that. And for those, I mean, I guess we then just ask questions. Where's the price points? You know, what does the competition look like? Does it matter if this is all being powered by TPU or GPUs or what have you? You know, what do you think?
- [30:21]
B
Well, I think a lot, there's a lot in there to unpack. I think, you know, certainly from a, you know, maybe a stock standpoint, you have to care about a lot of those, those elements. I think when you're building on the technology, what you see in the inside of being right in the center of Silicon Valley is we have this incredible moment where you have, you know, between five or 10 major platforms and players, between the hyperscalers, the models, and a few other players that are effectively racing to be able to provide more and more capabilities around superintelligence. And all of that leads to more capability in the AI models, which means there's more innovation that you can drive on top of those AI models. So whether it's TPU's or, or Nvidia chips or, you know, a different architecture, I think it's great to have more competition in this space. But if you zoom out and you look over the next five or 10 years, we're still in the earliest phases of this wide scale change. And so that's why I'm generally bullish on, you know, most of the layers of the infrastructure Including Nvidia, including Google's approach. I think if you were to go back 15 years ago and you looked at the cloud wars that we saw between AWS and maybe the early stages of Google Cloud and Azure, you might sort of say, well, okay, how is this $30 billion industry or whatever it was going to carve out between these three or four players? And then you zoom out today and 15 years later and this is a multi hundred billion dollar market in terms of annual revenue. And it turned out that actually all of the players ended up doing very well. So I think if you look at AI through that type of lens, I think we're still in the very early phases of what's going to play out from a market share or market composition standpoint.
- [32:00]
A
I appreciate that. I mean, it's exciting, it seems, even with your business, like it's reinvigorated things. And it's fascinating to watch how the cloud wars kind of now begot the AI evolution and all the rest of it. I suppose the only thing that I wonder too still is about the software component. When you talk about the way that enterprises are able to use proprietary data and interact with it, do we still have this anxiety that that displaces other services or other workflows, or do you think that that's gone away a little bit?
- [32:27]
B
Well, I think you just sort of nailed it. So if you think about AI models, they're effectively trained on largely public information, or at least information that the labs can purchase and procure, which means that what you're building is this sort of very general superintelligence in the form of an AI model. But that intelligence is only useful within an enterprise if the enterprise can give that model context about its business. And so where is that context? Well, largely it's in your data. And so in the case of Box, we help our customers store their most important unstructured enterprise data. Contracts, research data, medical information, financial documents. And so all of that becomes really, really important context for AI agents. But those AI agents might need access to other tools or systems which again come from the software providers that might already exist or even new startups. So I think we're going to live in a world where agents have access to corporate data that you give that you, that you allow those agents to access. And we're really happy about our position as being one of the leading providers of that kind of platform. And agents will have access to software tools that they leverage like Salesforce or ServiceNow or Workday. And I think it's the collection of this environment that will make agents effective in the future. Which is why.
- [33:38]
A
How can it be that everybody wins? It's good for the software players, it's good for you guys, it's good for the chip companies, it's good for big tech, it's good for the consumer. I mean, is it, is it just this easy? It's just good for everybody. I mean, I guess the only downside is potentially these higher power bills.
- [33:54]
B
You know, I think it's okay to have a non zero sum approach to a technology movement. If you think about again 15 years ago and you were to say how could everybody in SAS win? And you looked at workday, maybe had a few hundred million in revenue and Salesforce maybe had a billion in revenue and he had serversnow with a billion in revenue. Say how is it that all of these players could all grow 10 or 100 times from where they're at today? And it turned out that the world just needed way more software than what it had at the time. And even the most stark examples of sort of a winner loser market of like let's say Oracle versus Salesforce, it turned out even Oracle and SAP and some of the mainstays in software did extremely well during that time period.
- [34:34]
D
Sorry.
- [34:34]
A
And I love that point. And you're absolutely right. But now that they're so big big, can it be the case that we still need exponentially or maybe that's putting it too strongly, but multiple times more more software and more of everything than we already have. I mean these companies, okay, some of them are trillion, multi trillion dollar companies totally.
- [34:52]
B
So you know, valuation and sort of stock picking aside for one second. Just think about this for software. When we sell box to an enterprise or Salesforce sells us, you know, Salesforce to an enterprise, we are reliant on there being users on the other end of that deal to use all of the tools in our software. And so customers have actually always been constrained by, in many cases the lack of human resources that are on the other end of that software transaction to make the tool effective. So the reason why you're going to see a lot of market growth because of AI is that now the software will come with the users with it. And so we can deliver useful work on our software along with the licenses for our product that will actually drive growth. Because now you can go after a small or medium sized business that maybe previously didn't have a person that could go label all of their contracts that came into a document management system. Now the agent can go and do that, which then increases the TAM for being able to be a law firm that now uses AI to help automate their contract workflows. So you're going to see a lot more of this market expansion due to AI agents even in the SaaS space, as well as many of the new startups that will emerge in the, in the various categories.
- [35:57]
A
See, that's why I like talking to you because you, you bring me to exactly the place in which I understand. Not quite the zero to one analogy, but you get where I'm going with this. Aaron, thanks very much. Really appreciate it today.
- [36:08]
B
Thank you.
- [36:09]
A
Aaron Levy joining us from Box. Coming up, it looks like Google's gains are to some extent Microsoft's pains right now because Alphabet shares are up 31% in the past two months, but Microsoft's down 7%. Should Sam Altman's code red declaration extend beyond ChatGPT team to one of its biggest partners? We'll discuss that next.
- [36:33]
Welcome back to the Exchange. Shares of Microsoft are still lower today, although off the lows. They clarified this earlier report from the Information that said Microsoft lowered their sales quotas. The company said that report inaccurately combined the concept of growth and sales quotas. The information's headline is now updated to say that Microsoft has lowered its software growth targets. Following along. Let's do this in today's Tech Check. Tech Check, Deirdre Bosa is here with a look at what this all is really telling us about the agent landscape.
- [37:05]
G
Yeah, because there is a lot of back and forth but the big picture here is that enterprise AI spend, it's not lining up with the early narrative. Companies are leaning into model usage but they're moving slower on agents and that context matters as we dig into that Microsoft story. Now they've pushed back on reports that they cut quotas, but not necessarily around slower growth expectations around those agent products. Now Sam Altman too in that code red memo told OpenAI's team that resources are going to be shifting away from agents to rebuild the ChatGPT the model experience. So there's this data from Ramp that we found really interesting. It shows that there is another side to this story and it turns it runs through anthropic, anthropomorphic. The startup just posted a sharp jump in business adoption according to this data, even as OpenAI still the largest player, is seeing its gains, its momentum settle. Now the driver for Anthropic is API demand. I'll explain what that is, but it's not agents. Agents are a top down strategy sold to executives. API is a bottom up approach adopted by builders within companies. So for investors it raises this question. Was there too much hype around agents and the spend that we're actually seeing is flowing into model access and increasingly that is anthropic cloud. Now agents may still have their moment, Kelly, but they are turning out to be far more complex to roll out at scale than advertised. And that may be why Microsoft that remember was pushing agents earliest they went from the early winner in the AI race since Chachi Pts launch three years ago to now being the biggest laggard even behind Amazon and Apple. Isn't that interesting?
- [38:40]
A
It's extremely. So restate that for me again Deirdre.
- [38:44]
What do you think it is that they are kind of missing the boat on here?
- [38:49]
G
So we've been put companies, Microsoft especially have been in Salesforce as well have been pushing this agent narrative. The idea that AI is going to be automated to complete tasks on your behalf and that's what enterprises are interested in. What we're seeing instead is that they see still want APIs that's just building their own products with the underlying model. And that's why you're seeing anthropic sort of gain the momentum in enterprise because it's the builders inside of these companies. They don't want agents, they want to be able to use the model to create their own workflows, not sort of these complex models that will do everything for you because they can't Right now.
- [39:27]
A
Did you hear our discussion with Aaron Levy? He was kind of talking a little bit about this and I like what you're adding, which is a layer of nuance here that it may be that AI enables companies to kind of do more with.
- [39:38]
Than they might have before with software. But you're also saying it's not that to say that the AI is going to do it perfectly for them. Like there might still be a layer right here where you need, you know, people or products that are going to be able to be tailored exactly to what it is that you're looking for them to do. Right.
- [39:53]
G
And if that's your expectation, that's not necessarily the reality. I had a long conversation with Aaron about this a few weeks ago at a, at a dinner and he sort of said it's not just the year of the agent, it's the decade of the agent. So he says himself that this is going to happen, but may not happen sort of automatically and as quickly as everyone wants to. And I think that's what this says as well. It's not that agents aren't going to be a thing. It's just that they're not as useful right now.
- [40:20]
A
Yeah, exactly. It's not there yet. And the code is.
- [40:23]
G
We know that. We know the code is. But then those gains flow through to a player like Anthropic, which is interesting, by the way, Kelly, because Microsoft put all their eggs initially in the open air basket. And it turns out that anthropic API's cloud code is what enterprises really want.
- [40:36]
A
That's fascinating. I love all the different emerging winners here, Deirdre. Appreciate it for now. Thanks, Deirdre Bosa. Still to come, the retail ETF is up 11% in less than two weeks. And bank of America expects the already strong holiday shopping season to get even better thanks to AI. Come on. We'll have the details next. And as we head to break, stocks are at session highs. The Dow's up 429 points. Tone has improved dramatically. We're back after this.
- [41:06]
Welcome back. Holiday shopping is off to a pretty strong start. Adobe is now reporting that online sales between Thanksgiving and Cyber Monday grew 8% from last. That's a big number, certainly beating expectations even with inflation. That's, that's pretty good. It has bank of America bullish on E commerce and on two stocks that share one common name, Rufus. Here to discuss is Justin Poat. He's post, he's Internet analyst at B of A. You see what we did there, Justin? I love Rufus. I use him on Amazon all the time. That's where you're going with this, right? Welcome.
- [41:37]
I
Great, great to be here. You know, we saw pretty good online shift starting in March and April and we do think that somewhat AI related and then we really think Rufus on Amazon has kicked into gear. We're seeing very good usage data and I think overall shopping is increasing. You're seeing some numbers up 6,800% year over year. And I think that's driving kind of an online shift right now. So definitely think offline is kind of mixed but online is doing quite well this holiday.
- [42:06]
A
There's two areas I've noticed myself using AI to do more E commerce transactions. It's literally with the, I'm not saying I use Rufus every single time, but I, I think I was asking him about whiteboards or something. And again you're trying to get through the clutter of Amazon's website to just something simple or the clutter of the sales function to get to what you want. And I thought it was helpful with that. The other piece is using ChatGPT. So I did like a little small project in the house. And I said where do I buy a little desk like this or something or other. And of course it says ikea and I would think ikea, but it tells me exactly which one. And I'm going and I'm completing these transactions and normally it's something I would just kind of let linger. I'd feel too overwhelmed to finish the project. So it's got to be driving volume. I think if it's, if it's working for me, it probably is working for other people as well.
- [42:51]
I
We think it is definitely seeing increases in conversion rates of people who are using AI versus not using AI. I'm sure OpenAI has some pretty interesting data on that that hasn't been quite shared yet. But within Amazon some of the third party data says that the conversion rates are much higher for people using Rufus. So better shopping experience and I think that's going to accelerate the shift of purchasing online and you're seeing the benefit of that in sales the last couple of quarters.
- [43:20]
A
Should we get into our whole grocery debate from yesterday about. I think they should just let Whole Foods go on doordash. I don't know if you agree.
- [43:27]
B
I think Amazon's got a fleet of.
- [43:29]
I
Their own delivery people. They probably want to utilize more. But. But certainly they are trying to expand their grocery offering. Both getting whole foods to people, but they're even delivering for third party grocers as well. So they really want to increase their grocery offering and we think that's one of the bigger growth drivers for retail next year.
- [43:48]
A
And quickly if we, you know, if people are watching and agreeing with your thesis, what other names should they own here?
- [43:54]
I
We think Chewy could be a beneficiary of the shift online. Certainly getting past maybe some of the extra expenses last year could help with margins but. But overall would be a shift to online purchasing which we think would benefit. We highlighted both Amazon and Chewy had very strong traffic in November.
- [44:13]
A
That's fascinating. That's why we were talking about Rufus. Appreciate it Justin. Thanks for your time today.
- [44:18]
I
Sure. Good to see you again.
- [44:19]
A
Good to have you. Justin, post with BFA. Sticking with retail. Check out American Eagle shares soaring 14% after better than expected results and raising their full year forecast. And this was. They already had that great quarter last time. The shares are at their highest level in a year and a half now, up 150% from their low about six months ago. And this is all thanks to the company's recent marketing campaign with actress Sydney Sweeney. Of course, they're not the Only retailer hoping celebrities will drive denim sales either. CNBC.com retail reporter Gabrielle Fonrouge is here with a closer look. Who cares what anyone else is doing? Don't you think they already. They already won. It's game, set, match.
- [44:54]
H
Well, I mean, if you look at my reporting, the people that I'm speaking to are showing that Levi's is actually winning this race. And when you dig a bit deeper into American Eagle's results, the growth there is being driven by aerie, which has nothing to do with jeans. So the attention on American Eagle overall from the marketing campaigns, is that driving people into aerie? Perhaps. But what we saw last night, which was really interesting, is that at the namesake banner, American Eagle comps were only up 1%, analysts were looking for 2.1, while comps at Aerie were 11%. So they're spending all this money on denim.
- [45:27]
A
Is it working Aerie? If I go back to several years ago, are aerie stores separate stores from American Eagle, or are they within the American Connected. Connected. Ok. And they apologies the audience. They sell bralettes. That's my understanding.
- [45:38]
H
Is that what it's. Pajamas, lounge, underwear.
- [45:41]
A
Okay. Pajamas and lounge. We're in safer territory here. So you're telling me that American Eagle stock and all of the sales blowout numbers we've been hearing about for the past several months. Months. Are because of pajamas and not because of Sydney Sweeney's jeans?
- [45:54]
H
Well, look, last quarter, there was a lot of bullishness about the campaign. You know, it was way too early for them to talk about the real sales impact yet because it had occurred, you know, the tail end of the quarter. But what they said is that they were acquiring new customers, traffic was positive, comps were improving. So there was a lot of positive sentiment that was driving the stock up. But then last night, this was the first full quarter that we got to see the impact after the campaigns. And you know what? It was all area that drove that growth.
- [46:20]
A
Is it possible people are going into American Eagle? That's you're talking about, right? I get all these names confused because they see the denim campaign and then they just leave with the pajamas instead.
- [46:29]
G
Absolutely.
- [46:30]
H
I mean, that's something that we know for sure is happening. Like, part of this is making American Eagle relevant again.
- [46:36]
A
Right.
- [46:36]
H
And it's making the brand at the center of conversation, the center of culture. And so consumers are now thinking about American Eagle. They're going into the store, and then they see Arie, and they're like, hey, I need a new pair of $60 pajamas. And they're buying.
- [46:48]
A
So what's going on with Levi's in the meantime?
- [46:50]
H
So Levi's really kind of started all of this. They got lucky. Beyonce named a song after them, Levi's Jeans, last year. And of course, then they had this huge marketing campaign with them. And then Levi's created denim. Right. And then you saw this pattern that has been repeating itself for the last 150 years, ever since Levi created denim, is that competitors race to catch up. So a year later, you had a gap with their cat's eye milkshake ad that went totally viral. You had American Eagle with Sydney Sweeney. So they're all chasing that same kind of denim customer racing to catch up with Levi.
- [47:21]
A
But Levi's is winning as far as you're concerned.
- [47:22]
H
I mean, if you're looking at what the data shows, Levi, it's a landslide. It's kind of hard to compete with them, but there's a lot of room for everybody to win in this environment.
- [47:32]
A
Gabrielle, with the interest info, we all need it in the denim wars today. Thank you.
- [47:35]
H
Thank you.
- [47:35]
A
Let's quickly get to Capitol Hill. Nvidia CEO Jensen Huang about to meet with Senate Banking Committee.
- [47:40]
J
American leadership is really important. And so we, we have to work together to ensure national security, that we can lead technologically around the world and have the world build on American technology.
- [47:52]
B
Any concerns about your chips going to China?
- [47:55]
J
Of course there is. And we have to ensure that United States has the best technology at all times, but that United States technology industry can continue to serve the world and. And win markets around the world.
- [48:06]
B
Are you worried about?
- [48:09]
G
There are a number of China hawks who are there.
- [48:11]
J
We have lots of competition from a lot of different places.
- [48:14]
G
A number of China hawks. There are a number of China hawks who are very concerned that if their chips are being able to go to China and other countries, that's really going to compromise US Security. What's your message to them?
- [48:25]
J
We have to ensure national security. Remember, China makes plenty of chips and their military has plenty of ample chips and bought Chinese chips to build whatever they need. We need to ensure America can continue to win the technology lead leadership position around the world.
- [48:42]
A
How do you feel about the Soviet.
- [48:43]
G
AI 200 from both chambers version of the NDAA? I'm sorry, the GAIN AI Act.
- [48:49]
A
How do you feel that both versions.
- [48:50]
G
Of have been stripped from the NDAA now?
- [48:52]
J
I think that's, that's wise because the Gain AI act is even more.
- [48:59]
Detrimental to the United States than the AI Diffusion act.
- [49:02]
A
Does.
- [49:02]
G
There need to be some Degree though of protection on advanced chips that Nvidia and others produce. Maybe not something as extreme as the GAIN AI act, but something within that vein.
- [49:12]
J
We support export control and we believe that United States should have the best technology all the time.
- [49:19]
B
Do you think there should be federal regulations on AI or would you prefer state by state?
- [49:25]
F
Obviously that's. The President wants to see federal regulations as opposed to individual states. What's your take?
- [49:31]
J
State by state. AI regulation would drag this industry into a halt and it would create a national security concern as we need to make sure that United States advances AI technology as quickly as possible. A federal AI regulation is the wisest.
- [49:47]
F
Jensen Flint, talking to the senators about.
- [49:50]
A
The H200 chip going to China?
- [49:54]
J
No, we're going to talk about AI industry, AI technology and its implication on national security, on the economy, and on technology leadership around the world in general.
- [50:04]
F
Why do you think Congress tends to.
- [50:06]
B
Be more pro export control and more.
- [50:11]
F
Against some of your positions than the administration?
- [50:15]
J
I'm in favor of export control and the administration is in favor of export control. We're also all in favor of ensuring that the United States has the best technology and that the United States leads technology around the world.
- [50:29]
H
So how do you make sure the.
- [50:30]
G
US does have the best technology then? Like, if not with the controls and some of the stuff that's gone with dnai, how do you really make sure that the US Is the one delivering and that other countries aren't stealing our information?
- [50:40]
J
The fact of the matter is the industry has done that naturally, all by itself. We work very closely with American technology companies, of course, The Microsoft's, the AWS's, the Googles, you know, Xai Meta, all of these companies are American, American technology companies that we work very closely with. And so it's very natural for us to design and to launch our latest generation, our most advanced technology with American companies.
- [51:06]
G
First, about those Blackwell chips. Are you currently speaking with the President or anyone else in the administration about getting those Blackwell chips exported to China? Currently, no. How about E200 from the White House?
- [51:16]
A
Are you speaking with the White House on H200?
- [51:19]
J
We're talking to the White House all the time about export controls and what's the best way to ensure that we have national security and that we could have technology leadership.
- [51:29]
G
Are you meeting with President Trump today?
- [51:31]
A
Sorry, who else are you meeting with today?
- [51:35]
G
With the President.
- [51:35]
J
I just met with President.
- [51:37]
G
You just met with President Trump?
- [51:38]
J
Yes.
- [51:39]
G
And what were you. What did you discuss? Was there any agreement that came out of that meeting?
- [51:42]
J
We talked in General, about export controls and I wish them happy holidays.
- [51:47]
B
One more on export controls. Do you think that China should have.
- [51:50]
F
The same access to the same type of of chips made in the US.
- [51:54]
B
As the United States does?
- [51:56]
J
I've said repeatedly that we support export control, that we should ensure that American companies have the best and the most and first.
- [52:04]
B
Does that mean they have inferior chips in China though?
- [52:08]
J
No, it just means that we have the first and the best at all times. However, we need to be able to compete around the world. The one thing we can't do is we can't degrade chips that we sell to China. They won't accept that. There's a reason why they wouldn't accept that. And so we should offer the most competitive chips we can to the Chinese market.
- [52:28]
A
Would they accept 800? Do you think they would?
- [52:30]
J
We don't know.
- [52:32]
B
You said that DNAI was unwise. Senator Ricketts has another a different bill.
- [52:38]
A
That would codify the current export controls.
- [52:41]
F
Into law and not allow it to go up.
- [52:44]
B
Do you think that's also unwise?
- [52:46]
J
The current situation.
- [52:49]
Ensures that China and the United States agree on one thing, that no American AI chips can go to China. And I think that that's the worst case condition and is deeply.
- [53:00]
A
Sir Moments.
- [53:08]
You've been listening to the exchange. Make sure you're subscribed to get each episode every day, same time, same place. At Capella University learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the course room to the workplace. A different future is closer than you think with Capella University. Learn more at Capella. Eduardo.