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Amazon Soars and What Happens If SNAP Stops? 10/31/25
00:43:36
Amazon hits an all-time high after earnings. The government shutdown will stop SNAP funding tomorrow, affecting 42 million Americans. We look at the ripple effects across several industries.
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Learn more@att.com 5G Network all right, Scott, thank you. Welcome to the Exchange, everybody. I'm Contessa Brewer in for Kelly Evans. Today, stocks mostly higher on the last day of trading here in October. This is Halloween and tech is leading the gains. Amazon, the big reason why that stock is hitting a fresh all time high on the back of earnings up more than 10%. Now the hyperscaler prints are in. Who came out on top? What's the winning trade? From here on, we're going to dig into that. Plus we're going to dig into companies you may not think of as an AI play, but they are big players in the AI buildout. You're looking at one of them. Mystery chart the name, the story still ahead. And on the eve of 42 million Americans losing their snap benefits, we look at the potential ripple effects across different sectors. Let's begin this hour though, with big tech's big week of earnings and the big AI spending plans. Alphabet, Meta, Microsoft, Amazon, all lifting their CapEx guidance, collectively expecting to spend more than $380 billion this year. That is not equally being cheered on by Wall Street For a roundup of winners and losers, let's kick things off with Mackenzie, Sagalos and today's tech check. Hi there, Mac. Hey, Contessa. So the Q3 print was all about Amazon selling the street on its AI vision. And investors bought it, sending those shares surging by almost 11%. Now CEO Andy Jassy, he pitched Amazon's strategy as simple own. The compute backbone powering the next generation of AI companies grew just over 20%, its fastest pace in three years. With Jassy saying that demand is so strong that momentum like this should continue for a while. And its future deal pipeline is bullish too. With October alone Bringing in more unannounced deals than all of Q3. Now, as you mentioned, the big four hyperscalers are looking at nearly $400 billion in combined CapEx this year. But Wall Street's made its call and only two companies were rewarded, Alphabet and Amazon. Both hitting fresh all time highs this week. Amazon is plowing $125 billion into custom chips and new infrastructure for AI giants like Anthropic. Now that is helping Amazon push to $200 billion in Q4. That'd be a first both for Amazon, but would also make it the first company to hit that revenue in a quarter. Meanwhile, Microsoft and Meta stumbling when they upped their compute commitment in part because shareholders don't get the meta hyperscale narrative given it doesn't have a cloud service like the others. So the new playbook here, it's not just about building the most data centers, it is about turning that spend into roi. And Contessa Jassy said exact that as fast as they are adding capacity, Amazon is making money off of it. Okay, so when they say they're going to lift their CapEx this December quarter by another $5 billion, I mean that's pretty impressive spending and they say they can turn it around really quickly. Did they have an estimate, a time estimate on when you get a return on that investment? It's a great question. So in terms of what their new spend commitment is, it's actually a run rate now going forward of 137 billion. So it's neck and neck with Microsoft is around 140 billion. And really it's about showing up in the print in terms of that revenue number. So the fact that it's targeting a $210 billion quarter for Q4, its profit engine is very much as sales. And so when they had that Q4 guide being so bullish, that's part of why the street was favorable on their upped CapEx guidance. And that's part of why Microsoft didn't see the same upside. I'm just curious on the call whether any of the analysts had questions about the US outage, the triple, that triple trickle down effects of that and what the prediction is for how to keep that from happening in the future. It's, you know, it's exactly what I was wondering and a lot of the conversation actually was on this new project Rainier Build out, which is basically their brand name for all of the AI hyperscaler compute that they are putting online. And so, so much of what the CEO Andy Jassy was indexing toward was talking about fresh infrastructure coming online. And that outage that happened last week, 15 hours, it took place at their east coast hub. And this is really legacy infrastructure, infrastructure that was built for a different type of cloud customer. And so what they're bringing online now is something that is built specifically for a customer like anthropic. And what's really interesting about that build out is the fact that they're doing it in record time. So a lot of these commitments that we're seeing, it's taking longer for these names to, you know, for these other hyperscaler rivals to bring that kind of compute online because they are not in the, in the warehouse business like Amazon is. I mean, think about their extensive prime infrastructure. They know how to build warehouses. They have relationships with states and local municipalities, which made this a lot easier for them. Mackenzie, thank you for that. My next guest says that Amazon's results cemented as a top pick for him. He has a buy on the stock and just upped his price target from 270 to 320. So that implies about a 30% upside from here. Ron Jose joins me, Internet senior analyst at Citi. So you must not be surprised at all to watch the stock doing what it's doing right now, up more than 10%.
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Oh, contessa, thanks for having me. I mean, I think we are not surprised to see it up 10% because we finally got to see that reacceleration or at least the beginning phases of it based on the investments that they've made over the past call it year and a half or so. And so frankly, the number one thing I think we and everyone on the street was looking for was willpower reaccelerate. The answer was yes. And most importantly, given the amount of power that they are adding with that 3.8 gigawatts coming on here in the last trailing 12 months, you know, we should see continued growth going forward, which is what's exciting here.
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Okay, you heard mackenzie say that Andy Jassy says he wants to own the compute backbone. Does Amazon own it?
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Well, I think everyone is trying to build out their specific background and infrastructure to fit what they're doing. I think what has historically done, given they're the the largest cloud provider out there, is just build their own backboard and that's that frankly these new services, both the core cloud, but also the new services with generative AI and all the AI tools require much more compute. And so it was very clear that frankly power was a limiting factor in addition to chips. But now Power is that limiting factor. And what the big surprise I think from this quarter was Amazon helped to solve that power by adding that 3.8 gigawatts in the past year, another gigawatts coming on, coming on in the next quarter or so. And you know this is in addition to what Google's been doing and Google's actually had tremendous success in basically vertical verticalizing their approach to Gen AI with Gemini as well as their TPUs. So anyway it's about only the backbone, backbone, but it's also, there's so much demand that we're just seeing utilization rates continue to improve.
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If you can solve a power problem like that, does that also. I don't know. I guess I'm asking you to put on your futurist hat. But does that also give Amazon a potential new business in power?
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Well, it certainly gives them new business on what they can build throughout us, if that makes sense. So the power, the fact that they now have ample power and they're bringing more on and they're announcing more partnerships and Anthropic is one of the most well known of them all. I think it tells you that a lot of businesses now have the opportunity and possibly to build on top of us. Prior to the announcement yesterday or them turning on that those gigawatts, it was hard to know and a lot of businesses were going to Google, certainly to Azure and others. And so I think now that Amazon is powered up so to speak, you know, I think they have more of a seat at the table to, to to earn that right for new business.
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I would be remiss if I didn't ask you about the retail part of their business. I know that they're using AI and Rufus to power some of that everyday essentials is growing. What was the picture that you got from Amazon about the health of the American consumer?
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Yeah, I'll tell you. In addition to us reaccelerating and enough having enough power here to drive continued growth, the retail business is doing well. I think CEO Jassy ended the call saying that the holiday spending or the holiday shopping season is off to a decent start here. What we found most interesting from a retail perspective, not only were results better and Essentials are up I think growing at 20 plus percent but their agent commerce approach with their Rufus chat bot and really the new Alexa. Plus you're seeing greater engagement, you're seeing Amazon bringing to life all of their Reviews and their billion plus SKUs to offer what people are looking for. And to hear Rufus already delivering called $10 billion of incremental revenue growth. I think that tells you that we're onto something now. Agent E Commerce is a huge debate in terms of where that's going to take place on the web. And you know, Amazon's doing their thing here, as is Google, as is ChatGPT and others.
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I'm just worried that Alexa is going to ask one of these days, do you want to buy this? And that my kids will say yes instead of the keep. I keep saying no and all of a sudden it's going to show up and there you are. That's what it'll do for you. Ron, Jose, great to see you.
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Thanks for having me.
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Let's move on to Apple because it's our next guest top pick and he just hiked his price target to $300 from 290 with the company's bullish iPhone outlook. The main reason and of course we're seeing Apple hitting new 52 week highs as well. Amit Daryani, senior managing director at Evercore isi, joins me now. It's good to see you today. Talk to me a little bit about the Apple iPhone and what it is about this particular cycle that is going to lift, lift Apple heading into December.
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Yeah, absolutely. Let's say I think part of what's attractive about the cycle with iPhone 17 beyond the fact that features here, it's the very simple reality that you had a very big iPhone purchasing cohort in 2020, 2021, kind of the pandemic years. And you know, as these phones are four or five years old, they end up in a natural upgrade cadence. I'd say that alone is going to provide some really good momentum for iPhone 17. You probably adding some more tailwinds to it with the fact that in North America, for example, carrier promotions are much more aggressive today than they were last year. So that's certainly making it a little bit cheaper and easier for folks in the US to buy their phones versus before and then iPhone air, I think in selective regions do well but I think the biggest thing you just have a very old cohort from the pandemic days that are up for an upgrade right now.
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Yeah, it's time. The folks are saying it's time. Are you not seeing or did Apple not see any sort of trepidation, especially from maybe more budget minded customers?
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You know, the strength they had in fairness was very broad based. Now typically the place where you see discretionary spend pullback a little bit on Apple more than anywhere else is on the variable side. And so over there, I would say, you know, while iPhones grew double digits, variables were flattish for the most part. Right. So I do think if you're seeing pockets of weakness, the logic really would be you still will buy an iPhone because you need it, but perhaps you will defer the purchase of an AirPod or Apple Watch. I think you see a little bit in variables, but not on the phone.
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Yeah, I mean that's really interesting. IPhones are not discretionary. They're essential sort of core consumer spending where new AirPods or an iWatch are. Okay. The impressive guidance sales up 10 to 12% in the December quarter. That's really attention getting in spite of also attention getting tariffs. They got some good news this week that Trump said he would cut in half the 20% fentanyl related tariffs that would affect Apple. How has Apple been able to navigate the tariff impact?
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Yeah, oh, it's just the tariff numbers. 1.1 billion tariff impact in the September quarter. The fact that it's getting cut in half 20% on the fentanyl side would actually help Apple right now. It happened on November 1, so the lag is a little bit more there. But you know, you cutting that rate in half. One of the big things Apple has done is they've shifted a fair amount of US bound capacity to other regions. So India for iPhones, Vietnam for accessories or wearables if you may. So they're trying to move production the best they can so they can meet a majority, if not all, a vast majority of demand in the US from India and Vietnam.
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Right now when we look at the investment in AI, Apple announced $1.5 billion in the December quarter. It is a mere fraction of what the other big names in the space are spending. Why? Why are they so restrained?
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Yeah, you know, part of this is I think Apple fundamentally believes and I think that on the right, they're right on this view, which is, you know, air is not an existential threat to Apple the way it is to an Amazon or Google or Meta or someone else. So they can afford to be a bit more thoughtful about it now they are up and one of the negatives on this call I would say was their OPEX is going about two and a half billion dollars in December as they need to start investing in providing more solutions and services to customers. And so I think will try to do things like that where how can they make AI as a source of application and service of customers. But it's not the existential threat that needs them to go invest 70, 80 billion dollars in buying GPUs the way some of the other big cap tech companies have to.
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I meant Daryani with Evercore. Isi, it's good to see you on this Halloween. Thank you, sir.
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Thank you.
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Coming up, it's day 31 of the government shutdown. 42Americans are losing their food assistance benefits called SNAP. That happens tomorrow. Corporate America is beginning to take not we're looking at the ripple effects across industries and sectors. That's ahead. And we're heading to break. Netflix seeing some nice gains today, up 3% or so. Not because K pop demon hunters is everywhere in terms of costumes out on the street. No, no. We have the real story of that name and more of today's big movers. You don't want to miss this. The Exchange. Back in two minutes.
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This is the Exchange on cnbc. And now a next level moment from ATT Business. Say you've sent out a gigantic shipment.
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Of pillows and they need to be there in time for International Sleep day.
- [15:29]
A
You've got AT and T5G so you're.
- [15:30]
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Fully confident, but the vendor isn't responding.
- [15:33]
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And International Sleep Day is tomorrow. Luckily, AT&T 5G lets you deal with any issues with ease.
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So the pillows will get delivered and.
- [15:40]
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Everyone can sleep soundly, especially you. AT&T 5G requires a compatible plan and device coverage not available everywhere.
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Learn more@att.com 5G Network.
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Welcome back to the Exchange. This is day 31 of the government shutdown. Things are about to get very real for 42 million Americans relying on the food benefits called SNAP. Emily Wilkins is live in Washington, D.C. with the very latest. Emily, bring us up to speed. Hey, Contessa. Well, look, the Trump administration has said that the food assistance program that, as you mentioned happens, helps 42 million Americans is going to run dry tomorrow. And while some states are trying to keep the program going this represents really one of the biggest impacts that we have seen so far from the shutdown. You know, a lot of the other attention points we were looking at have been avoided. The White House, they found ways to pay troops to fund wic, which is that other low income food program, and to get funds to farmers. But Agriculture Secretary Brooke Rollins, she joined Speaker Mike Johnson at his presser this morning and she told us that the White House is not able to find a way to fund snap, even though there is a contingency fund for the program. There is a contingency fund at usda, but that contingency fund, by the way, doesn't even cover, I think, half of the $9.2 billion that would be required for November SNAP, but it is only allowed to flow if the underlying program is funded. Now, several dozen states disagree with the secretary. They have sued the Trump administration trying to ensure that they do find some funding for the SNAP program. If the funding does run out, it would be the first time in the program's 60 plus year history that that happened. The lawmakers that I spoke with this week, they do expect that loss of snap, as well as no pay for federal workers, plus outages at airports. It's all ramping up the pressure that D.C. is feeling. And we were told by a couple lawmakers that the number of talks this week, bipartisan conversations, have ramped up. But we're also still seeing senators dig into their talking points. And at this point, we're going to have to wait for next week to see if there's a breakthrough. But in the meantime, SNAP does run out tomorrow. I heard Jared Bernstein on Money Movers earlier today talking about that that program and sort of siding with the judge and saying that's not the case, that that program and its funds could be used here. We'll have to wait and see what the court decides about it. You're going to stay with us here, Emily, but we want to talk a little bit more not just about the shutdown, which is starting to affect corporate America, but also tariffs. We have big hikes in the Affordable Care act as well, and the government shutdown. And you're starting to hear about that from Advanced Auto Parts, from Cheesecake Factory, from Ethan Allen, all mentioning the impact that this government shutdown has on an already stressed low end consumer. For more on the ripple effects across different sectors, let's bring in my colleagues. Courtney Reagan covers retail. Kate Rogers covers not only restaurants but also small businesses. And Bertha Coombs watches the health care space as well. Okay, so Courtney Let me begin with you because we've come off a lot of earnings where you had say advanced auto parts coming in and saying, hey, we're going to see an impact here. Yeah, absolutely. And I think that this bifurcation we've been talking about for quite a long time is just starting to become potentially more extreme, more sort of the high end is even more insulated and the low end is potentially even more pained with everything that's going on in the greater economy. And so like you said, you brought in advanced auto parts. I know Kate is going to talk about some of the comments maybe that we heard from Chipotle and Cheesecake Factory and some of the others. And I think that when we're talking about what's going to happen this weekend with SNAP benefits lapsing, that the government program obviously that gives the supplemental nutrition assistance to 40 to 43 million Americans and it's a big deal. And I don't want to underscore the human impact, of course that is most significant. But obviously these consumers are also shoppers at retailers and Wal Mart is probably going to be the retailer that is number one, one number one hit, right? They are the largest grocer in America. So that makes sense. And Numerator found that more than more than 94% of Snap shoppers have bought food there in the last year. It's gets the largest percentage of annual spend by Snap shoppers of all the grocers. And then Kroger is next and then Costco even though it requires that membership, which is interestingly interesting enough. And then Wolf research sort of looks at these numbers and they estimate that Wal Mart sales related to Snap are in the high single digit range, but a dollar general and dollar tree are in the mid single digits. While the annual spend may not be as high at a dollar general or a dollar tree, they sort of over index to a Snap shopper than a non snap shopper. And so I think there could be some ongoing impacts here if this continues. Obviously ripple effects throughout the economy. Okay, so there are some of the grocer names. I just want to point out some of the food names are hitting at least new lows on a 52 week basis. But some like here you've got Constellation brands not in lows, not seen since April of 2020. That was during the pandemic. McMick, Molson, Coors, McCormick, Hormel, General Mills, Colgate, Palmolive, Domino's Pizza. Kate, when you're looking at the spending in restaurants, when you're looking at spending in Small businesses. What's the impact as Courtney said, Contessa, obviously not to underscore the very human and very real impact that this will have on individuals and families. You can use SNAP benefits through this restaurant meals program at some of the names that you mentioned. But I'd like to kind of zoom out and talk as Court mentioned about the bifurcation of the consumer. High end is still doing fine and you see it really turn up in those strong sales we saw at Starbucks. The lower end consumer, and I would say middle income consumer, particularly on the younger end is where you kind of saw this turn up for Chipotle. They mentioned 100k and under ages 25 to 34 as taking several steps back in the quarter. And you also mentioned some names that are specifically pointing not necessarily to SNAP but to the government shutdown for some softness in sales. Shake Shack mentioned DC in particular and also Cheesecake Factory pointing to the shutdown in 2019 impacting sales then. And it's seeing kind of a step down in October. The big test for the low income consumer is going to be McDonald's next week it seems. Store sales projected per street account analysts expectations rather here up 3.5% in the quarter. But it's important to note they're going to be lapping the E. Coli sales drop that we saw last fall. They've been really leaning into these extra value meal offerings. We'll see if they're resonating with consumers. But if the low end consumer is going to pull back further, you're definitely going to see it turn up in a name like McDonald's. Croc says nervous consumers are super cautious about their spending. We mentioned Chipotle saying its broad based pullback across incomes. Ethan Allen told CNBC yesterday that they have actually seen some shipments stopped and affected new business because of the government shutdown. Now we're seeing premiums go up for the Affordable Care act for people who get their health insurance through Obamacare. They're going to start paying more for that. Again, all of this eating into the pot of discretionary dollars dollars. This is because of what's known as enhanced tax credits. People at the very low end will still get tax credits, but those were tax credits that were put in in 2021 and expire at the end of this year. You've already had insurers say that they expect to see a lot of people not sign up. UnitedHealth says it expects to see a 2 3rd dropout. Centene, which is the biggest operator on the ACA expects to see up to 30% not sign up. And here's the reason. Take a look at this Urban Institute map. They looked at the areas where people rely on this the most. We're talking about middle class folks who are above that poverty line, but not all of them are making a ton of money. And in states like Texas and you know, Mike Johnson, the speaker's home state of Louisiana, those are the really dark states. We're talking about more than 50%. In Texas and Louisiana, it's more than 60% will lose those enhanced tax credits, which is why you've seen some Republicans get out there and say we really need to talk about this. Take a look at Carlos Jimenez's. He's in the Florida 28th district. In his district, one in three people use Obamacare. And if you have a 60 year old couple making $82,000, they are going to see their premium next year go up from $581 to $2,300 a month. Is there an advantage there for other health insurers that if you are paying more for Obamacare that you might go back to a traditional health insurer? They don't necessarily qualify to go to other insurers. And those prices aren't necessarily any better because on Obamacare you don't get rated for your health. However, there are age ratings and things like that. So a lot of people, it's thought at least 5 million folks are going to say, forget it, I'm not going to sign up, okay? And you guys know that I cover casinos and cruises and hotels and other travel and leisure, odds and ends. And we are hearing it there as well. We had MGM and Caesars report this week and boy, was it a rough summer in Las Vegas. So much so that they are tilting their focus now to talk about the value in Las Vegas. Maybe not so much on hey, come here and spend everything that you have saved up all year round ground. Emily, last one to you. All of these things are picking at the confidence that a certain cohort in America may have about the economy and the feeling about the economy. What are you hearing from lawmakers about whether they're feeling the pinch? I mean, I think for a lot of lawmakers, the pressure now is really starting to ramp up just because some of these things were day 31, right. It's taken a very long time, long time. But the fact of the matter is that even just a couple weeks ago, I had lawmakers who were like, you know, I'm not really feeling anything. I'm not hearing from my constituents a whole lot. I think that dynamic shifts now. And if you're a Democrat on Capitol Hill, what you're betting is that as people are realizing what Bertha was just saying, with those premiums going up, as they're logging into the Affordable Care act to make their selections for the year and realize what the costs are, that they're going to be upset at the cost and that their Republicans who represent them are going to hear it. And Democrats hope that that tips the tables. Republicans, on the other hand, hope that the SNAP benefits put so much pressure on some of these moderate Democrats that they come along and vote for the bill that they think they've now voted on 14 times, likely to make it 15 on Monday. Well, the longer it lasts, the more everyday workers are going to start to feel that. My thanks to everybody here. I love seeing all of these late ladies here on Halloween. Thank you, friends. Appreciate it. Courtney, Kate, Bertha, Emily. Still ahead, Medicare is down nearly 12% this week on concerns about its ramp in AI spending. That tech already paying off in some areas for the social media giant. We'll tell you where. Plus discretionary, though, just after we're talking about discretionary. But look at this, one of the best performing sectors this week. And one strategist says, hey, there's still room to run here. And retail, it's coming up on the Exchange. We'll be right back.
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And now a next level moment from AT&T business. Say you've sent out a gigantic shipment of pillows and they need to be there in time for International Sleep day.
- [28:37]
A
You've got AT and T5G so you're.
- [28:39]
B
Fully confident, but the vendor isn't responding.
- [28:41]
A
And International Sleep Day is tomorrow. Luckily, AT&T 5G lets you deal with any issues with ease.
- [28:47]
B
So the pillows will get delivered and everyone can sleep soundly, especially you.
- [28:51]
A
AT&T 5G requires a compatible plan and device coverage not available everywhere.
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B
Learn more@att.com 5G Network welcome back to the Exchange markets. Right now it looks like we're in a little bit of a reversal here on the Dow. We've given up about what we saw as gains earlier today. Right now it's down about a quarter of a point, flat on the S&P 500, up by a third of a percent on the NASDAQ composite. And look at the treasury yield. Yield up now the yield is 4.095%. Let's get to Christina parts of Nevilles for a CNBC news update. Thank you contestant. Well, FBI Director Cash Patel announced the bureau arrested multiple suspects in Michigan this morning who were allegedly plotting what he called a potential terrorist attack over the Halloween weekend. He didn't offer any additional details, but he did say three senior law enforcement officials are actually told CNB NN NBC News Five young people were taken into custody and that there is a connection to ISIS extremism. The Republican dominated redistricting commission in Ohio adopted new U.S. house districts as the state joins the redistricting fight ahead of the midterms along with Texas, Missouri and North Carolina. The new lines drawn in Ohio could boost the GOP's chances of winning two additional seats. Voters in California will will have to decide Tuesday on a California plan to boost Democratic seats. And immigration advocates sued federal authorities today over alleged inhumane conditions at the Broadview immigration facility near Chicago, claiming people being held there have been denied private calls with lawyers and have been coerced into signing paperwork that leads them to unknowingly relinquish their rights. Homeland Security has yet to comment. Contessa Christina, thank you for the update there. Appreciate that. Still ahead, it may not be a surprise that new Fed Governor Stephen Mirren was a dissenter in this week's Fed decision. He wasn't the only one. Who else was against that quarter point cut? That's next. Plus, building a data center is one thing, but ensuring it quite another. How much money is on the line when it comes to protecting Big Tech's big investments? We'll get into that on the Exchange. Welcome back to the Exchange. Jay Powell throwing doubt on a December cut after the Fed reduced rates by a quarter point this week, saying there are strongly differing views about how to proceed. Steve Liesman joins me with more. Who's opposed?
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Yeah, Contessa, we are finding out about these strong differing views. I don't remember ever seeing this, but three members of the Rate Setting Open Market Committee have now come out today saying they did not support the Fed's action this week cutting rates by a quarter point and casting further doubt on just where the Fed is headed in December. Beth Hammock, Cleveland Fed President Lori Logan, Dallas Fed and Jeff Schmidt in Kansas City all saying today they did not support that quarter point cut that brought the rate down to 3.75 to 4%. Hammock just now in the last hour, she most recently wanted to speak saying rates are around neutral now. The Fed needs to maintain some form of restriction in order to bring down inflation, which is above target. She does see some emerging signs of softness in the labor market and did make note of the recent layoff announcement gotten from some of the big companies, but didn't sound moved about the October cut anyway. Logan, who votes next year, said she would find it difficult to support a December cut, while Bostic, the Atlanta Fed president, said he needs to see more inflation progress before bringing rates down to neutral. Schmidt, he's the voter. He said he dissented against the quarter point cut because he looks around the economy, doesn't see policy restricting very much, but he's concerned about inflation running above that 2% target. Among the comments he made in a speech this morning, policy he believes should lean against demand when inflation is too high. The labor market, he says, is imbalanced and the economy has momentum. This is the other thing that was probably the most concerning from him. He says inflation is actually spreading across categories. He sees it in both good goods and services. The comments reveal the level of resistance Fed Chair Powell faced in cutting at this meeting and what prompted him to warn that a December cut is not a done deal. Both Logan and Schmidt have been more hawkish before, as has Hammock, and we haven't heard from those who support cuts, the more dovish members. But it puts markets on notice of a divided Fed that includes some staunch opponents of further easing. Contessa.
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All right, Steve, thank you for that. The real question here is that that if there is a December cut, what will it do for the markets? My next guest is optimistic there will be a rate cut and that combined with an improvement in earnings growth gives him some reason to be bullish through the years. And joining me now, Sam Stovall, Chief Investment strategist at CFRA Research. All right, Sam, give me a sense of how important the rate cut is to your end of year thesis. Hey, Contessa, good to talk to you again. I think we're heading into November and.
- [33:52]
A
December, which is by far the best.
- [33:54]
B
Two months, two month stretch of the calendar year, not only in terms of average price change but also in frequency of advance. We also find that the consumer discretionary.
- [34:05]
A
Sector has been the second best performing.
- [34:08]
B
Sector in this two month period going back to 1990. So when I look to it and history says we could end up with a good two month final move in the market. Then I also look and see that because of the potential for a softening job picture, we do think that the Fed will be cutting again in December.
- [34:29]
A
Now indicating by Jay Powell that it's.
- [34:32]
B
Not a foregone conclusion.
- [34:33]
A
I think really just reminds investors that.
- [34:36]
B
They are data dependent and right now.
- [34:38]
A
They don't have any data. And so as a result I think.
- [34:41]
B
They'Re sort of taking the tack that they were heading into their flying blind. Okay, so in that case, without a lot of data from the government or other years, you're looking at earnings from companies guidance for the fourth quarter of this year. How's that shaping up for you? Well, that's shaping up quite nicely as well.
- [35:02]
A
What we're finding is that the earnings.
- [35:05]
B
Picture has been improving. At the beginning of the quarter expectations were for about a 7% gain. Now it's more like 11 and a half percent. We've also seen improvements in the fourth quarter as well as for all of 25 and 26. So there has been an upward revision across the board.
- [35:26]
A
And I think that's what's really allowing.
- [35:28]
B
The market to continue to work its way higher. Even though we are at pretty stretched valuations right now, investors are focusing more on earnings growth down the road than they are worried about valuations at today's levels. All right, let's talk a little bit about your retail call. You say you like XRT that there's been some positive divergence. I don't know if you got to hear the whole conversation with with my colleagues covering various sectors across the economy. But we all have heard from certain companies that leading companies in these industries that we cover that that budget minded American consumer is feeling really pinched. Does that factor at all into your outlook?
- [36:10]
A
Well, it does. It certainly is a consideration.
- [36:13]
B
But we're looking for 4.2% growth in.
- [36:16]
A
Retail sales for all of this year. We think we're going to get a.
- [36:20]
B
Pretty hefty Q3 at 6.3% and that.
- [36:24]
A
Number is likely to stay elevated at.
- [36:26]
B
About 4% for 2026.
- [36:29]
A
Also, what's the old adage, Consumers stop.
- [36:31]
B
Spending only when the banks stop lending. And so XRT was a an ETF.
- [36:38]
A
That was highlighted by our Lowry Research.
- [36:41]
B
Technical Analysis Group as one that being equally weighted.
- [36:46]
A
It's almost as if it were a small cap group that has been showing.
- [36:50]
B
Some improved momentum, momentum showing some improved relative strength.
- [36:54]
A
And should we end up with that.
- [36:56]
B
Additional cut that could end up pushing this group even higher. And being an outperformer, I note also that you like Vertiv holdings on the basis of the data center infrastructure. We certainly have heard these big hyperscalers talk about how many hundreds of billions of dollars they're prepared to invest in that. Sam, it's great to see you today. Have a great weekend. You too.
- [37:17]
A
Thanks, Contessa.
- [37:19]
B
Coming up, Bitcoin rebounds from its lowest level since October 19th on pace for its best day since September. It's up 2.23% right now at 109,000. Lifting crypto related names like Strategy, Coinbase and Bit Mine. We're going to check some of today's other big movers next. Welcome back to the Exchange. We're seeing stocks losing some steam here. The Dow down 174 points, points at the low. Dom Chu has a closer look at the day's big movers.
- [37:50]
A
Dom all right, so Contessa, we're going to start off with an earnings mover that's currently the best performing stock in the S&P 500. It is not Amazon, it's actually First Solar. Those shares are up about 14% right now after it reported quarterly results that are best characterized perhaps as mixed. Generally speaking, profits per share were in line with expectations. Slight beat on revenues. It also narrowed the full year forecasted gain low end of its previous range while cutting the top end. So narrowing it down. Some traders appear to be pointing more towards the new record volume of power generation capacity sold. Also relatively higher short interest compared to other stocks within the S and p. So a 12.5% gain there. Another earnings mover getting attention is Reddit. Those shares are up roughly 9 to 10% right now. The Internet messaging board social media platform company reported better than expected results as well. It also provided strong guidance as its daily active unique users climbed to 116 million. Those shares are up more than 500% since its IPO back in March of 2024. And we'll end with a check on shares of Netflix which are higher by just about 3% right now with a couple of catalysts driving the action. First, a Reuters report citing people familiar that says Netflix has hired bankers to look into a potential bid for Warner Brothers Discovery's studio and streaming businesses and then the next one and announced 10 for one stocks. But that takes effect on November 10th. It doesn't do anything to change the overall value of the company, but it does increase the number of shares outstanding while making each share worth less, which could make it more attractive to not just retail investors of Course, but employees looking to buy shares as well. So Contessa, keep an eye on Netflix. Up 3%. I'll send things back over to you.
- [39:29]
B
Oh, the Warner Brothers discovery news is so juicy. So much speculation and so little time. Dom, thank you.
- [39:36]
A
Got it.
- [39:36]
B
Coming up, air spending. Not just boosting tech and energy companies. It's also giving one big brokerage a big lift. The name and the risks that come with massive investments in data center build outs. We cover all of that next. Welcome back to the Exchange. Metta, Microsoft and Amazon are investing hundreds of billions of dollars building data centers and other infrastructure related to AI. In fact, bank of America said today borrowing to build data centers has exploded in the last couple of months. Caterpillar talked this week about how its construction for the data centers is driving profits. I mean, after all, you can't build without excavators. It's also driving growth for the insurance industry and for the brokers especially. Aon for instance, just reported earnings this morning that beat top and bottom line expectations. Shares are up 3% right now. Half of its global brokerage and risk consultancy business is commercial lines. And its chief financial officer Edmund Reese told me data center construction is driving the growth.
- [40:44]
A
These data centers are coming online for 10 billion, 20 billion. 50 billion. The insurance industry. Traditional insurance is a 4.6 trillion industry today. These data centers companies are spending $500 billion in CapEx in the next five years. That's supposed to be 2 trillion. 2 trillion versus 4 trillion. That means you need other capital. Our risk models, our risk models are helping understand what that exposure is, what the risk is, what should be held by insurers, which should be held by reinsurers and other capital providers coming in.
- [41:19]
B
And look, Edmund told me not only is there cyber risk, you know, either from hackers or the site goes down. We saw what happens when one AWS site went down, had a ripple effect. But also there's insurance for the construction, for workers, compensation for catastrophes. I mean think about a $30 billion data center smack dab in the bullseye of a storm like Hurricane Melissa. A storm like that could do the same kind of economic damage as what a mid sized hurricane does across across multiple states. That takes complex insurance solutions. AON sees it is planning to capitalize on that opportunity. Next year alone. Aon predicts $10 billion in insurance premiums for these data center builds. Aon says it's a massive inflection point for the industry. Now watch for the competitors to weigh in here as well. Marsh McLennan which is hitting a new 52 week low today. AJ Gallagher, new 52 week low. You've got Willis Towers, Watson and Brown. And Brown all have an opportunity here. When it comes to the capex spending that we're seeing related to AI, well, that's how AI is affecting the insurance space. Up next, with big tech revenues surging last quarter, we'll get an insider's take on how targeted ads could get a boost because of AI. The Exchange.
- [42:40]
A
Exchange.
- [42:40]
B
We'll be right back. Welcome back to the Exchange. It has been another strong earnings season for big tech in large part because of AI. Just this week, Amazon, Metta, Alphabet all reported double digit jumps in ad revenue from the previous year. Of course, Netflix doesn't break out specific numbers, but co CEO Greg Peters said the streamer had its best quarter for ad sales mills ever. Joining me now to discuss how AI is reshaping advertising and the company's best leveraging it, Mark Douglas, CEO of Mountain. Mark, it's great to see you.
- [43:17]
A
You too. Great to see you.
- [43:18]
B
All right, so how is, how are you seeing the companies that you're dealing with taking advantage of the opportunities in AI?
- [43:26]
A
Well, I think when everyone thinks of advertising, they typically think of the ad. But what really underpins advertising is the who, who is the ad being delivered to. And so what has happened with in this air effort or this AI era is that figuring out who should see what. Chad is getting rapidly better across the board. So companies like Metta, who have generally been good at that mountain, obviously Google, all of these companies are getting vastly better at saying who is going to be, be most interested in this product and how do we put the ad in front of them. The other thing that really helps their businesses is more creative so you can try out different messaging the consumers. And so with the advent of AI like now, more and more the ads themselves are leveraging AI. And that's something we did this week. We launched Quick Frame, which is a platform for creating truly professional, Creative, leveraging multiple AI models in the 30 second TV commercial. So that's a boom because it lowers the cost and increases the number of ad units a business has access to.
- [44:37]
B
What I'm seeing is that the revenue that these big companies are reporting are just astronomical. Amazon, $17.7 billion last quarter, up 24% year on year. Meta's is up 26% year on year, $50 billion in ad revenue. Alpha Alphabet, $74 billion in revenue at 13% year on year. I mean the amount of money, well, you know, we'd like to get a Little piece of that.
- [45:08]
A
Well, so if the businesses that are doing the advertising can see the return, meaning the key metric in advertising is not something like, you know, ratings, it's actually return on ad spend. How much revenue do I get from, from a campaign divided by its cost? I get 300,000 revenue. I spent 100,000. It's a 3 to 1 return on ad spend. So as these technologies continue to get better, then companies find more budget. Because now it's like if someone came to you and said, hey, let's play a game. You give me a dollar and I'll give you $3 back. When would you stop playing that game? And that's essentially what advertising has become. It's become, become all about the return, all about measuring the return with confidence. And so the extent all of these companies, including Mountain, Mountain, Metta, Google, Amazon can show that return, then more money keeps showing up in order to invest. It's almost like the stock market, but it's advertised.
- [46:06]
B
20 seconds. How long till we get individual ads fed to individual people? Even if we're all watching the super.
- [46:13]
A
Bowl, the not that far away. I mean, that's already happening. Doing it on television is going to take a little bit more time because the networks want to prove them all. But that's something you're going to see very rapidly if you're not already seeing.
- [46:27]
B
That's Mountain CEO Mark Douglas. Thank you so much for joining us. And thank you for joining me on the exchange. This was fun for me. Was it good for you? Have a great weekend. Happy Halloween. Here's power lunch.
- [46:37]
A
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