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AI's Big Shift, Crushed Confidence & Retail's Best Buy 11/25/25
00:49:45
AI laggard Alphabet rapidly moving to the front of the pack, on track to hit a $4T market cap. Consumer confidence hits a 7-month low as recession fears rise. Plus, Best Buy beats estimates and raises guidance... why one analyst says this holiday season could be especially strong for the retailer.
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Christina Parts
You're listening to the Exchange. Here's today's show.
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All right.
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Dom Chu
Thanks very much, Scott. Welcome to the Exchange. I'm Dominic Chu in for Kelly Evans on this Tuesday afternoon. Stocks are near session highs right now with the small cap Russell 2000 index leading the gains up roughly 2% as it December rate cut is looking more likely. We're seeing some really big moves in retail. Kohl's and Abercrombie shares up north of 30%, 30/2 60 following earnings reports. We're going to go dig into the retail trade and one name not on this board. Our analysts more bullish on than ever for this holiday season. We're also watching Nvidia. That stock is under pressure today on a report that metal platforms plans to buy chips from Google, not Nvidia. And that is why Google parent company Alphabet is at a fresh rally record high today. Those shares are up 14% so far this month, easily making it the top performing Magnificent Seven stock. That's putting Alphabet on pace across the vaunted $4 trillion market cap mark as it goes from AI laggard to AI leader. Now that big AI shift is where we start today. And we've got some team coverage. Deirdre Bosa looking at how Google is building out its AI ecosystem. Christina Parts and Evilis is digging into how that's impacting the supply chain. And Julia Boorstin has the Mag 7 stock that can't seem to find its a footing. Deirdre, we're going to start with you.
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Deirdre Bosa
So Dom and I the leaderboard, it changes fast and narratives, they can swing harder than the fundamentals. Just look at Google. It went from broken to beloved in a matter of months. Not even because the business changed that dramatically. Now it's on top now because it started executing Gemini 3. It's model landed TPU's its custom AI chips, they're gaining traction and Google is shipping AI at a Google scale. It has the distribution. But just as markets got over their skis on the other side of this trade, this probably is not a winner take all situation. Take the emerging chip narrative. Yes, meta buying Google custom chips powers the Alphabet bull story. But the narrative that TPU's are about to overtake Nvidia across the enterprise, not so fast. TPU's. You have to remember this, they lock you into Google Stack so they only run inside of Google cloud. For most enterprises that is a tough sell. They want optionality to be able to plug into Nvidia or AMD or whatever comes next. There's room for both essentially. So the real fight isn't Google versus Nvidia. It may actually be Google versus the other hyperscalers. TPUs. They strengthen Google Cloud against the number one and number two hyperscalers, Amazon and Microsoft. And it raises the question, if Google has all of this momentum and custom silicon right now, where's the pickup for Amazon's chip training?
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Dom Chu
All right, so again, since you opened the door for this D, where is Amazon exactly in this race since it is the biggest cloud computing player out there and a hyperscaler itself, it's the.
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Deirdre Bosa
Biggest cloud computing player out there, the number one hyperscaler. So it should be leading in AI. Right? And what we're learning from Google is that having your own custom chip is a huge part of that. We know that Amazon has been working on its own set of custom chips. The most well known is Trainium. It even signed a deal with Anthropic. But it's, you know, not a very well kept secret that there's disappointment not just on Wall street but in tech circles with that chip. It certainly does not have the momentum that Google does and that's just on the chip side. Dom, I bet you'd be hard pressed to name, you know, Amazon's family of AI models. Most people would. It's Nova by the way, but they're not climbing the leaderboards. And that gap between sort of Google and everyone else, not just Amazon by the way, has been increasing in recent months, or at least the narrative has. It's always been there, they're executing and Wall street is now appreciating it.
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Dom Chu
All right, Deirdre, that's the story here on the hyperscaler front. Thank you very much for that. Google's chains and gains now are triggering a big rotation in the air supplier names. Christina Parts and Evolis joins us now with the moves across that supply chain, Christina.
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Christina Parts
And let's start with Nvidia shares because it is weighs so much on the NASDAQ. 100 shares are down about 3 1/2% today as the rotation into Google continues and investors really worry about competition from Google's TPUs like Deirdre highlighted. Bank of America's Vivek Aria already models in video, losing 6% market share of the chip market next year in his base case. So the streets known this was coming. Given Google's been in the chip game for a decade, it's not necessarily new. What we're seeing right now though is a massive rotation in those stocks. Google supplier names like Broadcom, Celestica, Terra, Wolf, you can see on your TerraWolf almost 8% higher. Meanwhile, names with direct ties to OpenAI, which we'll get to in a second. Nvidia, Microsoft Core Week, Oracle, SoftBank in that mix are all lagging on sentiment as OpenAI deteriorates. And that's in regards to sentiment. And what's driving this is the market's view that Google's Gemini 3 is now competitive with OpenAI's ChatGPT and Google's doing it with cheaper TPUs instead of Nvidia's chips. That's putting pressure on OpenAI's entire supplier ecosystem. And now Meta is potentially jumping ship as well, like we just spoke about with Deirdre Bossa. Broadcom CEO Hock Tan sits on Meta's board and Broadcom is Google's partner on these TPU chips. Meta's the biggest chip buyer that doesn't run its own external cloud. So could this signal maybe their own custom chip program isn't working out? I know some of the sell side guys are just talking about that. Or does Meta just want to divert diversify away from its own chips? The question though is whether this is a real shift in infrastructure or just short term trading noise. I know on Monday, Dom, bank of America actually put out a note saying just be prepared for another sentiment shift and that they're buyers of those suppliers, like in video, like Core Weave and some of the neocloud players.
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Dom Chu
All right, so a lot of companies are dealing with this graphics processing unit, Tensor processing unit, maybe a hybrid of both. Christina, amid all of this, the name that we want to talk about kind of secondary to Nvidia is Advanced Micro Devices. So where exactly does this leave amd? Yeah, that's the problem.
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Christina Parts
AMD is just getting the brunt of what we're seeing with Nvidia. The stock is selling off because AMD is also considered a competitor to Google's tpu. Google's TPU is very it runs very specific tasks. Right. So it can't, it doesn't work like a gpu. And the fact that companies like or large language models like Gemini are using TPUs, there's no mention of AMD chips in that mix too is just weighing negatively on sentiment and often in video. And Nvidia does poorly sometimes AMD is lumped into that mix versus some of the hyperscalers and their own custom chips. So I think that's more of a signal that the market is just hesitating right now with Nvidia and AMD because they don't see as much upside in the stock stock prices in the near term. I think that's a big part of it. These companies are great, they've been doing great products. They have a full market share, a grasp of everything. But at the same time, if you're an investor, you want to know that the stock can go up. So that could be more of a reflection why the shares are down.
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Dom Chu
All right. Changes are afoot in semiconductors Christina Parts and Evolis. Thank you very much for that. Now while Alphabet makes big strides, its Mag7 peer metta platforms, the aforementioned cannot seem to catch a break when it comes to the artificial intelligence race. Julia Borson has the Metta platform story. Julia.
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Julia Boorstin
Well Dom, Medicares are rising today on its potential diversification away from Nvidia. But Met his massive funding has been weighing on the stock shares underperforming the other tech giants. Down about 16 and a half percent since its last earnings report. Despite beating expectations raising red flags for investors. Met as capital expenditures are growing far faster than its revenue. This year's capex are projected to be as much as $72 billion. That's that would be an 84% increase from last year's capex. So that would mean that met as capex as a percentage of revenue could be as high as 37% this year. That's a dramatic leap from past years. Analysts are asking when investors will see a payoff from all of this spending. There has been a measurable impact in AI improving ad results. Revenue has beat expectations for the past 13 quarters. But met his flagship AI model Lama 4 has been called underwhelming. Goldman Sachs flagging the competitive intensity around foundational models and how there is less visibility into Metta's potential returns than there is into its rivals. And analyst Laura Martin notes that Met is seeing growing expenses for its VR headsets, its augmented reality hardware AI enabled Ray Ban glasses and its Metaverse division for with no clear return on that invested Capital. She warns that what she calls this strategy diffusion will lower MET a success rate.
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Dom Chu
All right, so Julia Mehta has seen a lot of personnel changes also recently. The ranks are shifting around. How do some of its big departures and its high tech hires actually contribute to the overall story around its future?
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Julia Boorstin
Yeah, well on one hand we're seeing some, some big is spending some big investments in terms of big name hires. And on the other hand, Matter just lost Clara Shy, who is the head of Business AI and her job is really to build out the business of making sure all those advertisers also use media for customer service and use their bots. And even though her division is going to be folded in under another current Meta leader, you're not going to have someone actually replacing Claire Shy right now. So there are some questions about that potential for that enterprise business. And Yann Lecun, who was this visionary leader in terms of AI, has left Metta to go start his own thing. And he had a whole nother approach to AI thinking about world models as opposed to the text based innovation around AI. And so his departure will certainly leave a hole as well. Meta says that they have an incredible robust team, but they're also spending a lot for those executives they have in this space.
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Dom Chu
Cannot make an omelette without breaking a few eggs, I guess. Julie Boorstin, thank you very much for that. Our next guest says that there's a big winner and that will be the one that controls Full Stack, Soup to Nuts, infrastructure models, applications, everything. And that's why Google now has that lead. For more, let's bring in Low Tony, founding managing partner of Plexo Capital. He's also a CNBC contributor. So Low, let's talk about the Full Stack, the Soup to Nuts aspect and whether it is rightfully so that Alphabet is being anointed this kind of new up and coming king of the air race.
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Low Tony
Yeah, well first, thanks for having me. And I think, yes, we're staying in. The story right now is that the AI narrative is shifting towards Google and it starts with the infrastructure layer. And my core thesis has always been about the vertical integration. I've written extensively about Apple and how they have been able to create an incredible moat around their business using that Playbook. And Google has done the same thing. The ability to control the infrastructure models and applications. And Google's the only hyperscaler that really has integrated across all three. And on the infrastructure side, as your team pointed out, Google has spent a decade building out the TPUs, working with Broadcom and These aren't general purpose chips. They're optimized around Google's workloads, the search, YouTube ads and now Gemini. And so that loop is able to compound when you combine that unique proprietary data that Google has access to with the ability to train. And we're starting to see those results. So what's new and what's really shifting the market recently is that the TPUs, right? And so the fact that they're seeing the ability to not only perform really well on the inference side, which is kind of running these applications, but now they're also competitive on the training side as well, which has normally been the place where the Nvidia TPUs have dominated. And so now that we see that Meta is evaluating, potentially moving to these, that's significant. Now, Dom, if you remember the last time we talked, the last time I was on the Exchange and you were hosting, I spoke about the fact that we're going to enter this hybrid era of seeing multiple chips, right? GPUs in this case also TPUs. And so, you know, Google has that footing. And there's, there's one more thing that I want to point out and it relates to what Julia just spoke about, which is the conundrum that Met is in. And the fact is Metta really cannot afford to be able to compete similar to Google and building out vertical infrastructure because they don't have the offering of products. So when you look at Google, it's all about capital efficiency. The best way to achieve vertical integration and still maintain these software margins that we're used to is through cash flow flow, not by issuing heavy leverage. And Google Alphabet is the most capital efficient of all of big tech right now. And we know that's not the case with Meta. So when you think about the entire suite, that's why there's so much excitement about Alphabet Google.
- [14:12]
Dom Chu
All right, low, there's a lot to unpack here and unfortunately we're not going to get to unpack all of it in the time allotted here for our segment. But there have been plenty of instances. You speak about this full stack approach, this idea of vertical integration that also implies a somewhat, at least on a relative basis, closed system. You're beholden to a certain level of that stack if you're a business or enterprise customer. There have been plenty of times throughout business history where that kind of closed source has led to the downfall of certain types of companies out there. I can even think of Apple back in its early days because of that system. What exactly then is the right way for these companies to approach the hybrid model if you don't want to go down the road of being too closed in a system that limits your ability to service enterprise customers.
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Low Tony
Yeah, and I think that really gets at the core of when we look at Google's ability to have these TPUs, the custom silicon that's optimized for their internal products as well as their external offerings. So again, the whole benefit of having this hybrid environment is there are going to be some customers that will need to use and have certain tasks that are going to be best done in a gpu, but the ability to also have the TPU in that same environment to be able to have the optimization that comes from some of the services they'll need from a Google. So I think that's what's going to be different in this instance.
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Dom Chu
What exactly then is Meta? If I could bring it back to that point of the conversation, what exactly is Meta's path forward here? Some would argue that Meta has the customer user social media platform base to be able to help develop AI faster, help train large language models, help develop some of that AI infrastructure. They just can't maybe provide the hardware or some of the infrastructure per se. So what exactly is Meta's plan going forward?
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Low Tony
It'll be interesting to see, because what Meta has chosen to do is to make the same types of capital investments that the hyperscalers do as well. But when we think about the offerings that matter has, they don't compete with the hyperscalers like Google, who are able to not only amortize that capital expenditure across their internal products and have the benefit of having the data from those internal products to develop the models that then can be used to train and offer services for their cloud customers as well. So that's a great product base to amortize these costs around which are generating multiple cash flows. Meta doesn't have that. Meta's main purpose is using these models for their internal use only. So optimizing ad revenue and the potential to monetize certain consumer offerings. The challenge is we know how fickle consumers are. And so the question becomes, and this is where analysts really dig in, does Meta need to invest all of this money? And potentially we might be seeing a shift away from Meta trying to do their own silicon internally and just shift to someone else who can offer it at a much cheaper price than they're paying for their GPUs from Nvidia.
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Dom Chu
All right, low Tony there with the latest there on the tech trade. Thank you very much. We'll see you soon, sir.
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Low Tony
Thank you.
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Dom Chu
All right, coming up on the show, consumer confidence just reached the lowest level since April. We're going to look at the key reasons why, whether it could lead to a pullback in consumer spending and how it all affects and factors into the Fed's next decision on interest rates. Plus, some good news on the housing front, helping the home construction ETF to some nicer gains. Today is the real turning point for the housing market here. The exchange is back after this.
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Dom Chu
That's 1-800flowers.com sxm welcome back to the exchange. Government data finally trickling out after that long drought due to the government shutdown. The numbers are painting a more mixed picture as inflation was cooler than expected. But. But both retail sales and consumer confidence disappointed. Confidence, by the way, hitting its lowest level in seven months now, while recession expectations did tick slightly higher. Joining me to discuss all of this is Dana Peterson, the chief economist over at the conference board alongside our own CNBC senior economics reporter Steve Liesman. Steve, let's start with you first. We had a lot of data today and it does paint that very mixed picture. So what exactly was the takeaway and what does this mean for rates next week or two weeks?
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Steve Liesman
Well, a bit of older data, but as I've said, old data is better than no data. I think what it does is it sets or reduces the expectation for both third quarter growth a bit because of that miss on the retail side. And it sets the expectation or the level that we expect consumer spending a little bit lower than for the fourth quarter as well. There are things to work out, as you know, Dom, including the economic impact of the shutdown that's supposed to be a negative for the quarter it happened in and then maybe you get it back in the next quarter. So a bit of shuffling around of GDP between the quarters there. I think the expectation here is that the Fed is on track in part because of the weakness we're seeing both in the consumer confidence data as well as in the retail sales data on track to cut rates because of concern about weakness more than they're concerned about inflation.
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Dom Chu
All right, so that is the kind of tipping point right now that we're dealing with the scales. Dana, is the inflation the bigger threat or is the slowing jobs market the bigger threat? It seems as though the conventional wisdom consensus has become the weakening job market matters more. So how does that factor in to the consumer confidence data we just got from the conference board?
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Dana Peterson
Well, I think that sentiment that labor market data matter more was certainly underpinned in our consumer confidence measure for November. More people said that jobs are hard to get and also prospects for future job opportunities as well as income and finances were worse. Now, I do have to note that there's been very little firing, but nonetheless the unemployment rate has been ticking up because the people who are being let go, especially in finance and tech, are having a difficult time finding new jobs. So absolutely, the Fed's going to be focused on employment over inflation.
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Dom Chu
There's also, Dana, an interesting kind of crossroads here when it comes to some of that economic pessimism. Maybe not pessimism, measured caution, I guess you could maybe call it that, versus what we're going to do for the holiday shopping season. I know that Deloitte just came out with their survey on holiday spending. It looks as though 57% of respondents think that the economy will be weaker in the, in the new year in 2026. Maybe their spending is going to be lower this season as a result of that. How much of the kind of circling the wagons, kind of pulling in the horns do you expect out of the consumer this season?
- [22:24]
Dana Peterson
Yes, we also have a survey on holiday shopping that we released a few weeks ago and indeed the results were the same. Consumers are saying that they're going to pull back on spending this year relative to next year. They are going to focus on buying gifts and items that are services that their friends and family need over want. And also so many of them are not really looking to travel. And so I would say yes, we are going to see probably a softer holiday season than we did last year.
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Dom Chu
Steve, this also kind of all brings us to this idea that maybe the Fed would be hypothetically in a good place to lower interest rates just to help restore some confidence in the overall economy. I know that you reported on some news coming out just this past hour with regard to some movement that we might see on the naming of a new possible Fed chair. It might be Kevin Hassett, although I will say a White House spokesperson has maybe downplayed that notion a little bit. Can you take us through just what exactly is happening with regard to that Fed picture and whether or not the Hassett story maybe takes away or adds to some of that economic uncertainty?
- [23:33]
Steve Liesman
Well, first of all, we have not been able to confirm the HACC story. I have no doubt that there are people inside the administration who are talking to Bloomberg on this, on this issue. I'm sure they did not invent this. So it's, it's something worth taking into account. Even the while the White House says it's pure speculation. I think you have to take into account that, that there is some momentum perhaps for Hassett inside the White House. And I don't think that that's a surprise to the market. He has always been thought of as a front runner from the White House standpoint. Whether or not that's been true from the treasury standpoint is a different question. I think maybe there's been other people that have impressed the treasury secretary. But again, as the treasury secretary told us on air this morning, it is going to be the president's decision made sometime around Christmas. I don't know that it relates to the poor economic data that we've had recently, but it does relate to the idea that the president wants lower interest rates. And the thinking is he wants to put somebody in who is best able to deliver that to him. And that's probably why the market rallied on the news and what the expectation is. The the bond market doesn't seem to care, Dom, and that's a significant factor. The I guess Rick gave it a poor grade the recent auction. But but the bond market is not trading as if it will have a profligate Fed, although I will point out the dollar is trading that way.
- [24:55]
Dom Chu
All right, Dana, the last word goes to you from an economist's perspective. Should Americans be optimistic about 2026 or more cautious?
- [25:06]
Dana Peterson
It depends on who you are. Certainly if you work for an industry that's being hammered by tariffs, then you may be wary, fearing that you might be let go. But I would say that many consumers who are on the lower end of the spectrum in terms of income will see some breaks in taxes. They won't have to pay taxes on things like tips and overtime. So there's going to be a little bit of a boost there for those groups. But by the end of the year, we will see cuts in government spending that probably will impact more Americans.
- [25:38]
Dom Chu
All right, Dana Peterson at the conference board. Steve Liesman, thank you both very much. We appreciate it. Coming up on the show, a look at today's mystery chart. It's a retail name, not one of the high flyers in today's trade, but one that our analyst says is one to own this holiday season. That chart revealed ahead.
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Deirdre Bosa
Welcome back to the Exchange. I'm Contessa Brewer with your CNBC news update. The FBI is working to schedule interviews with six Democrat lawmakers who appeared in a video urging service members not to follow illegal orders. That's according to NBC News. The Pentagon yesterday launched an investigation into one of the lawmakers, Arizona Senator Mark Kelly, threatening to return him to active duty to face a potential court martial. Senator Kelly called the threat absurd last night on Ms. Now and says he won't be silenced. A bipartisan proposal introduced in the House today is looking to crack down on fraudsters using AI. The AI Fraud Deterrence act would expand penalties for AI scams and criminalize the impersonation of federal officials using AI, though it would carve out satire and other acts protected by the First Amendment. And who wants a national holiday the day after the Super Bowl? I mean, Tom Brady and who else? The NFL legend and comedian Dreskier featured in a new ad for GoPuff Delivery Service, which is working with a nonprofit. I kid you not. The coalition. No, no, the Super Bowl Off Coalition. That's the name to make the Monday after the game a federal holiday. Last year, a survey showed more than 22 million Americans planned to miss work after the game. They call it super sick Monday. You know what I say, Dom? Lightweights. They should just get back to work like the rest of us.
- [28:31]
Dom Chu
I was going to say I'm always back to work the day after the super bowl, but I wouldn't be opposed to taking it off. Contessa Brewer, thank you very much for the news update there. Coming up on the show, our next guest still believes in the AI theme as a secular trend. Why, though is he trimming his exposure to AI? We're going to ask him about that and where he's deploying that money instead. Coming up next.
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Deirdre Bosa
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- [30:23]
Dom Chu
Welcome back to the Exchange. All three major averages are extending yesterday's gains. The NASDAQ is managing to move into positive territory at this point despite chip stocks being under pressure. Our next guest says the recent tech volatility looks more like a rotation than an actual route. But he's still trimming his direct exposure to AI names. So joining me now with where he's putting his money is Paul Christopher, head of global investment strategy over at Wells Fargo Investment Institute. Paul, thank you very much for being here with us. Let's take a job, please. Just take us through what exactly you mean when you say that you are out of some of these names into other parts of the market, but you still believe in the AI trade?
- [31:03]
Announcer
Well, yeah, that's. The fundamental premise is that we think there are years left to go as AI and other technology developments continue to evolve. CyberSecurity would be one, digital assets would be another one. We already have some automation in the economy. We think that expands quite a bit more. And artificial intelligence could be an adjunct, could be a helper for all of these other technologies in addition to standing alone by itself and helping people in their daily lives. So we think there's further trend to go. We're still in the early innings, but because we're in the early innings, there's a likely tendency for markets to get a little bit extended at times. And so in August, we pulled back on communication services. We thought it had gotten a little extended. We rotated that money where. Well, we want to put it in someplace that's an ancillary trend to technology but maybe isn't quite so highly valued. So for example, utilities with a P E of 20 compared to mid-30s for IT, information technology and comm services. And then at the end of October, we pulled back on information technology as well. The same idea. It looked like it was getting extended. So we go to look for an ancillary trend. In this case, we took emerging markets. Think about a Korea, think about a Taiwan, chip manufacturers, hardware manufacturers. We think that is going to be another way for investors to play the longer term theme, but without maybe that, that short term overexposure.
- [32:30]
Dom Chu
Now, all of those places are filled with certain parts of those sectors or industries on a relative overvalued versus undervalued basis. So how exactly then do investors play it? Do they try to go after the fundamental stories that are undervalued in those places, or do they just buy an ETF or mutual fund that tracks some of those trends?
- [32:52]
Announcer
I mean, if you want to do the due diligence, yes, that would be the best way would be to go and kind of dive deeper. But our feeling is that these sectors are going to become more and more dominant in these other countries, just like they have become in the US over the last 10 to 20, even 30 years, tech has become a larger and larger share of the s and P500. So going forward, a small allocation to a broad based basket of emerging markets could be a good and diversified way to play those markets in addition to what you have here in the U.S. all right.
- [33:22]
Dom Chu
The tech and comm services trade is something that we've talked a lot about. Other parts of the value chain in terms of the sectors in the market are also getting more attention these days. We've seen the huge run up in health care stocks over the course of the last few months. Are there other parts of the market that you think are overweight ratings versus what we see in tech and comm services?
- [33:44]
Announcer
Yeah, we would be trimming that. What you've seen happening is what you're describing is actually a rotation. Rotation. It's been a rotation away from technology and into some defensives. So some of those consumer stocks have made it to the top of the performance rankings over the last six to eight weeks. Health care, which is one you mentioned, we would be fading those consumer stocks and taking the health care back to market weight and then using that money and rotating that once more into the areas that we tend to favor again. Utilities. Well, we like those, we like industrials, we like financials. Right.
- [34:16]
Dom Chu
Now what about the financials trade makes them attractive to you? Given where we are with the interest rate cycle, the expectation of rate cuts coming up, how exactly is do finance, how exactly do financials fare in 2026 given that backdrop?
- [34:29]
Announcer
Yeah, that's a good question. So a couple of different angles on on financials. First of all, if you're looking for some diversification away from a lot or a little bit not quite so centered on technology, you could do financials. Because look, we think the interest rate on the short end of the maturity spectrum, the yield curve, we think those rates come down some more. Meanwhile, the rates on the longer end of the maturity spectrum, those tens, twenties and thirties, we think those yields stay firm or even rise a little bit. That would favor banks. Right, because the bank is going to pay you the deposit rate. That's the short term rate. That rate is falling, their costs are falling. At the same time, the longer term rates, that's what they lend at, that generates their revenue. Those rates are steady to higher. So that's one way to play or one way to think about financials, but another way to think about it. And again, this touches a little bit on, but it's not entirely centered on technology and that is that These technology companies increasingly are expanding via debt. And so we think that's maybe an interesting way to think about the financials as well. So it's got a foot in there, but not both feet into the technology trade. It gives you a little bit of diversification in economy that we think is going to improve with, with falling short term rates.
- [35:38]
Dom Chu
All right, Paul Christopher at Wells Fargo, thank you very much. Have a nice holiday, sir.
- [35:42]
Announcer
Thank you. You too.
- [35:43]
Dom Chu
All right. Coming up on the show, home construction. The ETF ticker ITB is up nearly 9% just over the past week on renewed hopes of a December interest rate cut and stronger than expected data. But can that momentum continue as we head into a housing slow season? We're going to discuss when the exchange comes back, back after this. Welcome back to the Exchange. All three major averages are extending yesterday's gains. The NASDAQ is managing to move into positive territory at this point despite chip stocks being under pressure. Our next guest says the recent tech volatility looks more like a rotation than an actual route. But he's still trimming his direct exposure to AI names. So joining me now with where he's putting his money is Paul Christopher, head of Global Investment Strategy over at Wells Fargo Investment Institute. Paul, thank you very much for being here with us. Let's take a job, please. Just take us through what exactly you mean when you say that you are out of some of these names into other parts of the market, but you still believe in the AI trade?
- [36:45]
Announcer
Well, yeah, that's the fundamental premise is that we think there are years left to go as AI and other technology developments continue to evolve. CyberSecurity would be one, digital assets would be another one. We already have some automation in the economy. We think that expands quite a bit more. And artificial intelligence could be an adjunct, could be a helper for all of these other technologies in addition to standing alone by itself and helping people in their daily lives. So we think there's further trend to go. We're still in the early innings, but because we're in the early innings, there's a likely tendency for markets to get a little bit extended at times. And so in August, we pulled back on communication services. We thought it had gotten a little extended. We rotated that money where? Well, we want to put it in someplace that's an ancillary trend to technology but maybe isn't quite so highly valued. So for example, utilities with a PE of 20 compared to mid-30s for IT information technology and comm services. And then at the end of October, we pulled Back on information technology as well, the same idea, it looked like it was getting extended. So we go to look for an ancillary trend. In this case we took emerging markets. Think about a Korea, think about a Taiwan. Chip manufacturers, hardware manufacturers. We think that is going to be another way for investors to play the longer term theme, but without maybe that, that short term overexposure.
- [38:11]
Dom Chu
Now all of those places are filled with certain parts of those sectors or industries on a relative overvalued versus undervalued basis. So how exactly then do investors play it? Do they try to go after the fundamental stories that are undervalued in those places or do they just buy an ETF or mutual fund that tracks some of those trends?
- [38:33]
Announcer
I mean if you want to do the due diligence, yes, that would be the best way would be to go and kind of dove deeper. But our feeling is that these sectors are going to become more and more dominant in these other countries just like they have become in the US over the last 10 to 20, even 30 years. Tech has become a larger and larger share of the S&P 500. So going forward, a small allocation to a broad based basket of emerging markets could be a good and diversified way to play those markets in addition to what you have here in the U.S. all right.
- [39:04]
Dom Chu
The tech and comm services trade is something that we've talked a lot about. Other parts of the value chain in terms of the sectors in the market are also getting more attention these days. We've seen the huge run up in health care stocks over the course of the last few months. Are there other parts of the market that you think are overweight ratings versus what we see in tech and comm services?
- [39:25]
Announcer
Yeah, we would be trimming what. What you've seen happening is, what you're describing is actually a rotation. It's been a rotation away from technology and into some defensives. So some of those consumer stocks have made it to the top of the performance rankings over the last six to eight weeks. Health care, which is one you mentioned, we would be fading those consumer stocks and taking the health care back to market weight and then using that money and rotating that once more into the areas that we tend to favor again. Utilities. Well, we like those, we like industrials, we like financials. Right now.
- [39:58]
Dom Chu
What about the financials trade makes them attractive to you Given where we are with the interest rate cycle, the expectation of rate cuts coming up, how exactly is do finance? How exactly do financials fare in 2026 given that backdrop?
- [40:11]
Announcer
Yeah, that's a Good question. So a couple of different angles on, on financials. First of all, if you're looking for some diversification away from a lot or a little bit not quite so centered on technology, you could do financials because look, we think the interest rate on the short end of the maturity spectrum, the yield curve, we think those rates come down some more. Meanwhile, the rates on the longer end of the maturity spectrum, those tens, twenties and thirties, we think those yields stay firm or even rise a little bit. That would favor banks. Right, because the bank is going to pay you the deposit rate, that's the short term rate, that rate is falling. Their costs are falling. At the same time, the longer term rates, that's what they lend at, that generates their revenue. Those rates are steady to higher. So that's one way to play or one way to think about financials, but another way to think about it. And, and again this touches a little bit on, but it's not entirely centered on technology and that is that, that these technology companies increasingly are expanding via debt. And so we think that's maybe an interesting way to think about the financials as well. So it's got a foot in there, but not both feet into the technology trade. It gives you a little bit of diversification in an economy that we think is going to improve with, with falling short term rates.
- [41:19]
Dom Chu
All right, Paul Christopher at Wells Fargo, thank you very much. Have a nice holiday, sir.
- [41:23]
Announcer
Thank you, you too.
- [41:24]
Dom Chu
All right, coming up on the show, home construction. The ETF ticker ITB is up nearly 9% just over the past week on renewed hopes of a December interest rate cut and stronger than expected data. But can that momentum continue as we head into a housing slow season? We're going to discuss when the exchange comes back after this. Welcome back to the Exchange. Pending home sales came in hotter than expected in the month of October. But will that momentum last into the colder win months? Diana Olik joins us now with the latest there. So Diana, these are contracts signed but not yet closed.
- [42:02]
Julia Boorstin
Exactly that's right, Dom.
- [42:03]
Deirdre Bosa
Yeah, pending home sales in October rose nearly 2% month to month while the street was looking for essentially flat. So it was a pretty good gain. Sales were down though.4% from October of last year. Now this count is based on signed contracts, so people out shopping in October and inking deals when mortgage rates were.
- [42:20]
Julia Boorstin
Falling from their recent highs.
- [42:22]
Deirdre Bosa
So that drop may have helped push demand. Rates of course have come back up a bit in November. Now there were more listings available than the year before, but supply hasn't really moved month to month in a while and it's actually weakening now. Why? Because a whole lot of sellers are delisting their properties. Redfin just reported that nearly 85,000 U.S. sellers took their homes off the market in September. That's up 28% from a year earlier and the highest level for that month in eight years.
- [42:49]
Dom Chu
Why?
- [42:49]
Deirdre Bosa
Well, it's because so many listings are going stale. Redfin reported that 70% of listings in September were on the market for 60 days or longer. Now, while some sellers are lowering prices even multiple times, others are looking at the slow winter months ahead and deciding to, you know, wait until the usually strong spring market happens. Tom?
- [43:10]
Dom Chu
All right, Diana. Oh, look there with the latest on the housing market. Very interesting dynamic at play there. Thank you very much for that. Coming up on the show, here's one last look at today's big mystery chart. It's up more than 5% today on an earnings beat and a full year guidance raise. The analyst we have coming up called it one of his top picks for the holiday season. Just last week, Those shares are up 9% just since then. We'll reveal the name and his other favorite long idea for the holidays coming up next. Back to the exchange. As you can see there, shares of Best buy are up roughly 5% on an earnings beat. The retailer also hiking its sales forecasts, expecting shoppers to upgrade their technology and splurge on devices this holiday season. None of this, though, is coming as a surprise to our next guest. He says this time of year typically bodes very well for Best Buy, but this year even more so. For more, let's bring in Loop Capital Markets Anthony Chikumba on that story here. And by the way, that was our mystery chart, Anthony. So take us through the reasons why Best Buy this time of year is great for the holidays.
- [44:18]
Anthony Chikumba
Sure. Absolutely. I think it really comes down to three specific product categories. One is gaming. And we have seen very, very strong initial sales of the Nintendo Switch 2. As a matter of fact, Nintendo just increased their full year guidance for switch two unit sales. The second is PCs. And they definitely have gotten a really nice tailwind from the basically switch from Windows 10 to Windows 11. And Best Buy has about a third domestic market share in PCs. And the third one is smartphones. And Best Buy is definitely benefiting from very strong sales of the iPhone 17. So it really comes down to those three product categories for the most part.
- [44:58]
Dom Chu
How exactly are they bucking the trend when it comes to a holiday season where multiple surveys out there say that Americans want to spend Less money. And these are the types of products that cost more money on a relative basis to the other items on their shopping lists.
- [45:13]
Anthony Chikumba
I think that's a very fair question. I mean look, at the end of the day, I think that consumer electronics are just becoming so ubiquitous, right? Like can you imagine not having a smartphone? Can you imagine having a PC with, you know, that you can't update and obviously switch too is just a cultural phenomenon in and of itself. So while we do have a somewhat cautious outlook for the holiday selling season, I think that folks are going to prioritize consumer electronics over a lot of other product categories this holiday selling season.
- [45:40]
Dom Chu
All right, so you got it right on Best Buy. So I said it in the intro before. What exactly is the other trade that could play out in this holiday season if it's not going to be on the device and high end electronic side of things? Is there another top pick and where exactly does that go with the consumer spectrum?
- [45:59]
Anthony Chikumba
Sure, and it almost goes to the exact opposite end of the spectrum. It's 5 below. And we really like 5 below. Their merchandising has improved markedly under their new CEO, relatively new CEO Winnie Park. They're spending more time on bringing in new products, are really, really leaning into license trends. They raised prices on a bunch of 15, 20% of their merchandise assortment and they actually have a fairly easy fourth quarter comparison. Their comp store sales were actually down 3% in the fourth quarter of last year, basically because they were too conservative in terms of ordering inventory.
- [46:34]
Dom Chu
How exactly do they stack up, by the way, on that five below side of things with some of the other discount retailers out there? Why are they your top pick relative to say a dollar tree or the other dollar type stores out there?
- [46:47]
Anthony Chikumba
Yeah, that's a great question. I think that they're a very unique animal.
- [46:51]
Announcer
Right.
- [46:52]
Anthony Chikumba
When you're thinking about a dollar general, you're thinking about a dollar tree in a lot of intents and purposes. They are small supermarkets at this point and so they're competing with a lot of other retailers out there, whether it's a supermarket, whether it's a convenience store, whether it's wal target with 5 below. Given their merchandise assortment, it's all very discretionary. It's really targeted towards teens and preteens. You know, you can find a lot of those products at other retailers, but there's no other retail that has all of those products for that Target customer base. And so I do believe that they are in a stronger position, quite frankly heading into the holiday selling season relative to some of the other dollar stores.
- [47:27]
Dom Chu
There are also other parts of the market right now in retail that might be a focus. We don't often talk about the idea of home furnishings and home supplies and goods like that. But where exactly does this holiday season, given the tariff backdrop, given the uncertainty around the economy, given the uncertainty around jobs, where does that put somebody like a, an RH for, for instance, on the high end of things, A Williams Sonoma, some of the other home furnishings retailers out there?
- [47:53]
Anthony Chikumba
Yeah, I think that's a really good question. And I think you really have to look at each company very much, you know, on a company by company basis. Right. Rh, for example, they don't really have a, you know, sort of holiday business to speak of. And Williamstown was the exact opposite end of the spectrum. Right. I mean, you know, in the fourth quarter in their, specifically their William Sonoma concept, it's huge for them and they have a lot more sort of like giftable type items. And I also just think that right now Williams and was just being managed better, just run better. And so I feel a lot better about Williams Sonoma prospects for the holiday sailing season than I do for rhymes.
- [48:32]
Dom Chu
All right. Anthony Chikumba of Loop Capital Markets, thank you very much. We appreciate it. Happy Thanksgiving.
- [48:37]
Anthony Chikumba
Same to you.
- [48:37]
Dom Chu
All right. And speaking of, Best Buy CEO Corey Berry will be sitting down with our very own Jim Cramer to discuss those Q3 results. That's a 6pm Eastern Time show. You will not want to miss it. COREY berry, Best Buy talking about all the trends this holiday season, of course, vis a vis the consumer health. Still ahead on the show, the S and P is gaining a little more than 12% over the past year. And while while that's nothing to sneeze at, teams in one professional sports league are seeing an even bigger increase in their valuations. That story is coming up next. The exchange is back after this. Big day for hockey fans out there. CNBC is out today with our annual list of NHL team valuations. Now, the average NHL team is now worth $2.2 billion. That's a 15% gain from last year. The Toronto Maple Leafs top the list, valued at $4.3 billion, followed by the New York Rangers, Montreal Canadiens, the Los Angeles Kings and Edmonton Oilers. NHL Commissioner Gary Bettman telling Squawkbox just this morning he thinks the league is.
- [49:45]
Low Tony
Undervalued to put the Toronto Maple Leafs on the market. On their own, they would sell for far more than the $3.4.3 billion valuation. But it's okay, because if you look.
- [50:00]
Michael Ozanian
At it, we're up 100% roughly over.
- [50:03]
Announcer
The last three years.
- [50:04]
Low Tony
So I think we're getting some credit.
- [50:07]
Dom Chu
All right, so joining me now is the man behind that list, CNBC's senior sports reporter, Michael Ozanian. You're like the czar of sports valuations. So to Gary Bettman's point and to every other major league sports commissioner, these are relative academic exercises compared to market exercises. So take us through what exactly goes into valuations. And we do know that when they come up for auction, they do tend to go for higher than those valuations.
- [50:32]
Michael Ozanian
We look at revenues and then we compile expenses as well. And then we look at past transactions, Dom, and look to see what sort of multiples of revenue and EBITDA teams have been selling at. We'll find out about the commissioner's claim about the Maple Leafs now next summer, of course, because Rogers has a call on the I think it's about 15, 20% of Maple Leaf Sports and Entertainment that it does not own. So we'll find out what that price is in a few months.
- [51:01]
Dom Chu
Well, it's interesting too because we've seen some of the recent history of the NHL has centered around the championships being very Florida centric, right? I think at Tampa Bay Lightning, I can think of the Florida Panthers. How exactly do they rank bank given the the overall scheme of these NHL valuations compared to traditional franchises like the Edmonton Oilers, like the Maple Leafs, like.
- [51:21]
Michael Ozanian
The Canadiens, Florida has done well as a business, like you mentioned the last two Cups. But relative to the top of the league, they're not in the top third of the league. The reason is really local TV revenue. If you look at teams at the top like the Maple Leafs, the Canadiens, the Rangers, the Edmonton Oilers, these are teams that that are getting premier local TV deals. Even though the Rangers have had an 18% cut in what they're getting from MSG Network, it's still very high compared to the Florida teams and some of the teams in the Southeast and Southwest. The two key factors outside of market is do you control your arena? Do you maximize your arena economics? Do you keep that revenue even from non NHL events, things like concerts, Ice Capades and other other things like that. And the other question is what's your local TV deal? Because the national money, which has grown very well for the NHL, they just doubled their Canadian TV deal recently. In a couple of years, their U.S. tV deal is likely also to double. Analysts are telling me that money gets split evenly. It's the local money that the teams keep.
- [52:24]
Dom Chu
All right, Michael Zanian with the latest official valuations for the NHL. Thank you very much. Thank you. All right. For more on that complete list, check out cnbc.com sport that does it for us. Thank you for watching the Exchange. Power Lunch starts right now.
- [52:38]
Christina Parts
You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
- [52:46]
Anthony Chikumba
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