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Big Tech on Deck, Congress’ Midterm To-Do List, and Cyclospora Outbreak 7/20/26
00:43:57
Alphabet, Intel and ServiceNow report this week. There are fewer than 20 legislative days until the midterm elections and Pimco’s Libby Cantrill says Congress has a lot of work to do. Plus, a two-time former FDA commissioner on the cyclospora outbreak.
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Kelly Evans
You're listening to the Exchange. Here's today's show. Leslie, thank you very much. The infrastructure trade is helping markets rebound today, coming off a down week for the major averages, but the S and P still hasn't made a closing high since early June. I'm Kelly Evans and welcome to the Exchange. Lumentum and Sandisk are among the leaders on the S&P 500. We'll talk to Doug Clinton in a moment. He says China's cheaper AI models do not threaten that trade. He will explain why. Plus US US gasoline prices are back above $4 nationwide as the US bombs Iran for the ninth consecutive night. Oil prices are unchanged today though, as Iran says talks could be pursued. And an about face from the fda which now says it may not be Taylor Farms Lettuce that caused the cyclospariasis outbreak. Shares of Chipotle, Kava and Sweetgreen sinking further today amid the uncertainty. Former FDA commissioner Dr. Robert Caliph will join us. Let's begin with the tech trade though, as the arrival of competitive Chinese AI models has wreaked havoc on parts of the trade. Moonshot's Kibi K3 model driving a broad based sell off on Friday while Alibaba shares are rising today as they launch a new version of Quinn that is said to be second only to anthropic's fable 5. Kate Rooney kicks things off for us with the very latest on this heated race. So much back and forth, Kate for
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Kate Rooney (continued)
today's Tech Check Kelly. So much to cover. A lot of it has to do with China. You mentioned Alibaba taking the spotlight this week with its preview of a model that it claims now is a runner up to rival Anthropics. Best version out there. These are internal benchmarks so far, so we'll see where they stack up in the coming weeks. It does come after Moonshot's Kimi model took the tech world by storm just last week. According to independent benchmarks, it is almost on par with anthropics and OpenAI's best versions out there. It is also the world's largest open weight model. Did see a lot of demand. The company saying over the weekend that they are pausing subscriptions. That goes back to the compute conversation. CEOs I'm talking to though really are framing this new generation out of China as a capability shock. The takeaway has been it is no longer a given that the US Frontier Labs have a safe lead in AI. It is starting to show up in some of the data Open Router for example, showing Chinese models overtook US usage last week. If you measure that by token usage, this could be a lot of experiment experimenting out there Kelly, but we'll see where that does net out. Open Air Chairman Brett Taylor on Squawk Box earlier did pour a little bit of cold water on the idea that this all just comes down to cost. He said it they may be a little less efficient.
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Kelly Evans
That I think is a little bit
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Kelly Evans (continuation)
overblown about these open weight models is they're not necessarily cheaper. Cheaper to run. Whether or not they're cheaper to train, you don't care.
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Kate Rooney (continued)
All of this Kelly, is spilling over to geopolitics as well. A report from Axios this morning says the US is now considering banning some of these cutting edge AI models out of China. That got a lot of buzz over the weekend on Twitter.
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Kelly Evans
So much debate about that. But Kate, did you say that they were suspended? Suspend what? They've suspended access for, for. Because of the demand or no?
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Kate Rooney (continued)
Yes. So they, they pulled back subscription. So they said it's very similar. If you think back of when Open I launched up, they did not anticipate the amount of demand that came out at the time and they said essentially we don't have the capacity. We're going to take a pause here and make sure we can keep up. That sort of goes into the bull case. You saw it mentioned in a lot of the sell side research this morning. Well as far going to bank of America saying that this is another case that it's There is compute constraint that we, there is not enough compute capacity out there. It's now coming out of China. But yeah, they said a little bit of a pause here. We got to sort of catch up and provide more compute. But it does have implications to the US Trade as well.
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Kelly Evans
Yeah, that chart was incredible showing demand this June versus last June. And you can see we've gone from 75% of the demand was from US models a year ago and now the lion's share is from China already.
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Kate Rooney (continued)
It's right. Well, and I think the other part of the bull case, when you talk about this, so many folks talk about Jevons Paradox, I was just looking up this is an 1800s reference to steam engines that as coal got cheaper, the usage actually went up. And the labs would argue that as well, that it's not going to become a commodity, that it will essentially grow the pie. And that's what the bulls have really argued that yes, there may be more competition, there may be more models at different price points, but they still think they can keep their moat. But we'll see as these companies go public.
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Kelly Evans
I think that's what our next guest is about to say. Let's see. Thank you, Kate, for now. Really appreciate it. Kate Rooney, our next guest does say this is fundamentally changing the AI trade, which he expects to keep roaring ahead. And he says stick with Nvidia and Western Digital, among others. Doug Clinton is the CEO of Intelligent Alpha and a managing partner at Deepwater Asset Management. Doug, it's great to see you. Is that a version of what you think is going on here, that despite the model wars and the pricing wars, at the end of the day, the demand for all the layers of infrastructure that go into this, well, that will, that will continue to rise.
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Doug Clinton
It was great foreshadowing, Kelly. You read my mind. That is exactly what we think will happen. And if you look at what these models are doing that are coming out of China, right. They are edging up to the frontier. And I think this is really important. They're not exceeding the frontier. The US Model builders are still the ones who are pushing frontier intelligence. The Chinese model builders are then sort of getting to that same level and making it a little bit cheaper. It isn't that much cheaper in many cases. And so I think the net effect of all of this is there will continue to be a lot of demand for frontier intelligence because that will be used to solve the hardest problems. And then there will also be a lot of demand for these open source models that can do more average tasks and do them a little bit more cheaply as well.
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Kelly Evans
That said, I don't know if we can show that chart again, which just tells you, look, the point about the Frontier is absolutely where we want the US models to be. No doubt there are national security implications for that among everything else, but for a lot of the users, I think they're going, they're clearly gravitating towards something that's good enough.
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Doug Clinton
I think that's true and you know what I mean. The US model builders as well also release smaller versions of their models that are very capable as well. GPT 5.6, their top of the line model sold is on the Frontier, but they have two more models, Terra and Luna, that are much more cost effective, more than 10x cheaper, their frontier model, and still very highly competent. And so whether it comes from these open source models or even the US Frontier Labs offering smaller versions of their models, you'll see a lot of use cases go to these cheaper versions of AI are those.
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Kelly Evans
So when, when a query is routed to Kimi or Quan or whatever the model may be, does that imply less in video demand? Lumentum demand, Teradyne, Micron, Western Digital? Are all of those less intensely used in those supply chains and for instance the Chinese supply chains than they are for the US models here at home?
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Doug Clinton
You know, fundamentally all of this demand comes back to compute, period, full stop. And so the question may become what does the supply look like? We've heard for a while now that Nvidia chips will start to get into China. They're still on the frontier in what they do, which is they provide the best, most cost efficient, token generating GPUs. And so I think there'll still be a lot of demand in China for that particular technology, but you think about the rest of the world as well. And in many cases some of these open source models are being hosted not just in China, but they're being hosted in US servers, in servers in the eu. And so that demand does cascade over to all of the big players that we know in the us.
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Kelly Evans
So will there be a moment that the popularity of these Chinese models, whether the original Deep SEQ one that launched that was obviously there was a big supply chain conversation around that Nvidia shares hugely implicated of that at the time, whether it's these new models. So if you're a shareholder of Nvidia, if you're a shareholder of Western Digital, just to pick two of the names that you like here, are you saying you literally don't have to worry about the introduction of these new models or if anything, that you should be encouraged by it.
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Doug Clinton
We're definitely more in the camp of being encouraged by. And I would say as well, you think about the Kimi K3 launch, Quinn, today, I don't really think that those are the proximal cause for what's been happening in the chip trade really over the last month. I think that's much more of a structural market issue where momentum, I think got ahead of itself. And we've been saying since the beginning of the month at Intelligent Alpha, we use AI models to do our portfolio management. Our models had pulled back a lot in terms of our AI exposure because we had such a run. And so I think what we're dealing with right now is not necessarily the narrative of what could these models do, but more just digestion of momentum for a lot of these names in the first place. And if you bring it back to the fundamentals, to your point, Kelly, I think that what we're seeing with these open source models is actually a long term positive, not a short term negative.
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Kelly Evans
All right. And it was more just trading fundamentals, you think, that were kind of pushing the stocks around a lot here. And I know we'll talk more about that in a moment. Doug, thanks so much. Really appreciate it.
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Doug Clinton
Thanks, Kelly.
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Kelly Evans
Doug Clinton with Intelligent Alpha. Meanwhile, some breaking news on the Paramount and Warner Brothers deal. Julia Boorstin has the story. Julia, what's happening?
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Julia Boorstin
Yes, there is now a delay. Federal. I'm sorry, excuse me. A United States District court judge in the Northern District of California has granted the order granting motion for temporary restraining order for this deal. What this means is that this a pause has been put on the consummation of the deal combining Paramount Skydance with Warner Brothers discovery. The judge has the ability to pause the deal for up to 14 days. And there could be two temporary restraining orders granted. Just to put this in context, any delay could be very costly for Paramount because Paramount has agreed, agreed to pay a ticking fee if this closing goes past September 30th. So this is notable here in that this ruling that came from the judge, it was due by, by Wednesday, has come through. Now we see paramount Skydance shares down 2% on this news. And I just want to cite one key part of this filing from the United States district court judge here. They say plaintiffs present compelling evidence that the combined firm resulting from the transaction will possess substantial market share in the wide release theatrical distribution market. On this combined firm market share loan, the court is persuaded that it can pursue, presume the proposed merger is likely to violate antitrust law. So that's just one piece of this filing here. We're going to continue to dig through. We have reached out to Paramount and Warner Brothers Discovery for comment. We have not heard back yet. Warner Brothers Discovery shares trading down about 1 1/2 percent. Back over to you.
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Kelly Evans
I was just going to quickly check on shares of Netflix. I mean, look, not for nothing, you never know. Maybe, maybe, Julia, this, the story isn't over. You said past September 30th is when that ticking fee kicks in.
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Julia Boorstin
Yeah, the ticking fee kicks in past September 30th. And yes, Netflix shares down 2% here. It'll be interesting to see how this plays out. Paramount and Warner Brothers Discovery have both shared that they are very much optimistic that this deal is very much legal and they believe that it will get regulatory approval. But this does come at a time when there are these sort of last minute questions about what's going to happen next. The court did hear the oral argument on this motion just last week. So this is all coming to head now as we, as we await the final deal approval and figure out what it's going to cost in terms of this deal going through.
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Kelly Evans
Right, but your point about what the judge is saying there, that it, you know, now potentially presuming it will violate antitrust, obviously a big deal. We'll see if there's more response for now. Julia, thanks very much. Julia Borson. Shares of both companies are moving slightly lower. Let's go back to the trade because our next guest has also been positive on it in the longer run. But he does agree that the recent sell off could continue until we hit support levels like the 200 day moving averages. Daryl Cronk is president of Wells Fargo Investment Institute. Darryl, unless you've got an opinion on Paramount and Warner Brothers.
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Daryl Cronk
No, but I think you're spot on. Like obviously last week the Philadelphia stocks index or semiconductor index was down 10% for the week, dropped into bear market territory, down 20% since the June 22 prior peak. So obviously we're in some tenuous technical area here. We violated the 50 day moving average. The 20 day is turning down. Looks like it's going to come through the 50 day from above and there's just not a lot of support underneath in the very short term, to your point, intermediate term, it looks more appealing to us and we'd use that weakness probably as a place to reestablish positions if you don't have them where you want them to be currently, I don't
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Kelly Evans
know if you heard that chat with Doug Clinton just now right before you.
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Daryl Cronk
I did.
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Kelly Evans
And his point is, look, cheaper Chinese models he doesn't even think is the reason for the sell off. He thinks it was all just kind of market technicals. The momentum trade becoming overextended and undergoing a reset. Do you agree with that? I mean is there, there's nothing to worry about on that front. The fact that we're in a complete competition to drive down the cost of an end product that people are risking their entire balance sheets and spending billions of dollars in debt in order to produce.
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Daryl Cronk
Yeah, I think it's a good point.
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Commercial Narrator
Right.
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Daryl Cronk
And I do agree with Doug's point about positioning has driven this right even after to the point the SOX index dropped into bear market territory, down 20%. It's still up 68% year to date and 108% year over year. Right. So the momentum trade has positioned this in big stead. So let's agree that the cost structure can and will come down over time. But everybody's trying to price out this peak capex spend in semiconductors and hyperscalers. And even if the peak happens, let's just assume the peak growth rate happens. The dollars going in are still material and are going to drive earnings. The semiconductor forward looking year over year earnings growth is 130%. So I can get the SOX today with that kind of growth rate at basically market multiples. It trades at 21 times forward, just like the S and p trades at 21 times forward. I'll take that trade.
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Kelly Evans
So let me ask you about, I think Google reports this week, that's obviously a biggie, maybe Intel, a few others as we start to move in now to hear from the people who are doing all of this capex, what do you expect to hear? What do you want to hear?
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Daryl Cronk
So I do think they'll reaffirm all their prior guidance around the capex spend. They have the money to spend, they have the will to spend the money.
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Commercial Narrator
Right.
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Daryl Cronk
The question will become quickly, I think the construction backlog, the engineering backlog, the energy backlog to build everything that the hyperscalers want to build I think becomes the choke point that we have to reconcile. And that means we reconcile the timing of when this gets done, not if it gets done. But can it get done as fast as the market wants to see it get done or as expectations are set, we actually think going back to that technical weakness we're talking about, that's why through the summer months and you get into seasonal weakness, we think part of the second quarter earnings for some of those hyperscalers and semiconductors could be buy the rumor, sell the news kind of thing.
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Kelly Evans
Yeah.
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Daryl Cronk
So wait for a little more weakness, weakness and then use that as a positioning. We've pivoted between enthusiasm and skepticism numerous times in this trade. We're in the skepticism moment. Use the weakness to position and position for the enthusiasm when it comes back.
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Kelly Evans
All right, still overweight. Tech financials, utilities, materials Darrell, it's been great to have you on today. Thanks so much.
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Daryl Cronk
Thanks, Kelly.
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Kelly Evans
Daryl Cronk of Wells Fargo. Coming up, Yum. Brands coming off its worst week since the start of the pandemic. Amid the stage cyclospiriasis outbreak, the FDA now walking back claims that it found one of Taco Bell's suppliers contaminated with the parasite. We'll have the latest on that ahead. But first, traffic through the Strait of Hormuz is down to a three week low as Iran faces a ninth straight night of US Strikes. What'll it take to get them back to the negotiating table? The exchange is back after this.
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Kelly Evans
Member NYSE SIPC
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Kelly Evans
Oil prices are off of session highs after Iran's Foreign Ministry said negotiations with the US could be back on the table. Eamon Javers is in Washington with the latest. Eamon.
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Eamon Javers
Kelly. Houthi leaders in Yemen this morning declared a maritime embargo against Saudi Arabia, which they said will be effective immediately. Now, that threatens one of the alternate routes for oil out of the Middle East. The Houthis, who are closely linked with Iran, have threatened to close the important Bab Al Mandeb Strait, which is a route that the Saudis have used to divert millions of barrels of oil each day through a pipeline to the Red Sea. You can see it there now. If the Houthis are militarily capable of enforcing this embargo, and it's not clear yet if they are, this could be the close of another crucial global oil bottleneck. And you can see both the Bab El Mandeb Strait and the Strait of Hormuz in that graphic there. You can see how close they are to each other. Meanwhile, the Pentagon has identified two of the American soldiers killed in Iranian strikes over the weekend. First Lieutenant Tyler James Feehan, 25, of U.A. beach, Hawaii, and Private Isabella Gonzalez, 19, of Carrollton, Texas, were killed in strikes on U.S. forces stationed at Mufawaq Salti Air Base in Jordan. On social media last hour, President Trump writes, every time Iran kills an American soldier, they will pay for that killing many times over. This directive has been passed on to the Secretary of War, Pete Hegseth, Chairman of the Joint Chiefs of Staff Daniel Kaine, and every leader in the military. And CENTCOM said it conducted a wave of strikes against Iran at 7:00pm Eastern last night, marking the ninth consecutive night of attacks. The military says the strikes will continue degrading Iranian military capabilities used to attack commercial vessels and civilian mariners transiting the Strait of Hormuz. So diplomacy for now seems to have run out of room, Kelly. As the Iranians said over the weekend, they were suspending their commitments in this memorandum of understanding between the US And Iran due to the ongoing military action. We saw Secretary of State Marco Rubio saying last night that the US Is always open to diplomacy. And you see these overtures back and forth, Kelly. So the question is, can they get these talks back on track?
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Kelly Evans
Well, but it sounds like the strikes are continuing to bring them back to the negotiating table or to talk about it.
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Eamon Javers
Yeah, I mean, the question is, is there a deal to strike at that negotiating table?
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Commercial Narrator
Right.
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Eamon Javers
I mean, there have been negotiations. We saw the MoU, we saw the backsliding there. The question is, is there a permanent deal that these sides can get to because it seems like both sides are in a position where they don't want to acknowledge any losses in the war. Right. And in order to have a compromise, you're going to have to have each side be willing to give something up. And we just haven't seen that kind of willingness so far. And so we'll see if they're willing to get to a real deal here that can actually hold.
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Kelly Evans
All right, Eamon, thank you for now. Appreciate it. Eamon Jabbers in Washington. For more on how the war could impact the upcoming midterm elections, let's bring in Libby Cantrell. She's head of public policy at pimco. Libby, it's good to see you. And is it your understanding the administration always went into this thinking or hoping it would be wrapped up well before the midterms? Yeah.
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Libby Cantrell
Good afternoon, Kelly. I think that's absolutely right. I think that there was some encouragement from what had happened in January with the extradition of Maduro and Venezuela. I think they were sort of emboldened by that military success and hoping that and thinking that planning on this being maybe a little bit more longer term, but that it would be absolutely wrapped up certainly by the fall, if not by the summer, if not by late spring. So, yes, bottom line here is the politics around this, as you know, are, are quite negative for the president, quite negative for Republicans going into the midterm elections. And I think everyone hopes that this would certainly have been wrapped up by certainly by now.
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Kelly Evans
How much do you know, have we kind of used of our weapons capabilities in this? Because I see the headlines where was it Lockheed today talking about, you know, a lower cost missile, all the pressure that the president's put on these defense contractors to move more quickly and kind of maybe meet the demand that on some level we're now acknowledging might be needed, whether it's the conflict with Iran or others.
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Libby Cantrell
Yeah, this is, this is interesting because while many presidents, including President Trump, is somewhat ignoring Congress's sort of authority around authorization of conflict, the Constitution gives only the Congress the ability to declare war where the sort of proverbial rubber will meet the road. As it relates to sort of Congress's role here is when the White House needs to go back to the Congress for funding of the Pentagon from, you know, our understanding that the Pentagon has been using much of the budget that was funded last year both as part of the normal appropriations process, but then also the one big beautiful bill that as a reminder, appropriate about $150 billion for the Pentagon, but from all sort of reports that money is, you know, those coffers are running low, so to speak. And as a result, Congress will have to get involved here. You saw this with the sort of reconciliation 3.0, the $60 billion provision in the Pentagon that's going through the House right now. But I think the bottom line is the outlook for that is quite unclear. And this is where Congress will try to probably put some conditions on the admin. Both sides of the aisle don't feel like they're getting what they they need from this White House about sort of clarity in terms of kind of what are next steps and then also strategic objectives as it relates to this conflict.
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Kelly Evans
It's a good point. And listen, I know that soon we have to talk about walk us through the reconciliation bill. There's the Clarity act that, you know, people are so obsessed about many, I mean, what else is likely to come out of this Congress which you say has fewer than 20, 20 total legislative days until the midterms.
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Libby Cantrell
Yeah, look, I mean I think just zooming out, what Republicans on the Hill would like to be talking about right now is the one big beautiful bill that they passed last year that is now kind of finally working its way through the economy in terms of higher refunds and higher take home pay in terms of lower, lower withholding taxes. And then also the housing bill that both side, it was a bipartisan bill that was signed, you know, sorry, not signed into law but became law last week. That is what folks want to be talking about. They don't want to be talking about higher gas prices. And as you mentioned, there are also many things that they still need to be still need to do in this very sort of short window of legislative work days, including potentially a reconciliation bill that again includes that funding for Iran avoiding a government shutdown, which the deadline is going to be the end of September. And then other things, you know, I say sort of up and Maslow's hierarchy, including this Clarity act and including a possible Russia sanctions bill, both of which, you know, we'll see. I think it sort of remains to be seen. There's also a possibility that those bills are passed in the lame duck after, after the election. But the bottom line here, Kelly, is that I don't think this Congress has been sort of as productive as they want it to be. And again, going into the midterm election cycle, they really want to be talking about other things, not higher gas prices.
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Kelly Evans
All right, Libby, thanks for now. Really appreciate it. Libby Cantrell, Coming up, new data from CNBC's All America Economic Survey. And this is a biggie. It gets into the growing divide between the country's views on socialism versus Capitalism. The numbers know ahead and check out shares of AS AMC, which are soaring 22% on record quarterly revenue. Probably didn't hurt. We had a big box office weekend too. That said, it's a $2 stock. We will bring you the numbers. Look at the upside, look at the options. Action for AMC Entertainment. That's next.
- [26:32]
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- [28:00]
Kelly Evans
Shares of AMC are popping on the back of record quarterly revenue making 1 billion 6. They also reported a surprise profit with EPS of 7 cents a share versus a 6 loss expected. And Christopher Nolan's movie the Odyssey also delivered AMC's biggest opening weekend for an R rated film in two years. But options traders have been on an odyssey of their own with this name. Oliver Renick is at the cbo. Oliver, I still remember what was it? It was five and a half years ago that AMC was first part of meme stock mania.
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Oliver Renick
That's right Kelly. Five six seven hundred bucks at one point that traded for those bulls who bought in might still be stuck tied to the mast. But today AMC is benefiting from that double feature. Good earnings and a huge box office for the Odyssey. Shares keep climbing throughout the day and traders are piling in. Options volume is almost five times the 30 day average and the flows are heavily bullish. Of the 260,000 contracts traded, 218,000 are calls with more calls bought than soldiers sold and more than eight times as many calls bought versus puts of the $7 million in options premium traded. More than six is tied to calls with the most popular contract by volume, the three strike call expiring in a month. It's a trade that goes for 17 cents and needs a 34% additional rally to pay off AMC bulls. Though certainly feeling better now. The Stock is up 150% since March, but it is far from a homecoming for those apes, as they call them, who bought into the siren song. Back at the highs.
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Kelly Evans
Kelly, nice job. Caught those references and it is a good reminder of what I mean. Incredible. Five and a half years later, it's still a $2 stock. Again, I wish them all the best. I hope they can figure it out. Maybe this is an early part of that. Oliver, thanks very much. Oliver Renick. Let's get to Angelica Peebles now for a CNBC news update. Angelica.
- [29:54]
Angelica Peebles
Hey, Kelly. President Trump said Israeli Prime Minister Benjamin Netanyahu will not be arrested when he visits New York in September, pushing back on that suggestion by Mayor Zoram Mandani. The New York City mayor said in an interview published over the weekend that the city's legal department is discussing the possibility of arresting Netanyahu on a warrant issued by the International Criminal Court in the Hague. Netanyahu is expected to be in New York in September for the UN General Assembly. And President Trump's head of the center for AI Standards and Technology, Chris Fall, is resigning just three months after taking on that role. That's according to the Commerce Department, which said that after fall departs, Dr. Arvind Raman of the National Institute of Standards and Technology will take over as acting director. The Commerce Department didn't provide a reason for Fall's departure. And Mexican drug lord Ismail El Mayo is a Bara Garcia was just sentenced to life in prison for narcotics trafficking. Zimbarda co founded the infamous Sinaloa cartel along with the drug lord known as El Chapo. Zambara also agreed to pay $15 billion for his crimes. Kelly, back over to you.
- [31:02]
Kelly Evans
All right, Angelica, thanks. Coming up, a major about face. The FDA retracting claims that one of Taco Bell's lettuce suppliers tested positive for cyclospora. But yum brands still trying to avoid a sixth straight day of losses and just coming off its worst week since March of 2020. Is it back to the drawing board for federal investigators trying to find the source of the outbreak? We'll ask a former two time FDA commissioner about that next. Welcome back. Walmart announcing it's removing four bagged iceberg lettuce salad products from its stores amid the cyclospora outbreak, quote, as a precaution after receiving notice from our supplier. This is just from some stores. Walmart says there have been no confirmed illnesses associated with these project products, but it encourages customers to either throw them away or return them for a full refund. CNBC's Brandon Gomez is here with more on the latest on this outbreak. Brandon, coming out of the weekend, we thought it was, we know it was resolved. Now is it back to square one?
- [32:03]
Brandon Gomez
Look, it's not totally back to square one, but this is becoming a much bigger food and safety supply chain story than one contaminated product. The FDA just posting on X saying Taylor Farms remains part of its investigation into the cyclospora outbreak even after reversing a lab test that further tied the company to contaminated lettuce. Now let me explain, Kelly. The agency says the result of tests conducted on one specific shipment, that's the key. There was a false positive and that does not absolve the supplier completely. That walk back only above applies to one specific shipment of lettuce and the FDA will need to continue to test multiple shipments. So the FDA tracing back still points towards shredded iceberg lettuce served at some Taco Bell locations and linked to Taylor Farms Now Michigan, the epicenter of this outbreak, reporting this morning over 6,000 cases, 102 hospitalizations, no deaths reported yet experts say cyclospore is notoriously difficult to detect and confirm in the lab. Now some have called out cuts to the FDA and CDC as impacting possible outcomes here. Look, all this uncertainty is hitting stocks, restaurants with heavier lettuce exposure, giving back some of Friday's gains when investors thought as you said, this was all resolved. Most remain well below where they traded before the outbreak escalated last week. Taylor Farms is going to continue to voluntarily recall and Taco Bell has already removed much of the impacted product.
- [33:22]
Kelly Evans
Kelly. Brandon, thank you very much for laying that all out for by the way, we do we know if Taco Bell's look, the shares have been down six days now. So is there a sign that buyer shoppers or diners are balking at this even if they don't know for sure
- [33:35]
Brandon Gomez
what happened the foot traffic trends do show us that there has been fewer visits to Taco Bell, other companies as well. You can see their chop, Chipotle, Panera Bread, Cava, all having foot traffic down. This really goes back to how they're going to mitigate the brand impact.
- [33:47]
Kelly Evans
Wow, That's a big decline. 19% year on year.
- [33:50]
Victoria Green
Okay.
- [33:51]
Julia Boorstin
Right.
- [33:51]
Kelly Evans
And thanks, Brandon Gomez.
- [33:52]
Brandon Gomez
Thanks.
- [33:53]
Kelly Evans
Let's now bring in Dr. Robert Califf. He has served twice as the commissioner of the FDA and is currently an adjunct professor of medicine at Duke University. Dr. Calif, I see you're appointed by Biden, but you also served. Have you served under both Presidents Trump and Biden?
- [34:07]
Dr. Robert Califf
Biden and Obama.
- [34:08]
Kelly Evans
Biden and Obama. I see. So talk a little bit about from your point of view. Has the FDA done everything it can here. Does this have anything to do with the changes that have been made with the Maha movement? And everything else is what are the facts? What do we know?
- [34:22]
Dr. Robert Califf
Well, I don't have a whole lot of facts on hand because so much is happening and not a lot of it has been talked about publicly. But I think your reporter did a great job actually just now sort of summarizing very succinctly what the issue is. This is a very difficult test to do, and it's not uncommon to have tests that are right on the borderline between positive and negative. Remember, you're trying to get a small amount of this parasite that's in a head of lettuce, isolate the DNA and amplify it, and then try to do the test. There's a lot to that. It's not at all surprising that they're equivocal.
- [35:00]
Kelly Evans
Yeah, but go ahead.
- [35:02]
Dr. Robert Califf
But he also pointed out that there's a whole line of epidemiologic data. They ask people, where did you eat? You know, what did you eat? And then trace where it came from. It's all pointing to this very same place. You know, it's just part of the human brain that we want to look for a test result that's like the smoking gun, but it very often doesn't work that way. So I'd be shocked if the FDA is not in the USDA or not doing everything they possibly can, CDC altogether to try to solve this problem. But I'd also have to say, you know, I love the quote, it shouldn't take 40 episodes of explosive diarrhea to figure out that we need to fund our public health system adequately for things like food safety.
- [35:47]
Kelly Evans
Right. And some are pointing to, you know, in 2025, the FDA was suspending, you know, quality control for its food testing laboratories as a result of staff cuts. I don't know the status of that, you know, as of today, but it appears at least somewhat unclear. And obviously this is a bigger outbreak than usual. We spoke to Vanderbilt experts, expert Dr. William Schaffner last week, and he said the problem is it can take weeks for people to feel symptoms after eating a tainted product. And so good luck trying to remember everything you ate. What else would you say about trying to get to the source of this? What would the FDA normally be doing? Why do you think it's taking longer this time?
- [36:27]
Dr. Robert Califf
Well, it's an army of people, and you and your reporter have done a good job. You have to have laboratories that are able to test. There used to be a committee between USDA and. USDA and FDA that looked at food safety and ongoing scientific issues. They don't track cyclospora anymore. That was a decision. You know, I think Doge in general will go down as an unmitigated disaster in the. Particularly in the area of public health. But this is an example. It is very hard to say this specific case, the cuts had anything to do with the ultimate outcome, but you begin to add up these things. It means a lot.
- [37:05]
Julia Boorstin
Right.
- [37:06]
Dr. Robert Califf
So I think people are. I'm sure people are working hard. We need as much transparency as we can get. We probably need to relook at the question of how we're organized. Should there be an oversight board on food safety?
- [37:20]
Kelly Evans
Yeah, because Dr. Schaffner also told us, you know, there's people. He said he was struggling to understand why this would happen. He said there's people all over the country, in state health departments and at the CDC working on this very, very hard. He thinks it's more about the lag in figuring out the exposure than anything else.
- [37:35]
Dr. Robert Califf
Yeah, it's always hard. I mean, I'm still remembering a study that was done with Google where people looked at. Were able to look at people's records, and it wasn't the last restaurant they ate in. When they were able to put all the records together in places like Chicago, it was a restaurant before the last one. So just depending on memories is not great, but that is what we have. And so it's a lot of gumshoe epidemiology that takes people. If you don't have the people around because they've been doged, then it's really hard for them to get the work done. So I hope we'll take this as a lesson that we got to invest to be ready for the next time because they're are plenty of food outbreaks in the meanwhile, we just got to get by.
- [38:24]
Kate Rooney (continued)
Yeah.
- [38:25]
Kelly Evans
And maybe they will ultimately be able to figure, I mean, whether maybe there was something in that specific supplier chain and can kind of go back and say, yeah, they're actually or no, this had nothing to do with it. I mean, we're all still waiting. Said Taco Bell foot traffic is down 20% here.
- [38:41]
Dr. Robert Califf
I think it's, I think it's so highly likely that at least part of the story is a specific supply chain. There's just too many things pointing in the same direction. It's a very small part of our overall lettuce, less than 1% involved. And the great news is that this is a summertime thing. It will go away and it will be taken care of. In the meanwhile, we've got to take care of the people. This is not trivial too. And as you've shown, we got over a thousand people already known to be hospitalized and they're likely to be more as this plays out.
- [39:15]
Kelly Evans
All right, Dr. Califf, thanks for your time. Appreciate it today.
- [39:18]
Kelly Evans (continuation)
You bet.
- [39:18]
Dr. Robert Califf
Take care.
- [39:18]
Kelly Evans
Robert Califf, Coming up, strategist Dan Clifton telling us that there are, as he thinks about it, there are really now four political parties in America, two Republican, two Democrat, and within each, one populist and the other more establishment. We'll dig into the latest CNBC All America survey to see what's driving that divide. And we'll get worse. That's next. Hello, and welcome back. Democratic socialists recently sweeping the New York City and Colorado primaries. But just how wide is the party's appeal across the country? Steve Liesman has the results from his All America Economic Survey.
- [39:56]
Kelly Evans (continuation)
Steve Kelly, thanks. The CNBC All America Economic Survey finding a modest erosion in support of capitalism among voters in the country and a modest upswing in support of socialism. But let's see how we got there and how the whole thing shakes out with the parties. Survey of 1,000 voters nationwide finding that 50% of respondents, you can see that's the blue line all the way at the top. They have a positive view of capitalism and that's down just 2 points since 2018. The other results are from NBC's surveys. The question but negative views have increased. You can see there, that's the yellow line by nine points. That's on capitalism. And that began you can see right here with the pandemic in 2020, those who are neutral declining by 6 point. So voters remain net positive on capitalism, but down 11 points on that from 2020. Now a 48% percent plurality of voters have a negative view on socialism. And that's come down. And that began in 2024. You can see right there, those with a positive view, they rose 10 points. That's the 18 to 28 since 2024. So it's interesting. Socialism is the 2024 is the breakpoint of positive for socialism. But the capitalism negative you seem to start with, or the decline, the erosion of capitalism seems to start with the pandemic. You can see their neutral fell by four points. So the nation is still down on socialism, but 13 points less net negative than in 2024. How does all this affect the congressional election? That's what Kelly wanted to know. Voters unlikely to support a candidate who identifies as a Democratic socialist by a 32 to 50 margin. That's here. And there's your net net negative 18. Worse, though, for a candidate endorsed by President Trump, he's negative 23. And even worse for MAGA candidates at minus 30. So the Democratic socialists still net negative endorsed by Trump, net negative MAGA supporters, net negative as well. The survey can't pinpoint the reason for this change view on socialism, Kelly, but there is an overlap between those concerned about the cost of food and housing and more positive views on social.
- [41:58]
Kelly Evans
Come on down. See, why don't you walk all the way over to the table here? I mean, I think it's pretty obvious this is coming from the Democratic Party itself, which is putting forth candidates who describe themselves Democratic socialists.
- [42:09]
Kelly Evans (continuation)
Yeah, but it's push me, pull you. I mean, are they coming forward because the voters want them or are they right there and then the voters are glomming onto them? But you. You can see the change, Kelly. We can see it. We go back. We used to be partners with NBC on some of this stuff. So if you look at the change in, for example, the views of young people, they were net positive on a net negative on socialism. Now they're net positive voters of color. What else do we have? We have it right there as a full screen. Where is that? Okay, the black voters democrats have were plus five on capitalism. Now they're minus 20, right?
- [42:45]
Kelly Evans
Yeah. No, I think, I think because there are people espousing the point of view who seem cool and relevant and like they have new ideas. And, you know, I think back to the great Michael Novak book about, you know, the spirit of democratic capitalism and so many things he talked. This was in the 80s, you know, and so many of the things he said, but he said Capitalism was a bad word back then. It's always been out of favor. Do you go to try to visit where, you know, Adam Smith, where he's from in the uk I mean, it's not, they're not, they're not big on it. It's funny, it's always out of favor. It just takes a while, I think, for people to realize what the plan the social Democratic socialists would have actually looks like and think about whether that's.
- [43:21]
Kelly Evans (continuation)
We have to go. But I would. And we could talk about this the next hour because you're going to be anchoring, folks. But here's the thing. You do have challenges to capitalism. Housing is a big thing. Ask young people what matters to them. Housing really matters to them. Cost of food really matters to them. So those things matter. So there are points where capitalism has to respond to these views by people. It can't ignore them.
- [43:42]
Kelly Evans
I think that it's still part of kind of a, a multipolar system socialism. There's this, it's everything, your speech, your point of view, your government, you know, you want the structure of government we have now. That's, that's not what's in the democratic socialism platform.
- [43:55]
Kate Rooney (continued)
So.
- [43:56]
Kelly Evans (continuation)
Agreed.
- [43:56]
Kelly Evans
We'll see as people educate themselves more about what they stand for or if they see that put them gaining more traction. If those views still hold.
- [44:02]
Kelly Evans (continuation)
See you in less than nine minutes.
- [44:04]
Kelly Evans
Thank you, Steve. Coming up, Alphabet, intel and ServiceNow are on deck to report results this week. How should you be positioned? That's the question we'll ask when we come right back.
- [44:13]
Kate Rooney (continued)
Stay with us.
- [44:20]
Kelly Evans
Welcome back. Here's what we think are the three key stocks to watch this week on their earnings. Alphabet, ServiceNow and Intel for varying different reasons. So let's get the action, the story and the trade with Victoria Green. She is CIO of G Squared Private wealth and a CNBC contributor. Victoria, always great to see you here. Let's start with Alphabet. Google, they're reportedly now developing a new server chip designed to run Gemini more efficiently. That's great. But they did have to delay its new model rollout recently. And of course, many questions about its Capex. What are you watching? What are your expectations?
- [44:49]
Victoria Green
Number one, Capex. For the love of God, please do not raise this any further. Let's keep it in this 180 billion range.
- [44:54]
Kelly Evans
If they keep it the way it is, then the rest of the trade is going to fall apart.
- [44:57]
Victoria Green
Well, no, they can keep it here and they can gradually increase 2027. I just really would like them not to increase in 2026. I think that's going to be difficult for the stock to rally. If maybe if they do raise the range maybe 5 billion, we can deal with it. But investors are starting to get fed up with the unlimited CapEx number one. CapEx number two is how are we doing on advertising and search? We're looking at our third straight quarter of 100 billion plus overall revenues. But are we holding our own? And advertising and search, we're not seeing social media or chat. DP wrote that. And number three, are you starting to get pickups from AI? Are you getting better ad pricing? We want to see all of those things happen. I definitely huge Google bull here. I just do not want them to raise CapEx. And I also love though what they're doing with chips. I see this as like an AWS moment for them. They developed it to run Gemini better. Now they can dump off excess compute and say hey look we've got some chips here, we can sell it. Nvidia can't do that. So I love what they're developing here first for what they can sell potentially but also what they're doing to run Geno and I better.
- [45:52]
Kelly Evans
All right, I like that. Let's move on to ServiceNow because in many ways, look, software, as people were saying, is kind of failing to fully break out in this little rebound that you can see. ServiceNow shares down 32% this year. Many are saying this could actually tell us confirm or deny whether IBM was a one off. What do you think?
- [46:07]
Victoria Green
I am not very bullish going into this. I don't think IBM was a one off and they've done some soft checks and they're saying look, enterprise software spending is not going to stuff like this. They're not going to management platforms. It's going to cybersecurity and it's going to AI buildout. I would be severely surprised if they come out with great news and it's going to be all about the guidance. Are they able to show their moats are still intact? And I just don't think they're seeing a spending pickup. Maybe they'll maintain but that's like the kiss of death like it was with Netflix saying we're in line, we're maintaining for a growth stock that is not what you want to see. So I just get very worried that we're seeing all these signals. It spends not being going to go here.
- [46:41]
Kelly Evans
Then finally intel, this one is up 300% basically the first half of the year. Strong CPU demand. How important is this quarter for you? And Would you be. Do you own the stock? Would you? We do here. I mean it's well down from the highs.
- [46:54]
Victoria Green
Yeah, they just as an execute quarter. It's again a show me quarter. And I also want to know about the guidance. Are they picking up the big customers? They think, you know what, what's going to happen with the 14a? Is foundry finally starting to maybe lose a little bit less money? How are their Yields doing on 18? That means how effective are they at designing and building chips and rolling them out and getting their yield up? So they've never really given us a yield number. We'd love to see that yield a little higher. We'd love to see them defend from amd. We'd love to see some great new contract announcements, partnership announcements and obviously we want to see revenue growth. So again, intel after this run is definitely a show me quarter.
- [47:26]
Kelly Evans
Okay, so you need it kind of like Netflix. They need to. I remember we talked to Netflix needs to do all those things and they did not. So none of those.
- [47:32]
Victoria Green
None of those things.
- [47:33]
Kelly Evans
Victoria, thanks. Appreciate it. That's it for us. Thanks for watching the Exchange and I will see you with Steve Liesman on Power Line after this break. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
- [47:53]
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